Aggregate Supply (AS)
Quick Definition
The total output of goods and services that firms in an economy are willing to produce at various price levels during a given time period.
Key Takeaways
- SRAS slopes upward (short-run); LRAS is vertical at potential output (long-run)
- In the long run, output is determined by real factors: labor, capital, technology
- Supply shocks shift SRAS and can cause stagflation
- Supply-side policies aim to shift LRAS rightward by improving productivity
- The interaction of AD and AS determines the price level and real GDP
What Is Aggregate Supply (AS)?
Aggregate Supply (AS) represents the total quantity of goods and services that all firms in an economy are willing and able to produce at each price level. The AS curve has two distinct components: the Short-Run Aggregate Supply (SRAS) curve, which slopes upward because firms increase output as prices rise while some input costs remain fixed; and the Long-Run Aggregate Supply (LRAS) curve, which is vertical at the economy's potential output level, reflecting the idea that in the long run, output is determined by real factors (labor, capital, technology) rather than the price level. Supply shocks—such as oil price spikes, natural disasters, or pandemics—shift the SRAS curve, potentially causing stagflation. Policies that improve productivity, technology, or labor force participation shift the LRAS curve rightward, increasing the economy's potential output.
Aggregate Supply (AS) Example
- 1The 1973 oil embargo shifted the short-run aggregate supply curve leftward, causing both higher prices and lower output—classic stagflation.
- 2Technological innovations in manufacturing shifted the long-run aggregate supply curve rightward, enabling higher potential GDP without inflation.
- 3Supply chain disruptions during COVID-19 reduced aggregate supply, contributing to rising prices even as aggregate demand recovered.
Related Terms
Aggregate Demand (AD)
The total demand for all goods and services in an economy at a given price level and time period, comprising consumption, investment, government spending, and net exports.
GDP (Gross Domestic Product)
The total monetary value of all finished goods and services produced within a country's borders in a specific time period.
Stagflation
An economic condition combining stagnant growth, high unemployment, and high inflation simultaneously.
Supply and Demand
The fundamental economic model describing how the quantity of goods available and buyer desire for them determine market prices.
Business Cycle
The recurring pattern of expansion and contraction in economic activity, typically measured by changes in real GDP and employment.
Federal Reserve (The Fed)
The central banking system of the United States, responsible for monetary policy, bank regulation, and financial stability.
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