Question

Will the shift of SRAS to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of SRAS to the left?

Short answer

A shift of the Short-Run Aggregate Supply (SRAS) curve to the right tends to make the equilibrium price level lower and the equilibrium quantity higher. On the other hand, a shift of the SRAS curve to the left tends to make the equilibrium price level higher and the equilibrium quantity lower.

Step-by-step solution

Understand the AD-AS Model

The AD-AS model represents the interaction between Aggregate Demand (AD) and Aggregate Supply (AS) in an economy. In this exercise, we are specifically focused on the Short-Run Aggregate Supply (SRAS) curve, which represents the supply of goods and services in the short run when prices can adjust only partially. The equilibrium of the economy occurs at the point where AD and SRAS intersect.

Analyze the effect of shifting SRAS to the right

When the SRAS curve shifts to the right, it represents an increase in aggregate supply, meaning that producers are able and willing to supply more goods and services at each price level. To determine the effect of this shift, follow these steps: 1. Draw the AD-AS model, with the original SRAS curve. 2. Shift the SRAS curve to the right. 3. Find the new equilibrium point, where the AD curve intersects with the new SRAS curve. A shift of SRAS to the right will result in a lower equilibrium price level and a higher equilibrium quantity, as the new equilibrium point occurs at a point where the price level is lower and the quantity of goods and services is higher.

Analyze the effect of shifting SRAS to the left

When the SRAS curve shifts to the left, it represents a decrease in aggregate supply, meaning that producers are able and willing to supply fewer goods and services at each price level. To determine the effect of this shift, follow these steps: 1. Draw the AD-AS model, with the original SRAS curve. 2. Shift the SRAS curve to the left. 3. Find the new equilibrium point, where the AD curve intersects with the new SRAS curve. A shift of SRAS to the left will result in a higher equilibrium price level and a lower equilibrium quantity, as the new equilibrium point occurs at a point where the price level is higher and the quantity of goods and services is lower. To conclude, when the SRAS curve shifts to the right, it tends to make the equilibrium price level lower and the equilibrium quantity higher. When the SRAS curve shifts to the left, it tends to make the equilibrium price level higher and the equilibrium quantity lower.