The document lists the group members and agenda for discussing the Marginalist School, an early development in economics. It introduces some of the key figures in the Marginalist School like William Stanley Jevons, Antoine Augustin Cournot, and Francis Y. Edgeworth and their major contributions to developing ideas around marginal utility theory and marginal analysis. The document then covers several topics in the agenda including the historical background, major tenets, who the school sought to benefit, how it was valid in its time, which tenets became lasting contributions.

1. Group Members
287528 Ang Wei Ping
286075 Loh Yan Ying
289771 Goh Xinjie
286411 Eng Yan Ting
286327 Daphne Lim Sze Yen
286537 Tan Jin Xin
Discuss the Marginalist School 5
major questions and contributions of
William Stanley Jevons, Antoine
Augustin Cournot and Francis Y.
Edgeworth in developing the ideas of
that school
Marginalist School
BEES3033 Group B TO: Mr Amizam B Arzemi Group 4

2. 1.0 Introduction
2.0 Historical Background
3.0 Major tenets
4.0 Whom did the school benefit
4.0 How was the school valid, useful, or correct in its time
5.0 Which tenets of the school become lasting contributions
6.0 Conclusion
7.0 References
8.0 Past year question
Table of Content

3. 03
Write your
agenda point
Antoine Cournot & Jules Dupuit
pioneered the used of marginal
analysis in economics.
Second Generation
Forerunners
Edgeworth and Clark expand
further theory of marginal
utility.
• The Marginalist school support the laissez-faire system & deductive approach
(contrast with German Historical School which support government intervention &
inductive approach)
• Marginalist was only a transitory period between classical and neoclassical schools
• This school eventually become part of “neoclassical economics” or contemporary
microeconomics.
Jevons and Menger published
their influential books on
marginal utility theory.
Main figures:
Introduction

4. Poverty
Serious economic & social
problems remain unsolved even
a hundred years after the
beginning of the industrial
revolution
Uneven distribution of
wealth and income
Business fluctuation
Historical Background
Farmer and
farm laborers
were forced
migrate to
cities
long working hours, dangerous and unhealthy working conditions, the dominant power of employers in bargaining with
worker, rise of monopolistic powers & insecurity old age cause people to find solution beyond classical economic thinking.

5. 3rd approach
1st approach
To promote socialism
2nd approach
To bolster trade unionism
To demand government
intervention in the economy​
Approaches to Overcome Social Problems

6. NO
The Marginalists
denounce
socialism.
Sought to discourage labor unionism as
either ineffective or pernicious.
defend market allocation and distribution.
deplore
government
intervention.
• The Marginalists
support the Classical
School (Laissez-faire)
so they opposed all 3
solutions
• They believed that
although the value and
distribution theories of
the classical economists
were inaccurate, but
their policy is suitable.

7. MAJOR
TENETS
1. Focus on the margin
2. Rational economic behavior
3. Microeconomics
emphasis
4. The use of the abstract,
deductive methods
5. The pure competition
emphasis
6. Demand-oriented price theory
7. Emphasis on subjective
utility
8. Equilibrium approach
9. Merger of land with
capital goods
10. Minimum government
involvement

8. 1. FOCUS ON THE MARGIN
• concentrated on the margin where decisions are made to explain
economic phenomena extending the marginal principle in
Ricardo's theory of rent to all economic theory.

9. 2. RATIONAL ECONOMIC BEHAVIOR
• assumed that people act rationally in balancing marginal benefit
(MB) & marginal cost (MC), pleasures and pains, in measuring
marginal utilities of different goods, and in balancing present
against future needs.

10. 3. MICROECONOMICS EMPHASIS
• instead of considering the aggregate economy, or
macroeconomics, the marginalists considered individual decision
making, market conditions for a single type of good, the output of
specific firms, and so forth.

11. 4. THE USE OF ABSTRACT, DEDUCTIVE METHOD
• The marginalist rejected the historical method
(German Historical School) in favour of
analytical, abstract and deductive approach.
• Richardo started with basic premises and use
logic to deduce generalizations.
• Several marginalist school members
advocated the partial equilibrium analysis
method.
• Ceteris paribus approach allows one variable
to change at a time while keeping all other
variables momentarily constant.

