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Why does the short-run aggregate supply curve slope upward?

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Answer:

The short-run aggregate supply curve (SRAS) slopes upward because of the existence of sticky wages and prices in the short run. In the short run, wages and prices do not always adjust immediately to changes in the economy. For example, some wages may be set by labor contracts that cannot be renegotiated quickly, and some prices may be set by long-term contracts or other factors that make them difficult to adjust quickly.

When there is an increase in demand in the short run, firms are able to sell more goods and services at their current prices. This leads to an increase in production and employment, but also to an increase in the demand for labor and other resources. As a result, firms must pay higher wages and prices for these resources, which increases their costs of production.

In the short run, firms may be unable or unwilling to adjust their prices to reflect the higher costs of production. This means that their profit margins are reduced, which leads them to produce less output than they would if prices had adjusted fully. As a result, the SRAS slopes upward because as the economy approaches full employment, the cost of producing additional output increases, leading to diminishing returns to labor and other resources.

Overall, the upward slope of the SRAS reflects the fact that in the short run, firms are constrained by the existing wages and prices, which do not always adjust quickly to changes in the economy. As a result, an increase in demand in the short run leads to an increase in production and employment, but also to higher costs of production and reduced profit margins, which limits the ability of firms to increase output.

Step-by-step explanation:

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