What Shifts Short-Run Aggregate Supply

SRAS shows how much output firms supply at each price level, given the costs they're currently locked into. Nominal wages, contracts, and resource prices are sticky in the short run, so when something changes the cost of producing goods, every firm's willingness to supply at a given price changes too, and the whole curve shifts. An oil price spike raises costs for nearly every producer at once, so at the old price level firms can no longer profitably supply as much. The curve shifts left: less output offered at every price.

Walk through rising nominal wages. Wages are a major input cost, so a wage increase raises the cost of producing each unit of output. At the original price level, firms supply less, shifting SRAS left. Aggregate demand hasn't moved, so the new SRAS crosses it at a higher price level and lower real output, stagflation in miniature. Expected inflation works the same way: if workers and firms expect prices to rise, they bargain for higher wages and set higher prices now, raising costs before any price level change actually happens, which shifts SRAS left just like a cost shock.

This sits right next to the AD/AS equilibrium model and the output gap. SRAS shifts are what turn a short-run equilibrium into a recessionary or inflationary gap, and they are the reason fiscal policy sometimes targets supply rather than demand. The key distinction: price level changes move you along SRAS, since that's exactly what the curve plots; only cost or expectation changes shift it.