BEC – Shift in Aggregate Demand v. Shift in Demand Curves

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  • #173522
    gtown2010
    Member

    Hey guys, I have a question that I feel I should know but for some reason it’s not clicking in my mind.

    Becker differentiates between a shift in aggregate demand and a shift in the demand curve. There are separate characteristics for each (“TWICE G” and “WRITEN,” respectively).

    If anyone knows what I’m talking about, could you please shed some light on this? Thanks!!

    FAR: 84
    REG: 85
    BEC: 83
    AUD: 10/12/12

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  • #364339
    Anonymous
    Inactive

    What exactly don't you get? You didn't really ask a question….

    Maybe you can be more specific about what part of the Becker explaination you're not getting?

    #364340
    Anonymous
    Inactive

    I know exactly what gtown2010 is talking about because I ran into the same question myself just yesterday while I was studying. Now if someone has a better explanation I am by no means an expert at this. The TWICE G mnemonic has to do with macroeconomics while the WRITEN applies to microeconomics. In other words, TWICE G applies to an entire economy and factors that affect aggregate demand in an economy include Taxes, Wealth, Interest Rates, Consumer Confidence, Exchange rates, and Government spending. Note that a change in price level will not shift the aggregate demand curve of an economy while a shift in the demand cure may change prices (this can be shown more easily by looking at the graph on page B5-7 of the Becker 2012 BEC textbook).

    The WRITEN mnemonic applies to microeconomics which is similar to macroeconomics except that microeconomics applies to individual markets (a collection of buyers and sellers meeting or communicating in order to trade goods or services) instead of an entire economy. For this reason wealth is a factor in both mnemonics. Factors that shift such demand curves include changes in Wealth, changes in the price of Related goods, changes in consumer Income, changes in consumer Tastes and preferences for a product, changes is consumer Expectations, and changes in the Number of buyers served by the market. Note that just like in macroeconomics price is not a factor in changes in the demand curve.

    The entire price issue may seem confusing but I find looking at the graphs and having a general understanding of elasticity of demand and supply helpful. Also, remember that the change of price inputs or changes in production costs do shift the supply curve in microeconomics and aggregate short run supply in macroeconomic but this is not the same as the change in the overall price level. The mnemonic to remember factors affecting the supply curve is ECOST. This includes changes in price Expectation of the supplying firm (the firm wants to sell high), changes in production Costs (cost of inputs), changes in the price or demand for Other goods, changes in Subsidies or taxes, and changes in production Technology. While a mnemonic is not provided by Becker for factors influencing short run aggregate supply in economy as a whole (macroeconomics), if you simply remember prices of inputs affect both the supply curve and aggregate supply the only other factor affecting aggregate short run supply is the level of resources supplied. Also, note that in macroeconomics Long-run aggregate supply is a vertical line representing the potential level of output which is independent of price.

    #364341
    gtown2010
    Member

    Thank you! I get it now. I didn't pick up on the macro/micro differentiation. And sorry if my question wasn't clear – I was a little off late last night after studying so much of BEC.

    FAR: 84
    REG: 85
    BEC: 83
    AUD: 10/12/12

    #364342
    Anonymous
    Inactive

    Remember, the demand curve shifts, while quantity demanded moves up and down the demand line.

    Also if I remember correctly, price will not cause a shift in the demand curve.

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