AP MacroeconomicsAggregate Demand & Supply
Sticky-Price Theory (Menu Cost Theory) of SRAS
The sticky-price (menu cost) theory says SRAS slopes upward because some firms keep prices fixed despite menu costs, so rising overall prices boost their sales and output.
Changing posted prices is costly (reprinting menus/catalogs, updating systems, annoying customers), so many firms hold prices steady in the short run. When the general price level rises, firms with sticky prices become relatively cheaper, their sales rise, and they increase output. As menu costs are eventually paid and all prices adjust, this output boost disappears, returning the economy to potential output. It is one of the three textbook explanations for an upward-sloping SRAS curve.