Question

Can a temporary increase in aggregate supply change LRAS?

So we know that short term increases in aggregate supply only temporarily decreases prices, so it cannot shift the Long Run Aggregate supply curve.

However, it should be able to right?

Lets say there is a sudden drop in the price of computers, so firms decide to use this drop to buy computers and expand. Even when the prices of computers go back up, the firms still have the computers, so that means that their LRAS curves have increased even though the change in SRAS was only temporary.

Could be because supply shocks only include basic resources and materials and not finished products like computers and machinery?

Im just confused since everywhere I've looked has said supply shocks cannot change LRAS. However I dont see why they wouldnt be able to. Thanks!

Answer 1

A drop in the price is not a supply shock its just an even in the market event that lead to a fall in the price of the computer can shift the SRAS and LRAS,

in the economy LRAS can be shifted by only 3 factors that is a change in the technology, change in the population that is the labor force and change in capital. If computers are getting cheaper what is the reason behind it is it just over production that shifted the SRAS to the right, company has brought a lot off them but its single company and a single firm cannot change the LRAS that represents the whole capacity of the economy at best the firm can get an economies of scale and there will be diminishing return to. LRAS will shift only for the 3 reasons given above.

If the computers are getting cheaper due to a new technology then both SRAS and LRAS will shift or we have discovered a new mine for titanium used in computer production that will increase the capital then LRAS and SRAS both will shift or we have more labor so cheaper wages that will shift the LRAS too.

LRAS represents the whole economy not a single firm.