Question

What are three reasons the short-run aggregate supply curve slopes upward? Name at least three factors that cause the short-run aggregate supply curve to shift.

Answer 1

The short-run aggregate supply (SRAS) curve slopes upward due to slow adjustment of wages and resource prices, expectations of future prices, and capacity constraints. Factors such as changes in costs of production and government policies can shift the SRAS curve.

Step-by-step explanation:

The short-run aggregate supply (SRAS) curve slopes upward due to three main reasons:

1. Wage and resource prices are slow to adjust: In the short run, wages and resource prices are often fixed or sticky, meaning they do not immediately change in response to changes in the price level. As a result, when the price level increases, firms experience higher profits, which encourages them to increase production.
2. Expectations of future prices: If firms expect future prices to rise, they are more likely to increase production in the short run to take advantage of the higher prices and maximize their profits.
3. Capacity constraints and diminishing returns: In the short run, firms may face limitations on their ability to increase production due to fixed inputs or diminishing returns to scale. As a result, the rate at which output can increase is somewhat limited.

Factors that can shift the SRAS curve include changes in the costs of production, changes in technology, changes in available resources, changes in government regulations or policies, and changes in the expectations of future prices. These factors can cause the SRAS curve to shift either to the right or to the left, depending on the specific circumstances.