For the factors that shift SR agg supply, why is it that if owners of resources expect future prices to rise (inflation) , they would have an incentive to withhold their resources from the market and the SRAS shifts to the left, and if future prices to fall (deflation), they would have an incentive to sell immediately, shifting SRAS to right… Why I am confused is that, if future prices will rise, wouldn’t resource owners want to increase SUPPLY now, before it gets too expensive to supply it in the future? — For example, when there is an unanticipated upward shift in aggregate demand, this increase the PRICE LEVEL and the SR SRAS shifts to the LEFT because PRODUCTION COSTS become too EXPENSIVE… I hate economics
hellomello If the future price to rise, the supplier would have more incentive not to sell goods he own Today and wait for future so that when prices are high, he can sell goods at huge price and get profit out of it. So, Today the supply would be lesser, SRAS curve shifts left. Opposite happens when predicted future prices are lower. So crux is, Selling Goods created Today with less production cost in future will return higher profit than selling them Today at lower price.
i understand that but my question is… then why…when there is an unanticipated upward shift in aggregate demand, this increase the PRICE LEVEL and the SR SRAS shifts to the LEFT because PRODUCTION COSTS become too EXPENSIVE… instead of to the RIGHT… WHEN they are in actuality making profit as well because prices r higher?.. the latter would hold… if we assume supplier likes higher prices
Hellomello I think that it might help to de-couple the concept of how much something costs to produce and the price that you can sell it at. You said Why I am confused is that, if future prices will rise, wouldn’t resource owners want to increase SUPPLY now, before it gets too expensive to supply it in the future? If the future price is going to rise because of increased demand, vice an increased cost to produce the supplier has an incentive to withhold sales and make the price rise quicker to realise his gains (assuming he can affect the market in this way), or hold onto his reserves and sell later.