Alfred Marshall's Economics: Neoclassical School Of Economics

TOPIC 2: Alfred Marshall’s economics

The English economist Alfred Marshall, was the founder of the neoclassical school of economics. He was one of the most influential economic scholars of all time. Alfred Marshall was born in 1842 and grew up in London; he is the son of a cashier at the Bank of England. Although his father wanted him to become a clergy, he defied his father’s wish and refused to go to Oxford with a classics scholarship, and then he attended Cambridge University, where he studied economics, mathematics and physics. Actually, Marshall studied physics at the beginning, but he experienced a mental crisis. Therefore, he gave up it and turned it to philosophy. He began with metaphysics and it led him to ethics,

Nowadays, the supply-demand curve is still one of the fundamental concepts of economics.

Marshall developed Marshall’s scissors analysis, which combined cost of production and utility. He emphasized that the curve of cost of production and utility are like scissor blades- not only transcended the conflict between Austrian and Classical theories of value, however, equally if not more important, removed the theory of value from the center stage and replaced it with the theory of price in an effective way although the term ‘ value’ still to be used, for a majority of people it was a synonym for ‘ price’.

Also, the concept of price elasticity of demand was one of most important contributions that he theorized to microeconomics. The price elasticity of demand examines how price changes affect demand. In theory, consumer buys less of product if the price increases, however, Marshall said it was not always true. For example, even the price of the medicine is increased, the demand of the goods would not reduced, which means, their price are inelastic. The price elasticity of demand is affected by: the availability of substitute goods, and proportion of income spent on the good and the time elapsed since a price

In the concept of consumer’s surplus, Marshall states, ‘excess of the price which a consumer would be willing to pay rather than go without a thing over that which he actually does pay is the economic measure of this surplus satisfaction…. it may be called consumer’s surplus.’ For example, there is a commodity that you suppose to buy, and it is useful, this product doesn 't have alternatives. The price of this product is 1000 HUF. However, as you prepare the 1000 HUF go to a market, it shows that the price of the good is 500 HUF. So, the different price between what you trying to pay and the actual price (1000HUF-500HUF=500 in example) is called consumer’s surplus. You are supposed to pay 1000HUF for the product because you think it worth its price. However, you just buy the product for 500HUF in the end. Therefore, consumer’s surplus= total utility-market price. Thus, the consumer’s surplus in goods that are highly useful and low