6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level output if the actual price level in the economy deviates from the expected price level. Several theories explain how this might happen. For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 90. Faced with high menu costs, and firms that rely on catalogs the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will will respond by the quantity of output they supply. If enough firms face high costs of adjusting prices, the unexpected decrease in the the natural level of output in the short run. price level causes the quantity of output supplied to Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation: - Price Level Ezpected) = Natural Level of Output +a × (Price Level Actual Quantity of Output Supplied The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $2 billion. Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110. Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110. 125 120 AS 115 110 LRAS 105 100 95 90 85 80 75 10 20 30 40 50 60 70 80 90 100 OUTPUT (Billions of dollars) the price The short-run quantity of output supplied by firms will rise above the natural level of output when the actual price level level that people expected. PRICE LEVEL
6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level output if the actual price level in the economy deviates from the expected price level. Several theories explain how this might happen. For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 90. Faced with high menu costs, and firms that rely on catalogs the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will will respond by the quantity of output they supply. If enough firms face high costs of adjusting prices, the unexpected decrease in the the natural level of output in the short run. price level causes the quantity of output supplied to Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation: - Price Level Ezpected) = Natural Level of Output +a × (Price Level Actual Quantity of Output Supplied The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $2 billion. Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110. Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110. 125 120 AS 115 110 LRAS 105 100 95 90 85 80 75 10 20 30 40 50 60 70 80 90 100 OUTPUT (Billions of dollars) the price The short-run quantity of output supplied by firms will rise above the natural level of output when the actual price level level that people expected. PRICE LEVEL
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![6. Why the aggregate supply curve slopes upward in the short run
In the short run, the quantity of output that firms supply can deviate from the natural level
output if the actual price level in the economy deviates
from the expected price level. Several theories explain how this might happen.
For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose
firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their
goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 90. Faced with high menu costs,
and firms that rely on catalogs
the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will
will respond by
the quantity of output they supply. If enough firms face high costs of adjusting prices, the unexpected decrease in the
the natural level of output in the short run.
price level causes the quantity of output supplied to
Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation:
- Price Level Ezpected)
= Natural Level of Output +a × (Price Level Actual
Quantity of Output Supplied
The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume
that a = $2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural
level of output by $2 billion.
Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 100.
On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange
line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105,
and 110.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0ccf583b-3141-45e1-ad26-60f361ecbb8d%2F6d1f7992-cb20-48b1-849a-b67684fec82a%2Fwfcqfcp.png&w=3840&q=75)
Transcribed Image Text:6. Why the aggregate supply curve slopes upward in the short run
In the short run, the quantity of output that firms supply can deviate from the natural level
output if the actual price level in the economy deviates
from the expected price level. Several theories explain how this might happen.
For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose
firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their
goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 90. Faced with high menu costs,
and firms that rely on catalogs
the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will
will respond by
the quantity of output they supply. If enough firms face high costs of adjusting prices, the unexpected decrease in the
the natural level of output in the short run.
price level causes the quantity of output supplied to
Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation:
- Price Level Ezpected)
= Natural Level of Output +a × (Price Level Actual
Quantity of Output Supplied
The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume
that a = $2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural
level of output by $2 billion.
Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 100.
On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange
line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105,
and 110.
![Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 100.
On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange
line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105,
and 110.
125
120
AS
115
110
LRAS
105
100
95
90
85
80
75
10
20
30
40
50
60
70
80
90
100
OUTPUT (Billions of dollars)
the price
The short-run quantity of output supplied by firms will rise above the natural level of output when the actual price level
level that people expected.
PRICE LEVEL](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0ccf583b-3141-45e1-ad26-60f361ecbb8d%2F6d1f7992-cb20-48b1-849a-b67684fec82a%2Fabpjsbh.png&w=3840&q=75)
Transcribed Image Text:Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 100.
On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange
line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105,
and 110.
125
120
AS
115
110
LRAS
105
100
95
90
85
80
75
10
20
30
40
50
60
70
80
90
100
OUTPUT (Billions of dollars)
the price
The short-run quantity of output supplied by firms will rise above the natural level of output when the actual price level
level that people expected.
PRICE LEVEL
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
![Principles of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
![Managerial Economics: A Problem Solving Approach](https://www.bartleby.com/isbn_cover_images/9781337106665/9781337106665_smallCoverImage.gif)
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
![Managerial Economics & Business Strategy (Mcgraw-…](https://www.bartleby.com/isbn_cover_images/9781259290619/9781259290619_smallCoverImage.gif)
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education