12. 5. THE PURE COMPETITION EMPHASIS
• The marginalist based their analysis on the assumption of
perfect competition. The world is small, individualistic,
independent entrepreneurs, numerous buyers, many sellers,
homogenous products, uniform price and no advertising.

13. 6. DEMAND-ORIENTED PRICE THEORY
• The classical economist emphasized supply as the primary
determinant of price while the marginalists viewed demand as the
primary determinant of price.
• The Neoclassical school emphasized both supply and demand as
the significant determinant of price.

14. 7. EMPHASIS ON SUBJECTIVE UTILITY
• Demand depends on marginal utility, which is a subjective,
psychological phenomenon.

15. 8. EQUILIBRIUM APPROACH
• Marginalists believed that economic forces generally tend
toward equilibrium — a balancing of opposing forces. Whenever
disturbances cause dislocations, new movements toward
equilibrium occur.

16. 9. MERGER OF LAND WITH CAPITAL GOODS
• The marginalists theory generally included land with other
capital goods and combined rent to the landowner with interest
theory refuting the implication in the labor theory of value that
rent was unearned income.

17. 10. MINIMAL GOVERNMENT INVOLVEMENT
• The marginalists continued the classical school’s defense of
minimal government involvement in the economy as the most
desirable policy. In most cases, no interference with natural
economic laws was in order if maximum social benefits were to
be realized.

18. free market system
workers
received wages
equal to their
contribution to
the value of the
output
WHOM DID THE MARGINALISTS
BENEFIT OR SEEK TO BENEFIT?
Marginalists sought to advance the interest of all of humankind
efficiently allocates resources
promotes economic liberty
those who
resisted
change
who interests in
maintaining the
status quo
employers
opposing union and by
attributing unemployment
to wages that were
artificially high, inflexible
on the downward side
landowners
defended
landowners
against attacks
based on
Ricardian rent
theory
wealthy people
opposed
government
intervention that
might redistribute
income

19. How was the Marginalist School Valid,
Useful, or Correct in its Time?
• geometric diagrams
• mathematical techniques
become more exact social science
• for both final goods and factors of
production
• only on supply (cost of production) as
the significant determinant of exchange
value (price)
Developed new and powerful tools
of analysis:
Importance of demand in determining
prices:

20. How was the Marginalist School Valid,
Useful, or Correct in its Time?
• As opposed to being left lurking in the
background as did many of the classical
economists.
• useful for abstracting from the complexity of the real
world
• allowing one variable at a time to change while holding
all other variables temporarily constant
State fundamental assumption underlying
economic analysis:
Partial equilibrium analysis:

21. How was the Marginalist School Valid,
Useful, or Correct in its Time?
Microeconomic approach
complement the macroeconomic approach
Example:
Certain groups of people may
become increasingly
impoverished, although the
average real per capita income for
the nation may be rising

22. WHICH TENETS OF THE MARGINALIST SCHOOL
BECOME LASTING CONTRIBUTIONS?
• the alleged fallacy of composition associated with marginalist
and classical employment theory
one firm
cut wages
expand its market by
selling more goods at
lower prices
1. MARGINALIST AND NEOCLASSICAL EMPLOYMENT THEORY (OUTDATED)

23. 1. MARGINALIST AND NEOCLASSICAL EMPLOYMENT THEORY (OUTDATED)
WHICH TENETS OF THE MARGINALIST SCHOOL
BECOME LASTING CONTRIBUTIONS?
all firms
cut wages
market shrinking
rather than
expanding
Keynesian view : there are alternative means to reductions
in nominal wage to achieve full employment

24. Imperfect Competition
Pure
Competition
Monopolistic
Competition
Oligopoly
Pure
Monopoly
2. PURE COMPETITION (OUTDATED)
WHICH TENETS OF THE MARGINALIST SCHOOL
BECOME LASTING CONTRIBUTIONS?
• too restrictive to be useful as competition declined after the
1870s

