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Aggregate Supply

Supply decisions are taken by the producers. Aggregate supply refers to the total output of goods and services that firms wish to produce with a hope that they would be able to sell all the produced quantity at the given price level. The concept of supply in microeconomic has a different meaning. There it shows the quantities of a particular commodity which a firm is willing to offer for sale at varying prices. In macroeconomics, aggregate supply is the outcome of the decisions of all producers in the economy to hire workers and buy other inputs in order to produce goods (and services) to sell to consumers, governments, and other producers, as well as for export.

The aggregate supply curve is a curve relating the economy’s producers’ total desired output (Y) to the given price level. Aggregate supply curve can be drawn for the short-run and for the long-run. In this chapter, we shall confine our discussion to the short-run aggregate supply (SRAS) curve only.

The short-run aggregate supply (SRAS) curve shows the quantity of output that firms desire to produce and sell at each price level, on the assumption that prices of all inputs remain unchanged.