Difference Between Aggregate Demand and Demand

Aggregate Demand vs Demand
 

Aggregate demand and demand are concepts that are closely related to one another. Both aggregate demand and demand represent the main differences between the study of macroeconomics and microeconomics. While microeconomics is concerned with the demand for certain individual goods and services, macroeconomics is concerned with the total demand of the entire nation for all goods and services. The article offers a clear explanation on demand and aggregate demand and shows the main similarities and differences between the two.

Aggregate Demand

Aggregate demand is the total demand in an economy at different pricing levels. Aggregate demand is also referred to as total spending and is also representative of the country’s total demand for its GDP. The formula for calculating aggregate demand is:

AG=C+I+G+(X-M), where

C is consumer spending,

I is the capital investment,

G is government spending,

X is exports, and

M denotes imports.

The aggregate demand curve can be plotted to find out the quantity demanded at different prices and will appear downwards sloping from the left to the right. There are a number of reasons why the aggregate demand curves slopes downward in this manner. The first one is the purchasing power effect, where lower prices increase the purchasing power of money. The next is the interest rate effect, where the lower price levels result in lower interest rates and lastly the international substitution effect, where lower prices result in higher demand for locally produced goods and less consumption of foreign, imported products.

Demand

Demand is defined as ‘the desire to buy goods and services backed by the ability and willingness to pay a price’. The law of demand is an important concept in economics, and that looks at the relationship between the price and quantity demanded. The law of demand states that as the price of a product increases the demand for the product will fall, and as the price of a product falls the demand for the product will increase (assuming that other factors are not considered).

The demand curve is the graphical representation of the law of demand. Demand will be affected by a number of different factors alongside price. For example, the demand for Starbucks coffee would be affected by a number of factors such as the price, price of other substitutes, income, availability of other brands of coffee, etc.

What is the difference between Aggregate Demand and Demand?

Aggregate demand represents the total of supply and demand of all the goods and services in a country. Demand shows the relationship between the price of the product and quantity demanded. The concepts aggregate demand and demand are closely related to one another and are used to determine the microeconomic and macroeconomic health of a country, its consumer’s spending habits, price levels, etc. Aggregate demand shows the total spending of the entire nation on all goods and services while demand is concerned with looking at the relationship between price and quantity demanded for each individual product.

Summary:

Aggregate Demand vs Demand

• Aggregate demand and demand represent the main differences between the study of macroeconomics and microeconomics.

• Aggregate demand is the total demand in an economy at different pricing levels.

• Demand is defined as ‘the desire to buy goods and services backed by the ability and willingness to pay a price’.

• Aggregate demand shows the total spending of the entire nation on all goods and services while demand is concerned with looking at the relationship between price and quantity demanded for each individual product.