Question

Summarize the difficulties of learning aggregate demand and aggregate supply.（150 words）

Answer 1

LIMITATION OF CONCEPT OF DEMAND

• difficult to choose the situation whether the demand for a product is elastic,inelastic,unity.
• terms like inferior goods, giffen goods,price ,substitution ,income effects are complicated terms and not easily understood by the layman.
• difficulty in derivation - derivation of demand curve through Marginal utility graph is not easy and sometimes doesn't hold true.
• demand is depending on mental stage of the consumer rather than income and person would borrow funds to satisfy his demand in some special cases.this defy the rule of demand.

LIMITATION IN THE CONCEPT OF SUPPLY-

• psychology of supplier-concept of supply generally depend upon the supplier and supplier is concerned with his own profit maximization.
• manipulation by supplier-supplier generally under produce the goods so there would be scarcity and the prices would go up.
• different market situation-supply decisions can't be same for all the market structures therefore it would be difficult to choose and apply a particular principle.