Definition
Short-run aggregate supply describes how much total output firms in an economy are willing to produce at each overall price level, over a horizon short enough that wages, contracts, and some other input prices have not fully adjusted. Because those costs are temporarily fixed, a higher price level raises profit margins and encourages firms to expand production — so the short-run curve slopes upward.
This contrasts with long-run aggregate supply, which is vertical: once all prices and wages adjust, output returns to the economy's potential level regardless of the price level.
Why it matters
How it works
In the short run, many wages are locked in by contracts and prices are revised only periodically — they are sticky. When the overall price level rises faster than these fixed costs, the gap between revenue and cost widens, so producing more becomes profitable and firms hire and expand. Output rises with the price level.
Over time, workers renegotiate wages and firms reset prices to reflect the new environment. As costs catch up, the temporary profit advantage disappears, output drifts back toward potential, and the economy moves to its long-run curve.