Background§
Marshallian demand, also known as ordinary demand or uncompensated demand, is a fundamental concept in economic theory that describes the quantity of a good consumers are willing to purchase based on their income and the price of the good. This framework contrasts with compensated demand, which adjusts for changes in utility.
Historical Context§
The term “Marshallian demand” originates from the work of Alfred Marshall, a prominent English economist known for his contributions to microeconomic theory. In his book “Principles of Economics” (1890), Marshall outlined the conditions under which consumers make choices, juxtaposing his views against the backdrop of classical economic thought.
Definitions and Concepts§
Marshallian demand reflects the relationship between the quantity demanded of a good and various economic variables, particularly the consumer’s income and the price of the good. Formally, if , where is the quantity demanded, is the price of the good, and is the income.
Key concepts include:
- Price elasticity of demand: This measures the responsiveness of the quantity demanded to a change in price.
- Income elasticity of demand: This measures the responsiveness of the quantity demanded to a change in income.
- Substitution effect and Income effect: Changes in consumption due to price changes (substitution) and changes in real income (income).
Major Analytical Frameworks§
Classical Economics§
Classical economists laid the groundwork by discussing utility and value but did not have the robust demand theory Marshall later developed.
Neoclassical Economics§
Marshallian demand fits well within the broader framework of neoclassical economics, emphasizing marginalism and utility maximization.
Keynesian Economics§
While primarily macro-focused, Keynesian models acknowledge household demand functions, albeit in a more aggregate manner.
Marxian Economics§
Marxian economics offers alternative views on consumer behavior under capitalism but does not focus directly on demand curves like the Marshallian perspective.
Institutional Economics§
This school of thought would critique the assumptions behind Marshallian demand, such as the rational actor model.
Behavioral Economics§
Would question the assumption of rationality in consumer choices that underpins Marshallian demand, offering insights into how real behaviors deviate.
Post-Keynesian Economics§
Challenges the dominant neoclassical paradigms about demand, stressing income distribution and inequality effects on demand.
Austrian Economics§
Generally skeptical of quantitative demand curves, focusing instead on individual choice and subjective value.
Development Economics§
Focuses on how changes in income levels (economic development) shift demand curves.
Monetarism§
Although primarily concerned with monetary policy, it considers how changes in money supply might affect general demand levels.
Comparative Analysis§
Contrasting Marshallian demand with other approaches, such as compensated demand and behavioral insights, allows economists to better understand consumer behavior nuances.
Case Studies§
Case studies illustrating how shifts in income or price changes affect demand curves could include specific historical periods or industries, such as housing markets pre- and post-financial crises.
Suggested Books for Further Studies§
- Principles of Economics by Alfred Marshall
- Microeconomic Theory by Andreu Mas-Colell, Michael D. Whinston, and Jerry R. Green
- Intermediate Microeconomics by Hal R. Varian
- Economics by Paul Samuelson and William Nordhaus
Related Terms with Definitions§
- Compensated Demand: Demand for a good adjusted to maintain a constant utility level despite changes in price.
- Price Elasticity of Demand: A measure of the responsiveness of the quantity of a good demanded to changes in its price.
- Income Effect: The change in the quantity demanded of a good due to a change in the consumer’s real income.
- Substitution Effect: The change in the quantity demanded of a good due to a change in its price relative to other goods.
