Aggregate supply

What is aggregate supply?

Aggregate supply is the sum total of planned production. In the diagram it is often called the Short Run Aggregate Supply Curve (SAS). The Long Run Aggregate Supply curve is the vertical part only of the SAS curve. (And see below p.128 for an alternative diagram)

It is that shape because rising prices encourage producers to expand their output as they believe that they will make extra profits.

3. THE EQUILIBRIUM LEVEL OF NATIONAL INCOME

This is determined by aggregate supply and aggregate demand.

Guess where the equilibrium is? Right! At the intersection of AD and SAS1.

This temporary old revision section will automatically redirect to new version once ready.