(Time element in pricing)
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.
Shiller is right when he says that Marshall has done a great service to economics by introducing time element in pricing.