Aggregate supply is the supply of all goods and services. There is considerable disagreement among economists about the meaning and shape of the aggregate supply curve. Many economists believe that the AS curve has different features in the short run than in the long run. We will first develop the concepts of the AS curve within the context of the short run, and then look at some of the implications of the long run on the AS curve.

The Aggregate Supply Curve: A Warning

The AS curve shows the relationship between the total supply of goods and services in the economy and the price level. Just as the AD curve is not the summation of the market demand curves for the economy, the AS curve is not the summation of the market supply curves in the economy.

Recall that in deriving market supply curves, the input prices are held constant. An increase in output price causes firms to respond to the resulting higher profit per unit by increasing production. For the AS curve, however, this phenomenon is not possible because the vertical axis shows the prices of all goods and services. There must, therefore, be other reasons for the positive slope of the AS curve.

• Aggregate Supply in the Short Run
• Shifts of the Short-Run Aggregate Supply Curve