This is really a definition thing. The supply curve for buggy whips is greater now than in 1915 (meaning that if you held price constant firms would be willing to produce more of them now than in 1915) because it costs less to make them, it’s just that the demand is so low that the market price is low and therefore few buggy whips get produced.
Does this imply that short-run aggregate supply curves are independent of the level of investment currently existing in an industry? So, if you have a factory that can only produce 100 widgets, your short-run aggregate supply curve continues on as if you had the ability to have more factories?
Does this imply that short-run aggregate supply curves are independent of the level of investment currently existing in an industry?
No.
I’m guessing this is your argument: I buy fewer widgets, so firms invest less in widget factories, which changes the supply curve. But what’s happening is you buy fewer widgets, which lowers price, which moves firms to a different point on their supply curve which has them building fewer factories.
This kind of thing is really easy to get confused about, and isn’t important unless, as with the original post, you want to use supply and demand curves to trace out how you can move from one equilibrium to another.
For every possible price the short run supply curve says how much you produce in the short run, whereas the long run supply curve says how much you will produce in the long run. In the simple perfect competition model the long run is enough time for firms to change all of its inputs.
This is really a definition thing. The supply curve for buggy whips is greater now than in 1915 (meaning that if you held price constant firms would be willing to produce more of them now than in 1915) because it costs less to make them, it’s just that the demand is so low that the market price is low and therefore few buggy whips get produced.
Does this imply that short-run aggregate supply curves are independent of the level of investment currently existing in an industry? So, if you have a factory that can only produce 100 widgets, your short-run aggregate supply curve continues on as if you had the ability to have more factories?
No.
I’m guessing this is your argument: I buy fewer widgets, so firms invest less in widget factories, which changes the supply curve. But what’s happening is you buy fewer widgets, which lowers price, which moves firms to a different point on their supply curve which has them building fewer factories.
This kind of thing is really easy to get confused about, and isn’t important unless, as with the original post, you want to use supply and demand curves to trace out how you can move from one equilibrium to another.
Then what is the difference between short run and long run aggregate supply? I’m confused.
For every possible price the short run supply curve says how much you produce in the short run, whereas the long run supply curve says how much you will produce in the long run. In the simple perfect competition model the long run is enough time for firms to change all of its inputs.