Which of the following best describes why the aggregate supply curve slopes upward?
A)When actual output exceeds potential,firms struggle to keep production in line with the high demand.Firms therefore raise their prices by more than the usual amount in an attempt to cover increased production costs.
B)When actual output exceeds potential,firms have an easy time keeping production in line with the high demand.Firms therefore lower their prices by more than the usual amount in an attempt to cover increased production costs.
C)When actual output exceeds potential,firms struggle to keep production in line with the high demand.Firms therefore lower their prices with decreased production costs.
D)When actual output falls below potential,firms easily keep production in line with the high demand.Firms therefore raise their prices by more than the usual amount in an attempt to cover increased production costs.
E)None of the above is correct.

Question

Quizplus · Accepted Answer

The upward sloping aggregate supply curve is mainly due to the fact that when actual output exceeds potential, firms struggle to keep production in line with the high demand. As a result, firms have to increase their prices by more than the usual amount in an attempt to cover increased production costs, leading to an upward sloping aggregate supply curve. Option A is the only choice that accurately describes this concept.

Which of the Following Best Describes Why the Aggregate Supply