2.3.2 Short run aggregate supply

How do raw material and energy costs affect SRAS?

They change firms’ production costs, influencing how much output can be produced at existing prices.

What happens to SRAS when raw material or energy costs increase?

SRAS shifts leftward due to higher production costs.

What happens to SRAS when raw material or energy costs decrease?

SRAS shifts rightward as production becomes cheaper.

Give an example of rising raw material costs affecting SRAS.

A surge in oil prices raises energy and transport costs, shifting SRAS left.

Give an example of falling raw material costs affecting SRAS.

A large shale gas discovery reduces energy prices, shifting SRAS right.

Real-world example of rising raw material costs shifting SRAS left?

The 2008 oil price shock—caused global cost increases and reduced output.

How do exchange rates influence SRAS?

They affect the cost of imported goods used in production.

What effect does a stronger domestic currency have on SRAS?

It lowers import costs → SRAS shifts right.

What effect does a weaker domestic currency have on SRAS?

It raises import costs → SRAS shifts left.

Example of exchange rate appreciation affecting SRAS?

A stronger US dollar makes imported raw materials cheaper → SRAS shifts right.

Example of exchange rate depreciation affecting SRAS?

A weaker US dollar makes imported goods costlier → SRAS shifts left.

Real-world example of currency depreciation causing SRAS to shift left?

Post-Brexit pound depreciation increased import costs for UK firms.

How do tax rates affect SRAS?

They alter firms’ cost structures and profit margins.

What effect do higher business taxes have on SRAS?

Increase costs → SRAS shifts left.

What effect do lower business taxes have on SRAS?

Reduce costs → SRAS shifts right.

Example of tax increase affecting SRAS?

Higher corporate tax rates raise business costs → SRAS shifts left.

Example of tax cut affecting SRAS?

Payroll tax cuts lower labor costs → SRAS shifts right.

Real-world example of tax policy shifting SRAS right?

2018 US Tax Cuts and Jobs Act lowered corporate tax → boosted supply.