The short run aggregate supply (SRAS) curve shifts left when oil supply shocks occur because

Question

Quizplus · Accepted Answer

Oil is a crucial input in the production process of many goods and services. When there is an oil supply shock, the cost of producing these goods increases, resulting in increased production costs and decreased profitability for firms. As a result, firms reduce the quantity of goods they supply at any given price level, causing the SRAS curve to shift left. Therefore, option A is the correct answer. Option B is incorrect because the oil consumption would decrease due to the higher oil prices. Option C is incorrect because increased production costs would increase average total cost, not decrease it. Option D is incorrect because a leftward shift in the SRAS curve implies that the price level would increase at any given output level, not fall.

The Short Run Aggregate Supply (SRAS) Curve Shifts Left When