Demand Price

Abstract

Earlier economic literature doubtless contains casual usages of the phrase ‘demand price’, but its appropriation as a technical term appears to date from Alfred Marshall’s Principles of Economics (Marshall, 1890: see Marshall, 1920, pp. 95–101). Marshall applied the term in the contexts of both individual and market demand. Starting with a commodity (tea) purchasable in integral units of a pound’s weight, an individual’s demand price for the xth pound is the price he is just willing to pay for it given that he has already acquired x – 1 pounds. The basic assumption is that this demand price is lower the larger is x. A schedule of demand prices for all possible quantities (values of x) defines the consumer’s demand schedule. Its graph is naturally drawn with quantity on the horizontal axis. In the case of a perfectly divisible commodity, the demand price of quantity x must be redefined as the price per unit which the consumer would be willing to pay for a tiny increment, given that he already possesses amount x. The demand schedule then graphs as a continuous negatively sloped demand curve showing demand price in this sense as a function of x.