Marshall's Cross: point of equilibrium, supply and demand

In modern society, one can not do without knowledge of the fundamentals of the economy. And what are they? At the core of the economy, supply and demand are the so-called Marshall Cross. And it is a kind of a crest of this science. Therefore, we will dwell on it in more detail.

Alfred Marshall: a brief biography and teaching

The future well-known 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 the department of political economy in 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.

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

The equilibrium point

Today, even a student who has barely begun to study the economy, it is clear that the price is set on the basis of demand and supply. The Marshall Cross is a schedule that is almost impossible to forget. It is simple and sketchy, two curves meet at a point. It turns out "cross", or "scissors", with the help of which it is easy to explain the process of establishing equilibrium in the market.

However, a little more than a hundred years ago this did not seem so obvious. The first equilibrium in the market between supply and demand was just drawn by Marshall. He correctly explained the slopes of the curves and how they interact. The Marshall Cross in the economy made a real revolution. The market price and the equilibrium volume for today are available in the lexicon of even ordinary inhabitants. And they are at the center of any theory. The scientist did much 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 a rise in prices and saturation of consumer demand. They allow for the subjective behavior of consumers to see the objective and constructive logic. Also, Marshall separated 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 justification for the designation of demand as elastic.

In addition, the scientist drew attention to the position of the equilibrium point in the Marshall Cross, depending on the duration of the period under consideration. The economist said that the shorter it is, the more demand affects, and the longer, the more the supply is affected, that is, the cost of production. It was Marshall who introduced the notion of "consumer surplus", which later developed in welfare theory. It is the difference between the price that a consumer is willing to pay for a product, and its actual cost.

About the offer

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

Marshall also focused attention on the increase and decrease in the return on factors in conditions of expanding scales. He shared the concepts of permanent, marginal and total production costs. In the theory of the sentence, Marshall also introduced a time factor. In particular, he argued that in the long run fixed costs become variable.

On market equilibrium

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