What is the difference between short-run and long-run aggregate supply?

The distinction between short-run and long-run aggregate supply is fundamentally tied to how firms respond to changes in the economic environment over different time horizons. In the short run, aggregate supply is influenced by factors such as production costs, resource availability, and levels of output that firms can achieve. These factors can cause the short-run aggregate supply curve to shift in response to changes in input prices or other variables affecting production capacity.

In contrast, the long-run aggregate supply curve is depicted as vertical at the full employment level of output, which essentially indicates that, in the long run, an economy's total production capacity is determined by the available resources, technology, and institutional factors, rather than the price level. This means that, in the long run, shifts in prices do not alter an economy's output; it will return to its full employment level regardless of price changes.

Therefore, the statement about short-run aggregate supply shifting with production costs while the long-run is vertical at full employment accurately captures these concepts, explaining how differing time frames reveal different characteristics of aggregate supply in the economy.