- Shift in short-run aggregate supply
- A shift in short-run aggregate supply means that at every price level firms supply a different quantity of real GDP, because their costs of production have changed.
- Movement along short-run aggregate supply
- A movement along short-run aggregate supply is the change in real GDP supplied when the price level changes while input prices stay fixed.
Causes of a shift in SRAS
Can you name the five things that shift short-run aggregate supply?
Each one changes what firms pay to produce, so a change in any of them moves the whole curve.
Wage rates are the price of labour, an input almost every firm buys, so a rise across the economy shifts SRAS left and a fall shifts it right.
Can you think of an example?
Pay settlements across the economy run ahead of prices for a year. Firms' wage bills rise at every price level, so they supply less real GDP and SRAS shifts left.
Raw material and energy prices are the costs of inputs such as oil, gas, metals and crops: dearer inputs shift SRAS left, and cheaper ones shift it right.
Can you think of an example?
World gas prices jump, raising the energy bills of factories, bakeries and haulage firms alike, so they supply less at every price level. An early frost that ruins a harvest shifts SRAS left in the same way.
The exchange rate changes what UK firms pay in pounds for imported inputs: a fall in the pound makes them dearer and shifts SRAS left, and a rise shifts it right.
Can you think of an example?
The pound falls against the dollar, so imported components, fuel and machinery cost UK firms more in pounds. Costs rise at every price level and SRAS shifts left.
Business taxes and subsidies change what firms pay to produce: a higher indirect tax or payroll tax shifts SRAS left, and a subsidy shifts it right.
Can you think of an example?
The government raises the rate of employer National Insurance contributions, a tax firms pay on each worker they employ. Hiring costs more at every price level, so SRAS shifts left.
Productivity is output per worker: when the same workers produce more, the cost of each unit falls and SRAS shifts right, and potential output rises too.
Can you think of an example?
Supermarkets bring in self-checkouts and warehouses install stock-picking robots. Each worker handles more goods an hour, so the cost of each unit falls and SRAS shifts right.