Description                                  
In this presentation, the narrator distinguishes between short-run and long-run aggregate supply. 

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Narrator: 
The aggregate supply curve shows the quantity of real GDP that producers are willing to supply at each price level. However, in discussing aggregate supply, it is important to make a distinction between the short-run and the long-run. 

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Remember that economists define the short-run as that period of time in which at least one input to the production process is fixed in quantity. 

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The short-run aggregate supply curve is upward sloping. This curve shows the short-run relationship between the quantity of real GDP supplied to the market and the average price level. 

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The curve indicates that as the average price level increases, aggregate output rises in the short-run. 

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Marge and all the other producers in the economy are trying to maximize profits. For a given set of wages and other input prices, Marge and the other firms will choose an output which maximizes profit at the prevailing price level indicated by point A. In other words, at price level P0, firms maximize profit in the aggregate by supplying Y0 worth of output. 

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If the price level were to rise, these same firms would choose to increase their profits by supplying increased aggregate output. The economy will move from point A to point B because as the price level increases, Marge and other firms will be willing to hire more workers to produce the higher output. In other words, the quantity supplied of real GDP in the short-run will be higher if the price level is higher. 

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The long-run aggregate supply curve is somewhat different. In the long-run, for an individual firm like Ostrich Burger, all resources are variable. Individual firms can change their plant size as well as their technology. For individual firms, expansion appears limitless. However, for the aggregate economy at any given point in time, total aggregate output cannot exceed the full employment level of GDP without risk of significant price increases. 

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As a result, the long-run aggregate supply curve is a vertical line at the full employment GDP level. The long run aggregate supply curve does shift over time as a result of labor-force growth, enhancement of human capital, advances in technology, and the discovery of new resources. These changes take place slowly but are evident as real GDP output continues to grow over time. 

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