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Elasticity of AS curve
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blackdiamond97
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Hello, I am currently doing AS on the Edexcel board. For the 30 mark questions, an evaluation point that keeps coming up is how elastic the AS curve is, but I'm not quite sure what it means. Thanks for any help 
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_Fergo
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(Original post by blackdiamond97)
Hello, I am currently doing AS on the Edexcel board. For the 30 mark questions, an evaluation point that keeps coming up is how elastic the AS curve is, but I'm not quite sure what it means. Thanks for any help
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Hello, I am currently doing AS on the Edexcel board. For the 30 mark questions, an evaluation point that keeps coming up is how elastic the AS curve is, but I'm not quite sure what it means. Thanks for any help
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Since this is elastic, the change in the quantity supplied will be higher than the change in price.
Now, I'm not sure if you want something more specific (like determinants etc), so if you do say so, and I'll try to help.
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blackdiamond97
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#3
(Original post by *Stefan*)
Not doing Edexcel, but this refers to the Price Elasticity of Supply (PES), which measures the responsiveness of a product's quantity supplied to a change in its price.
Since this is elastic, the change in the quantity supplied will be higher than the change in price.
Now, I'm not sure if you want something more specific (like determinants etc), so if you do say so, and I'll try to help.
Not doing Edexcel, but this refers to the Price Elasticity of Supply (PES), which measures the responsiveness of a product's quantity supplied to a change in its price.
Since this is elastic, the change in the quantity supplied will be higher than the change in price.
Now, I'm not sure if you want something more specific (like determinants etc), so if you do say so, and I'll try to help.
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beast709
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I think what you are talking about is related to the Keynesian aggregate supply curve in the long run as it has a different elasticity at different levels of output. Usually when you are talking about something in your main body, it is likely to shift aggregate demand either upwards or downwards and then you mention where the shift occurs in your evaluation.
For example, if the question is asking policies to reduce inflation, you would mention that the government may use monetary policy to do this by increasing interest rates which would reduce consumption and investment, which would reduce aggregate demand and should reduce price. You should then draw the following diagram:![Image]()
You would normally say that the economy is operating at where AD3 and LRAS intersect and a fall in AD will result in a shift to to AD2 which would reduce equilibrium price, showing that inflation can be controlled.
However, in your evaluation, you will mention that the effect of the change in AD on price levels will depend on where the economy is operating.Suppose the economy was operating at AD2 instead of AD3. A reduction in aggregate demand will then be shown by a shift to AD1. As you can probably see, a shift from AD2 to AD1 will have no effect on prices and hence, monetary policy may not be effective if the economy is operating at this position. Hence, where the economy is operating is crucial.
Hope that cleared it up.
For example, if the question is asking policies to reduce inflation, you would mention that the government may use monetary policy to do this by increasing interest rates which would reduce consumption and investment, which would reduce aggregate demand and should reduce price. You should then draw the following diagram:
You would normally say that the economy is operating at where AD3 and LRAS intersect and a fall in AD will result in a shift to to AD2 which would reduce equilibrium price, showing that inflation can be controlled.
However, in your evaluation, you will mention that the effect of the change in AD on price levels will depend on where the economy is operating.Suppose the economy was operating at AD2 instead of AD3. A reduction in aggregate demand will then be shown by a shift to AD1. As you can probably see, a shift from AD2 to AD1 will have no effect on prices and hence, monetary policy may not be effective if the economy is operating at this position. Hence, where the economy is operating is crucial.
Hope that cleared it up.
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blackdiamond97
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#5
(Original post by beast709)
I think what you are talking about is related to the Keynesian aggregate supply curve in the long run as it has a different elasticity at different levels of output. Usually when you are talking about something in your main body, it is likely to shift aggregate demand either upwards or downwards and then you mention where the shift occurs in your evaluation.
For example, if the question is asking policies to reduce inflation, you would mention that the government may use monetary policy to do this by increasing interest rates which would reduce consumption and investment, which would reduce aggregate demand and should reduce price. You should then draw the following diagram:![Image]()
You would normally say that the economy is operating at where AD3 and LRAS intersect and a fall in AD will result in a shift to to AD2 which would reduce equilibrium price, showing that inflation can be controlled.
However, in your evaluation, you will mention that the effect of the change in AD on price levels will depend on where the economy is operating.Suppose the economy was operating at AD2 instead of AD3. A reduction in aggregate demand will then be shown by a shift to AD1. As you can probably see, a shift from AD2 to AD1 will have no effect on prices and hence, monetary policy may not be effective if the economy is operating at this position. Hence, where the economy is operating is crucial.
Hope that cleared it up.
I think what you are talking about is related to the Keynesian aggregate supply curve in the long run as it has a different elasticity at different levels of output. Usually when you are talking about something in your main body, it is likely to shift aggregate demand either upwards or downwards and then you mention where the shift occurs in your evaluation.
For example, if the question is asking policies to reduce inflation, you would mention that the government may use monetary policy to do this by increasing interest rates which would reduce consumption and investment, which would reduce aggregate demand and should reduce price. You should then draw the following diagram:
You would normally say that the economy is operating at where AD3 and LRAS intersect and a fall in AD will result in a shift to to AD2 which would reduce equilibrium price, showing that inflation can be controlled.
However, in your evaluation, you will mention that the effect of the change in AD on price levels will depend on where the economy is operating.Suppose the economy was operating at AD2 instead of AD3. A reduction in aggregate demand will then be shown by a shift to AD1. As you can probably see, a shift from AD2 to AD1 will have no effect on prices and hence, monetary policy may not be effective if the economy is operating at this position. Hence, where the economy is operating is crucial.
Hope that cleared it up.
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Jim Riley
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#6
Geoff's revision webinar on Price Elasticity of Supply covered this ground last night.
You can watch a recording of the webinar and also download the notes from here
AS Economics - Elasticity of Supply (Revision Webinar)
Jim
You can watch a recording of the webinar and also download the notes from here
AS Economics - Elasticity of Supply (Revision Webinar)
Jim
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