What is the difference in the explanation of the shape of the aggregate demand curve (AD)...

What is the difference in the explanation of the shape of the aggregate demand curve (AD) and a single product demand curve (D)?

What is the difference in the explanation of the shape of the Short Run Aggregate Supply Curve (SRAS) and Long Run Aggregate Supply Curve (LRAS)?

Expert Solution

Part-1) The aggregate demand curve provides an explanation on the total quantity of all products demanded by the economy at various price levels. The individual demand curve represents quantities demanded by an individual of a specific product at various price levels.

The individual demand curve is represented under the assumption that the prices of other products and buyers' incomes does not change. The market demand curve assumes that change in the price level means many prices will change such as the buyer's incomes.

The market demand curve would be flattered compared to individual demand curves thus indicating it to be more elastic. Thus in market as a whole, the percentage change in quantity demanded would be greater than the percentage change in price, in comparison to the individual demand curves

Part-2) The short run aggregate supply (SAS) curve provides an explanation of economy's supply schedule in the short run only. It immediately begins after a rise in the price level and that ends when prices of input have increased in the similar proportion to the rise in the price level. It explains as there is an increase in price level and when move along the SRAS, the real GDP amount in an economy also rises.

The long run aggregate supply (LAS) curve provides an explanation of economy's supply schedule in the long run only. The long run refers to the period when prices of input have entirely adjusted to changes in the price level of final products. Thus a rise in the prices that sellers receive for their final product will completely offset by the similar rise in the prices that sellers pay as cost of inputs. Thus in the economy the quantity of real GDP supplied by all sellers would be independent of price level changes.

Rahul Sunny answered 1 year ago

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