the marginalist marshall

Question 1

marginalism

Answer 1

• the past is behind you
• evaluate at benefits vs. costs until marginal benefit = marginal cost

Question 2

gradualist approach

Answer 2

believes in steady, gradual improvement

Question 3

short run vs. long run

Answer 3

economics doesn’t follow normal time:
- super short run –> firm can’t come up with product immediately
- short run –> producers can adjust supply by inputs → law of diminishing returns
- long run –> time to adjust production facilities → supply becomes prominent in the long run

Question 4

ceteris paribus

Answer 4

all other things equal when looking at one factor

Question 5

2 factors for increasing
returns to scale

Answer 5

• internal economies: division of labor, bulk buying, specialized capital
• external economies: industries concentrating in one place

Question 6

marginalist consumer

Answer 6

consumers/producers constantly looking for highest returns
factors: tastes, income, rival goods

Question 7

marshall’s counter against marxian theory of value

Answer 7

intersection of supply and demand gives prices, not just based on labor (only supply)

Question 8

elasticity definition

Answer 8

responsiveness to prices

Question 9

3 factors that determine elasticity

Answer 9

• # of substitutes
• time to find substitutes
• relative share of budget affect elasticity

Question 10

income elasticity of demand

Answer 10

measures whether people will buy more or less of something if their income changes

Question 11

marshall’s takes

Answer 11

• believed free market worked well, but acknowledged boom-and-bust cycle
• advocated modest redistribution