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A-Level Economics · LRAS shift right (long-run growth) diagram question

Which point on the price axis is the NEW price level after the LRAS shift?

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The diagram

The answer

Point B. Read across from F: the price level falls from P₁ (A) to P₂ (B). Growth AND lower inflation together. Read across from the new equilibrium F to the price axis: point B, the lower price level P₂. With more capacity available, firms compete less aggressively for the same fixed pool of labour and capital, so wage and input-price growth slows and the price level falls.

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This is one of 5 questions on the lras shift right (long-run growth) diagram — every corner lettered, every wrong answer diagnosed.

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