hood have lost or sold horses and a horse is offered at auction just as the spring plowing needs to be done, they may bid so eagerly as to carry the price above that for which an equally good animal could be bought in the next county, or in a near-by city.
The buyer can afford to pay as much more as the cost to himself of a few days' delay and loss of his time when "time is money." If the normal price is 60, the actual price, which is the market price at that time and place, might be 70 or § 8. Effect of multiplicate units of supply. Suppose that instead of one ax, there were ten axes, all of about the same quality. At rural auction sales in America, those present look over the articles before the sale begins, and try to find who has come to buy, what they would like to get, and what they are likely to bid. If every prospective bidder judged the situa tion with entire accuracy, then when there were nine axes the exact price would be 21, just enough to exclude the lowest bidder; if there were eight axes the price would be 26 (and so on up to 54 if there were but one ax).
What would happen if there were ten axes offered to ten bidders and no one else would be tempted to bid at any price, however low (i.e., complete inelasticity of demand at prices below 20) ? The first thought may be that the price may be twenty. But we are here coming to the margin of satisfac Let the buyers be arranged in order of the amount of their maxi mum valuations, from left to right from the intersection of the co ordinates. The dotted horizontal lines represent the successive levels of the bids, rising until the price is fixed at 54, just above the next to the highest bid.
This is a case of complementary goods (see above, Chap. 5), the horse being needed to make use of other goods. It also evidently in volves time-value, which see later, Part IV.
tion of desires where values dis appear. If the more eager bid ders know the situation and refrain from bidding, each buyer might in turn get an ax for one unit, the smallest possible bid. This is the case when things sell for a "song." On Saturday nights at the produce markets such goods as strawberries, vege tables, and fish will be sold at any price. In fact, it rarely hap pens that demand is entirely inelastic, for at an abnormally low price each of the more eager bidders may be tempted to get more of the sale-goods than he had expected, and still others who had no thought of buying will do so if only with the purpose of selling later. The man who bought a cheap
coffin at an auction because "it would be handy to have in the house" was a bit of an extremist, yet it is proverbial that anything can be sold if the price is low enough.
§ 9. Successive price levels through uncertainty. It is evident that a mistake in the judgment of traders must alter the price somewhat with any number of sale-goods. There may be a succession of price levels. When there were ten axes, the first five might sell at close to 40, the next three at close to 30, and the last two at 20 ; the more eager bidders being uncertain of the number of other bidders and afraid to risk waiting for the lower price. This drop in price is a very • If each of numerous like articles were put up for sale separately and each were supposed by buyers to be the last, there would result a succession of prices. Each price would be lower than the preceding, each just high enough to exclude the next to the highest remaining bidder. If, however, it was known that there were several like articles but not just how many, there might result a succession of price levels. The dotted curve connects the maximum valuation of the several buy ers; successive prices form a curve somewhat lower. A tenth unit would sell only at a price between zero and common incident at auctions, to the chagrin of the earlier buyers ; but the opposite is possible, and bidding may become more spirited and the price rise as the last article is put up for sale.
§ 10. Auctions with reserve valuations. An auction is ad vertised to be "without reserve" when everything is to be sold for the highest bid, no matter how low it is. The seller agrees in advance to have no minimum selling valuation. Price in such a case may be abnormally low, much lower than in a trade where a lower limit is set by the ability and readiness of each would-be seller to keep all or part of the supply if the price is not as high as his valuations. Buyers' bids alone then determine the price at anything above zero. In most cases of trade, each trader virtually stands ready "to bid in" his own goods at his valuations rather than to sacrifice them ; and even in some auctions the right is expressly reserved of withdraw ing articles for which the bids remain unduly low. In some cases friends or confederates, "tappers," make pretended bids, or sometimes bid in the goods if the price is too low.