25. WHICH TENETS OF THE MARGINALIST SCHOOL
BECOME LASTING CONTRIBUTIONS?
• failed to explain economic growth and its theory
proved to be inadequate for slowly developing
country
• neglected in proving that supply creates its own
demand, and therefore full employment is the
rule
3. MARGINALISTS FAILED TO EXPLAIN ECONOMIC GROWTH AND
BUSINESS CYCLE

26. • static, timeless and unsubstantiated
with empirical evidence
• Challenged by inductive method
(German Historical School)
WHICH TENETS OF THE MARGINALIST SCHOOL
BECOME LASTING CONTRIBUTIONS?
4. DEDUCTIVE METHOD (OUTDATED)

27. • Many of the marginalist theories can be found in contemporary
textbooks on principles of economics and microeconomics.
LASTING CONTRIBUTIONS
WHICH TENETS OF THE MARGINALIST SCHOOL
BECOME LASTING CONTRIBUTIONS?

28. IMPORTANT ECONOMISTS
(MARGINALIST)
Francis Y.
Edgeworth
Antoine Augustin
Cournot
William Stanley
Jevons

29. • Born in Gray, France
• Published treatises on mathematics, philosophy, and
economics
• First develop concise mathematical models of pure
monopoly, duopoly, and pure competition but his
pioneering work was neglected until after his death
• Developed the earliest complete model of the derived
demand for resources.
ANTOINE AUGUSTIN COURNOT
(1801-1877)

30. ANTOINE AUGUSTIN COURNOT
(1801-1877)
• A forerunner to the marginalist school on the
rates of change of total cost and revenue
functions
• Contributions to economic analysis: Theory of
pure monopoly, duopoly

31. • The first to derive the proposition that a firm can maximize its profit by
setting a price at which marginal revenue = marginal cost (MR=MC)
THEORY OF MONOPOLY
• Total profit will be
maximized at the
quantity of output
where TR (P x Q) is
greatest, where at this
point, MR=0. • In graph (a), MR
lies below the AR
curve because
lower prices apply
to all unit not just
the extra one sold.

32. THEORY OF MONOPOLY
M
R
• Each additional unit sold will add its own price
to TR, but if extra unit had not been offered for
sale, the price received on other units would
have been higher.
• The loss of this potential revenue must be
subtracted from the gain in revenue through
the sale of extra units.
• The seller could charge 100 francs per unit.
However, he would sell only 65 units [TR would
be 6500 francs, assuming TC=0].
A
R

33. THEORY OF MONOPOLY
• The monopolist would try and error until price
settles at 60 francs.
• At 60 francs buyers will purchase 200 units and
TR will rise to 12,000 francs. This is the
monopolist’s maximum TR.
• At the monopolist’s maximum TR, MR=MC=0
(profit-maximizing condition is fulfilled).
• At graph b , any price below or above 60 francs
will reduce the TR.

34. THEORY OF MONOPOLY
• Cournot extended his theory to the condition
where MC are +ve.
• According to him, the monopolist facing
positive costs will maximize profits when TR
minus TC at the level of output where MR=MC.
• This rule applies in situations where numerous
competitors exists.

35. • Born in Liverpool, England.
• Jevons attended University College London to
study chemistry and botany (UCL).
• Published several books on logic and became a
professor of logic, political economy, and
philosophy.
• He invented the logic machine, also famous as a
historian of science.
• The first economist to construct index numbers.
William Stanley Jevons
(1835-1882)

36. • Jevons stated: that value depends entirely upon
utility.
• Labour is frequently shown to determine value.
• Jevons is saying that pearls have value because
buyers get utility from them.
• The law of diminishing marginal utility must
therefore be started first in order to understand his
value theory.
• Notions of rational consumer behavior, individual
and market exchange, and more.
Value Theory

