2.3.2 Short-run AS (SRAS)

SRAS is about the relationship between the price level and the quantity of output firms are willing to supply, assuming the costs of production are constant.

A. Factors Influencing SRAS (The "Cost Shifters")

1. Changes in Costs of Raw Materials and Energy:

   • A spike in global oil or gas prices increases energy costs for almost every firm. This causes SRAS to shift left (inward), leading to cost-push inflation.

2. Changes in Exchange Rates:

   • Weak Pound (WPIEC): Imports become more expensive. Since many UK firms import raw materials/components, their costs rise. SRAS shifts left.

3. Changes in Tax Rates (Indirect Taxes):

   • An increase in VAT, Excise Duties (on fuel/alcohol), or Corporation Tax acts as an increase in costs for firms. SRAS shifts left.