Moneyzine
Contents
/Personal Finance/Aggregate Supply (AS)

Aggregate Supply (AS)

Moneyzine Editor
Author: 
Moneyzine Editor
2 mins
September 25th, 2023
Advertiser Disclosure

Definition

The term aggregate supply refers to the total of all goods and services that businesses in a nation plan to sell at a specific point in time. Aggregate supply is typically illustrated as a line depicting the quantity of goods and services supplied at various price points.

Explanation

Also referred to as domestic final supply, aggregate supply (AS) is the total amount of goods and services that an economy can sell at a specific point in time. Aggregate supply is usually depicted as an upward sloping line, indicating the quantity of goods and services sold at various price points as shown in the accompanying illustration.

The aggregate supply curve is upward sloping because the cost of inputs is typically fixed in the short run, and as output increases excess production capacity is exhausted. In the short run, companies cannot add new capacity to increase production. The only alternative is to utilize the existing capacity by adding more shifts or extending hours of operation.

In the long run, companies have more options since they are able to increase supply by adding more factories and add to existing capacity. This leads to the following concepts:

  • Short-Run Aggregate Supply (SRAS): in the short-run, aggregate supply will react to higher demand by increasing the use of current production processes since a new factory cannot be built to increase production.

  • Medium-Run Aggregate Supply (MRAS): new capital can be introduced to increase production; however, wages associated with labor cannot be increased as quickly. This is referred to as sticky wages.

  • Long-Run Aggregate Supply (LRAS): in the long-run both capital and wages are controllable. Technology improvements can also be introduced to make processes more efficient.

Related Terms

Related Content

  • What Can Help You Meet Your Budget While Shopping for Important Items?
    Budgeting while ensuring you don't compromise on quality can seem daunting. Whether filling your pantry, updating your wardrobe, or keeping up with the latest tech, smart shopping strategies are crucial for keeping your finances in check.
    April 2nd, 2024
  • How to Make a Million Dollars in 10 Years
    Truthfully, this title should actually be “How to Make a Million Dollars in 10 Years Without Going Into Debt", but that is just getting a little too winded for my liking. It’s true though!
    March 26th, 2024
  • How to Apply Maslow’s Hierarchy to Your Money This Year
    You might vaguely remember your psychology teacher talking about Maslow. He pointed at a picture of a triangle as you nodded off in the back of the school room.
    March 27th, 2024
  • How to Tackle Multiple Savings Goals
    When there’s only so much money to go around, there are often multiple savings goals competing for your money. Think of the young professional who’d like to get a more reliable car, buy a house, and save for retirement. Or consider the young family that’s saving for college, retirement, and a bigger house.
    March 22nd, 2024
  • The Countdown to Early Retirement: 10 Expenses to Eliminate
    Dreaming of waving goodbye to the daily grind five years ahead of schedule? The road to early retirement is paved with more than good intentions; it requires a meticulously crafted strategy with surprising twists. It's not solely about what you should be doing—like diligently saving a portion of your income or investing wisely—but also about what you need to stop doing.
    March 22nd, 2024

Contributors

Moneyzine 2024. All Rights Reserved.