Economics becomes a science · 1770s–1920s
1890
Marshall's supply and demand
Alfred Marshall's textbook draws the supply and demand cross and defines elasticity.
Alfred Marshall's Principles of Economics (1890) showed price set where supply and demand meet, like the two blades of scissors, and measured how sensitive demand is to price: elasticity.
💡 Why it made sense then
Economics was becoming a university subject, and it needed clear tools to explain everyday prices.
Ideas it gave us
- ⚖️ Supply and demand
Supply and demand is the model that explains prices: when more people want something than is available, its price rises; when more is available than people want, its price falls.
- ⚖️ Price elasticity of demand
Price elasticity of demand measures how much the quantity people buy changes when the price changes. Demand is elastic if quantity changes by a bigger percentage than price, and inelastic if it changes by less.
- ⚖️ Market equilibrium
Market equilibrium is the price at which the quantity buyers want equals the quantity sellers offer, so there's no shortage or surplus.
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