Cross Marshall: a point of equilibrium, demand and supply

In modern society can not do without knowledge of the fundamentals of the economy. And what are they? The economy is based on supply and demand – so-called Cross Marshall. And it is a kind of emblem of this science. Therefore we shall discuss it in more detail.

Alfred Marshall: a short biography and teachings

Future famous economist was born in the family of a Bank employee in London. Studied at Oxford and then at Cambridge. After graduation, Marshall worked as a teacher. In 1885 he became Dean of the Department of political economy at Cambridge. Alfred Marshall has always been a supporter of free competition in the market. His views were influenced in the classical direction and marginalism.

The Main merit of Marshall is that he managed to develop economic theory as a holistic social science. During the life of the scientist has published a six-volume "Principles of Economics", which is still considered a classic work in this area. Marshall did not participate in the debate between advocates of the use of mathematical methods in Economics and followers of “clean” science. You can, however, be noted that in the “Principles.” the whole argument is given only in verbal form, and all the models and equations given in the annexes. A special place in the teachings of economist theory is supply of, demand, and equilibrium in the market. Last call Cross Marshall.

Balance Point

Today, even a student, just starting to study Economics, it is clear that the price is based on supply and demand. Cross Marshall – a schedule that is almost impossible not to remember. It is simple and schematic, the two curves meet at a point. Turns out the “cross” or “scissors”, which make it easy to explain the process of establishing the equilibrium in the market.

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However, there is still a little over a hundred years ago it didn't seem so obvious. First the balance in the market between supply and demand has portrayed Marshall. He correctly explained the slopes of the curves and how they interact. Cross Marshall in the economy has caused a revolution. The market price and the equilibrium volume is now available in the lexicon of even ordinary citizens. And they are the center of any theory. Scientist has done much for the development of economic science. His legacy, however, can be divided into four areas: demand, supply, market equilibrium, and income distribution. Let's start with the first one.

The Theory of demand

Marshall is building it on two approaches. It is the growth rates and saturation of consumer demand. They allow for the subjective behavior of consumers to see objective and constructive logic. Also Marshall separated the aggregate demand from the individual. In addition, he developed the concept of "price elasticity". And Marshall gave a fairly modern interpretation of this concept. He gave a mathematical basis for the designation of demand as elastic.

Besides, the scientist drew attention to the position of the point of equilibrium in the Cross of Marshall, depending on the duration of the considered time period. The economist talked about the fact that the shorter it is, the more impact the demand, and the longer, the more affected by the proposal the costs of production. That Marshall introduced the concept of "consumer surplus", which is then developed in the theory of welfare. It represents the difference between the price that the consumer is willing to pay for a product and its actual price.

About the proposal

Cross Marshall displays the behavior of not only consumers but also producers. In theory, the proposals of the Marshall separated the cash costs of production from actual. First – it is a payment for resources. Second – the cost of anything used in the production process, regardless of whether it was bought or is owned by the company.

Drew the attention of Marshall and the increase and decrease of the impact of factors in terms of scale. He shared the concept of constant, marginal and total costs of production. In theory offers Marshall also introduced the time factor. In particular, he argued that in the long run fixed costs become variable.

Market equilibrium

In the center of this theory, scientist – Cross of Marshall. He explained the price as the market regulator. Marshall considered it on a par with such forces as supply and demand. The scientist introduced the concept of the equilibrium amount, i.e. that amount of product that satisfies both consumers and producers. Marshall argued that in conditions of free competition, if the market price exceeds the equilibrium, the demand falls and this leads to a decline in value. He also analyzed the impact of territorial and time factors. Marshall emphasized the necessity of separating damn short and long - term periods. He emphasized that in the first regulator is the demand in the second – offer.