Marshall synthesis


Marshall's synthesis is an approach developed by Alfred Marshall that proposes to reconcile and synthesize classical and marginalist ideas. His approach is explained from the perspective of partial equilibrium.

As recorded in the history of economic thought, classical economics tries to explain the value of goods by their costs (supply side). Meanwhile, marginalist or neoclassical economics affirms that the value of goods is explained by their marginal utility. That is, the value that is given to the last unit consumed (demand side).

So when Marshall decided to study economics from his own prism, he drew a conclusion. That conclusion dictated that neither the classics nor the neoclassicals were right, and at the same time, both were right. In other words, both supply and demand play a crucial role in assigning a value to goods. At that moment, the Marshall synthesis was born.

Marshall's synthesis

It can be said that Alfred Marshall was the father of a graph that is widely used in economics today. The supply and demand graph.

Marshall's synthesis is summarized in the following two statements:

  1. The demand curve (consumer) has a negative slope: Assuming that all other variables remain constant (ceteris paribus), the lower the price, the more quantity we can buy. That is, if we have $ 100 and each unit is worth $ 1, we can purchase 100 units. If we have $ 100 and each unit is worth $ 2, we can purchase 50 units. And so on.
  2. The supply curve (producer) has a positive slope: Ceteris paribus, the higher the price, the more the entrepreneur will want to produce. And vice versa, if the price falls, the entrepreneur will be incentivized to produce less.

From these two statements, Marshall's synthesis concludes that equilibrium is at the point where these two curves intersect. In other words, the point on which producers and consumers unconsciously "agree". Unconscious, since a meeting is not held to agree on how much will be produced and how much will be bought.

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