The upward slope of the short-run aggregate supply curve is based on the assumption that:
A) Wages and other resource prices do not respond to price level changes
B) Wages and other resource prices do respond to price level changes
C) Prices of output do not respond to price level changes
D) Prices of inputs flexible while prices of outputs are fixed

Question

Quizplus · Accepted Answer

The upward slope of the short-run aggregate supply curve is based on the assumption that wages and other resource prices do not respond to price level changes. This is because in the short run, it is difficult for firms to adjust wages and other resource prices quickly in response to changes in the price level. As a result, when the price level increases, the cost of production also increases, leading to a reduction in profits and a decrease in output. Conversely, when the price level decreases, the cost of production also decreases, leading to an increase in profits and an increase in output. This relationship between the price level and output is captured by the upward sloping short-run aggregate supply curve.

The Upward Slope of the Short-Run Aggregate Supply Curve Is