Short-Run Aggregate Supply (SRAS)

Definition

The term short-run aggregate supply refers to the total of all goods and services that businesses in a nation can sell when constrained by time. Short-run aggregate supply is typically illustrated as an upward sloping, curved line depicting the quantity of goods and services supplied at various price points.

Explanation

Also referred to as domestic final supply, aggregate supply is the total amount of goods and services that an economy can sell at a specific point in time. The aggregate supply curve is upward sloping because the cost of inputs is typically fixed in the short run, and as output increases excess production capacity is exhausted. Short-run supply is a function of price. As demand for goods and services increase, consumers will pay higher prices and businesses will increase production to gain additional profits.

short run aggregate supplyHowever, in the short run companies cannot add new capacity, or capital, to increase production; wages are also fixed. As shown in the accompanying illustration, the short-run aggregate supply (SRAS) curve has a positive slope but is relatively flat at lower levels of output. As businesses in an economy approach the capacity of their factories and workforce, the curve is nearly vertical. In the long run, both capital and wages are controllable. Technology can also be introduced to increase process efficiency.

Related Terms

long-run aggregate supplybusiness cycleaggregate supply, aggregate demand