37. Jevons on Value Theory

38. • The utility cannot be directly
measured, at least with the available
tools.
• Only by studying human behavior
and taking note of human preferences
can utility be estimated.
• A single individual can compare the
marginal utilities of many goods as
well as the utilities of successive
units of a single good.
Theory of diminishing
marginal utility
More units are consumed --
> additional satisfaction
falls
Formula to calculate
marginal utilty:

39. Rational choice: the
equimarginal rule
• The consumer wishing to maximize
utility will allocate money income in
such a way that the marginal utility
of the last dollar spent on all
commodities is equal.
• Symbolically:
The notion of final utility (marginal
utility) formalizes a general theory of
rational choice.
• Example:
• If the ratio of the marginal
utility of X to its price is
greater than that for Y.
• A rational consumer will
purchase more of X and less
of Y.

40. Theory of exchange
Assume, according to Jevons, that one party (the "trading body") possesses A (only has
beef) and B (only has corn).
Principle of utility
maximization to
explain the gains from
exchange.
Equimarginal rule comes into play to ensure that exchange will benefit each.
• If party A only has beef, the marginal utility
of the beef to its price ratio will be low,
while the marginal utility of the corn to its
price ratio will be high.
• The equimarginal rule suggests correctly
that party A will succeed by getting corn
and quitting beef.

41. JEVONS ON
LABOR
• It was stated that labor cannot control value since it has
infinitely variable quality and efficiency and hence has
unequal worth.
• Labor itself is a subjective, psychological cost, a “painful
exertion.”
• To "satisfy our wants with the least possible sum of labour" is
the crux of the economic challenge.
• To do this, the employee must contrast the joy of earning
money with the hardship of working.
Utility is the determinant of
exchange value.

42. MUe = Marginal utility of the earnings
MDUw = Marginal disutility of work.
Above line OX → pleasure (utility)
Below line OX → pain (disutility)
Point B & C on MDUw
• Neither pleasure nor pain
Point C
• The pain of additional work ↑
Point M → qm=dm
Conclusion: m = the optimal amount of work
that a worker can earn in a workday.

43. Jevons On Labor
Determine
Determine
Determine
Cost of Production Supply
Final Degree of
Utility
Value

44. • Jevon held that exchange value is determined by
marginal utility.
• Changes in exchange value can result from a change in
people's preferences for commodities, the value of
labour employed to create them, and the final degree of
utility of the product.
RECAPITULATION OF
JEVONS’S THINKING

45. Born in Ireland.
Studied at Oxford University
Tooke Professor of Political
Economy at Oxford
Editor of the Economic
Journal for 35 years
Founders of the Royal
Economic Society
President of the Statistical
Society and was a fellow of
the British Academy
FRANCIS Y.EDGEWORTH
(1845-1926)

46. In Mathematical Psychics (1881) and articles Papers
Relating to Political Economy (1925)
Use of Mathematics within the discipline to modern economics
Came up with the concept of indifference curve
Discussed the pricing behaviour of oligopolists
Clarified the difference between the average and marginal product
Contributions to
economics

47. • In ‘Mathematical Psychics’, Edgeworth
introduced the concept of “curves of
indifference,” which show the various
combinations of two items that will yield
the same level of utility to an individual.
• Edgeworth drew his indifference curves and
used it to analyze an isolated exchange
between two sole possessors of products
(Robinson Crusoe and his right-hand man
Friday).
• Friday has labour, x2, whereas Crusoe has
money, x1.
INDIFFERENCE
CURVES AND
EXCHANGE

48. Details Friday Crusoe
Product Labour Money
Indifference Map Indifference curves 1,2,3 Indifference curves I, II,III
Prefer
Indifference
Curve
East North
Total Utility
Yields
Curves 2 > Curves 1
Curves 3 > Curve 2
Curves II > Curves I
Curves III > Curve II

49. Details Friday Crusoe
Point D
• Indifference Curve 1
• Still at Indifference Curve 1
• Indifference Curve I
• Curve III rather than I
at point A
Perspective
Achieve higher utility at point C
(Indifference Curve 3)
Utility remains on
Indifference Curve I
Contract curve
Prefer C on this curve because it
would place him on indifference
curve 3
Prefer A because that
would provide him more
utility than at either points
B or C
• The final contract between the two traders in this case is indeterminate; any point on the contract
curve is a possible equilibrium point, and the final outcome will occur through bargaining.

