Price Determination Under Perfect Competition:
Definition and Explanation:
Dr.
Alfred Marshall was the first economist who pointed out that the pricing problem
should be studied from the view point of time. He distinguished three
fundamental time periods in the determination of price:
(1)
Market price.
(2) Short
run normal price.
(3) Long
run normal price.
Marshall
has stated that it is wrong to say that demand alone or supply alone determines
price. It is both demand and supply which determine price. In the words of
Marshall:
"The shorter, the period which one considers, the greater must be
the share of our attention which is given to the influence of demand on value
and longer the period, the more important will be the influence of cost of
production on value".
Actual
value at any time the market value as it is often called is often influenced by
passing events and is short lived than by those which work persistently. But in
the log run, these fitful and irregular causes in a large measure efface one
another influence so that in the long run persistent causes dominate value
completely. Stiller is right when he says that Marshall has done a great service
to economics by introducing time element in pricing.
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