3.2.3—Short-run aggregate supply

Short-run aggregate supply (SRAS) shows the real output firms will supply at different average price levels while some wages and factor prices are slow to adjust.

Higher input, energy or wage costs leave firms able to produce less at each price level, shifting SRAS left. Lower costs, higher productivity or lower indirect taxes shift it right.

If an energy shock raises the cost of every unit, firms reduce planned output at the same price level: SRAS shifts left. A higher price level alone would instead move along SRAS.

Ask whether the change is a price-level change or a non-price cost/productivity change, then choose movement or shift.

‘Short run’ is a model horizon, not a fixed number of days; it means at least some factor prices remain inflexible.