SRAS Flashcards

1
Q

what does SRAS stand for

A

Short run aggregate supply

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2
Q

what does SRAS show

A

how much output the economy can generate in the short term at each price level

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3
Q

what is SR

A

a period of time over which wage rates and the price of other factor inputs are fixed (all other factors of production are fixed)

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4
Q

how does price affect the SRAS curve

A

rise in price = producers respond to higher prices (driven up by increased demand) = an expansion of aggregate supply

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5
Q

what causes the SRAS curve to shift (5)

A
  1. changes in wage rates
  2. changes in price of raw materials
  3. changes in corporation tax
  4. changes in productivity of labour
  5. unfavourable weather conditions / Natural disasters
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6
Q

how do changes in wage rates affect AS

A

increase in wages = increase in production costs for businesses = businesses supply less = decrease in AS

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7
Q

how do changes in wage rates affect unemployment

A

increase in wages = increase in production costs for businesses = firms want to keep the cost down = firms make employees redundant

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8
Q

how do changes in raw materials affect AS

A

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

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9
Q

how do changes in corporation tax affect AS

A

increase in corporation tax = extra cost to business = businesses supply less = lower AS

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10
Q

how do unfavourable weather conditions / natural disasters affect AS (2)

A
  1. unfavourable weather conditions (earthquakes / Tsunamis) = large scale damage to factories / shops = firms try to re-build companies = focus away from production = lower AS
  2. unfavourable weather conditions = negative effect on crops being grown = negative effect on agriculture in the economy = cause AS to fall
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11
Q

what does a SRAS graph look like?

A

it is a positive straight line

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12
Q

what are the labels on an AS graph

A
y = price level
x = real output
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