The concept of Aggregate Offer (OA) is referred to in macroeconomía to the production that companies would be willing to sell based on an average price level, certain costs and certain business expectations. Broadly speaking, companies will want to sell all their output at the highest possible prices. However, both production costs and business expectations can be decisive in this context.
The game of aggregate supply and aggregate demand condition in the short term the production capacity, employment and the price index of a country's economy, despite the fact that the crecimiento of the long-term economy, it depends more on aggregate supply. Next, we will see in more detail what are the factors that influence the aggregate supply of an economy.
Variables that determine the aggregate supply
The behavior of the economic agents of a country have a clear influence on the curves of supply and demand of that economy. In this case, we are going to see what are the variables that affect the aggregate supply of a country's economy:
- The average price level: it is the factor that most affects the behavior of the aggregate supply. If prices go up, profits will tend to increase, while if prices fall, the opposite will happen. In addition, low prices could increase aggregate demand and, with it, corporate profits. However, it is essential to study what is the appropriate price of the goods or services.
- Production costs: are the sum of the cost of the production factors and the cost of the combination of these factors (technology or labor employed). As the price of the resources used and the technology increases, the benefits will tend to decrease and, with it, the aggregate supply falls.
- Business Expectations - Aggregate supply also determines business goals. For example, when a country experiences a favorable economic situation, companies will increase their investment, although this will not be the case in the case that the country goes through a period of crisis económica or political and social conflicts.