Short-run aggregate supply (SRAS) is the relationship between the price level and real GDP in the short-run. There is a positive relationship where higher prices are associated with greater output. SRAS slopes upward to show that as prices rise, firms are able to produce more by increasing labor utilization through overtime or hiring more workers at higher wages. Factors that influence production costs, such as input prices, wages, taxes, and exchange rates can cause the SRAS curve to shift.

1. Short Run
Aggregate
Supply
Lower 6th Macro
Aggregate Supply

2. Intro to SRAS
Short Run Aggregate Supply
Mr O’Grady

3. Short-Run AS
Short Run (Recap): At least one factor of production is fixed (usually capital),
meaning that we can’t easily increase or decrease the amount of that specific input
in our economy or move it between different uses
Short Run Aggregate Supply: SRAS is the relationship between real GDP and the
price level.
There is a positive relationship between the price level and real GDP in the short-run.
To produce more in the short-run, firms are unable to hire more capital, so they have to hire any extra
workers, or ask the existing workforce to work more intensively (e.g. through overtime).
This is costly as existing workers require extra overtime pay, and new workers require higher wages to
encourage them to join the labour force. This will result in firms raising prices.
Factors affecting the SRAS: Any change that will affect the costs of production for
all firms in an economy will affect SRAS. These include:
Price of raw materials, e.g. oil, food, metals
Cost of labour, (wages, taxes, regulation)
Levels of tax and subsidies
Exchange rates

4. The SRAS
Curve
Short Run Aggregate Supply
Mr O’Grady

5. The SRAS Curve
SRAS Curve: The SRAS curve graphs the relationship between actual real GDP and the
price level.
Why is the SRAS Curve upward sloping?
As there is a positive relationship between the price
level and real GDP in the short-run.
Movements Along the SRAS Curve: Correspond to
changes in price level
A fall in the price level leads to a contraction in SRAS
A rise in the price level leads to an expansion in SRAS
Shifts of the SRAS curve: Correspond to shocks that directly or indirectly affect the
level of the costs of production
Changes in costs of raw materials and energy
Changes in (indirect) tax rates
Changes in exchange rates
SRAS
Real National Output
Price
Level
SRAS
Real National Output
Price
Level
A
B
SRASSRAS1
SRAS2
Real National Output
Price
Level

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