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Famous Figures and Diagrams in Economics

Famous Figures and Diagrams in Economics

Edited by Mark Blaug and Peter Lloyd

This is a unique account of the role played by 58 figures and diagrams commonly used in economic theory. These cover a large part of mainstream economic analysis, both microeconomics and macroeconomics and also general equilibrium theory.

Chapter 1: Marshallian Cross Diagrams

Thomas M. Humphrey

Subjects: economics and finance, economic psychology, history of economic thought


Thomas M. Humphrey The most frequently used geometric tool of microeconomic analysis is the familiar partial equilibrium demand-and-supply curve diagram of the textbooks. Generations of students and their teachers have employed its intersecting curves (1) to depict the equilibrium or market clearing price and quantity of any particular good or factor input, and (2) to explain how (Walrasian) price or (Marshallian) quantity adjustments ensure this equilibrium, the first by eliminating excess supply and demand, the second by eradicating gaps between supply price and demand price. The diagram achieves much with little. It illustrates how parametric shifts in its two curves caused by changes in tastes, incomes, technology, factor prices and prices of related goods operate to alter a good’s equilibrium price and quantity. It shows how the shifting and incidence of a perunit tax or tariff on buyers and sellers depends upon elasticities of demand and supply. It depicts how price ceilings and price floors generate shortages and surpluses respectively. With it one can compare the allocative effects of competitive versus monopoly pricing and indicate the welfare costs of market imperfections. For all its simplicity, it is a powerful and flexible tool. Economists typically associate the diagram with Alfred Marshall, the English neoclassical economist who was its most influential nineteenth century expositor. So strong is this association that the diagram has been christened the Marshallian cross, or Marshallian scissors after Marshall’s analogy comparing the price-determining properties of a brace of demand and supply curves with the cutting properties of the...

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