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    3 SRAS Curve and Price Level

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    hp464km2ts
    The document discusses the short run aggregate supply curve, including its upward sloping shape, factors that can cause it to shift, and the relationship between price levels and output. It explains that in the short run, the aggregate supply curve is upward sloping because costs are constant while higher prices encourage more production. Factors like higher wages, material costs, taxes, or lower subsidies can shift the curve to the left by increasing business costs.

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    3 SRAS Curve and Price Level

    Uploaded by

    hp464km2ts
    10 views12 pages
    The document discusses the short run aggregate supply curve, including its upward sloping shape, factors that can cause it to shift, and the relationship between price levels and output. It explains that in the short run, the aggregate supply curve is upward sloping because costs are constant while higher prices encourage more production. Factors like higher wages, material costs, taxes, or lower subsidies can shift the curve to the left by increasing business costs.

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    3 SRAS curve and price level

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    The document discusses the short run aggregate supply curve, including its upward sloping shape, factors that can cause it to shift, and the relationship between price levels and output. It explains that in the short run, the aggregate supply curve is upward sloping because costs are constant while higher prices encourage more production. Factors like higher wages, material costs, taxes, or lower subsidies can shift the curve to the left by increasing business costs.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    10 views12 pages

    3 SRAS Curve and Price Level

    Uploaded by

    hp464km2ts
    The document discusses the short run aggregate supply curve, including its upward sloping shape, factors that can cause it to shift, and the relationship between price levels and output. It explains that in the short run, the aggregate supply curve is upward sloping because costs are constant while higher prices encourage more production. Factors like higher wages, material costs, taxes, or lower subsidies can shift the curve to the left by increasing business costs.

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    You are on page 1of 12

    The Short Run Aggregate

    Supply Curve (SRAS)


    Aggregate Supply (AS)
    • This presentation covers:
    1. What is Aggregate Supply?
    2. The Aggregate Supply curve
    3. Shifts in the Aggregate Supply curve
    4. Equilibrium Output
    The Shape of the
    SRAS Curve
    What do we mean by Aggregate Supply?
    • Aggregate Supply measures the volume of
    goods and services produced within the
    economy at a given price level.
    • It shows how much output firms wish to
    supply at each level of prices.
    • It is the sum of all the industry supply curves
    in the economy
    • It shows the ability of an economy to produce
    goods and services in the short run.
    What is the Short Run?
    • In the short run money wage rates are fixed.
    • Businesses can vary the number of workers
    they employ.
    • They can recruit more workers to make more
    output or make workers redundant if output
    falls.
    The slope of the SRAS Curve
    • In the short run the AS curve is upward sloping.

    Price
    Level SRAS

    Real National Income


    The Relationship between output and the price level
    There is a positive relationship between the price level and
    output in the economy.
    At a price level of P1, Y1 goods and services are produced.
    If the price level rises to P2, output in the economy rises to Y2.

    Price
    Level SRAS
    P2

    P1

    Y1 Y2 RNY
    Why is the SRAS upward sloping?
    Reason
    Costs are constant along the SRAS curve.
    If prices rises, this encourages businesses to make more output as they can
    achieve higher profit. Therefore output increases

    Price SRAS
    Level
    P1

    Y Y1 RNY
    Shifts in the
    SRAS curve
    Factors which can Shift the SRAS Curve
    • The SRAS curve may be affected by any factor
    which affects the ability of ALL or MOST
    businesses to supply goods in the short run.
    • However, the factors must affect businesses in
    more than one industry (otherwise it would be
    a micro supply factor).
    Factors which can Shift the SRAS Curve
    • The following factors would increase business
    costs and shift the SRAS curve up and to the
    left:
    1. Increases in wage costs affecting most
    workers (eg due to an increase in the
    minimum wage.
    2. Increases in the costs of essential raw
    materials eg oil/petrol, wheat, steel, energy
    3. Increases in VAT
    4. A reduction in government subsidies for
    essential goods (eg prescriptions or student
    travel)
    Shifts in the SRAS curve
    • A shift of the SRAS curve to the left could be caused by:
    1. An increase in wage rates
    2. An increase in raw material costs
    3. An increase in government taxes or
    4. A reduction in subsidies. SRAS 1
    Price
    Level SRAS

    P1

    RNY
    Y

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