How Is the Aggregate Supply Curve Different From the Supply Curve for a Single Good?

In economics, the difference between the aggregate supply curve and the supply curve for a single good relates to the assumptions behind each curve. The supply curve for a single good assumes that input prices do not change, and that firms therefore increase capacity when prices rise. The aggregate supply curve displays price levels and assumes that input prices also eventually rise as overall prices rise.
  1. Supply Curve for a Single Good

    • The supply curve for a single good generally slopes up and to the right. Unlike the aggregate supply curve, the single-good supply curve describes microeconomic activity. It measures the price of a single good on the y-axis and the quantity of a single good on the x-axis. As prices increase, firms increase output because the amount a firm can get for each marginal unit increases.

    Aggregate Supply Curve

    • The aggregate supply curve moves in a different way. Because the curve assumes input prices will increase as price levels increase, there is a point where firms will not carry out additional production even as price levels increase. On a single-good supply curve, the price shown on the y-axis relates only to the price of one good, while the y-axis on an aggregate supply curve displays the changes in prices throughout the entire economy -- the macroeconomic "price level."

      The aggregate supply curve shows different characteristics depending on whether it depicts the short-run impact of price levels or the long-run impact of price levels.

    Short-Run Aggregate Supply Curve

    • The short-run aggregate supply curve (SRAS) depicts the change in output vs. price levels. In the short run, the aggregate supply curve is upward slopping. Some economists say that this is because wages (costs) tend not to respond quickly to changing market conditions (they're "sticky"). In those situations, increases in price levels decrease real wages. The lower real wages spur companies to hire more workers. As a result of the hiring, output increases.

    Long-Run Aggregate Supply Curve

    • According to the Long-Run Aggregate Supply (LRAS) curve, the amount of output does not change with increasing prices. The long-run aggregate supply curve has a vertical slope. Some economists imagine the long-run aggregate supply curve as representing an economy that has efficiently allocated all of its labor and capital. No matter what happens to prices, there will be no increase in output.

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