The law of short-run aggregate supply states that aggregate quantity supplied increases as the price level rises.

Question

Quizplus · Accepted Answer

This is because firms are willing to produce and supply more output in the short run as prices increase, since they can earn more profit per unit sold. However, this law only applies to the short run as in the long run, firms can adjust their production capacity and input prices, leading to a vertical long-run aggregate supply curve.

The Law of Short-Run Aggregate Supply States That Aggregate Quantity