{"id":1057,"date":"2021-08-15T19:11:00","date_gmt":"2021-08-15T19:11:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=1057"},"modified":"2026-04-29T18:17:39","modified_gmt":"2026-04-29T18:17:39","slug":"explain-the-aggregate-supply-curve-in-the-short-run-and-long-run","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-the-aggregate-supply-curve-in-the-short-run-and-long-run\/","title":{"rendered":"The Short-run and Long-run Aggregate Supply Curve"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Aggregate Output, Prices, And Economic Growth (2022 Level I CFA\u00ae Exam \u2013 Reading 10)\",\n  \"description\": \"This video delves into macroeconomic concepts, including GDP calculation, nominal vs. real GDP, IS-LM curves, aggregate supply and demand, and factors influencing economic growth. It highlights key relationships, measurement methods, and sustainability considerations to provide a comprehensive understanding of economic trends and their implications.\",\n  \"uploadDate\": \"2018-11-16T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/cRMasYNNsVA\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/youtu.be\/cRMasYNNsVA\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/cRMasYNNsVA\",\n  \"duration\": \"PT34M44S\"\n}\n<\/script>\n\n\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"ImageObject\",\n  \"url\": \"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16c-g.png\",\n  \"caption\": \"Image showing the long-run aggregate supply (LRAS).\",\n  \"width\": 974,\n  \"height\": 810,\n  \"copyrightNotice\": \"\u00a9 2024 AnalystPrep\",\n  \"acquireLicensePage\": \"https:\/\/analystprep.com\/license-info\",\n  \"creditText\": \"AnalystPrep Design Team\",\n  \"creator\": {\n    \"@type\": \"Organization\",\n    \"name\": \"AnalystPrep\"\n  }\n}\n<\/script>\n\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"ImageObject\",\n  \"url\": \"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16d-g.png\",\n  \"caption\": \"Image showing the short-run aggregate supply (SRAS).\",\n  \"width\": 974,\n  \"height\": 856,\n  \"copyrightNotice\": \"\u00a9 2024 AnalystPrep\",\n  \"acquireLicensePage\": \"https:\/\/analystprep.com\/license-info\",\n  \"creditText\": \"AnalystPrep Design Team\",\n  \"creator\": {\n    \"@type\": \"Organization\",\n    \"name\": \"AnalystPrep\"\n  }\n}\n<\/script>\n\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which of the following statements is the least accurate regarding the long-run aggregate supply?\",\n    \"text\": \"Which of the following statements is the least accurate regarding the long-run aggregate supply?\",\n    \"answerCount\": 3,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is C. The long-run aggregate supply curve is not perfectly horizontal; it is perfectly vertical. This reflects the economic view that, in the long run, output is determined by real factors such as technology and labor, and changes in aggregate demand only lead to changes in the price level, not permanent changes in output.\"\n    }\n  }\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\"\n  width=\"611\"\n  height=\"344\"\n  src=\"https:\/\/www.youtube.com\/embed\/cRMasYNNsVA\"\n  title=\"YouTube video player\"\n  frameborder=\"0\"\n  allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\"\n  referrerpolicy=\"strict-origin-when-cross-origin\"\n  allowfullscreen>\n<\/iframe>\n\n\n<p>Aggregate supply refers to the total amount of goods and services that firms in an economy are both willing and able to sell at a given price level.<\/p>\n<p>We must differentiate between the short- and long-run aggregate supply curves.<\/p>\n<div style=\"margin: 20px 0;\"><a style=\"display: block; width: 100%; text-align: center; padding: 10px; border: 2px solid #2f5bea; border-radius: 40px; font-size: 16px; color: #2f5bea; text-decoration: none;\" href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener\"> Practice aggregate supply questions with our free trial. <\/a><\/div>\n<h2><strong>The Long-run <\/strong><strong>Aggregate Supply (LRAS)<\/strong><\/h2>\n<p>The long run is the conceptual time period where there are no fixed factors of production. In other words, it is long enough to allow wages, prices, and expectations to adjust but not long enough for physical capital to be a variable input. Firms change the supply levels in response to expected economic profits and losses.<\/p>\n<p>Also, capital, labor, and technology contribute to factors that affect the aggregate supply curve because everything in the economy is assumed to be used optimally.<\/p>\n<p>The long-run aggregate supply (LRAS) curve is static. Therefore, it is perfectly vertical, reflecting economists\u2019 belief that the changes in aggregate demand result in a temporary difference in an economy\u2019s output. As a result, in the long run, only one quantity is to be supplied.