Cheaper Inputs
The question
Assume the economy of Dorane is initially in long-run equilibrium. A record worldwide harvest causes the prices of raw agricultural inputs used by firms throughout Dorane to fall sharply. Show only the short-run effect on Dorane's economy, holding all else constant. Show the effect on the AD-AS Model graph.
Drag a curve, or use the arrow buttons. Want the free-play version with every control? Open this graph in the sandbox.
Cheaper Inputs: the worked answer
On the AD-AS Model graph, SRAS shifts right.
Why SRAS shifts right
Lower input prices reduce firms' per-unit production costs, so at every price level firms are willing to produce more output. This shifts short-run aggregate supply to the right. The economy's resource base and technology have not changed, so long-run aggregate supply does not move, and no spending component is directly affected, so aggregate demand stays put.
What happens to the equilibrium
The equilibrium price level falls and real GDP rises above full-employment output in the short run.
The mistake students make on this one
A frequent wrong answer is shifting AD right, on the logic that cheaper goods let consumers buy more. Consumers do buy more, but that is a movement along an unchanged AD in response to the lower price level, and a shift of AD would push the price level up rather than down.
On exam day
A change in input prices always moves SRAS, and the price-level change it causes is a movement along AD, never a shift of AD.
How this is graded
The checker reads every curve's position before and after your answer. You are marked correct only when SRAS shifts right and every other curve on the AD-AS Model graph stays where it started — the same standard an AP reader applies to a drawn graph: the right shift, and nothing extra. There is no AI involved; the rubric is the geometry.
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