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Short-run Aggregate Supply (SRAS)

Definition

Short-run aggregate supply represents the total amount of goods and services that firms are willing to produce and sell at different price levels in the short run. It takes into account factors such as input prices, wages, and productivity.

Analogy

Think of short-run aggregate supply as a bakery's production capacity for a day. The bakery can quickly adjust its output by hiring more workers or using more ingredients, but it is limited by its current resources. Similarly, short-run aggregate supply reflects the maximum level of production firms can achieve in the short term.

Related terms

Long-run Aggregate Supply (LRAS): Long-run aggregate supply represents the total amount of goods and services that firms are willing to produce and sell at different price levels in the long run when all inputs are fully adjustable.

Input Prices: Input prices refer to the cost of resources used in production, such as labor, raw materials, or energy. They affect short-run aggregate supply.

Productivity: Productivity measures how efficiently inputs are transformed into outputs. Higher productivity allows firms to produce more goods and services with fewer resources, increasing short-run aggregate supply.