Renowned economist Alfred Marshall emphasized the critical role of time in determining prices. He introduced the concept of “periods,” during which the forces of demand and supply interact to establish the equilibrium price. Depending on the period in question, either demand or supply can exert a stronger influence on price determination.

Marshall categorized time into four distinct types:

Let’s explore each of these periods to understand how prices are determined.

The market period refers to a very short time frame, often a few hours or a single day.

During this period, demand is the primary factor influencing price. The price established in this period is referred to as the Market Price.

The short period spans a slightly longer timeframe, such as four days to a week.

Demand plays a dominant role in price determination during this period. The resulting price is called the Short Period Price.

The long period extends over one or two years, providing enough time for industries to adapt.

Both demand and supply are equally influential in setting prices. The price determined during this period is known as the Long Period Price.

The secular period spans several years or decades.

While both demand and supply are important, supply takes precedence in determining prices. This price is referred to as the Secular Price.

Marshall’s classification of time highlights the dynamic relationship between demand, supply, and price determination. In shorter periods, demand exerts greater influence due to the rigidity of supply, whereas in longer periods, supply becomes more adaptable and influential. This framework not only explains the mechanics of price determination but also provides insights into the complexities of economic planning and decision-making over time.