THE COPPERBELT UNIVERSITY
SCHOOL OF BUSINESS
NAME
: DANIEL MAIMBO
S.I.N
: 14332553
PROGRAMME
: BSC ECONOMICS
YEAR
: 2
COURSE
THOUGHT
: HISTORY OF ECONOMIC
TASK
: ASSIGNMENT TWO
LECTURER
DUE DATE
: FR. CHARLIE
: 19TH January, 2017
QUESTION: Evaluate marginalism in the light of modern microeconomic
theories, given;
(a) Perfectly elastic supply
(b) Perfectly inelastic supply
According to the marginalist theory, exchange value depends entirely on marginal utility from
the consumption of a good. This theory contradicts the classical theory of value which is based
on the cost of production. The marginalists explained prices from the demand side of the market,
while classical was from the supply side.
They made the assumption that the utility from consuming a product depends on the quantity of
this product consumed.
It was argued that the demand curve was negatively slopped, meaning that an increase in the
price would result in a decrease in quantity demanded, but, depending on the type of good, an
increase in the price may also lead to an increase in quantity demanded especially if the product
makes up a large part of the consumers consumption bundle and falling real income makes it
impossible to buy Giffen goods.
However, from a modern point of view, the theory cannot explain prices in the case of perfectly
elastic supply curve (horizontal), so it is not general enough to be a correct theory of value.