Macro Foundations · intro
What moves on the Aggregate Supply – Aggregate Demand diagram
Input scarcity raises unit production costs, shifting SRASSRASShort-run aggregate supply: what firms produce at each price level while wages and input costs are still sticky. left.
Start at equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change..
Shipping bottlenecks and shortages make inputs scarcer and dearer.
Production costs rise at every output level. SRASSRASShort-run aggregate supply: what firms produce at each price level while wages and input costs are still sticky. shifts left.
New equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change.: higher price level, lower output (mild stagflationary pressure).
Examiners ask this as: supply chain disruption, shipping crisis, chip shortage, port congestion, container costs.
Other scenarios on Aggregate Supply – Aggregate Demand