Equilibrium Level of Real National Output
Economics: Edexcel A A Level, topic 3.4.3
Equilibrium and National Output
We can use diagrams of AD and AS curves to find the equilibrium in an economy.
Using AS/AD to show equilibrium
- The intersection between the AD and AS curves shows the equilibrium price level (vertical axis) and real national output (horizontal axis) of the economy.
- At a low price level, firms have little incentive to produce, but consumers are willing to buy.
- As the price level rises (also known as inflation), AS rises and AD falls until equilibrium is reached.
Equilibrium
- Equilibrium means balance.
- AD and AS are always dynamic, but they should naturally meet at an equilibrium point.
Test yourself on Equilibrium Level of Real National Output
What shows the equilibrium price level and real national output of the economy?