Short-Run Equilibrium

The equilibrium in the short-run is shown by the intersection of the Aggregate Demand (AD) curve and the Short-Run Aggregate Supply (SAS) curve. When either AD or SAS shifts, the equilibrium point is changed. For example, in Graph 1, a shift to the right of the AD curve will cause the equilibrium output as well as the price level to increase. And if the AD curve were to shift to the left, as in Graph 2, the opposite would be true: output and price level will decrease.

Graph 1

 

  

Graph 2

 

A shift to the left in SAS, as shown in Graph 3, will cause the price level to rise while equilibrium output will decrease. And a shift to the right, as shown in Graph 4, will decrease price level and increase output. 

 

Graph 3

 

Graph 4