what is aggregate supply 
the term aggregate supply refers to the supply of products that companies produce and plan to sell at a certain price in a given period put simply it refers to the finished goods that consumers purchase during a specified time aggregate supply is represented by the aggregate supply curve there is typically a positive relationship between aggregate supply and the price level investopedia michela buttignolunderstanding aggregate supplyaggregate supply refers to the total supply of final goods and services produced by companies that they plan to sell at a certain price within a specific time it can be contrasted by simple supply which is the product or service available from a single or individual producerput simply aggregate supply is the economy s gross domestic product gdp aggregate supply is normally measured and reported over a year it is also referred to by economists and analysts as total output aggregate supply is commonly affected by prices rising prices generally indicate that businesses should expand production to meet a higher level of aggregate demand when demand increases amid constant supply consumers compete for available goods and pay higher prices this dynamic induces firms to increase output to sell more goods the resulting supply increase causes prices to normalize and output to remain elevated a shift in aggregate supply can be attributed to many variables they include some of these factors lead to positive changes in aggregate supply while others cause a decline in aggregate supply for example increased labor efficiency perhaps through outsourcing or automation raises supply output by decreasing the labor cost per unit of supply by contrast wage increases place downward pressure on aggregate supply by increasing production costs 1aggregate supply is usually calculated over a year because changes in supply tend to lag changes in demand aggregate supply over timeaggregate supply responds to higher demand and prices in the short run by increasing the use of current inputs in the production process the level of capital is fixed over shorter periods this means that a company cannot do certain things such as erecting a new factory or introducing a new technology to increase production efficiency instead the company ramps up supply by getting more out of its existing factors of production such as assigning workers more hours or increasing the use of existing technology over the long run aggregate supply is not affected by the price level and is driven only by improvements in productivity and efficiency such improvements include increases in the level of skill and education among workers technological advancements and increases in capital certain economic viewpoints such as the keynesian theory assert that long run aggregate supply is still price elastic up to a certain point once this point is reached supply becomes insensitive to changes in price 2aggregate supply is represented by the aggregate supply curve which describes the relationship between price levels and the quantity of output that firms are willing to provide to consumers in the market aggregate supply vs aggregate demandaggregate supply is the opposite of aggregate demand while aggregate supply is the total amount of goods and services that producers are willing to sell to consumers aggregate demand refers to the total amount of demand for finished goods and services in the economy over a specified time it is expressed as a dollar value of how much consumers spend on these products aggregate demand includes a variety of products including you can calculate aggregate demand by adding together the total amount of consumer goods private investment government spending and net exports exports less imports several factors affect the aggregate demand in the economy they include interest rates foreign exchange rates inflation and income levels example of aggregate supplyhere s a hypothetical example to show how aggregate supply works let s assume that xyz corporation produces 100 000 widgets per quarter at a total expense of 1 million but the cost of a critical component that accounts for 10 of that expense doubles in price because of a shortage of materials or other external factors in that event xyz corporation could produce only 90 909 widgets if it still spends 1 million on production this reduction would represent a decrease in aggregate supply in this example the lower aggregate supply could lead to demand exceeding output that coupled with the increase in production costs is likely to lead to a rise in price 