The short-run aggregate supply curve is upward-sloping because:
A)higher prices discourage the producers to expand output.
B)higher price levels create incentives to expand output when resource prices remain constant.
C)lower prices encourage the producers to expand output.
D)higher price levels create an expectation among producers of still higher price levels.

Question

Quizplus · Accepted Answer

The upward-sloping short-run aggregate supply curve indicates that as the price level increases, firms are willing to produce more output because higher prices create incentives to expand output when resource prices remain constant. This is because higher prices mean higher revenue, which in turn can cover the higher costs associated with producing more output.

The Short-Run Aggregate Supply Curve Is Upward-Sloping Because