Exhibit 10.1

-Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. At a price of P₁, firms will _____
A) supply less than potential output.
B) supply more than potential output.
C) supply potential output.
D) increase prices.
E) decrease prices.

Question

Exhibit 10.1
 
-Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. At a price of P₁, firms will _____
A) supply less than potential output. 
B) supply more than potential output. 
C) supply potential output. 
D) increase prices. 
E) decrease prices.

Quizplus · Accepted Answer

At a price of P₁, the SRAS curve intersects the long-run aggregate supply (LRAS) curve at the potential output level of GDP. This means that firms are willing to supply the economy's potential output at this price level. Therefore, the correct answer is C, supply potential output.

Exhibit 10.1 -Refer to Exhibit 10.1, Which Shows the Short-Run Aggregate Supply