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

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  • Mazurek, Jiri

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.

Suggested Citation

  • Mazurek, Jiri, 2015. "Aggregate demand function is not monotonic: the Loss of confidence effect," MPRA Paper 68552, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:68552
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    File URL: https://mpra.ub.uni-muenchen.de/68552/1/MPRA_paper_68552.pdf
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    More about this item

    Keywords

    demand; demand curve; distrust; loss of confidence; price; quantity demanded;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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