Question

8. Why is the short-run aggregate supply curve positively sloped? Aa Aa E In the short run, the quantity of output that firms supply can deviate from the natural rate of output if the actual price level in the economy deviates from the expected price level. Several theories explain how this might happen. According to the misperception effect theory, overall changes in the price level can temporarily mislead firms about what is happening to their output prices. Consider a soybean farmer who expects a price level of 100 in the coming year. If the actual price level turns out to be 110, soybean prices will , and if the farmer mistakenly assumes that the price of soybeans increased relative to other prices of goods and services, she will respond by the quantity of soybeans supplied. If other producers in this economy mistake changes in the overall price level for changes in their relative prices, the unexpected increase in the price level causes the quantity of output supplied to the natural rate of output in the short run.

Answer 1

If prices are going to 100 today which is 110 now then the prices will rise because the prices are going to less in future which is high then. Farmers will try to gain maximum profit from the price which is prevailing currently in the market. There are chances where it can also falls but now always, when prices are going to fall, farmers puts less hardwork in soaring it which causes prices to fall now

If farmers mistakenly assumes that the prices of soyabeans increased relative to other prices of goods and services, she will respond be raising the quantity of soyabeans supplied because it will increase the profit level.

The unexpected increase in the price level causes the quantity of output supplied to rise from the natural rate of output in short run because as prices rises suppliers raises the supply level which crosses the natural rate of output.