When these three attributes are brought together, an interesting result emerges. Most retail firms change prices very little in response to changes in demand. This pattern of behavior implies that prices at the retail level the prices that matter to consumers don t change much unless marginal costs change . But marginal costs depend on input prices the prices of energy and raw materials and the wages of labor. So long as input prices remain constant, marginal cost remains constant, and firms tend to maintain constant prices for their products.
Firms produce and sell more goods when AD rises and fewer goods when AD falls.
In the short run a period that lasts at least at year the aggregate supply curve is essentially flat. An increase in aggregate demand causes output to rise. The AD curve shifts to the right, and producers in most markets in the economy experience an increase in demand for their products. They respond by purchasing more inputs and producing more goods and services. Y rises, while the price level remains approximately constant.