An increase in the costs of production will cause the:
A) short-run aggregate supply curve to shift to the right.
B) aggregate demand curve to shift to the right.
C) short-run aggregate supply curve to shift to the left.
D) long-run aggregate supply curve to shift to the left.

Question

Quizplus · Accepted Answer

An increase in the costs of production will cause a decrease in the profitability of firms and reduce their incentive to produce. This will cause a decrease in the short-run aggregate supply (SRAS) curve, shifting it to the left. This is because firms will have to charge higher prices to cover their increased costs, lowering the quantity of output they are willing to supply at every price level. The other options are incorrect as they do not reflect the effect of an increase in production costs.

An Increase in the Costs of Production Will Cause The