I am going to discuss the Aggregate Supply concept, its definition, components, behaviour schedule and curve as per syllabus of Class 12 CBSE Board.
Note:- The concept of aggregate supply is just an introduction in class 12. As per the syllabus, no exclusive question would be asked from this topic as there is no mention of aggregate supply in the syllabus of Determination of Income and Employment unit of Macroeconomics.
Concept of Aggregate Supply
- Aggregate Supply is ex-ante (planned) concept.
- It is calculated for the accounting year. Hence it is a flow concept.
- Aggregate supply equals to the planned production by a producer during an accounting year.
- It implies, flow of goods and services in the economy during an accounting year.
- Production of goods and services implies value addition and value addition implies income generation.
- Thus, AS implies flow of income (Y) in the economy during an accounting year. Therefore AS and Y are treated as identical to each other.
Definition of Aggregate Supply
I am mentioning definition of Aggregate Supply as given in the various reference books. I have not changed even a single words.
“AS refers to flow of goods and services as planned by the producers during an accounting year. It is identical to the flow of income (Y) during an accounting year. AS and Y, therefor, may be treated as identical to each other”
“Aggregate supply means the value of final goods and services planned to be produced by all the production units in the economy taken together during a period.”
“Aggregate supply refers to money value of final goods and services that all the producers are willing to supply in an economy in a given time period.”
Aggregate Supply = National Income
Components of Aggregate Supply
The major portion of National Income is spent on consumption of goods and services and the balanced is saved. It means, Income is either consumed or saved.
National Income (Y) = Consumption (C) + Saving (S)
Y = AS = C + S
Schedule of Supply Curve
As we already have discussed, Aggregate supply and national income are same. Hence, curve of both coincide to each other. The measurement of AS is done with reference to income in an economy.
(C + S)
Curve of Aggregate Supply
In order to prepare the curve of Aggregate Supply. Income is represented on the X-axis and Aggregate supply on Y-axis. As the income and aggregate supply value is always same. taking the same scale, the curve of AS would be upward sloping passing through the origin at 45 degree to the X axis.