Marshallian Theory

Introduction

This piece of assignment is to demonstrate the basic economic theory in terms of addressing the importance to the business management. This assignment is divided into three questions. The first question is to briefly outline Marshallian Demand and Supply theory. The second question is to discuss the understanding of demand elasticity and the reasons of it related to the management task. The last question is to analysis the case whether an increase in price will always result in a lowering of quantity demanded.

1. According to the Marshallian theory of demand, it is the notion of customer’s desire and want which they are willing and able to purchase a good (Marshall, 1964).It could be said that the quantity demand is always related to the price. The price increases, the demand decreases. By contrast, the price decreases, the demand increases (Marshall, 1961). The below diagram (Figure 1) shows the relationship between the price of a good and the quantity demanded. There are different variations affect the quantity demand, such as the price of a good decreases, the quantity demand will increase. Figure 1 shows that when the price decreases (P1 P2), the quantity demand increases (Q1 Q2).

(Resource: http://www.investopedia.com/university/economics/economics3.asp)

As previously mentioned, there are a variety of factors which will affect the quantity demand, such as buyers’ preferences and income. If buyers’ income increase or decrease, it will also affect the demand curve (Figure 1.1). If the quantity demand increases, the demand curve will shift to the right (DoDR). If the quantity demand decreases, the demand curve will shift to the left (DoDL).

(Resource: http://liberaleconomy.wordpress.com/2006/11/15/market-economy-the-theory-of-demand-and-supply-revisited/)

Quantity supplied is all about the sellers which they are able and willing to sell (Mankiw, 2001). Similarly, price and supply are always related...