📚

All Subjects

 > 

🤑 

AP Macro

 > 

💲

Unit 3

3.3 Short-Run Aggregate Supply (SRAS)

3 min readnovember 15, 2020

Jeanne Stansak


3.3: Short-Run Aggregate Supply (SRAS)

Short Run Aggregate Supply represents all the goods and services that firms are willing and able to produce at various price levels. The law surrounding SRAS is very similar to the law of supply of individual goods and services. The relationships that exist between the price level and real GDP output that is supplied is positive. This means that, as the price level rises, firms are willing or able to produce a greater quantity of real GDP output. As the price level falls, firms are only willing or able to produce a lesser quantity of real GDP output.
💡When prices decrease, the aggregate real GDP output supplied decreases.
The short-run aggregate supply is upward sloping because wages and resource prices are not flexible in the short-run. Below is a sample graph of the short-run aggregate supply curve. As you can see, when the price level drops from P1 to P2, the real GDP falls from $400 to $300. Also, when the price level rises from P3 to P2, the real GDP rises from $200 to $300.
💡Just like with supply for an individual good or service, a change in price level moves us along the aggregate supply curve.
https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-7bGFj6MD3umn.png?alt=media&token=137ba06f-b649-4c06-855a-009418f69a74

Shifters of Short Run Aggregate Supply

Just like with the supply of individual goods and services, there are factors (shifters) that will either increase or decrease the amount of aggregate supply within a country. These factors include resource prices and availability, actions of the government, and productivity and technology. We use the acronym RAP to help us remember these factors.
https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-DidBh2cupqLl.png?alt=media&token=9a74769f-bf0d-431b-9ac5-fdef1e28745c
Each of the above factors can either cause an increase in aggregate supply (shift to the right) or a decrease in aggregate supply (shift to the left).
https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-94uMypf30eyV.png?alt=media&token=d728eb75-e875-4438-b53b-52672bfd4d6a
Let's look at a few scenarios and determine whether it causes an increase in aggregate supply or a decrease in aggregate supply. Click on the arrow next to each scenario to see the correct answer and explanation.
  • The Canadian Prime Minister places new regulations on carbon emissions.
    • This would cause a decrease in aggregate supply because it is a regulation of the government that increases the cost of production for suppliers which will decrease aggregate supply.
  • An increase in consumer income causes the GDP deflator to rise to 110.
    • The GDP deflator, if you remember from Unit 2, is an indication of the inflation rate. Since this has risen, inflation has increased which is an indicator that price levels have increased. When price levels increase, there is a decrease in the amount of real GDP that is supplied. This is a movement along the aggregate supply curve instead of a shift of the curve.
  • Automation in the workplace doubles productivity for all firms in Japan.
    • This will cause an increase in aggregate supply because new technology has led to firms being more productive at all price levels.
  • A war with Great Britain destroys Spanish coal refineries.
    • This will cause a decrease in aggregate supply. This falls in the factor of resource availability. Since coal refineries have been destroyed there is less coal available to use in the production process. With less coal available we will see a decrease in aggregate supply.

Was this guide helpful?

🔍 Are you ready for college apps?
Take this quiz and find out!
Start Quiz
FREE AP macro Survival Pack + Cram Chart PDF
Sign up now for instant access to 2 amazing downloads to help you get a 5
Browse Study Guides By Unit
📝
Exam Skills: MCQ/FRQ
💸
Unit 1: Basic Economic Concepts
📈
Unit 2: Economic Indicators and the Business Cycle
💰
Unit 4: Financial Sector
⚖️
Unit 5: Long-Run Consequences of Stabilization Policies
🏗
Unit 6: Open Economy-International Trade and Finance
Join us on Discord
Thousands of students are studying with us for the AP Macroeconomics exam.
join now
💪🏽 Are you ready for the AP Macro exam?
Take this quiz for a progress check on what you’ve learned this year and get a personalized study plan to grab that 5!
START QUIZ
Hours Logo
Studying with Hours = the ultimate focus mode
Start a free study session
📱 Stressed or struggling and need to talk to someone?
Talk to a trained counselor for free. It's 100% anonymous.
Text FIVEABLE to 741741 to get started.
© 2021 Fiveable, Inc.