• Long Run: A period in which nominal wages (resource prices) match changes in the price level.This occurs because enough time has passed for firms to adjust to any changes in price level.
• Long Run Aggregate Supply is only possible with flexible labor markets
• Ceterus paribus (other things equal), Aggregate Supply in the long run is vertical at the economy's full-employment (including the natural rate of unemployment) output because resources and capital are at full capacity; thus, if one company attempts to attract workers through increasing wages, employees from other firms will come, not new workers.
• Therefore the curve is perfectly inelastic, vertical curve shown.
• Because real profit does not change, the firm will not alter its production. Real GDP will remain at full-employment level.
• Shifters:
• change in labor
• technology
• productivity (education, more machines)
• open up trade with other nations

• Short Run: A period in which nominal wages (resource prices) do not match changes in price level. This occurs because firms have not had enough time to adjust to changes in price level. During this period, the prices of the factors of production do not change, especially the price of labor (wage rate) is fixed.
• There's a positive/direct relationship between the price level and the total output and so, the SRAS curve slopes upward because to produce more output, firms are likely to face higher costs of production, which increases the price levels.
• At outputs below the Qf level, the slope of the aggregate supply curve is relatively flat: -- large amounts of unused resources, can be put back to work with a little upward pressure on per-unit production costs
• At outputs above the Qf level, the slope of the aggregate supply curve is relatively steep.

-majority of resources is already employed, so adding more reduces the efficiency of workers, capital, and total output rises less rapidly than total input cost. In other words, when the output level exceeds Qf, the price level rises more rapidly over the same amount of increased output.

• Can having three distinct segments:
  • Horizontal -unemployment & high excess capacity.
  • Upsloping - increase in real output = increase in price level; full-employment near, producer costs rise.
  • Vertical - full-employment w/ Natural Rate of Unemployment (NRU), full capacity is assumed, and increase output = increase in resource and product prices. With full employment this production equals the economies potential output.

• Input prices: Input or resource prices (domestic or imported)
  • Domestic Resource Prices:
    • Wages and Salaries
      • Labor supply ↑ → wage ↓→ aggregate supply ↑ (curve shifts right)
      • Labor supply ↓→ wage ↑→aggregate supply ↓(curve shifts left)
    • Rents and Capital Investments:
      • Price of machinery ↓because prices of steel ↓→ per unit production cost ↓→ aggregate supply ↑(curve shifts right)
      • Land resources ↑due to irrigation or technological innovations → per unit production cost ↓→aggregate supply ↑(curve shifts right)
  
  
  • Prices of Imported Resources:
  • • A decrease in the price of imported resources increases U.S. aggregate supply (curve shifts right).
    • An increase in the price of imported resources reduces U.S. aggregate supply (curve shifts left).
    • Exchange rates also play a role:
      • If dollar appreciates, domestic produces face a lower dollar price of foreign resources.
        • increase in imports shift AS to the right.
          
  • Market Power: A change in the ability to set prices above competitive levels.
    • OPEC's fluctuation market power.
      • increase in power = increase in oil prices which reduced U.S. Aggregate supply dramatically leftward anddrove up per-unit production costs.
      • decrease in power = decrease in oil prices which increased U.S Aggregate supply
        
• Productivity:
  • Measure of the relationship between a nation's level of real output and the amount of resources used to produce that output.
• • Productivity = total output/total input.
  • An increase in productivity enables the economy to obtain more real output from its limited resources. It does this by reducing the per-unit cost of output.
    • per-unit production cost= total input cost/ total output.
  • By reducing the per-unit production cost, an increase in productivity shifts the aggregate supply curve to the right.
  • higher productivity --> lower per-unit cost --> AS curve shifts out.
  • The main source of productivity advance is improved production technology, better-educated workforce, improved forms of business enterprises, and the reallocation of labor resources from lower to higher productivity uses.
  
  
• Legal-institutional environment:
  • Business taxes and subsidies
    • Business taxes ↑, per-unit production costs ↑, supply↓
    • Subsidy ↑, per-unit production costs ↓, supply ↑
      
  • Government regulations – regulation ↑, per-unit production costs ↑, supply ↓