What is happening at the upward-sloping section of aggregate supply (AS)?

Question

BlackTom AI · Accepted Answer

On the upward-sloping section of the aggregate supply (AS) curve firms respond to higher demand by increasing output, but rising resource scarcity pushes up the price level.

1. Relevant knowledge points and concepts
- Short-run AS is typically drawn with three regions: a flat (Keynesian) section at low output, an intermediate upward-sloping section, and a vertical (classical) section at full employment.
- In the upward-sloping region, some spare capacity remains but diminishing returns and rising factor costs mean producing more raises marginal cost and the price level.
- Sticky wages/prices and misperceptions mean firms increase output as price level rises, but constraints emerge.

2. Step-by-step reasoning
Step 1: At low output, many unused resources allow output to rise without higher prices (flat AS).
Step 2: As output expands, easily available unused resources are used up; firms face higher marginal costs.
Step 3: Further increases in aggregate demand lead to both higher output and higher price level — the curve slopes upward.
Step 4: Approaching the vertical section, there is little to no spare capacity and price increases become dominant.

3. Calculations
No numeric calculation is required; the reasoning is conceptual about capacity and price responses.

4. Why the correct answer is correct
"there is little spare production capacity" captures that in the upward-sloping region firms can still increase output but only by utilizing the remaining limited spare resources, which causes rising marginal costs and higher prices. Thus output and price move up together.

5. Why the other options are incorrect
- "there are no unused resources": describes the vertical (full-employment) AS, not the upward-sloping part.
- "total output can increase without increasing the price level": describes the flat (Keynesian) portion, not the upward-sloping section.
- "all of these": cannot be true because the three options describe different AS regions and are mutually exclusive.

6. Conclusion
Therefore the correct characterization of the upward-sloping AS section is "there is little spare production capacity," which matches the provided answer.

What is happening at the upward-sloping section of aggregate supply (AS)?Single choice

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