SRAS Flashcards
what does SRAS stand for
Short run aggregate supply
what does SRAS show
how much output the economy can generate in the short term at each price level
what is SR
a period of time over which wage rates and the price of other factor inputs are fixed (all other factors of production are fixed)
how does price affect the SRAS curve
rise in price = producers respond to higher prices (driven up by increased demand) = an expansion of aggregate supply
what causes the SRAS curve to shift (5)
- changes in wage rates
- changes in price of raw materials
- changes in corporation tax
- changes in productivity of labour
- unfavourable weather conditions / Natural disasters
how do changes in wage rates affect AS
increase in wages = increase in production costs for businesses = businesses supply less = decrease in AS
how do changes in wage rates affect unemployment
increase in wages = increase in production costs for businesses = firms want to keep the cost down = firms make employees redundant
how do changes in raw materials affect AS
nearly all businesses need raw materials:
price of certain raw materials (i.e. petrol) increases = effect most UK companies = production costs get more expensive = decrease in AS
how do changes in corporation tax affect AS
increase in corporation tax = extra cost to business = businesses supply less = lower AS
how do unfavourable weather conditions / natural disasters affect AS (2)
- unfavourable weather conditions (earthquakes / Tsunamis) = large scale damage to factories / shops = firms try to re-build companies = focus away from production = lower AS
- unfavourable weather conditions = negative effect on crops being grown = negative effect on agriculture in the economy = cause AS to fall
what does a SRAS graph look like?
it is a positive straight line
what are the labels on an AS graph
y = price level x = real output