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-10171 size-full\" src=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16c-g.png\" alt=\"Image showing the long-run aggregate supply (lras)\" width=\"974\" height=\"810\" srcset=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16c-g.png 974w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16c-g-300x249.png 300w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16c-g-768x639.png 768w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16c-g-400x333.png 400w\" sizes=\"auto, (max-width: 974px) 100vw, 974px\" \/><\/p>\n<h2><strong>The Short-run Aggregate Supply (SRAS)<\/strong><\/h2>\n<p>In the short-run, rising prices imply higher profits that justify the expansion of output. In the graph below, a rise in price from \\(P_1\\) to \\(P_2\\) shifts the short-run aggregate supply (SRAS) to the left. Compared to the long-run, the nominal wage rate varies with economic conditions. Put another way, high unemployment leads to a fall in nominal wages, and an increase in employment leads to a rise in nominal wages.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-10172 size-full\" src=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16d-g.png\" alt=\"Image showing the short-run-aggregate supply (sras)\" width=\"974\" height=\"856\" srcset=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16d-g.png 974w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16d-g-300x264.png 300w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16d-g-768x675.png 768w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/16d-g-400x352.png 400w\" sizes=\"auto, (max-width: 974px) 100vw, 974px\" \/><\/p>\n<p>In the short-run aggregate supply, firms are encouraged to employ more workers. The workers end up being paid slightly higher wages due to the demand and prices of goods and services. This can be seen in booming industries such as the technology industry in Silicon Valley. An increase in wages and raw materials makes the SRAS shift to the left. The inverse is also true.<\/p>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>Which of the following statements is the <em>least<\/em> accurate regarding the long-run aggregate supply?<\/p>\n<p>A. The long-run aggregate supply curve is static<\/p>\n<p>B. In the long run, only one quantity is to be supplied<\/p>\n<p>C. The long-run aggregate supply curve is perfectly horizontal<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is C.<\/p>\n<p>Options A and B are accurate statements regarding the long-run aggregate supply curve.<\/p>\n<p>Option C is incorrect. The long-run aggregate supply curve is perfectly vertical, reflecting economists\u2019 belief that the changes in aggregate demand result in a temporary difference in an economy\u2019s output.<\/p>\n<\/blockquote>\n<div class=\"notes_inv\"><hr \/>\n<p><a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/learning-sessions-curriculum-economics\/\"><em>Economics &#8211; Learning Sessions<\/em><\/a><\/p>\n<\/div>\n\n\n<h2>Why Aggregate Supply Curves Matter in CFA Level I<\/h2>\n\n<p>The short-run and long-run aggregate supply curves are core CFA Level I Economics concepts. Candidates may be tested on potential output, wage flexibility, inflation pressures, and how economies adjust to changes in demand over time.<\/p>\n\n<p>Build confidence with the <a href=\"https:\/\/analystprep.com\/cfa-level-1\/\" target=\"_blank\">CFA Level I prep course<\/a> featuring guided lessons, practice questions, and full mock exams.<\/p>\n\n\n\n<div style=\"text-align:center; margin:40px 0 20px;\">\n  <a href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\" style=\"display:inline-block; background:#1a56ff; color:#ffffff; text-decoration:none; font-size:18px; font-weight:700; padding:16px 34px; border-radius:999px; line-height:1; box-sizing:border-box; min-width:240px;\">\n    Start Free Trial \u2192\n  <\/a>\n  <p style=\"margin:16px auto 0; max-width:760px; font-size:16px; line-height:1.55; color:#1f2937; font-weight:400;\">\n    Practice CFA Level I economics questions covering aggregate supply, short-run output, long-run equilibrium, and exam-style explanations.\n  <\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Aggregate supply refers to the total amount of goods and services that firms in an economy are both willing and able to sell at a given price level. We must differentiate between the short- and long-run aggregate supply curves. Practice&#8230;<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"class_list":["post-1057","post","type-post","status-publish","format-standard","hentry","category-economics","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Aggregate Supply Curve SR LR Examples | CFA level 1<\/title>\n<meta name=\"description\" content=\"The short-run aggregate supply (SRAS) curve is upward, indicating prices rise, while the long-run aggregate supply (LRAS) curve is vertical. 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