2.5 Determinants of SRAS

Question 1

What causes the SRAS to shift?

Answer 1

• changes in the conditions of supply

Question 2

What conditions would cause the SRAS to shift?

Answer 2

• changes in the cost of employment (wages, taxes, labour productivity)
• cost of other inputs (raw materials, commodity prices)

Question 3

When does the SRAS curve shift?

Answer 3

• when there are changes in the conditions of supply
• the price level and production costs are the main determinants of SRAS.

Question 4

What are factors influencing short-run AS?

Answer 4

• The cost of employment might change, e.g. wages, taxes, and labour productivity. -If costs increase, supply will shift inwards
• The cost of other inputs e.g. raw materials, commodity prices, and the exchange rate if products are imported.
  -A stronger currency reduces the price of imports, so imported products will be cheaper. This would shift the AS curve outwards
• Government regulation or intervention, such as environmental laws or green taxes and business regulation.
  -Business regulation is sometimes called ‘red tape’.
• There could be a net outward migration of workers, which causes a ‘brain drain’ on the domestic economy, as skilled workers move elsewhere.
• If there is a fall in business capital spending, supply will fall.