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Aggregate Supply Aggregate Supply (AS) – Goods and services that suppliers are willing to supply at any given price level. Short-run aggregate supply (SRAS) – Always angled. A relationship between price and real GDP. As price increases, real wages and labour become cheaper. As price decreases, productivity falls and so does real GDP. Misperception Theory – Business may think it’s a micro problem then law of supply kicks in as they believe they will make more profits however this is not the case as all prices are going up. When they think they are making more money they produce more than when they notice it goes down again. Sticky wages- In the economy the prices are increasing at different speeds this may be because of contracts etc to reflect the economy. Menu costs is if the price goes up by 5% then you will sell it for 5% this means that people need time to change these prices, changing menu telling staff etc. If company A is selling lemonade they notice they are able to raise the prices, but yet company B is in a contract to supply lemons at a fix price then Company B has Sticky prices and company A has sticky cost as they will not change in the short run. Shifts in the SRAS is caused by several different factors including: Employment costs Changes in resource/Input costs Commodity prices Change in exchange rate Government taxations, regulations, subsides etc The price of imports Supply shock (War, Earthquake, Hurricane) Inward shifts – Less supply at any given price level. Caused by Increased energy costs, higher labour costs etc. Outward shift – More supply at any given price level. Caused by Labour productivity increases, Energy costs are lower etc.