Meaning:
-It is the total output of goods and services
produced and supplied in the economy during a given period of time. It is an
important element of macroeconomic analysis. Aggregate supply depends on the
availability and use of factors of production like natural resources (N),
Labour (L), Capital (K), and the state of technology (T).
Definition: - According to J.M Keynes
“Aggregate supply refers to the total quantity of goods and services which can
be produced with available factors of production, i.e., land, labour, capital,
and organisation”.
Thus
aggregate supply = f (N, L, K, T)
N = Natural resources (which
is considered to be constant)
L = Stock of Capital (which is considered variable)
K = Supply of labour (which is considered to be
constant)
T = State of Technology (which is considered to be constant)
The
main determinants of the aggregate supply are briefly explained as follows:-
1.
Natural Resources: -Natural
Resources refer to all kinds of resources, which are freely available in the
nature and used in the process of production. They include land, climatic
conditions, rainfall, water resources, sunshine, and minerals deposits. Etc.
total production of goods and services in the economy depends on the
availability of natural resources as well as their utilization. Since it is
difficult to change the size of the natural resources, theyare considered to be
constant.
2.
Supply of Labour: -It refers to total labour force and human resources (HR) available
and used in the production of goods and services in the economy. The supply of
labour depends on the size of the population, age composition of the
population, education and training of the labour force. The size of and
efficiency of the labour are very essential for increasing production. It is
assumed that the supply of labour can be changed in the short run.
3.
Capital: -Capital
is the produced means of production. It is a man-made factor of production. The
aggregate supply of goods and services produced in the country depends on the
availability and use and quality of capital. Therefore, more the capital more is
the supply of goods, and less capital available, less would be the supply.The
stock of capital is considered to be constant in short period.
4.
State of Technology: -The state of
technology implies the application of modern and advanced techniques and methods
in the production process. The application of improved technology increase
overall productivity. In the short term, the state of technology is assumed be
constant.
Thus,
aggregate supply = f (N, L, K, T)
