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When people's actions are based on self-interest, people respond to incentives, that is, to costs and benefits. When the costs of an activity are raised or the benefits reduced, people do less of the activity. Economists have found that they can use this simple idea of action based on costs and benefits to construct a model (or theory) that explains how many markets work. This model, the model of supply and demand, is perhaps the most basic of the models economists use to explain the world around us. Given the model's importance in the way modern economists think, it is surprising that one does not find the model in the writings of Adam Smith, David Ricardo, Thomas Malthus, or John Stuart Mill, though all of these pioneers in economics used the words "supply" and "demand" frequently. The modern supply-and-demand model did not appear until 1890, when Alfred Marshall published his Principles of Economics.
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