3.3 Short-Run Aggregate Supply (SRAS)
SRAS slopes upward because wages and some prices are sticky in the short run; input costs, inflation expectations, and supply shocks shift the curve.
Short-run aggregate supply shows total output produced at each price level while nominal wages and some prices are fixed, that stickiness defines the short run. When the price level rises but wages don't, profit per unit rises and firms produce more, so SRAS slopes upward.
Three theories explain the slope: sticky wages (contracts fix nominal wages, so a higher price level cuts real labor costs), sticky prices (menu costs keep some firms from adjusting immediately), and misperceptions (producers mistake a general price rise for a better relative price for their own good).
SRAS shifts when production costs change: input prices (wages, oil), inflation expectations, productivity, and government taxes, subsidies, or regulation. A change in the price level itself only moves the economy along SRAS, the classic supply-shock question (oil prices spike) is a leftward SRAS shift.
Key terms for 3.3
Drag the curves above, or open the full AD/AS Model sandbox. Then draw it yourself for a graded check or watch the step-by-step walkthrough. Teaching this? Put this graph on your own class page, free.
Shifting SRAS when the price level changes. The price level moves the economy along the SRAS curve; only cost-side changes, input prices, expectations, productivity, policy, shift the curve itself.
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