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Short-run aggregate supply curve: how to read the model

SRAS links the overall price level to real output while some wages and costs are slow to adjust.

Sofia Marchetti

By Sofia Marchetti · World Affairs Correspondent

4 min read

The short-run aggregate supply curve, or SRAS, shows the positive relationship between the overall price level and the real output firms supply when at least one factor price has not fully adjusted, according to Khan Academy. It matters because the model explains why real GDP can change with the price level before wages and other costs catch up.

SRAS is an economy-wide model, not the supply curve for one product. Khan Academy says it represents aggregate output supplied across the economy.

How to read the curve

Economics Online places the general price level on the vertical axis and real GDP on the horizontal axis. The SRAS curve slopes upward: points higher and farther right on the same curve show a higher price level and more real output supplied.

  • Short run: a period in which at least one factor price cannot change, according to Khan Academy. It is not a fixed number of months or years.
  • Aggregate: economy-wide output rather than the quantity supplied in a single market, according to Khan Academy.
  • Price level: the general level of prices, rather than the price of one good or service, as shown in Economics Online's SRAS graph.

Why SRAS slopes upward

Wages and other input prices can be slow to adjust. LibreTexts defines a sticky price as one that adjusts slowly to its equilibrium level, while Khan Academy notes that wages and other resource prices may be set in longer-term agreements.

If firms' output prices and revenue rise while production costs, especially wages, lag behind, firms have a temporary incentive to produce more, according to Econbusters. That relationship produces the upward-sloping SRAS curve.

Khan Academy also identifies sticky output prices as part of the explanation. It describes menu costs as a proposed reason firms may be slow to change listed prices.

Movement along SRAS versus a shift

Economics Online draws a clear line between a movement along an existing SRAS curve and a shift of the entire curve. Check whether the change is the price level itself or a separate condition affecting supply.

  • Movement along SRAS: A change in the general price level moves the economy along a given curve, holding other supply conditions constant, according to Economics Online.
  • Rightward shift: Higher subsidies, a larger labor force, greater labor productivity, or expanded natural-resource availability increase SRAS in Economics Online's examples.
  • Leftward shift: Higher fuel costs, higher corporation tax, or adverse climate conditions reduce SRAS in its examples.

Khan Academy adds that actual or expected changes in factor prices shift SRAS. These changes are also called aggregate supply shocks.

SRAS versus long-run aggregate supply

SRAS applies while some wages and prices are sticky. LibreTexts says the long-run model assumes wages and prices are flexible and shows long-run aggregate supply, or LRAS, as a vertical line at potential output.

  • SRAS: upward sloping because some costs have not fully adjusted.
  • LRAS: vertical at potential output in the standard model after wages and prices have adjusted.

For the broader model that combines spending with supply, see aggregate supply and demand curves, read from the axes out.

Frequently asked questions

What causes the SRAS curve to shift left or right?

Economics Online says higher fuel or other input costs, higher corporation tax, and adverse climate conditions reduce SRAS. Higher subsidies, labor-force availability, labor productivity, and natural-resource availability increase it. Khan Academy adds that changes in actual or expected factor prices shift SRAS.

What is the difference between a movement along SRAS and a shift in SRAS?

According to Economics Online, a change in the general price level causes movement along a given SRAS curve. A change in another supply condition, such as input costs, taxes, subsidies, labor, productivity, or resources, shifts the entire curve.

How does short-run aggregate supply differ from long-run aggregate supply?

Khan Academy defines the short run as a period in which at least one factor price cannot change. LibreTexts says the long run assumes flexible wages and prices, with LRAS vertical at potential output in the standard model.

Why are wages and prices called sticky?

LibreTexts defines a sticky price as one that is slow to adjust to its equilibrium level. Khan Academy says labor contracts and longer-term agreements for other resources can contribute to slow adjustment.

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