Definition
Aggregate supply is the total real output — all final goods and services — that firms across an economy choose to produce and sell at each possible overall price level, holding other conditions fixed. It is the supply-side counterpart to aggregate demand, and the two together determine an economy's equilibrium output and price level.
Economists distinguish short-run aggregate supply, which can rise as prices increase because some input costs are slow to adjust, from long-run aggregate supply, which is fixed by an economy's productive capacity — its labor force, capital stock, and technology — and is unaffected by the price level.
Why it matters
How it works
In the short run, sticky wages and contracts mean firms can earn more profit by expanding output when the price level rises, so short-run aggregate supply slopes upward. In the long run, all prices and wages adjust, leaving real output anchored to potential GDP regardless of the price level — the long-run curve is vertical.
Supply shocks shift the curve directly: cheaper energy, better technology, or tax cuts on production push it outward; droughts, wars, or sudden cost spikes push it inward. Policymakers watch aggregate supply closely because demand-side stimulus can only raise output sustainably if supply has room to expand.