2.3.2: Short Run AS

Question 1

What is the difference between short run and long run supply?

Answer 1

• In the short run, one of FoP is fixed
• In the long run, all factors of production are variable

Question 2

What shifts the AS curve in the short run?

Answer 2

Things that affect the cost of production
- Change in costs of raw materials and energy
- Changes in exchange rates
- Changes in tax rates

Question 3

How does an increase in costs of raw materials/ energy affect SRAS?

Answer 3

• As the price of input costs rise, fewer goods/ services can be produced with the same amount of money
• SRAS decreases, shifts to the left

Question 4

How does appreciation of exchange rates affect SRAS?

Answer 4

Producers often use raw materials
- Stronger currency= cheaper imports= decrease in input costs= lower costs= more output
- SRAS increases, shifts to the right

Question 5

How does a decrease in tax rates affect SRAS?

Answer 5

Taxes represent an additional cost for firms
- Decreasing taxes= decrease in costs
- Lower costs = more output
- SRAS increases, shifts to the right

Question 6

How does a decrease in cost of raw materials/ energy affect SRAS?

Answer 6

• As price of input costs decrease, more goods/ services can be produced with the same amount of money
• SRAS increases, shifts right

Question 7

How does depreciation of ER affect SRAS?

Answer 7

• Producers often import raw materials
• Weaker currency= more expensive imports
  = More expensive imports= increase in input costs
• Higher input costs= less output
• SRAS decreases, shifts left

Question 8

How does an increase in tax rates affect SRAS?

Answer 8

Increasing taxes= increase in costs
- Higher costs= less output
- SRAS decreases, shifts left