If wages and other costs fully adjust to changes in prices in the long run, the long-run aggregate supply curve isGroup of answer choicesvertical.horizontal.positively sloped.negatively sloped.
Question
If wages and other costs fully adjust to changes in prices in the long run, the long-run aggregate supply curve isGroup of answer choicesvertical.horizontal.positively sloped.negatively sloped.
Solution
The long-run aggregate supply curve is vertical.
Here's why:
In the long run, wages and other costs fully adjust to changes in prices. This means that no matter what the overall price level is, the economy will produce at its potential. This is because in the long run, all resources are fully utilized and there's full employment.
So, if the price level increases, firms can't produce more because they're already at their full capacity. Similarly, if the price level decreases, firms won't produce less because they're already producing at the lowest cost possible.
Therefore, the quantity of goods and services supplied in the long run is the same regardless of the price level. This is why the long-run aggregate supply curve is vertical.
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