As shown in the diagram to the right, the short-run aggregate supply curve (AS)

Question

As shown in the diagram to the right, the short-run aggregate supply curve (AS) is upward-sloping. This positive slope is explained in part by the fact that AS in the short-run, output prices are slower to adjust to increasing aggregate demand than are input prices. input price increases cause firms to raise their prices. in the short-run, input prices-particularly wage rates-are slower to adjust to increasing aggregate demand than are output prices. A. O B. ° C. 0 ( D. business owners are more intelligent than other resource owners. Aggregate output (income), Y

Explanation / Answer

The right answer is C.

Because of sticky wage, the wage rate is slower to adjust to increasing demand. So, firms increase short-run supply because of increase in price.

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