Short-run Aggregate Supply (SRAS) (AQA A Level Economics)
Revision Note
Written by: Lorraine
Reviewed by: Steve Vorster
An Introduction to Short-run Aggregate Supply (SRAS)
Aggregate supply is the total supply of goods/services produced within an economy at a specific price level at a given time
Diagram: Short-run Aggregate Supply (SRAS) Curve
Diagram analysis
The SRAS curve is upward-sloping due to two reasons
The aggregate supply is the combined supply of all individual supply curves in an economy which are also upward-sloping
As real output increases, firms have to spend more to increase production e.g. wage bills will increase
Increased costs result in higher average prices
A Movement Along the SRAS Curve
Whenever there is a change in the average price level (AP) in an economy, there is a movement along the short-run aggregate supply (SRAS) curve
Diagram: A Movement Along the SRAS Curve
Diagram analysis
An increase in the AP (ceteris paribus) from AP1 → AP2 leads to a movement along the SRAS curve from A → B
There is an expansion of real GDP from Y1 → Y2
A decrease in the AP (ceteris paribus) from AP1 → AP3 leads to a movement along the SRAS curve from A → C
There is a contraction of real GDP (output) from Y1→Y3
Factors that Cause the Entire SRAS Curve to Shift
Shifts in SRAS are caused by changes in conditions of supply in an economy; this usually means changes in the costs of production
Changes in the cost of raw materials and energy
Changes in exchange rates (E/R)
Changes in tax rates
Diagram: A Shift in the SRAS Curve
Diagram analysis
A decrease in costs or increase in productivity results in a shift right of the entire curve from SRAS1 → SRAS2
At every price level, output and real GDP have increased from Y1 → Y2
An increase in costs or decrease in productivity results in a shift left of the entire curve from SRAS1 → SRAS3
At every price level, output and real GDP have decreased from Y1 → Y3
The Determinants of Short-run Aggregate Supply
Whenever there is a change in the conditions of supply in an economy (e.g. costs of production or productivity changes), there is a shift of the entire SRAS curve
There are multiple factors that can influence the short-run aggregate supply (SRAS). These include:
Changes in costs of raw materials and energy
Changes in wage rates
Changes in tax rates
The Influences on Short-Run Aggregate Supply (SRAS)
| Explanation | Impact on SRAS |
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Increase in the cost of raw materials and energy |
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Decrease in costs of raw materials/energy |
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Increase in wage rates |
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Decrease in wage rates |
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Decrease in tax rates |
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Increase in tax rates |
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