4.2.2.5 determinants of short-run aggregate supply

Question 1

what are the main determinants of SRAS?

Answer 1

• price level
• production costs

Question 2

what shifts the SRAS curve?

Answer 2

changes in costs

eg) - money wage rates
- raw material prices
- business taxation
- productivity

Question 3

what are some examples of the determinants that affect SRAS?

Answer 3

• cost of employment changing
  eg) wages, taxes, labour productivity
  -> if costs increase this will shift supply inwards
• cost of other inputs
  eg) raw materials, commodity prices, exchange rate if products are imported
  -> stronger currency reduces price of imports, so imported products will be cheaper
  -> this would shift AS out
• gov regulation or intervention
  eg) environmental laws / green taxes / business regulation
• net outward migration of workers
  -> causes a ‘brain drain’ on the domestic economy, as skilled workers move elsewhere
• fall in business capital spending, supply will fall