Supply And Demand Case Study

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4.2. Supply
This subsection is based mainly on the Book V of the Principles of Economics (8th Edition), where Marshall’s proposal was to consolidate the supply and demand theory founded “on the pioneering work of his many predecessor economists” (Moss, 2003 ; Lima, 1992). Marshall was not creating the supply and demand theory, less yet a neoclassical supply and demand theory. He was describing, and obviously improving when he considered appropriate, the state of the arts of his own time. Becattini identified “a turning point in Marshallian studies” and “potential capacities in Marshall’s thought”, thus stating that Marshall “is now increasingly mentioned and more often in a favourable light” According to Becattini, “Marshall cannot be considered
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181). The difference in relation to Cournot and neoclassical creators is that in the process described by Marshall each company adjust its individual supply to its individual demand without following a fixed rule connecting its price and production. Instead, this process may even be split into two “departments” quite independents. One, the marketing department, regularly makes decisions on price considering the production costs and the status of the company’s individual demand. The other, the production department, regularly makes estimates of the production to be obtained sometime later considering profits realised and individual demand performance in the near past. Therefore production start-up decisions are made and implemented, but later on the production targeted may actually be obtained or not; market may change in the meantime, thus requiring new decisions that may fix or not occasional problems. Marketing and production departments may work together or not in estimating company’s individual demand level variations, and in so doing, they look at the variation of the inventories of finished and in-process products and to the variation of the production and distribution capacities …show more content…
For identical products it is expected that competition leads all unknown bid prices Pb to be, on average, statistically not far away from the actual sales price P, the publicly known market price. All the same producers do not impose production levels, they invest with a production level target that sometime later may succeed or not and may be sold or not. Both price (Pb) and production (Q) follow demand shifts in the same direction; lower inventories and less production and distribution capacities idleness (S) mean more demand, more price and, later on, more production. When their individual inventories and production capacity idleness decrease producers realise that their individual demands expanded and hence they, acting in cooperation or huge competition among them, raise their own prices and production target levels. Next, each producer decides whether to accept the amount sold and to keep the selling prices or to change bid prices and observe sales for a while to decide the new price bid and production start-up, endlessly looking for a satisfactory solution that usually never comes about. This satisfactory solution looks like what Keynes defined as producer’s expectation (Keynes, 1936, Chapter 5, p.

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