Chapter 11

Determining How Much Stuff an Economy Produces

IN THIS CHAPTER

Producing what people want: aggregate supply

Looking at aggregate supply in the long run

Getting to grips with short-run aggregate supply

Recovering economic health

When people are demanding something, someone else needs to fulfill that demand to avoid disappointment all around — whether it’s a baby crying for milk, football fans screaming for a touchdown, or TV viewers lobbying for the return of their favorite cancelled show (Futurama fans are still writing petitions).

Chapter 10 introduces the idea of aggregate demand (the total demand for goods and services in an economy). But clearly, people demanding a certain amount of output aren’t enough — someone needs to supply that output. In a market economy, this important job falls to firms. But companies aren’t robots. They don’t just supply goods because someone wants them. Rather, they have to make decisions about how much to make and what price to charge. What determines this behavior? What determines aggregate supply?

In this chapter you discover what determines how much firms will produce, in the short run and the long run. We also discuss important related topics, including economic growth and price flexibility.

Producing What People Demand: Aggregate Supply

To fulfill the demand from people, firms, and governments, companies have to produce and supply goods and services.

Aggregate supply (AS) is the total amount of goods and services that firms ...

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