On Marshallian theory of demand and short-run equilibrium

William Icefield

No 5du4z, OSF Preprints from Center for Open Science

Abstract: Mainstream neoclassical models lack genuine demand effects satisfying the principle of effective demand even with monopolistic competition, without addition of so-called frictions, such as inflexible price. There can only be demand shocks. Price is considered to be an independent variable, instead of quantity. But as Alfred Marshall original envisioned, we can instead think of quantity as an independent variable, along with associated equilibrium convergence via quantity adjustments. This allows us to consider a short-run market-clearing equilibrium with less demand than a long-run equilibrium, in contrast to mainstream models without frictions and shocks, with validation of the principle of effective demand.

Date: 2020-03-20
New Economics Papers: this item is included in nep-hpe
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Persistent link: https://EconPapers.repec.org/RePEc:osf:osfxxx:5du4z

DOI: 10.31219/osf.io/5du4z

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