AP MacroeconomicsAggregate Demand & Supply
Misperceptions Theory of SRAS
The misperceptions theory says SRAS slopes upward because producers temporarily mistake a rise in the overall price level for a rise in their own relative price and produce more.
When the aggregate price level rises unexpectedly, individual producers may believe the price of their own good has risen relative to others, signaling higher profitability, so they increase output and hiring. Once they realize the increase was economy-wide and their relative price is unchanged, they cut output back to normal. This temporary confusion makes output respond positively to surprise price-level changes in the short run but not the long run. It is the third standard explanation for the upward-sloping SRAS alongside sticky-wage and sticky-price theories.