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 these answers are correct.

Question

Quizplus · Accepted Answer

When actual output exceeds potential, firms struggle to keep production in line with the high demand. They may have to pay their workers more for overtime or hire additional workers, which increases their production costs. Firms then raise their prices by more than the usual amount in an attempt to cover these increased costs. This leads to an upward sloping aggregate supply curve.

Which of the Following Best Describes Why the Aggregate Supply