2.3.2 - short-run AS

Question 1

What does short-run mean?

Answer 1

A period of time in which the prices of the FOPs are fixed

Question 2

What factors affect the SRAS?

Answer 2

SRAS reflects the cost of production. Impacted by the changes in quantity and price of FOPs, taxes and subsidies.

Question 3

What does the SRAS curve look like?

Answer 3

SRAS slopes upwards.

Question 4

Why does the SRAS curve slope upwards?

Answer 4

A rise in the general price level increases profit margins causing an extension in quantity supplied.

Question 5

How do wage rates impact the SRAS?

Answer 5

Increased wage rates = increased cost of production, rise in the average price level at any given output. SRAS curve shifted to the left.

Question 6

How do raw material prices impact SRAS?

Answer 6

Increased prices = increased cost of production, increased price of products sold by firms. SRAS curve shifted left.

Question 7

How does taxation impact SRAS?

Answer 7

Increased taxation = increased production costs. Reduced incentives and animal spirits = reduced investment. SRAS curve shifted left.

Question 8

How do exchange rates impact SRAS?

Answer 8

Appreciation = price of imports may fall, reduced cost of production when raw materials are imported, causing decrease in price throughout the economy. SRAS shifted shifted right.

Question 9

How does productivity impact SRAS?

Answer 9

Increased productivity = reduced cost of production. Improved efficiency = increased output per worker. SRAS shifted right.