Hey guys,
Was doing macroecon and was wondering why is it inelastic ? shouldnt the short run curve be more inelastic as the firms have a shorter period to change the factors of production which directly effects the levels of supply ?
and the long run supply curve should it be a bit more elastic as the firms now have more time to change fixed as well as variable factors which effects the total/aggregate supply in the economy ?
Kindly explain ,
Hedgefudge
The long-run aggregate supply curve is perfectly inelastic because in the long run you’re operating at full employment: quantity doesn’t change when price (or anything else) changes.
Elasticity is a function of price to quantity supplied.
Basically, on the long run, you can control how much aggregate supply in the economy to close the gaps of undercapacity or overcapacity, irregardless of price levels. While on the short run. you can only change price to control for excess or insufficent supply. That’s because on the short run, fixed capital is fixed, while working capital is variable. But on the long run, both fixed and working capital are variable.