50. The relationship between TP, MP and AP for a competitive firm
operating in the short run
2 Input :
MARGINAL PRODUCT VS
AVERAGE PRODUCT
Graph A: Short-run production function
Graph B: MP and AP of labour that correspond with
the TP curve
MP is the change in TP associated with a change in
the labour input (L)
AP can be found by drawing a straight line from the
origin to any point on the TP curve

51. • When TP at an increasing rate, MP and is above AP
• Because MP > AP, AP
(whenever a number that is greater than the average is added to
a total, the average must also rise)
• TP at a decreasing rate, MP ; that is, diminishing
marginal returns occur
• Because MP < AP, AP
• Relationships: Very important in contemporary microeconomic theory
For example, they explain the shape of short-run cost curves for typical firms
& are the basis for the marginal productivity theory of the demand for
resources, and underlie the marginal productivity theory of income
distribution.

52. Beginning of the marginalist
school :
1871
William Stanley Jevon
and
Carl Menger
published their influential
books on
marginal utility theory
The marginalist school:
Opposed Reemphasized
• socialist
ideology
• government
intervention
in the economy
• used of "laissez-
faire" system
pioneered by the
classical school
Conclusion
The marginalist school
sought to:
• advance the interest of all
humankind
• efficiently allocates
resources and promotes
economic liberty
• Marginal analysis applied to the whole body of
microeconomics.
• Progress in mathematization of economics
• Only input to the new era of economic thinking-
neoclassical economics (starting in 1890s), which
produced a complete and consistent new microeconomic
theory.
• Marginalist was only a transitory period between
classical and neo classical schools.
Theory for the marginalist school can be found
in:
Contemporary textbook on principles of economics and
microeconomics.
Example:
• Theory of monopoly and duopoly (Cournot)
• Theory of value (Jevons)
• Indifferent curve and exchange and differences between
average and marginal product (Edgeworth)

53. References
Brue, S.L. and Grant, R.R. (2013) The
evolution of economic thought. (8th.
ed.).South Western: Cengage Learning.

54. Past year question
• Describe the similarity of opinion of the Marginalist and the
New Classical School in relation to the needs of government
intervention in an economy. (A151)
• Discuss the major tenets of these school of thought:
MARGINALIST. ( A152)
• Explain why the “historical inductive method” used by
German Historical School has become generally accepted as
complementary to the “abstract deductive method” used by
the Marginalist School. (A182)

55. Past year question
• Adam Smith from the Classical School did not solve the
‘water diamond paradox’ because he failed to understand
the concept of utility. Explain how his paradox solved by
William Stanley Jevons from the Marginalist School by
using the law of diminishing marginal utlity. (A172)
• Briefly identify and state the significance of Edgeworth:
marginal versus average product (A151)

56. Past year question
• William Stanley Jevons rejected Value Theories explained by Ricardo and
Mill. Please explain Jevons definition about: (A161)
a)Value Theory
b)Theory of diminishing marginal utility
• Discuss the conflict between ‘value in use’ and value in exchange’ in water
diamond paradox observed by Adam Smith (Classical School). Explain how
this problem solved by William Stanley Jevons from the Marginalist School.
(A171)

57. • Compare and contrast the views of Classical, Marginalist and Neo-Classical
School on value determination by referring to the following statement: Do pearls
have value because people dive for them, or do people dive for them, or do people
dive for pearls because pearls have value? (A171)
• List other TWO(2) contributions of Neoclassical School in terms of “economic
analysis” compared to earlier marginalists besides further improvements in the
theory of exchange value. (A172)
• Explain how the Chicago School combined two major tenets of the Marginalist
School which is ‘focus on margin’ and ‘rational economic behaviour’ to develop
one of their own major tenets which is ‘optimizing behaviour’. (A181)
Past year question

58. Thank You