Presentation on theme: "Alfred Marshall Principles of Economics"— Presentation transcript:
1 Alfred Marshall Principles of Economics Sisi Wang, Jichao Wang, Jingjing He
2 BiographyBorn on July 26, 1842 in Bermondsey, London, England; died on July 13, 1924.His father was a bank cashierGrew up in the London suburb of ClaphamEducated at the Merchant Taylors’ School, Northwood and St John’s College, Cambridge1885, he became professor of political economy at CambridgeRetired in 1908
3 CareerMarshall 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 SmithDavid RicardoJohn Stuart MillEtc…
5 Principles of Economics One of the greatest economic worksHis specialty was microeconomics– the study of individual markets and industriesEmphasizes that the price and output of a good are determined by both supply and demandModern economists also use Marshall’s approach to figure out economic problems
7 Research fields and topics On Micro level,Wants, utility, and elasticity of demand.Agents of ProductionOn landOn labourOn capitalOn industrial organizationTheory of equilibriumAnalysis of marginal values
8 Research fields and topics On a wider Micro level,Distribution of the national labourLabour incomeProfits of capitalRent on land
9 Wants, utility, and elasticity of demand Human wantsHuman 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’ demandConsumers’ 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 demandsMarshall’s description“His willingness to purchase the thing … the elasticity of his wants”.The general law of elasticityVariations of the general law of elasticityNormal 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 effortIn 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 mechanismFree market conditionsGeneral conditions of demandGeneral conditions of supplyWhat 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 mechanismFree market conditionsGeneral conditions of demandGeneral conditions of supplyWhat 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 costsMarginal 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 revolutionPrice elasticity of demandQuasi-RentInstitutional economic
21 MarginalismBelieves economic value is set by the consumer's marginal utilitySeeks 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 1870sRevolutionized 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.
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? InnovationA 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 behaviorEmphasizes 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 1975Integrates 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 issuescontrast to traditional institutional economics, which is critical of mainstream neoclassical economics
30 Aspects in current NIE analyses organizational arrangementsproperty rightstransaction costscredible commitmentsmodes of governanceideological 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.