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.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: demand; demand curve; distrust; loss of confidence; price; quantity demanded
• Subjects: D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles

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