Aggregate supply

Aggregate supply is the total amount of goods and services that alll industries in the economy will produce at any given price level. Sum of supply curves of all inductries in economy.
Short Run aggregate supply

SRAS looks similar to microeconomic supply curve. It shows the positive relationship between the price level and country’s real output. Its usually curved and gets steeper as price increases.
If larger output is produced, higher average costs of production for eg higher wages. Plus according to the law of diminishing marginal returns, MC and Ac will rise. Higher cost ⇒ higher price ⇒ SRAS upward sloping.
Short run: period of time when when the prices of factors of production do not change. (price of labor is fixed)

Any change in the factors other than price level will result in a shift in the SRAS curve (supply side shocks)
Increase in costs ⇒ decrease in AS ; vice versa

Changes in costs of production

Change in wage rates : Increase in wages ⇒ increase in cost of production ⇒ cause a fall in AS. For eg: higher minimum wage, workers/labour unions negotiating higher pay and working conditions.
Change in cost of raw materials: A change in the price of a significantly or widely used raw material which are used in most industries would lead to an icrease in average cost of production thereby reducing AS. The raw material needs to be significant to have an impact on the AS.
Change in price of imports: If raw materials used by companies are imported, a rise in import prices (due to exchange rates) would increase the costs of production.
Changes in government indirect taxes or subsidies.: Increase in indirect tax increases the cost of production ⇒ fall in SRAS curve. vice versa. Increase in subsidies ⇒ reduces costs of production ⇒ shift SRAS to right. vice versa. Indirect taxes imposed in majority goods ⇒ large effect. Subsidies for a single product ⇒ minimal effect (unless a widely used commodity)

Short run macroeconomic equillibrium : where AD is equal to AS.

Two type of LRAS curves shapes based on two economic thoughts: new classical LRAS and Keynesian AS.