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
Falls in raw material
Increasing the level of
wage
costs
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
Falls in raw material
wage costs Shift rightwards
Shift leftwards

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
Fall in gas prices
Increase in the level of
wage
tariffs on imported goods

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