Munich Personal RePEc Archive

Aggregate demand function is not monotonic: the Loss of confidence effect

Mazurek, Jiri (2015): Aggregate demand function is not monotonic: the Loss of confidence effect.

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Abstract

The aim of this article is to show that an aggregate demand function (curve) might not be monotonically decreasing as assumed in economic theory. When a price of a good decreases to some point, the amount demanded stops increasing due to the so called loss of confidence effect: a price too low causes consumers’ distrust. The existence of this effect was examined via questionnaire research among a small sample of respondents. The main result of this study is that the loss of confidence effect was found indeed, and applied to some 40% of respondents. However, a broader and more sophisticated research on the topic is needed. Results of this study have an impact on microeconomics theory as well on sellers’ behavior, as a lower price might not sell more than a higher price.

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