64.

Short Run Aggregate Supply Curve

1. Fill in the missing words
The Short run can be defined as a time period in which at least one _________________ of production is
_______________ . The Aggregate supply curve represents the ______________ supply of goods and services by
all factors of _______________ in an economy. Answer options: choose 4 from: total, production,
consumption, flexible, factor, fixed.
2. Analysis
2.1 Draw a Short Run Aggregate Supply curve in the space below (also show an AD curve to illustrate the
equilibrium level of output)
The shape of the supply curve suggests that as firms try to increase their
level of output the price level in the economy rises.
2.2 Why might this be the case? _______________________________
_______________________________________________________
2.3 What law explains what is happening? ________________________
_______________________________________________________
2.4 What factors may cause a shift in the SRAS curve?_______________
_______________________________________________________
2.5 Using the diagram you have drawn to the left illustrate and explain
what will happen to the price level, real output and aggregate supply curve
when:
The oil price rises ________________________________________________________________________
The rate of VAT falls ______________________________________________________________________
3. More Analysis
3.1 These 3 factors may cause a shift in SRAS curves. Identify the nature of the shift to the right or to the left?
Increase in Minimum wage
Falls in raw material costs
Increasing the level of taxation

3.2 For each of the following draw a diagram to show the impact on the SRAS and Price level and real output

Rise in the minimum

wage

Fall in gas
prices

Increase in the level of

tariffs on imported goods

Increase in the costs

of regulation

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64. ANSWERS: Short Run Aggregate Supply Curve

1. The Short run can be defined as a time period in which at least one factor of production is fixed
The Aggregate supply curve represents the total supply of goods and services by all factors of production in an
economy.
2.1 Draw a Short Run Aggregate Supply curve in the space below (also show an AD curve to illustrate the
equilibrium level of output)
The shape of the supply curve suggests that as firms try to increase their
level of output the price level in the economy rises.
2.2 Why might this be the case? Quality of factors of production
declines as last available factors of production are used.
2.3 What law explains what is happening? Diminishing Marginal Returns
2.4 What factors may cause a shift in the SRAS curve?
Changes in the costs of production
2.5 Using the diagram you have drawn to illustrate and explain what will happen to the price level, real output and
aggregate supply curve when
1. Oil price rises Shift in SRAS from SRAS 1 to SRAS 3 costs rise therefore prices rise from P1
to P3 and cost push inflation results also real output declines from Y1 to Y3.
2.

VAT falls Shift in SRAS from SRAS 1 to SRAS 2 costs fall therefore prices fall from P1 to P2
and real output increases from Y1 to Y2

3.1 Other factors which may cause a shift in SRAS are

Increase in Minimum wage Falls in raw material costs
Shift leftwards
Shift rightwards

Increasing the level of taxation

Shift leftwards

3.2 For each of the following draw a diagram to show the impact on the SRAS and Price level and real output
Rise in the minimum wage
Fall in gas prices
Increase in the level of tariffs on
imported goods

Regulation

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