Question

An earlier chapter discussed the variables that shift the demand curve and the variables that shift the supply curve. How many of these variables that shift microeconomic demand and supply curves also shift the aggregate demand ​(AD​) curve or the​ short-run aggregate supply ​(SRAS​) ​curve? What might you conclude about the relationship between the concepts of demand and supply in microeconomics and in​ macroeconomics?

Answer 1

Variables that shift both microeconomic demand and AD :

a) Rise in consumer income : This can change the demand for a particular industry and also demand in the economy as a whole because consumption expenditure is a part of GDP which depends on income .

b) Change in future expectations regarding market : Change in future expectations about prices or price of one good can change the demand structure of not only one industry or firm but aggregate demand also .

Variables that shift both micro economic supply and SRAS :

a) Change in technology : Change in technology first can increase supply of one good of a particular industry but if this good is associated with the production of other goods ( such as flour is associated with making cakes ) then production costs of all such goods fall and aggregate supply rises in many industries .

b) Change in price of a vital input like oil : This rises aggregate demand because oil is an essential input in many core industries .

Micro deals with individual firms , industries , households and concentrates on price , quantity , income of individuals . While macro deals with price level of economy , real GDP , aggregate employment etc . Macro demand and supply is about total or aggregate demand and supply of the whole economy , not just one firm or industry .