Answer to Question #88511 in Microeconomics for Martha

Question

The short run aggregate supply curve upwardvsliping because

Answer 1

Aggregate supply refers to the total supply of products which firms plan to sell in a particular period of time. It is combination of the goods and services which firms are willing to offer in the economy at a given price level. The short-run aggregate supply depicts different quantities of the real output in the short-run which will be supplied by firms at different prices.

The short-run aggregate supply is usually upward sloping because, when prices increase, the quantity that firms supply in the economy will also increase. Firms in the short-run have one fixed factor of production which is capital, and when in the short run the aggregate supply curve shifts outward, output as well as the real GDP increases at a certain price. This indicates a positive relationship that exists between quantity supplied and price. The positive relationship therefore shifts the aggregate supply curve upwards. Besides price, the short-run aggregate supply curve is also upward sloping because; the firms in the economy tend to increase their price levels when the demand for the products increases.