In 2020, the World woke up to a pandemic that would spread like fire. One of the first effects was the price of surgical masks going through the roof. This happened because the supply was not able to catch up quickly with the demand surge. This is a great example of the price elasticity concept, which Alfred Mashall, an English economist, crystallized in the late 19th century.
Before Marshall, the classical price theory, developed by some of the first economists like Adam Smith and David Ricardo, stated that the most essential input for a good's price was its cost of production. Alfred Marshall profoundly influenced modern economic theory by developing and popularizing the supply and demand curve, which was first published in his seminal book, "Principles of Economics," in 1890.
Marshall's diagram combined the demand curve, which shows the quantities of a good that consumers can purchase at various prices, and the supply curve, which illustrates the quantities that producers are willing to sell at different prices. The two curves intersect at a point known as equilibrium, indicating the price at which the quantity supplied equals the quantity demanded.
This equilibrium concept is central to economic market analysis and demonstrates how market forces tend to push prices toward levels that balance supply and demand. It is still the most accepted pricing theory in the 21st century, more than 100 years after Marshall proposed it. It is a great example of how one Humans’s insight can shape and stay relevant for lifetimes.
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