Question

V) Explain in your own words the Supply and Demand Model and how it relates to the Classical and the Marginalists.

Answer 1

the supply-and-demand apparatus of the ‘Marshallian cross’ is an unsatisfactory representation of actual supply and demand forces, which are better characterized in the manner of the classical economists. Most particularly the rising supply function but also the conventional demand function, are shown to have no compelling general theoretical justification. There is no plausible basis for a presumption in favour of the former—other than the marginal productivity theory of factor pricing, which is itself unsatisfactory. Multiple reasons are suggested for the rise of the apparatus of supply-and-demand functions, notwithstanding its intrinsic implausibility. The classical conception of supply-and-demand is restated and reaffirmed.

Marginalism describes both an economical method of analysis and a theory of value. According to this theory, individuals make economic decisions "on the margin"; that is, valueis determined by how much additional utility an extra unit of a good or service provides. It would be difficult to overstate how important this concept is to contemporary economic understanding. The development of marginal theory is commonly referred to as the Marginalist Revolution and is seen as the dividing line between classical and modern economics.