The classical economists emphasized cost of production as the determinant of price. The early marginalists thought that demand determined price. What was Alfred Marshall's contribution to this debate?

Classical economics focused on the production side of the economy. They believed that the cost of production, including wages, rent, and profit, determined the price of a good or service. The supply of that good or service was determined by factors such as labor, capital, and technology.

Marginalist economics, on the other hand, focused on the demand side of the economy. Early marginalists believed that the utility, or satisfaction, derived from consuming a good or service determined its price. The demand for a good or service was influenced by factors such as income, preferences, and the availability of substitutes. Marginalists argued that the price of a good or service was determined by the point at which the marginal utility of consuming that good or service equaled the price.

Alfred Marshall played a key role in bridging the gap between the classical and marginalist schools of thought by emphasizing that both supply (production cost) and demand (utility) are essential in determining the price of a good or service. His contribution can be summarized in the following points: 1. Marshall introduced the concept of "elasticity of demand", which measures the responsiveness of the quantity demanded of a good or service to a change in its price. This concept has become a fundamental tool in modern economics. 2. He developed the supply and demand analysis, which is a graphical representation of the relationship between the quantity supplied and the quantity demanded of a good or service at different price levels. He also introduced the concept of equilibrium, which shows the price and quantity at which the market clears (i.e., when the quantity supplied equals the quantity demanded). 3. Marshall studied the role of time in his analysis. He distinguished between the short run and the long run in terms of supply and demand factors: In the short run, the firm adjusts its price and output based on its production cost, while in the long run, all factors of production are variable, and the firm can adjust its production to achieve the desired level of efficiency and profit.

Marshall's ideas on supply and demand, as well as other concepts such as elasticity and equilibrium, remain central to modern economic theory. His analytical approach to economics paved the way for further development in microeconomics, which studies how individuals and firms make decisions and interact with one another in markets. In conclusion, Alfred Marshall's contribution to the classical versus marginalist debate was to emphasize the importance of both supply and demand in determining price, and his concepts continue to be an integral part of modern economic thought.