Long-Run Aggregate Supply

LRAS is vertical because, given enough time, every wage and every price in the economy adjusts. If the price level rises, nominal wages eventually rise to match it. If the price level falls, wages eventually fall too. Workers and firms are not fooled for long by changes in the overall price level alone. So no matter what the price level does, output gravitates back to one number: full-employment output, the amount the economy produces when labor and capital are used at their normal, sustainable rates. The price level loses its grip on real output. That is the whole mechanism in one line: flexible prices and wages strip the price level of any power to move production in the long run.

This is not a claim about physical limits. The economy is not maxed out in some factory-floor sense; firms could run extra shifts or squeeze more from existing plants. The vertical line is about behavior, not capacity. Nothing stops a short-run surge above full employment, but it cannot last once wages catch up.

Since price level changes cannot move LRAS, only changes in the underlying ability to produce can shift it. More labor, more capital, more natural resources, or better technology that raises productivity will shift LRAS right, the same forces that shift a production possibilities curve outward. An LRAS shift right is exactly what an outward-bowing PPC looks like translated into the AD-AS graph: the economy's maximum sustainable output has grown. This is why LRAS sits next to short-run aggregate supply and aggregate demand in the model: short-run shocks and demand swings move the economy off full employment temporarily, but LRAS marks where it always returns, and only growth in productive capacity relocates that anchor.