Short-run Aggregate Supply

Unit 9 - Lesson 9.2

Learning outcomes:

Describe the term aggregate supply.

Explain, using a diagram, why the short-run
aggregate supply curve is upward sloping.
Explain using a diagram how the SRAS shifts.

Short-run vs. Long-run in Macroeconomics

Short-run

When the price of resources remain relatively constant.

They do not change in relation to Supply & Demand.

Long-run

Period of time, though not specific, when the prices of all resources including
wages are flexible.

Aggregate Supply
Total quantity of goods and services
produced in an economy over a
specified period of time at varying price
levels.

Short-run Aggregate Supply:

Shows the relationship between Real
GDP and Price Levels when resources
price do not change.

http://www.tutor2u.net/economics/content/diagrams/aggsupp1.gif

SRAS Upward Sloping

The SRAS is upward sloping
representing the positive relationship
between Price Levels and Real Output.

In the Short-run resource prices are

held constant so when there is an
increase in Price Levels this leads to an
increase in profits & revenues for the
firm.

http://www.tutor2u.net/economics/content/diagrams/aggsupp1.gif

Shifts in the SRAS curve

Shift from:

SRAS 1 - SRAS 2 represents an

increase in SRAS.

SRAS 1 - SRAS 3 represents a

decrease in SRAS
http://tutor2u.net/economics/content/diagrams/aggsupp2.gif

Determinants of SRAS
1.

Changes in Wages
a.
b.

Increase in wages - Decrease in Supply because of increases cost of production

Decrease in wages - Increase in Supply because of decrease in the cost of production.

2. Change in Non-Labor Resources: examples include changes in price of oil,

capital goods or land.
3. Changes in Business Taxes
4. Changes in subsidies offered by the government
5. Supply Shocks