The positive slope of the AS curve is a _____ phenomena, when the _____ are held constant.
A)long-run;business profits
B)short-run;government expenditures
C)short-run;costs of production
D)long-run;commodity prices
E)long-run;aggregate expenditures

Question

Quizplus · Accepted Answer

The positive slope of the AS (aggregate supply) curve reflects the short-run relationship between the price level and the costs of production. This is because in the short run, firms are limited by their existing capital and labor, and cannot easily adjust production levels in response to changes in the price level. As a result, an increase in the price level will lead to higher profits for firms, which will encourage them to increase production, but at the same time, higher prices for inputs like labor and materials will increase their costs of production. This trade-off between higher prices and higher costs of production is what generates the positive slope of the AS curve. Note that this relationship is specific to the short run; in the long run, all costs of production are assumed to be variable, and the AS curve is vertical.

The Positive Slope of the AS Curve Is a _____