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Topic Menu | | Unit 1: Somebody Sells | | Aggregating Supply
A Market For All
Circular Flow
Real Production
Price Level
Unit 1 Review
| | Unit 2: Making Time | | Two Periods
Price Adjustment
Employment
Real Wages
Long Run
Short Run
Unit 2 Review
| | Unit 3: The Curves | | LRAS Curve
SRAS Curve
Market Supply
Unit 3 Review
| | Unit 4: Determinants | | Stability
Resource Quantity
Resource Quality
Resource Prices
Unit 4 Review
| | Unit 5: Moving On | | Self Correction
More Policies
Aggregate Market
Unit 5 Review
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Aggregate Supply
A few days back (it was a Tuesday), everyone seemed to want something from me. Distant cousins wanted Super Bowl tickets, the Internal Revenue Service wanted back taxes, and several neighbors wanted improvements in my yard. Perhaps you recall that this is just the sort of day that would make me think about aggregate demand. However, none of those making requests gave any thought whatsoever to ME! None considered if I would be able to satisfy their requests. Was I able to acquire Super Bowl tickets that I could pass along to my distant cousins? Did I have any money to pay back taxes to the Internal Revenue Service? Could I find the time to beautify my front yard? If requests from my cousins, my neighbors, and the Internal Revenue Service illustrate aggregate demand and the demand side of the aggregate economy, then my abilities to satisfy these requests would seem to represent the supply side of the aggregate economy. Such suspicions are justified. The ability of the aggregate economy, especially the business sector, to produce goods and services is the topic of this current lesson -- aggregate supply.
In much the same way that the market supply lesson parallels the market demand lesson, this lesson on aggregate supply parallels the aggregate demand lesson. Aggregate supply however, is somewhat more involved than market supply. Aggregate supply is separated into two relations -- one for the short run and one for the long run. This lesson examines these relations noting what they are, how they work, and why they are important. - This lesson begins with an introduction to the aggregate supply half of the aggregate market in the first unit, Somebody Sells.
- The second unit, Making Time, then explores the different aggregate supply relations that exist between the price level and real production in the short run and the long run.
- The third unit, The Curves, introduces the short run aggregate supply curve and the long run aggregate supply curve which capture these two alternative relations.
- We then pick up the key curve-shifting determinants of aggregate supply in the fourth unit, Determinants, especially resource quantity, resource quality, and resource prices.
- The fifth unit, Moving On, wraps up this lesson with a discussion of the self-correction mechanism that relies on changes in the aggregate supply and how this relates to business cycle stabilization.
Learning ObjectivesConsider these ten aggregate supply learning objectives as you work through this lesson: - Aggregate supply as the supply side of the aggregate market.
- Aggregate supply as the relation between the price level and real production.
- How aggregate supply relates to the aggregate market and the circular flow.
- What differences between the short run and the long run mean for aggregate supply.
- How aggregate supply reacts differently in the short run and the long run.
- The vertical long-run aggregate supply curve and the positively-sloped short-run aggregate supply curve.
- How and why the short-run and long-run aggregate supply curves shift.
- Aggregate-supply determinants that shift the aggregate supply curves.
- The self-correction mechanism that automatically moves the aggregate economy from the short run to the long run.
- How supply-management policies can be used to shift the aggregate supply curve to stabilize business cycles.
    
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