Critique of Alfred Marshalls Theory - Coursework Example

The theory of marginal utility provided by Marshall has even been severely criticized. One of the criticisms regarding the theory of diminishing marginal utility is that utility or the benefits that an individual derives from the consumption of a particular good or service cannot be measured (Rima, 2012). Marshall states that utility and diminishing marginal utility can be measured and its increase and decrease can even be measured. But criticizers state that the utility is psychological and is dependent on the mental state of an individual and cannot be measured. Furthermore, the theory is criticized because it cannot be universally applied (Sivagnanam, 2010). This is because the consumption of certain goods and services may never satisfy a consumer and he may continue to demand more. For example, a person when is alcoholic cannot stop drinking as with every drink, he wants more alcohol. The theory of neo-classical economics that was developed by Marshall has even experienced criticism. Marshall believed that human beings are rational beings, and they make purchasing and consumption decisions based on costs and benefits. This aspect of the theory has been criticized because that that various activities conducted by an individual cannot be categorized as rational and human beings do not always take into connotation the benefits and disadvantages of a purchasing decision while making a purchase (Amann, 2011). This is true because various purchasing and consumption decisions of an individual are made without identifying the advantages and disadvantages associated with them.

Business Application of Marshall’s Theory

            The law of demand that was identified by Marshall can be applied for various purposes in real-life business scenarios. One way of applying the concept of the law of demand to a particular business would be while a business determines the prices of goods and services it is offering. The law state that demand rises as price falls and demand falls as price rises. This concept can be applied to businesses odder to attract more customers. If a particular business is not being able to sell enough goods and services, then it needs to compare the prices of the goods that the business has set with the prices of the goods at which a competitor is selling. If the prices of the goods of the competitor are lower than the business’s prices, then that would suggest that the business needs to decrease its prices in or detoured goods and services. The concept of diminishing marginal utility can be used by a business to why the demand for its particular goods and services is declining. If a particular business is experiencing a decline in the number of goods it is selling in the market. The business may need to conduct market research and identify the reason. For example, certain goods such as warm clothes have higher demand during the winter season. This means that the demand for such clothes during the summer season will be low since during that period of the year the utility obtained from consuming warm clothes decline for the customers. Therefore, the supplier of warm clothes can identify why the deform is warm during the summer season.

Conclusion

            Alfred Marshall provided the world of economics with various theories including demand and supply theory, diminishing marginal utility and he even contributed heavily to the position of new-classical economics.