Aggregate supply (definition, factors and components)

The offer added refers to the production that companies are willing to sell based on an average price level, some at certain business expectations and others at certain prices.

Broadly speaking, what companies want most is to be able to sell their products at the highest prices they can, without However, both business expectations and production costs could be decisive in relation to this context.

East type of offer can condition the production capacity, employment and price level of a nation's economy to short term, even when the economy growing in the long term it depends much more on the offer added.

Aggregate supply factors

The procedure of the economic agents of a state, are usually of great influence on the supply curves for that economy

. Consequently, the different factors that could affect this type of supply in a nation's economy will be shown below:

Production costs

It refers to the sum of the cost of the production factors and the cost of the combination of all these factors that determine the cost of the technology used (direct costs or indirect). When the price of the technology or the resources used is increased, business advantages can decrease and in turn reduce supply, but if production costs decrease, the same would happen. contrary.

The average price level

As prices rise, profits also increase and if prices fall it would be a disadvantage, therefore, this factor is what could affect more the behavior of the offer and because of this, companies take the task of investigating what the price is suitable.

Business expectations

The offer also depends on the projections of the economy, which can condition business objectives. When economic union benefits a nation, different firms increase their investment. In the same way, when facing an economic crisis or social and political conflicts, business confidence decreases and in turn the aggregate supply decreases.

Components of the aggregate supply

The components of the offer are focused on the factors of production, these are:

• Land: It is a productive factor and a term widely used by economists that includes both arable land and other natural resources that come from the land.
• Capital: They are the resources and goods that are not intended for consumption, but are used in the production of other goods such as tools, buildings, machinery, trucks and computers, among others.
• Technological change: It is the advantage that is obtained through the incorporation of new technologies and thus improve factor production.
• Job: Represents the physical and intellectual capacities and the time that individuals dedicate to different production activities.
• Natural resources: It is about everything that nature provides to productive processes.
• Factor productivityIndirectly, the literature recommends that market measures tend to accelerate productive growth.

Determinants of aggregate supply

• The increase in potential production may shift the supply curve to the right because of potential production increase and shift upward due to price increases.
• The level of potential production right to the curvature of supply is ascending. This offer can have a slight upward slope in the short term in case the production is low, this is because many of the prices are fixed.

Variations in aggregate supply

The changes in aggregate supply in conjunction with the aggregate demand, are usually responsible for economic uncertainties. Before these, is when Economic politics of each nation try to apply the corresponding measures in order to reestablish equilibrium situations and recover the natural rates of prices, employment and production.

It is during these market investigations, when the analysis of the supply curve and aggregate demand obtains decisive results.

In this sense, it can be taken into account that the supply curve shows the various amounts of production that economic agents are preparing to acquire in the different price levels, therefore, in the graph you can place the relationship that occurs between the price level and the level of production offered by the organizations.

Aggregate supply disturbances

• A supply shock can significantly affect the economy and consequently lead to a shift in the aggregate supply curve. During the 1970s, the supply curve shifted as a consequence of the 1973 oil crisis and 1979, which provided the increase in production prices and the costs that companies had to sell their products.
• These shocks succeeded in shifting the supply curve to the left and upward, since at that time production prices were the highest at all production levels.
• In this sense, a new point of equilibrium is achieved that presumes an increase in the price level and a reduction in the level of production and, in turn, an increase in unemployment. This means that it is totally negative once prices and unemployment rise.

It can be confirmed that the offer added It constitutes a list of the goods and services that the group under analysis is willing to sell at a certain price. However, since prices are quite rigorous, they are not variable in the short term and, on the contrary, are flexible in the long term, but they can be modified. This ultimately means that this type of offer can depend on the horizon during the time it is handled.