Question

What is the difference in the explanation of the shape of the aggregate demand curve (AD) and a single product demand curve (D)?  After all, both demand curves show an inverse relationship between price and quantity?  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)?

Answer 1

There is no difference in the shape of the  aggregate demand curve (AD) and a single product demand curve (D). Both demand curves show an inverse relationship between price and quantity is true. The only difference between them is that a single product demand curve shows the demand only for a single product whereas the aggregate demand curve adds together all the products in that particular country. The aggregate demand curve adds together all the price quantity combinations of the single product demand curves and shows the the total amount of goods and services demanded in a country at a particular period of time.

The shape of the Short Run Aggregate Supply Curve is upward sloping because short run aggregate supply is affected by changes in the price level i.e. when the price of a good or a service increases, the quantity supplied of that good or a service also increase.The shape of the Long Run Aggregate Supply Curve is vertical because long run aggregate supply is not affected by changes in the price level i.e. in the long run, the quantity supplied of a good or a service remains constant even when the price level increases or decreases. Some input prices are fixed in the short run, but in the long run all the input prices are flexible and hence can adjust with time, so long run aggregate supply is not affected by changes in the price level as it does in the short run.