Moneyzine
Contents
/Personal Finance/Long-Run Aggregate Supply (LRAS)

Long-Run Aggregate Supply (LRAS)

Moneyzine Editor
Author: 
Moneyzine Editor
1 mins
September 25th, 2023
Advertiser Disclosure

Definition

The term long-run aggregate supply refers to the total of all goods and services that businesses in a nation can sell when not constrained by time. Long-run aggregate supply is typically illustrated as a vertical line, reflecting the inelastic relationship between price and quantity of goods and services supplied.

Explanation

Also referred to as domestic final supply, aggregate supply is the total amount of goods and services that an economy can sell at a specific point in time. The aggregate supply curve is upward sloping because the cost of inputs is typically fixed in the short run, and as output increases excess production capacity is exhausted. Long-run aggregate supply (LRAS) is not a function of price. In the long run, an economy will produce a given quantity of goods and services regardless of price.

In the long run, companies can add new capacity, or capital, to increase production; they also have the flexibility to adjust wages. New technologies can also be introduced to increase process efficiency. As shown in the accompanying illustration, the short-run aggregate supply curve has a positive slope. As businesses in an economy approach the capacity of their factories and workforce, the curve is nearly vertical.

The long-run aggregate supply (LRAS) curve is perfectly vertical. It represents the real gross domestic product (GDP) of a nation, which is too large to be affected by price. For this reason, the LRAS curve is vertical, reflecting the inelastic relationship between supply and price.

Related Terms

Related Content

  • What Can Help You Meet Your Budget While Shopping for Important Items?
    Budgeting while ensuring you don't compromise on quality can seem daunting. Whether filling your pantry, updating your wardrobe, or keeping up with the latest tech, smart shopping strategies are crucial for keeping your finances in check.
    April 2nd, 2024
  • How to Make a Million Dollars in 10 Years
    Truthfully, this title should actually be “How to Make a Million Dollars in 10 Years Without Going Into Debt", but that is just getting a little too winded for my liking. It’s true though!
    March 26th, 2024
  • How to Apply Maslow’s Hierarchy to Your Money This Year
    You might vaguely remember your psychology teacher talking about Maslow. He pointed at a picture of a triangle as you nodded off in the back of the school room.
    March 27th, 2024
  • How to Tackle Multiple Savings Goals
    When there’s only so much money to go around, there are often multiple savings goals competing for your money. Think of the young professional who’d like to get a more reliable car, buy a house, and save for retirement. Or consider the young family that’s saving for college, retirement, and a bigger house.
    March 22nd, 2024
  • The Countdown to Early Retirement: 10 Expenses to Eliminate
    Dreaming of waving goodbye to the daily grind five years ahead of schedule? The road to early retirement is paved with more than good intentions; it requires a meticulously crafted strategy with surprising twists. It's not solely about what you should be doing—like diligently saving a portion of your income or investing wisely—but also about what you need to stop doing.
    March 22nd, 2024

Contributors

Moneyzine 2024. All Rights Reserved.