alfred marshall std

7/28/2019 Alfred Marshall Std

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ALFRED MARSHALL (1842-1924)

Father of NeoClassical microeconomictheory (the other is Leon Walrass).*

His work was based on Smith, Ricardo and J.S

Mill economic theory. His undergraduate study atCambridge revealed a strong preference andaptitude for mathematics teaching mathematics.

As such Marshall came to economics with astrong background in mathematics and a deephumanitarian desire to help lower income group.


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Marshall popularized the moderndiagrammatic approach to economics.

Developed basic technique for illustrating SS-DD analysis with graphs. Only published1890.

He was the great synthesizer, seeking tocombine the best of classical economics withmarginalist thinking, hence producingneoclassical economics.

Many of his footnotes and appendixes offerhints of ideas of which he was aware, butwhich others later worked out in greater detail.


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Marshall reasoned for regarding the

study of economy as a complex and

difficult.

(i)everything seems to depend uponeverything else, there is complex and

often subtle relationship among all theparts of the system.

(ii) time is chief cause of those

difficulties in economic investigationswhich make necessary for man with hislimited power to go step by step.


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It is difficult to isolate a single cause & be certain ofits effects.

Marshall developed his basic thought system -because economists cannot hold constant all thevariable that might influence the outcome of a givencause, they must do so on the theoretical level byassumptions.

Hypothesize that changes in certain elements occurceteris paribus, with other things being equal.

The ceteris paribus technique permits the handling ofcomplex problems.

Marshalls 1st and most important ceteris paribustechnique was to develop a partial equilibriumanalysis.


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To break down a complex prob, isolate a partof economy for analysis, ignoring but notdenying the interdependence of all parts of

the economy.

Causes take time to work out their effects(difficulty in economic analysis).

Marshalls use of ceteris paribus correspondsto his method of dealing with time.

Immediate period or the very short run, manyfactors are held constant.

More & more constant are permitted to varyas the t period is extended to the sr, the lr andthe secular period (very lr).


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The source of Marshall greatest contribution was hisanalysis of the influence of time on SS.Defined 4 time periods his distinctions were purelyartificial (no such lines in the economic conditions

of actual life).

The various time periods are defined in terms of theeconomics of the firms and of SS.

The market period so short, SS fixed, perfectly

inelastic, firms unable to respond to P changes.

The short run period firm can change prod &SS but cannot change plant size. SS curve slopesupward.

The long run plant size can vary & all costs arevariables. SS curve more elastic than sr.

The secular period a very lr, permitstechnology & pop to vary.


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Fruitless to argue whether DD or SS determines P.

Causation is not a simple matter & any attempt to find

one single cause is doomed (fated/destined) tofailure.

Marginal analysis had been misused by manyeconomists.

It is not correct, to say MU or MC determines P.

Marginal analysis simply suggest that we must go tothe margin to study the action of those forces whichgovern the value of the whole.

MU or MC does not determine P, for their value alongwith P are mutually determined by factors acting onthe margin.


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Jevons - isolated the essential elements inP determination: U, cost & P. Trying to find a

single cause. Viewing the process as a chain of causation:

with cost of prod determining SS, SSdetermining U & MU determining P.

Marshall this is a mistake- it ignores theinterrelationships and mutual causationamong theses elements.

DD, SS & P interact with one another at themargin and mutually determine theirrespective value.


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His most important contribution to demandtheory as the concept ofprice elasticity ofdemand.

It was Marshall, with his mathematical ability,who was able to express it precisely.

Individuals desire commodities because of

the U received through their C.

Derived total U by adding the Us receivedfrom consuming each good (additive).

The U from good A depends solely on the qttyof good A.

Substitution and complementary

relationship are ignored.


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The most important task of the theory of DD is to explain the

shape of DD curve.

Assumed U was measurable through the P system.

If a commoditys MU decreases as more is consumed, does it

follow that individuals will pay lower Ps for larger qttys.

DMU takes place.

In equilibrium , the consumer spend in such a way that the

last dollar spend for any final good will have the same MU as

that spent for any other good.

M

N

N

B

A

A

AMU

P

MU

P

MU

PA

MU ...


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Marshall had little to say about businesscycles, partly because of his microeconomic

approach.

He and other who developed theories of thebehavior of individuals and the conduct of

small representative firms found it easy toignore fluctuations.

alfred marshall std

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