Every economy usually produces a certain amount of goods over some period of time. Unlike demand, supply changes slowly that is why aggregate supply covers all the domestic products manufactured for a year. If the demand can rise in days, the supply can take months to adjust to it. Aggregate supply depends on the prices and on the duration of their increase. When both prices and demand remain high, companies make profit in the short run. In the long-term perspective, businesses boost their supply by involving more labor and equipment to the manufacturing process. As soon as supply equals the demand, the fairest price on the product is formed.
Aggregate supply depends on factors of production. They are human, natural, and capital resources. Human resources or labor are at the roots of supply as the number of workers determines the amount of produced goods. The same refers to the capital resources which are the equipment involved in the production process. Purchasing new machinery, industries are able to produce more products and somehow cut their time and expenses on the manufacturing. Natural resources are raw materials with which the labor and equipment work. Every industry needs a certain amount of raw materials to assure the supply.
The amount of supplied goods is regulated by prices and demand in the free market. If prices rise, the demand and the supply curves go into the opposite directions. Producers can sufficiently increase the supply waiting for profits, but this strategy will not work in the long run. Supply strongly depends on demand, and these two factors shall be equal to ensure that businesses function and satisfy consumers’ needs.