Marshall's Cross: balance point, supply and demand

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

In modern society, one cannot do without knowing the basics of the economy. And what do they represent? At the heart of the economy is supply and demand - the so-called Marshall Cross. And it is a kind of emblem of this science. Therefore, we will dwell on it in more detail.

Alfred Marshall: Brief Biography and Teachings

The future famous economist was born in the family of a bank employee in London. He studied at Oxford and then at Cambridge. After graduation, Marshall worked as a teacher. In 1885 he became Dean of Political Economy at Cambridge. Alfred Marshall has always been a supporter of free competition in market relations. His views were influenced by representatives of the classical direction and marginalism.

Marshall's main merit is that he managed to develop economic theory as an integral social science. During his lifetime, the scientist published the six-volume "Principles of Economics", which is still considered a classic work in this field. Marshall did not take part in the dispute between supporters of the application of mathematical methods in economics andfollowers of "pure" science. However, it can be noted that in the "Principles of Economics" all the argumentation is given only in verbal form, and all models and equations are placed in appendices. A special place in the teachings of an economist is the theory of supply, demand, and equilibrium in the market. The latter is called the Marshall Cross.

Equilibrium point

Today, even a schoolboy who has barely begun to study economics, it is clear that the price is set on the basis of supply and demand. The Marshall Cross is a graph that is almost impossible not to remember. It is simple and schematic, two curves meet at a point. It turns out a "cross", or "scissors", with the help of which it is easy to explain the process of establishing equilibrium in the market.

However, a little over a hundred years ago, this did not seem so obvious. Marshall was the first to depict the equilibrium in the market between supply and demand. He correctly explained the slopes of the curves and how they interact. The Marshall Cross has revolutionized economics. The market price and the equilibrium volume today are in the lexicon of even ordinary people. And they are at the center of any theory. The scientist did a lot for the development of economic science. However, his legacy can be divided into four areas: demand, supply, market equilibrium, and income distribution. Let's start with the first one.

Demand theory

Marshall builds it on two approaches. This is an increase in prices and saturation of consumer demand. They allow you to see the objective and constructive behind the subjective behavior of consumers.logic. Marshall also separated aggregate demand from individual demand. In addition, he developed the concept of "price elasticity". Moreover, Marshall gave a fairly modern interpretation of this concept. He gave a mathematical justification for the designation of demand as elastic.

In addition, the scientist drew attention to the position of the balance point in the Marshall's Cross, depending on the duration of the considered period of time. The economist said that the shorter it is, the more influence is demand, and the longer it is, the more influence is supply, that is, production costs. It was Marshall who introduced the concept of "consumer surplus", which was later developed in welfare theory. It represents the difference between the price a consumer is willing to pay for a product and its actual cost.

About the offer

The Marshall Cross reflects the behavior of not only consumers, but also producers. In supply theory, Marshall separated the monetary costs of production from the actual costs. The first is resource fees. The second is the cost of everything that is used in the production process, regardless of whether it was bought with money or is the property of the enterprise.

Marshall drew attention to the increase and decrease in the return on factors in terms of scaling up. He shared the concepts of fixed, marginal and total production costs. In supply theory, Marshall also introduced the time factor. In particular, he argued thatin the long run, fixed costs become variable.

About market equilibrium

At the center of this scientist's theory is the Marshall Cross. He justified the price as a regulator of the market. Marshall considered it on a par with such forces as supply and demand. The scientist also introduced the concept of equilibrium volume, that is, such a quantity of a product that satisfies both consumers and producers. Marshall argued that under free competition, if the market price begins to exceed the equilibrium price, demand falls, and this leads to a fall in value. He also analyzed the influence of territorial and temporal factors. Marshall emphasized the need to separate the features of the short and long periods. He stressed that in the first regulator demand is the regulator, in the second it is supply.