Answer to Question #306419 in Macroeconomics for Kirti

Question

Explain the shape of the aggregate supply curve in the short run and also indicate the impact of input and output price adjustment in determining the slope of the short run aggregate supply curve.

Answer 1

There is an upward sloping of the aggregate supply curve because there is an increase in the quantity supplied if the price of the goods or products increased. An increase in the input price automatically leads to an increase in the output price, which leads to an upward shift in the supply curve. This means that the supply of the goods increases due to an increase in the outprice price with the firm wanting to have maximum profit. However, a reduction in input price leads to a general reduction in output price making the supply curve to have a downward shift. This implies that decrease in input price leads to reduction in supply of goods or services as the firm only offers a small portion of their goods to be sold to maintain their operations. They, however waits for prices to increase to make maximum profits. Therefore, price adjustments either affect the aggregate supply curve by shifting it to upwards or downwards.