Price Determination: General Statement
Before Marshall, there was a dispute among economists on whether the force of demand (i.e., marginal utility) or the force of supply (i.e., cost of production) is more important in determining price.
Marshall gave equal importance to both the demand (or marginal utility) and supply (or cost of production) in the determination of the value or price.
Marshall’s famous analogy of a pair of scissors is worth quoting. “We might as reasonably dispute whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper, as whether value is governed by utility or cost of production .. It is true that when one blade is held still and the CUlling is effected by moving the other, we may say with careless brevity that the cutting is done by the second, but the statement is not strictly accurate anti is to be excused only so long as it claims to be merely a popular and not a strictly scientific account of what happens”. Thus, neither the upper blade nor the lower one taken separately can do the work of cutting, both have their importance in the process of cutting. The lower blade may be kept stationary ami only the upper one may be moved, yet both are indispensable for the process of cutting.
“The only really accurate answer to the question whether it supply or demand which determines price
is that it is both. At times it will seem that one is more important than the other. for one will be active and the other passive. For example. if command remains but supply condition vary. It’ demand – h is and supply active. important than the lither in Armenia Thus, the demand of all consumers and the supply of all firms together determine the prices which arc then taken as given by each them.