Alfred Marshall’s Theory of Demand: A Classical Perspective

Dr. Abhishek Sharma

#authorabhisheksharma

Marshall, one of the founding fathers of modern economics, introduced a powerful and intuitive explanation for consumer behavior in his book Principles of Economics (1890). His theory is rooted in utility analysis, which tries to understand how consumers make choices based on the satisfaction (or utility) they get from goods and services.

At the heart of Marshall’s explanation is the Law of Diminishing Marginal Utility, which states:

"As a person consumes more units of a good, the additional satisfaction (marginal utility) from each extra unit decreases."

Let’s break this down with an example:

1. Imagine you’re eating slices of pizza:
2. The first slice is delicious — you’re hungry!
3. The second slice is still good, but not as exciting.
4. By the third or fourth, you’re getting full.
5. The fifth slice? You might not even want it unless it’s free!

This means that the value you place on each additional unit falls as you consume more. So, if sellers want you to buy more, they must lower the price to match your falling willingness to pay.

Marshall’s theory is based on a few key assumptions:

1. Utility is measurable (cardinal utility).
2. Marginal utility of money remains constant.
3. Consumers are rational and aim to maximize satisfaction.
4. Ceteris paribus — all other factors (like income, tastes, prices of other goods) remain constant.

Marshall used this idea to explain the downward-sloping demand curve:

1. At high prices, only the first few units (which give high utility) are worth buying.
2. As the price falls, even the less satisfying units become worth purchasing.
3. Therefore, lower prices lead to higher quantity demanded — and the curve slopes downward.

This relationship between price and quantity demanded is what we see in the classic demand curve: a downward slope from left to right.