The AS/AD model is somewhat more difficult to predict and manipulate than a simple supply and demand model, and disequilibria may exist between aggregate supply and aggregate demand causing a chain reaction of price increases or decreases. This is caused by the fundamental difference between an isolated commodity and a total population of commodities produced within an economic system. Outside influences, such as public policy and industry specific goals that affect real economies must also be considered, as may be clearly observed through simple discussion of the mathematics associated with disequilibria of the AS/AD model.
Microeconomics sets the standard for supply and demand by observing the price of only a single commodity. The field of microeconomics generally concerns itself with only the relative price, as opposed to real or nominal value (Colander, 2007, p.5). Because the relative price is the price in comparison to other prices assumed to be from the same scale, it is not useful for comparing products across different scales, such as different time periods, and makes no account for economic phenomena such as inflation. In macroeconomics it is necessary to observe not the relative price, but instead the price level, whose dynamics are fundamentally different than those of relative prices (Colander, 2007, p.5). This is a fundamental difference that accounts for much of the disequilibria associated with the AS/AD model when compared to microeconomic applications of supply and demand.
The first macroeconomics texts of the twentieth century did not included aggregate supply and aggregate demand as topics. Instead, as increasing numbers of economics experts were converted away from classical economics to Keynesian economics during this period, an Aggregate Expenditure and Production Curve was commonly used to depict the multiplier process seen in economic ...
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