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A-Level Economics · SRAS shift left (cost-push inflation) diagram question

Costs rise and SRAS1 shifts to SRAS2. Which point is the NEW equilibrium?

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The answer

Point F. AD crosses SRAS2 at point F: price level P₂ = 7, real output Y₂ = 3. Prices up, output down. After a cost shock the economy moves ALONG AD to where AD crosses the new supply curve — point F. Reading straight up from the old output (to N) is the classic slip: firms don't keep producing Y₁ once costs have risen.

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