Marshallian Demand and Supply Theory Assignment

Marshallian Demand and Supply Theory - Assignment Example Very much similar to the modern supply and demand functions, it shows the choices of the customer in terms of his demand over a range of prices. Moreover, in the case of supply, it would show the quantity supplied, for a range of prices. Quite understandably, over demand would increase as the prices keep on increasing since these share a negative relation with each other. However, supply, on the other hand, would have a positive relationship with the price; therefore, the supply curve would be an upward or positively sloped curve (Taylor & Weerapana, pp. 126-128, 2007). Moreover, there are two very important assumptions for the Marshallian model as well. Firstly, that the supply and demand, is in no way, interdependent but act freely. Secondly, that supply is limited and finite, and the basic principle of economics must hold true that there are scare resources (Henderson, pp. 124-128, 2009). In addition, this model perfectly solves the utility maximization problem as well. Since consumers get a range of choices, sets of prices and the quantity supplied and demanded on them, they can choose the set, which satisfies them the most (Pindyck & Rubinfeld, pp. 148-149, 2001). Unlike, the Hicksian model, Marshallian model of supply and demand also accommodates the income and substitution effects. In the study of microeconomics, the Hickson model is referred to as the compensated demand function since its idea rests on fixed utility. However, the Marshallian model of supply and demand has received the name of uncompensated demand function, since, as mentione d earlier, that it offers the option of utility maximization (Rittenberg, pp. 469-478, 2008). Quite clearly, the laws of demand and supply are helpful in predicting the direction of changes in price and quantity, whether it would increase or decrease, in response to various shifts in demand and supply.