M 2.3 Short run aggregate supply Flashcards Preview

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Flashcards in M 2.3 Short run aggregate supply Deck (20)
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1
Q

What does short run mean

A

at least one factor of production is fixed

2
Q

What is AS?

A

quantity of goods and services that producers in an economy are willing and able to supply at given levels of pricing

3
Q

WHat is SRAS?

A

relationship between panned national output and the general price level. Shows how much output the economy can generate in the short term at each price level

4
Q

What causes a movement along the curve in SRAS?

A
  • rise in the general price level should stimulate an expansion of supply
  • when prices are falling, production may contract
5
Q

What causes a shift in the SRAS curve?

A

resource cost of producing goods ans services

6
Q

Why is the SRAS curve upward sloping?

A

higher prices for goods and services make output more profitable and enable businesses to expand production by hiring extra labour and other resources

7
Q

What are the four causes of SRAS curve shift?

A
  • changes in resource prices
  • business subsidies, taxes or regulations
  • exchange rate
  • supply shocks
8
Q

What is the general cause for inwards shift of SRAS?

A

rise in raw material prices, energy costs, unit labour cost or increased cost of meeting business regulations

9
Q

WHat is the general cause of outward SRAS shift?

A
  • rise in labour productivity, decline in energy costs
10
Q

What are the four EXTERNAl factors effecting SRAS?

A
  • world oil and gas prices
  • energy prices/ costs
  • other mineral / metal prices
  • foodstuff prices
11
Q

Why are external factors relevent when calculating effectiveness of the UK government policy/

A
  • important to recognise that the performance of UK economy is subject to the infleunce of external factors that UK gov cant control
  • fluctuations in world price would affect costs, price level, investment, economic growth, exports/ imports and employment
12
Q

Why is oil price so important?

A
  • source for more then 1/3 of world energy

- transport industry relies on oil

13
Q

WHat could fracking do?

A

bring oil prices down

14
Q

explain the effect of rising oil prices?

A
  • more expensive for motorists and businesses
  • rise in value of oil exports
  • increase in exploration and extraction
  • renewable energy more economically viable
  • rising energy cost bringing up inflation
  • Uk exchange rate may rise as we export oil
15
Q

What will an outward shift in AD cause?

A

rise in output and employment
- household income rises so more spending increases

  • inflation
16
Q

Where is equilibrium on a SRAS diagram?

A

where AD intersects SRAS

17
Q

Explain impact of rise of AD on SRAS graph?

A
  • AD shifts outwards, expansion along SRAS curve
  • higher equilibrium price
  • cyclical rise in output and employment
  • upward pressure on price or inflation
  • higher output
18
Q

Explain impact of fall in AD?

A
  • inward shift of AD, contraction along SRAS
  • natioanl output falls
  • deflation
  • could cause recession
19
Q

Explain impact of increase in SRAS?

A
  • outward shift of SRAS, expansion of AD
  • higher national output
  • fall in price level
20
Q

Explain impact of fall on SRAS?

A
  • inward shift of SRAS, contraction of AD
  • lower national output (shrinking economy, stagflation)
  • inflation (rise of price level)