Short-run aggregate supply refers to the total amount of goods and services produced in an economy at a given price level. The short-run aggregate supply curve shows the relationship between the price level and real output. The short-run aggregate supply curve is generally upward sloping. This is because as the price level rises, firms are encouraged to produce more and earn more profits.
The shape and position of the short-run aggregate supply curve depends on many factors, such as the costs of factors of production, technology, expectations, and government policies. Changes in these factors can cause the short-run aggregate supply curve to shift to the right or to the left. For example, when the costs of factors of production decrease, firms' production costs decrease and they can offer more output. In this case, the short-run aggregate supply curve shifts to the right. Similarly, an advance in technology increases the efficiency of firms and enables them to produce more output. In this case, too, the short-run aggregate supply curve shifts to the right.
The intersection of the short-run aggregate supply curve and the aggregate demand curve determines the short-run macroeconomic equilibrium. At this point, the price level and real output are determined by the market. The short-run macroeconomic equilibrium may not equal the potential output or natural output of the economy. Potential output or natural output refers to the amount of output the economy can produce at full employment. If the short-term macroeconomic equilibrium is below potential output, it is called a demand shortage or recession. If the short-run macroeconomic equilibrium is above potential output, it is called excess demand or inflation.
In short, the short-run aggregate supply shows the amount of supply that varies depending on the price level of goods and services in an economy. The short-run aggregate supply curve reflects the relationship between the price level and real output. The shape and position of the short-run aggregate supply curve is influenced by many factors in the economy. The intersection of the short-run aggregate supply curve and the aggregate demand curve determines the short-run macroeconomic equilibrium.