Question

Briefly explain the reason for the near-horizontal shape of the SRAS curve on its far left.

Short answer

SRAS is horizontal when an economy produces its level of output much below its potential level.

Step-by-step solution

Concept introduction

The SRAS curve depicts the relationship between pricing and aggregate output.

Potential GDP is at full employment, an economy can produce its maximum quantity of production.

Explanation

The aggregate supply curve is about horizontal at first but quickly becomes nearly vertical. The level of output is substantially below the potential GDP when the aggregate supply curve is horizontal. Horizontal SRAS indicates that an economy has the ability to supply at a particular price level. Any change in the price level, on the other hand, encourages producers to produce more since it becomes more profitable for the firm to sell more products. Furthermore, producers have a good possibility of producing more in the short term by increasing variable input.