WHAT IS AN AGGREGATE SUPPLY?

The aggregate supply price is a minimum amount of sales proceeds arising from the sale of output.

In simple words, when an entrepreneur employs a certain amount of labour, raw materials, etc. they incur the cost of production. Entrepreneur excepts to recover the cost of production and earn a normal profit.

Therefore, Aggregate supply = costs incurred + normal profit.

DIAGRAM:

 

EXPLANATION:

1) Aggregate supply curve slopes upwards from left to right.

2) In the beginning aggregate supply curve rises slowly an then it rises rapidly and becomes vertical.

3) So as long as marginal costs are positive AS curve slopes upwards and employment increases.

4) As aggregate supply increases employment will also increase until aggregate supply becomes vertical.