Shifts in SRAS are caused by changes in the costs of production for all firms within the economy. An increase in costs of production will shift SRAS to the left, whereas a decrease in costs of production will shift SRAS to the right.
A) Factors influencing short-run AS:
Changes in costs of raw materials and energy
An increase in the costs of raw materials and energy will increase the costs of production for firms within the economy. For example, the cost of using machinery will increase and the cost of making the goods/services that they supply will also increase as the raw materials used to make them are now more expensive. This will shift SRAS to the left (SRAS1 to SRAS2).
Changes in exchange rates
A weakening in the exchange rate will result in an increase in the price of imports. This will increase the costs of production for all firms within the economy as they have to pay a higher price for any goods/services that they decide to import. This is currently the case in the UK where the strength of the Pound is currently weak. Overall, this will cause a decrease in short run aggregate supply.
Changes in tax rates
The main type of taxation that affects SRAS is corporation tax, as this leads to an increase in the costs of production for firms within the economy. In the G20, the UK currently has the second lowest corporation tax rate (19%). Ireland is known for its very low corporation tax rate of 12.5%, attracting lots of inward investment from overseas, thus increasing both short run and long run aggregate supply.