ECONOMIC ANALYSIS

Economic Analysis

Economic Analysis

Introduction

Economic lore depicts Alfred Marshall leaping in 1881 from the low roof of the Oliva Hotel while on vacation in Palermo, Italy; Marshall, the legend continues, ran through the town's streets shouting, “Eureka, I've found it!” The legend has his excitement stemming from his discovery of a simple formalization for the concept of elasticity (Keynes, 1963). 1 Marshall was not the first to incorporate something like elasticity in his economic analysis. He was familiar with the work of mathematical economists Augustin Cournot and Johann von Thünen, both of whom developed theories of firm behavior earlier in the nineteenth century and arguably hinted at elasticity. The classical economist John Stuart Mill also discussed the impact of changes in price on quantity consumed and on the impact of tariffs on output and prices; Fleming Jenkin had alluded to the elasticity concept in 1870. Therefore, all the issues related to Economic Analysis will be discussed in detail.

Analysis of the first question

The answer of the first question carries a lot of value for the topic. The first question would cover the issues related to demand and price. Marshall moved beyond general representations of the response of quantity demanded to a change in price. Specifically, he defined price elasticity of demand as the percentage change in quantity demanded divided by percentage change in price. It was not until 1890, when the first edition of his Principles of Economics appeared, that Marshall published his work on elasticity along with the many other contributions to economics that he had developed over several decades. In addition to being precise, his definition of elasticity had the benefit of being independent of the units in which price and quantity are measured, as illustrated in the next section, which also illuminates the technical rules for calculating arc and point price elasticity's of demand and relates these to the geometry of demand curves. The third section explores the relationship between firm revenues and price elasticity's of demand. Market power is related to price elasticity of demand, as the fourth section considers, along with the power of firms to price discriminate. The fifth section considers other demand elasticity's, the factors that influence them, and their significance. Marshall extended the elasticity concept to the demand for inputs, described in the sixth section. Both classical and neoclassical economists were concerned with moral and social issues; their grappling with the concept of elasticity often resulted from concerns with how strong effect particular public policies would have. In the seventh section, we consider how elasticity of demand matters in economic policy. Although the concept of elasticity of demand was originated over a century ago, limits on computational ability prior to the computer age made it more valuable as a theoretical than as an empirical concept. Improved data collection and the advent of high-speed computers dramatically increased the numerical estimates of elasticity, as the concluding section indicates (Ekelund, 1990, 92).

Analysis of the second question

The second question is related to the different aspects related ...