Supplementary resources by topic. Aggregate Supply is one of 51 key economics concepts identified by the Council for Economic Education (CEE) for high school classes.

Aggregate Supply

On this page:

Definitions and Basics
In the News and Examples
A Little History: Primary Sources and References
Advanced Resources
Related Topics

Definitions and Basics

Aggregate Supply, at Answers.com

The total supply of goods and services produced within an economy at a given overall price level in a given time period. It 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. Normally, there is a positive relationship between aggregate supply and the price level. Rising prices are usually signals for businesses to expand production to meet a higher level of aggregate demand.

Inflation, from the Concise Encyclopedia of Economics

Nonmonetary theories of inflation traditionally separate “demand-pull” sources from “cost-push” factors like oil, monopoly power, or wages. A surge in the demand for goods and services in general (“aggregate demand”) is thought to “pull” prices up across the board, especially when “aggregate supply” is held back by inertia or capacity limitations. Skeptics rightly question how demand could constantly outstrip supply. Surely, demand must originate from purchasing power, purchasing power from wealth, wealth from income, and income from the ability to produce (and hence supply) goods and services. This contradiction was understood early in the nineteenth century by Jean-Baptiste Say and others….

In the News and Examples

A Little History: Primary Sources and References

Jean-Baptiste Say, biography from theĀ Concise Encyclopedia of Economics

Say’s Law has various interpretations. The long-run version is that there cannot be overproduction of goods in general for a very long time because those who produce the goods, by their act of producing, produce the purchasing power to buy other goods. Say wrote: “How could it be possible that there should now be bought and sold in France five or six times as many commodities as in the miserable reign of Charles VI?” With this statement Say had the long run in mind. Certainly the long-run version is correct. Given enough time, supply does create its own demand. There can be no long-run glut of goods.

But Say also had a short-run version, that even in the short run there could be no overproduction of goods relative to demand. It was this version that Malthus attacked in the nineteenth century and that Keynes attacked in the twentieth century. They were right to attack it….

Advanced Resources

Related Topics

Aggregate Demand

Demand

GDP

Business Cycles

Inflation