Short-run Aggregate Supply (SRAS)
There are 3 primary factors influencing short-run aggregate supply:
- Changes in costs of raw materials and energy – if the price of raw materials was to decrease, then production costs could potentially fall dramatically, saving the firm money, allowing them to supply more – raising SRAS.
- Changes in exchange rates – If the pound strengthened against a currency such as the euro, then imports would be cheaper and exports would be more expensive in the UK. This could result in more goods being imported, increasing available resources for production and thus raising SRAS.
- Changes in tax rates – An increase in indirect taxes would lead to a firm raising the price of a good to levy the tax onto the consumers. However, if the demand for the good is price elastic, it may be costlier to implement this, hence SRAS would fall.