CONTRIBUTIONS OF ALFRED MARSHALL TO THE FIELD OF ECONOMICS

1.BIOGRAPHY
PERSONAL LIFE
EDUCATION AND EARLY CAREER
2.CONTRIBUTION TO THE FIELD OF ECONOMICS
PRINCIPLES OF ECONOMICS
THEORY OF DEMAND
THEORY OF PRODUCTION
THEORY ON SUPPLY
3.METHODOLOGY
4.CRITICAL REMARKS

2. Biography

Personal life:
Alfred Marshall was born in London on July 26, 1842. He was
the second son of William Marshall, a clerk at the Bank of
England, and Rebecca Marshall. He was a very bright student
and had his interest in mathematics and chess but his father
prohibited him. He was married to Mary Paley

Education & Early Career:
He did his schooling in London itself and for his higher studies
he had got a scholarship from Oxford but he refused that to
pursue his dream by choosing Cambridge so as to study
mathematics. He felt that the faculty was much better than
that of Oxford. He had to leave Cambridge in between because
of his marriage.
After his marriage to Mary Paley, who was very supportive of
his work and they together published his first book called
“Economics of Industry” which became very famous and was
used as the textbook for the subject Political Economics, known
today as Economics. He later in 1884 returned to Cambridge.

3. Contributions to field of economics

Principles of Economics:
In defining Economics, Marshall stated:
“Political economy or economics is the study of mankind in
the ordinary business of life; it examines that part of
individual and social action which is most closely connected
with the attainment and use of the material requisites of well-
being.”
Compared to classical school Marshall felt that economics was
a science of human behavior and not just all about the material
goods that help in economy.
The aim of the Principles is to study the economic aspects of
human behavior in order to derive the laws governing the
functioning of the economic system.




Theory of Demand:

4. There was a controversy over whether cost of production or
Utility determines price. The classical school thinkers believed
that cost of production determined price. Alfred Marshall and
his colleagues from the Neo-classical school believed that utility
determines price.
Marshall believed that influence of time and awareness of the
independence of economic variables would resolve the
question. The shorter the period, the more important the role
of demand in determining price and the longer the period, the
more important the role of supply.
Alfred Marshall’s most important contribution to demand
theory was his clear formulation of the concept of price
elasticity of demand. Price and quantity demanded are
inversely related to each other; demand curves slope down and
to the right. Degree of relationship is shown by the coefficient
of price elasticity.





Price elasticity of demand:

5. Elasticity of Demand:-
ED= percent change in quantity demanded/
percent change in price

• Coefficient is negative b/c of inverse relationship; by convention the
coefficient is shown as positive by adding the negative sign to the right
side of the equation.

• If price decreases by 1 percent and quantity demanded increases by 1
percent, total revenue is unchanged, and the coefficient value is 1. The
commodity is said to be price elastic.

• If price decreases by a given percentage and the quantity demanded
increases by a smaller percentage, total revenue decreases and the
coefficient < 1. The commodity is price inelastic.

• Marshall also applied the elasticity concept to the supply side

• Marshall was 1st to express the concept of elasticity with
mathematical precision and is considered its discoverer.









Theory of Production:
Marshall conceived four different periods of production:

6.  Market period - Very short period is a period in which
supply is fixed (perfectly inelastic). There is no reflex
action of price on quantity supplied.

 Short run - A period in which the firm can change
production and supply but cannot change plant size.
Higher prices because larger quantities to be
supplied(upward sloping supply curve).
 Long run - In this period plant size can vary and all
costs become variable.

 Secular period (Very long run) - In this period it
permits technology and population to vary.

In Alfred Marshall theory on costs of production, he said that
there were two components of total costs in the firm.
 Prime costs - Costs that vary with output (also called
special or direct costs).

 Supplementary costs - Costs that do not vary with
output (fixed costs).


Marshall on Supply:
Consumers’ Surplus:

7. The difference between the total expenditures consumers
would be willing to pay and what they actually pay.



His most important contribution to theory of supply was his
concept of the time period, particularly the short run and the
long run. Supply curve depends on the time period under
analysis.
His important theory on supply was:
Spoiling the market - selling at low prices today and
preventing the rise of market prices tomorrow, or selling at
prices that incur resentment of other firms in the industry
Methodology

8. His methodology was
(1) Use mathematics as a shorthand language, rather than
an engine of inquiry
(2) Keep to them until you are done
(3) Translate it to English
(4) Then illustrate by examples that are important in real
life
(5) Burn the mathematics
(6) If you can’t succeed in (4), burn (3).

Of course, trying to merge three methodologies had the result
of being disliked by all.



Critical remarks

Due to his methodology which combined 3 methodologies it
attracted many German & English historically oriented

9. economists found his economics too abstract and rigid. This
was a major setback because of his excessive usage of
mathematics.
Veblen and other prominent institutionalists attacked his
method. And this made other economist make changes to his
definition of economics.
Advocates of abstract mathematical methodology criticized his
historical method and resented his remarks about the
limitations of theory and mathematics. Even his usage of
mathematics was very much criticized by the abstract
mathematicians.





Conclusion

He was called the father of modern orthodox microeconomic
theory (neoclassicism) along with Walras. He had lots of

10. concern for the poor and his desire to improve the well-being
of society through economics.
He not only initiated modern economics but also the
profession. He produced many great scholars like J.M. Keynes
and Joan Robinson. His first book also was the textbook for
many years and he started the textbook legacy.
He started the branching of economics and he dealt mainly
with Microeconomics and at the end of his life he began to deal
in what today we call Macroeconomics.
His dabbling into Macroeconomics which included :
• Economic Fluctuations, Money and Prices
• Marshall studied influence of monetary forces on general
level of prices.
•A book on macroeconomics called Money, Credit and
Commerce (1923)