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Discussion: (3 comments)

  1. This must be too profound for me to understand.

    Is there such a thing as product demand? In a 2-person 1-good economy I demand 3 units of a good at $5 and she demands 4 units at $5 so together we demand 7 units at $5, or spend $35. Loosely, we could describe that as the “aggregate demand” for that product at a $5 price.

    Now introduce a second good for which I demand 5 units at $1 and she demands 6 units, so together we demand 11 units at $1 and spend $11. Now “aggregate demand” for the two goods is $46 expressed in money terms. Have we violated either economic theory or the English language by terming it thus?

  2. jean montgomery

    I second Mike’s comment. I do agree that the demands for unlike objects are being lumped together in this way, but that is the definition of aggregate demand. You have aggregated the demands for all goods and services. As a general concept, this is quite useful. I would also agree that, because of the differences in types of G&S, geography,supply variables, etc an increase in one category of aggregate demand may not have a corresponding effect on the rest of the economy, but the general concept works.

  3. Like many economists you misunderstand the methodology that underpins your profession.

    The notion of aggregate demand is of course unrealistic, but economics makes use of conceptual models that are abstractions of the real world and thus a degree of simplification is required.

    The difference between economists and scientists is that the latter are fully aware that they are dealing with approximations of reality in their models, whilst the former mistake their models for empirical reality.

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