1. Alfred Marshall Principles of Economics
Sisi Wang, Jichao Wang, Jingjing He

2. Biography
Born on July 26, 1842 in Bermondsey, London, England; died on July 13, 1924.
His father was a bank cashier
Grew up in the London suburb of Clapham
Educated at the Merchant Taylors’ School, Northwood and St John’s College, Cambridge
1885, he became professor of political economy at Cambridge
Retired in 1908

3. Career
Marshall experienced a mental crisis so that he gave up physics and switch to philosophy.
Began with metaphysics and led him to ethics, specially a version of utilitarianism.
Ultimately, led him to economics.
Even as he turned to economics, his ethical views continued to be a dominant force in his thinking.

4. Thoughts interacted with…
Adam Smith
David Ricardo
John Stuart Mill
Etc…

5. Principles of Economics
One of the greatest economic works
His specialty was microeconomics– the study of individual markets and industries
Emphasizes that the price and output of a good are determined by both supply and demand
Modern economists also use Marshall’s approach to figure out economic problems

6. Let’s go through his book in details

7. Research fields and topics
On Micro level,
Wants, utility, and elasticity of demand.
Agents of Production
On land
On labour
On capital
On industrial organization
Theory of equilibrium
Analysis of marginal values

8. Research fields and topics
On a wider Micro level,
Distribution of the national labour
Labour income
Profits of capital
Rent on land

9. Wants, utility, and elasticity of demand
Human wants
Human not only chase the large quantities, but also good qualities of things.
Human desires also affected by the common senses and social activities.
As man becomes developed, their needs and wants will also become subtle and various.
Theory of consumption is not really the scientific basis of economics…

10. Wants, utility, and elasticity of demand
Consumers’ demand
Consumers’ demand governs trader’s demand.
Utility relates to wants and desire.
Marshall’s opinion:
A person’s demand for a thing should always “reference to the prices at which he would buy that amount and other amounts”.
The law of demand:
The amount demanded increases with a fall in price, and diminishes with a rise in price.

11. Wants, utility, and elasticity of demand
Elasticity of demands
Marshall’s description
“His willingness to purchase the thing … the elasticity of his wants”.
The general law of elasticity
Variations of the general law of elasticity
Normal goods, luxuries, necessaries……
About people’s tastes and uses
“The demand for things of a higher quality depends much on sensibility”
There are difficulties of getting exact lists of demand prices.
Purchasing power is continually changing;
Gradual growth of population and wealth;
Changes in fashion, tastes and habits.

12. Theory of Equilibrium Prerequisite: market
“The central point of a market is the public exchange, mart or auction rooms, where the traders agree to meet and transact business”.

13. Theory of Equilibrium Temporary equilibrium
The simplest equilibrium between desire and effort
In a barter system, a true equilibrium may not exist. But this temporary equilibrium will be found in markets.

14. Theory of Equilibrium Stable equilibrium
In a stable equilibrium, the law of supply and demand works as a mechanism
Free market conditions
General conditions of demand
General conditions of supply
What is meant by equilibrium?
Such equilibrium is stable: the equilibrium is stable for displacements in different directions.

15. Theory of Equilibrium
“When therefore the amount produced (in a unit of time) is such that the demand price is greater than the supply price, then sellers receive more than is sufficient to make it worth their while to bring goods to market to that amount … On the other hand, when the amount produced is such that the demand price is less than the supply price, sellers receive less than is sufficient to make it worth their while to bring goods to market on that scale … When the demand price is equal to the supply price, the amount produced has no tendency either to be increased or to be diminished; it is in equilibrium”. —Book V, Chapter III, Section 6

16. Theory of Equilibrium Stable equilibrium
In a stable equilibrium, the law of supply and demand works as a mechanism
Free market conditions
General conditions of demand
General conditions of supply
What is meant by equilibrium?
Such equilibrium is stable: the equilibrium is stable for displacements in different directions.

17. Analysis based on marginal values
Marginal utility and marginal costs
Marginal utility
“The part of the thing which he is only just induced to purchase may be called his marginal purchases … and the utility of his marginal purchase may be called marginal utility of the thing to him”.
The marginal utility of a thing diminishes with every increase in the amount of it he already has. (The law of diminishing returns)
The condition is that we do not suppose for any alteration in the character or tastes the buyer.
Marginal cost

18. Analysis based on marginal values
The tendency of diminishing returns
“An extra return smaller in proportion than he gets for the last applications of capital and labour that he now makes, provided of course that there is meanwhile no perceptible improvement in his agricultural skill”.
We need not assume that the tendency of diminishing returns will last forever.

19. Analysis based on marginal values
However, marginal uses and costs do not govern values.
Marshall thinks that “but marginal uses do not govern value; because they, together with value, are themselves governed by those general relations”.
What are those general relations?
—The law of demand and supply governs value.

20. Theoretical contributions
 Marginalist revolution
Price elasticity of demand
Quasi-Rent
Institutional economic

21. Marginalism
Believes economic value is set by the consumer's marginal utility
Seeks a level of operation of some activity that will maximize the net gain from that activity

22. Marginalist revolution
Concern discovery of marginal utility theory, which occurred in the 1870’s.
Consumers attempt to adjust consumption until marginal utility equals the price

23. The marginal theory of value
First broached in the 1870s
Revolutionized economics.
The value of an item is a reflection of the work and resources devoted to making it, or the cost-of-production theory of value.

24. Price elasticity of demand

25. Quasi-Rent Reward paid to a factor which exceeds its opportunity cost
The rent is a necessary incentive for something

26. What do quasi-rents compensate for?
Innovation
A lot of innovations are hard to patent, but an industry leader like Microsoft can be reimbursed for its R&D by winning a leading position in the market

27. Institutional economic
Understanding the role of the evolutionary process 
 Role of institutions in shaping economic behavior
Emphasizes a broader study of institutions and views markets as a result of the complex interaction of these various institutions

28. New institutional economics
Coined by Oliver Williamson in 1975
Integrates later developments of neoclassical economics into the analysis
 Has its roots in two articles by Ronald Coase, "The Nature of the Firm" (1937) and "The Problem of Social Cost" (1960)

29. New institutional economics
Modified Neoclassical framework in considering both efficiency and distribution issues
contrast to traditional institutional economics, which is critical of mainstream neoclassical economics

30. Aspects in current NIE analyses
organizational arrangements
property rights
transaction costs
credible commitments
modes of governance
ideological values

31. Reference http://en.wikipedia.org/wiki/Alfred_Marshall
Marshall, A. (1890). Principles of Economics: an Introductory Volume (9th ed.). New York, NY: Macmillan.