Th2.3: Factors Influencing Short Run AS Flashcards
What is the main cause of a shift in SRAS due to?
a change in the cost of production
What are the three main things that influence short run aggregate supply?
changes in cost of raw materials and energy
changes in exchange rates
changes in tax rates
Changes in cost of raw materials and energy
an increase in the cost of raw materials or energy increases cost of production - this means the SRAS curve will shift left as it will cost more to make the same amount of goods and therefore businesses will only produce this amount if prices rise
Why are oil prices an important cost in determining the level of SRAS?
they affect costs for almost all businesses
Changes in exchange rates
a weaker pound will lead to an increase in the price of imports and this will cause SRAS to decrease as production becomes more expensive. vice versa
What was the inflation the UK experienced after Brexit caused by?
the fall in the pound, which pushed import prices up and led to cost-push inflation
Changes in tax rate
taxes increase the cost of production and thus they cause a fall in SRAS, shifting it to the left. Subsidies shift the curve right as they decrease costs
How do subsidies affect the curve and why?
shift the curve right as they decrease costs
When do supply side shocks occur?
when there are significant changes in any of these factors
