Question

QUESTION 2
a) Give an account of Alfred Marshall’s contribution to the neoclassical school of thought .
b) Describe the two major implications of the Walras identity .

Answer 1

The two major founders of neoclassical economic thoughts are Alfred Marshall and Leon Walrus. He is considered as the father of modern orthodox micro economic theory. The major contribution of Marshall is structural basis of undergraduate economic theory and the translation of Ricardo’s and J.S Mill economics to mathematics.
Marshall’s view:
Introduction of economics in the place of political economy.
Economics examine the individual and social action which connected materials of wellbeing. One way it is the study of wealth; and the other hand it is the study of man.
Elimination of poverty is the ultimate goal of the economy.
Introduction of the concept of partial equilibrium analysis.
He popularized the concept of consumer surplus.
Find the distinction between fixed and variable cost.
He accepts that capitalism is stable in macro level with reference to business confidence.
He studied and analyzes the problems of production, distribution, exchange and consumption in terms of individual, firms and households.

The two major contribution of Leon Walrus is Walrus law and Walrasian auction. Walrus law explained on the basis of general equilibrium analysis, which asserts that budget constrain imply the value of excess demand must be equal to zero, where the prices are equilibrium prices. If all other markets in the economy are in equilibrium, then the specific market should also be in equilibrium.
The Walrasian auction states that each agent calculates the demand for goods at each price and submits it to auctioneer. The auctioneer matches supply and demand in perfect competitive market.