2.3.2 - Short - Run AS

Question 1

What Is The Position Of The SRAS Determined By?

Answer 1

Cost of production in the economy.

Question 2

If There Is An Increase In Costs Of Production, What Impacts Does This Have On SRAS?

Answer 2

It shifts SRAS to the left.

Question 3

If There Is A Decrease In Costs Of Production, What Impacts Does This Have On SRAS?

Answer 3

It shifts SRAS to the right.

Question 4

What Costs Of Production Can Change, Which Affects All Firms In The Economy?

Answer 4

~ Wages.

~ Raw material / commodity prices.

~ Oil prices.

~ Business taxes.

~ Import prices (SPICED / WPIDEC).

Question 5

Describe ‘Wages’ As A Cost Of Production Affecting Firms
(2 Points)

Answer 5

~ If wages go up -> increased costs of production -> SRAS shifts to the left.

~ If wages go down -> decreased costs of production -> SRAS shifts right.

Question 6

Describe ‘Raw Material / Commodity Prices’ As A Cost Of Production Affecting Firms
(2 Points)

Answer 6

~ If these prices rise -> costs of production rise -> shifting SRAS left.

~ If these prices fall -> costs of production fall -> shifting SRAS right.

Question 7

Describe ‘Oil Prices’ As A Cost Of Production Affecting Firms
(2 Points)

Answer 7

~ If prices goes up -> costs of production rise -> shifting SRAS left.

~ If prices go down -> costs of production fall -> shifting SRAS right.

Question 8

Describe ‘Business Taxes’ As A Cost Of Production Affecting Firms
(2 Points)

Answer 8

~ If tax rises -> costs of production rise -> SRAS shifts left.

~ If tax falls -> costs of production fall -> SRAS shifts left.

Question 9

Describe ‘Import Prices’ As A Cost Of Production Affecting Firms
(3 Points)

Answer 9

~ Changes when the exchange rate changes.

~ Stronger currency -> cheaper imports -> costs of production fall -> SRAS shifts right.

~ Weaker currency -> expensive imports -> costs of production rise -> SRAS shifts left.

Question 10

When Do Supply Side Shocks Occur?

Answer 10

When there are significant changes in any of the cost of production factors.