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Economics explained


The macroeconomy

Short-run aggregate supply

Short-run aggregate supply

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Short-run aggregate supply is the output that will be supplied in a period of time when the prices of factors of production (inputs, resources) have not had time to adjust to changes in aggregate demand and the price level.

The short-run aggregate supply curve slopes up from left to right. As the price level rises, producers are willing and able to supply more goods and services.

Possible reasons for this positive relationship:

The profit effect:

As the price level increases, the price of factors of production such as wages do not change. So the price level rises, the gap between output and input prices widens and the amount of profit increases.

The cost effect:

Although the wage rates and raw material costs remain unchanged in the short run, average costs may rise as output increases.

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