Freight Rail Strike
The question
Assume the economy of Callisto is initially in long-run equilibrium. A prolonged strike halts the national freight rail network, and firms in every industry must now pay far more to move materials and finished goods among domestic factories, warehouses, and stores by truck. Assume Callisto's exports and imports, its quantity of resources, and its level of technology are all unchanged. Show only the short-run effect on Callisto'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.
Freight Rail Strike: the worked answer
On the AD-AS Model graph, SRAS shifts left.
Why SRAS shifts left
Moving materials and finished goods between domestic plants, warehouses, and stores is part of what it costs a firm to bring a unit of output to market, so much higher trucking bills raise per-unit production costs across the economy. At every price level firms are willing to supply less output, so short-run aggregate supply shifts to the left. The prompt holds exports and imports constant, so no component of spending changes and aggregate demand stays put, and it holds the quantity of resources and the level of technology constant, so long-run aggregate supply does not move.
What happens to the equilibrium
The equilibrium price level rises while real GDP falls below full-employment output, producing stagflation.
The mistake students make on this one
The usual wrong answer is a leftward LRAS shift, on the reasoning that the country simply cannot produce as much right now. The rail network is idled by a strike, not destroyed, and potential output depends on the resources and technology the economy owns, every one of which is still there the day the strike ends.
On exam day
Ask whether the disruption is reversible. Strikes, blocked lanes, and temporary shortages raise the cost of producing a unit and sit on SRAS, while permanently lost resources sit on LRAS, and the stem always tells you which.
How this is graded
The checker reads every curve's position before and after your answer. You are marked correct only when SRAS shifts left 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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