Question: On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because the product in question is now relatively less expensive

On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because the product in question is now relatively less expensive than substitute products. Explain why aggregate demand does not increase for the same reason in response to a decrease in the aggregate price level. In other words, what causes total spending to increase if it is not because goods are now cheaper?

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The concept of price elasticity of demand applies differently to microeconomic demand for individual goods and services and aggregate demand for an en... View full answer

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