2.3.2 Short-run AS Quiz: Pearson Edexcel Economics A, Unit 2

The 20 questions

1. Which factor is a determinant of short-run aggregate supply?

   • changes in the rate of technological progress over decades
   • changes in the number of graduates entering the labour market
   • changes in the size of the working-age population over time
   • changes in the costs of raw materials and energy used by firms

2. A rise in the price of oil, with all else equal, is most likely to:

   • shift aggregate demand to the right, raising real output, because households spend more on goods when energy bills rise
   • shift short-run AS to the left, raising the price level and reducing real output
   • leave short-run AS unchanged because oil is not an input in most production, so energy prices affect households but not firms
   • shift short-run AS to the right, lowering the price level, because higher energy costs lead firms to cut prices to sell more output

3. A depreciation of sterling, all else equal, is most likely to affect short-run AS by:

   • raising the sterling cost of imported inputs, shifting SRAS to the left
   • shifting long-run AS to the right, increasing potential output
   • raising the sterling cost of exports only, leaving SRAS unchanged
   • lowering the sterling cost of imported inputs, shifting SRAS to the right

4. An increase in the rate of employers' payroll taxes most directly affects short-run AS by:

   • lowering aggregate demand because firms cut investment immediately
   • raising firms' costs of labour, reducing the quantity supplied at each price level
   • increasing long-run potential output by improving productivity
   • raising firms' revenues, increasing the quantity supplied at each price level

5. A fall in the rate of corporation tax, all else equal, is most likely to:

   • shift aggregate demand to the left by reducing firms' investment
   • reduce short-run AS by raising the cost of raw materials
   • reduce firms' profits and shift short-run AS to the left
   • increase firms' after-tax profits and shift short-run AS to the right

6. Which of these is the most likely consequence of a rise in unit labour costs for UK firms?

   • a fall in competitiveness and a leftward shift of short-run AS
   • an increase in competitiveness as firms raise wages
   • a rightward shift of long-run AS as workers become more productive
   • a fall in the price level as firms pass lower costs on to consumers

7. Why is a supply shock from a sharp rise in energy costs a particular problem for policy-makers?

   • It has no effect on the economy because energy is not part of AD, so firms and households adjust spending without any output change
   • It increases both output and the price level by equal amounts, so the economy grows faster as prices rise across sectors
   • It only lowers the price level, which policy-makers can easily offset by cutting interest rates to restore output and prices
   • It raises the price level while reducing output, creating a trade-off between inflation and growth

8. Using an AD/AS diagram, which combination illustrates a fall in real output with a rise in the price level?

   • a rightward shift of AD with AS unchanged
   • a leftward shift of AD with AS unchanged and no change in prices
   • a rightward shift of short-run AS with AD unchanged
   • a leftward shift of short-run AS with AD unchanged

9. A firm's production costs rise by 10%, and the firm passes all of this to consumers. What is the most likely effect on the price level?

   • no change in the price level because costs are unchanged
   • a rise in the price level, shifting the economy along the AD curve
   • a fall in the price level as consumers stop buying
   • a rise in real output as the firm produces more

10. Which statement about the relationship between wages and short-run AS is most accurate?

    • Wages affect only the long-run AS curve, never the short run
    • Wages have no effect on short-run supply because they are a transfer
    • Rising nominal wages increase costs and reduce short-run supply unless productivity rises
    • Rising nominal wages always increase short-run supply because workers spend more

11. Which statement best evaluates whether a fall in short-run AS is always harmful?

    • It is harmful for growth and inflation, but the effect depends on whether the shock is temporary and on policy responses
    • It is always beneficial because lower output reduces inflation, which helps stabilise prices and wages across the economy
    • It has no effect on the economy because prices adjust instantly to any cost change, so output and jobs are never affected
    • It is irrelevant because only long-run AS affects welfare, as short-run output changes have no lasting effect on living standards

12. Which of the following would increase short-run AS?

    • a rise in indirect taxes on firms' production
    • a rise in the world price of commodities used in manufacturing
    • a fall in the world price of commodities used in manufacturing
    • a rise in the sterling cost of imported components

13. Which change is most likely to shift SRAS to the right in the UK?

    • a rise in indirect taxes on firms' production, which raises costs and reduces the quantity supplied at each price
    • a fall in the exchange rate, which raises the sterling cost of imported inputs and so shifts SRAS to the left
    • a rise in the world price of imported raw materials, which increases firms' costs and shifts short-run aggregate supply to the left
    • a rise in the exchange rate of sterling, which lowers the sterling cost of imported energy and components

14. A government reduces a tax on firms' production costs. What is the effect on SRAS?

    • SRAS shifts right because the tax reduction lowers firms' costs
    • SRAS shifts left because the tax reduction raises costs
    • LRAS shifts left because the tax cut reduces productivity
    • SRAS is unchanged because taxes do not affect supply

15. Which statement best explains why a rise in the price of imported energy may cause stagflation?

    • It causes deflation and rising real output at once, because cheaper energy reduces firms' costs and so increases the volume sold
    • It raises the price level while reducing real output, combining inflation with stagnation
    • It raises output and lowers the price level at the same time, so the economy enjoys faster growth and falling prices
    • It leaves the price level unchanged while reducing real output, because energy costs lower firms' revenues but not their prices

16. A firm in a competitive market faces higher input costs. What happens to its short-run supply curve?

    • It is unchanged because input costs affect only long-run supply
    • It shifts right, so at each price the firm supplies more
    • It shifts left, so at each price the firm supplies less
    • It becomes horizontal at the current market price

17. Which of these is a change in an input cost that would shift the SRAS curve?

    • a rise in the cost of components imported from abroad when sterling weakens
    • a rise in the population of working age over several decades
    • a rise in the rate of labour productivity achieved through training
    • a rise in the number of universities training engineers

18. A UK firm's cost of imported raw materials rises from 50 to 60 per unit while its selling price stays at 100. Which is the most likely effect on the firm's supply?

    • it raises the selling price to 120 automatically
    • it reduces the quantity supplied at a given price because profit per unit falls
    • it increases the quantity supplied because profit per unit rises
    • it has no effect because raw material costs do not affect profit

19. Which statement best describes how a fall in commodity prices affects SRAS and inflation?

    • It shifts SRAS right, lowering the price level and possibly raising output
    • It shifts AD right, raising output without changing prices
    • It shifts SRAS left, raising the price level and reducing output
    • It shifts LRAS left, permanently reducing potential output

20. A firm's wage bill rises by 5% with no change in productivity, and wages are its only cost. By how much does its cost per unit rise?

    • 10%
    • 50%
    • 5%
    • 0.5%

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