Determinants of Effective Demand > Aggregate Supply Function

• Meaning: The Aggregate Supply Function represents the minimum sale proceeds (money) that are just necessary to induce entrepreneurs to provide a specific level of employment.
• Core Principle: Aggregate supply is directly dependent on the levels of employment within the economy.
• Key Perspective: It represents the "expectation of proceeds" that makes it worthwhile for employers to hire a specific number of men.

• "At any given level of employment of labour, aggregate supply price is the total amount of money which all entrepreneurs in the economy, taken together, must expect to receive from the sale of the output produced by that given number of men, if it is to be worthwhile employing them." — Stonier and Hague
• "Aggregate supply price of the output of given amount of employment is the expectation of proceeds which will just make it worthwhile for the entrepreneurs to give that employment." — J.M. Keynes

\[Z=\phi(N)\]
Where Z denotes the aggregate supply price of the output
N = Level of employment offered by entrepreneurs, and ϕ stands for the functional relation between Z and N.

Functional Relation: The relationship is expressed algebraically as Z = \[\phi\](N).

• Z: Aggregate supply price of the output.
• N: Level of employment offered.
• \[\phi\]: The functional relation between Z and N.

Behaviour of the Curve: * The ASF is an increasing function; as minimum receipts increase, more employment is offered.

• The curve rises slowly initially and increases progressively until it reaches the point of full employment.
• Once full employment is reached, the curve becomes inelastic (perpendicular), meaning no further increase in receipts will increase employment.

Fig 2 (General ASF): Shows the curve starting from the origin 'O', rising upward to point 'K' (Full Employment), and then becoming parallel to the OY-axis.

Fig 3 (Different Shapes): Illustrates variations based on wage rates and costs.

The following data demonstrates the positive correlation between employment and required receipts:

The shape of the ASF changes based on economic conditions:

• Linear (OS): Occurs if the money wage rate remains unchanged at varying employment levels.
• Curvilinear (OZ₁): Occurs if the wage rate increases alongside the expansion of employment.
• 45° Line (OZ₂): Occurs when the total cost incurred by entrepreneurs equals the minimum proceeds expected.

• Definition: ASF shows the minimum money entrepreneurs must expect to receive from sales to justify hiring a specific number of workers.
• Relationship: It establishes a functional relationship where aggregate supply (Z) depends on the level of employment (N), expressed as Z = \[\phi\](N).
• Increasing Function: As the level of employment rises, the minimum receipts required by producers also increase.
• The Limit (Full Employment): The curve rises until it reaches the point of "Full Employment" (Point K), after which it becomes vertical (inelastic).
• Variable Shapes: The curve is linear if wages are constant, but becomes curvilinear if wages increase as more people are hired.