PRINCIPLES OF PRICE 1. Buyers' composite valuation curve. 9 2. Sellers' composite valuation curve. 9 3. Price the resultant of demand and supply. § 4. The market as a two-sided auction. 9 5. Supply and demand coordinate in price-determination. 9 8. Price in a permanent market. 9 7. Effect of the market upon valuations. 9 8. The point of price-adjustment. § 9. Social factors in individual valuations. § 10. Objective conditions to be studied.
§ 1. Buyers' composite valuation curve. We have now to examine the process by which market-price is determined where two groups of bidders are present. This fulfils the conditions of a complete market, where there is two-sided, competitive bidding. Each trader comes to the market with valuations al ready in his mind more or less definitely. It may be that he is disposed to buy one unit if the price is high if it is lower he will buy two units; if still lower, three units, etc. Or he is disposed to sell one unit at a certain price, two units if the price offered is higher, three if it is still higher, etc. The situation from the standpoint of the prospective buyers is represented in Figure 9. One of them (B 1) stands ready to purchase one unit at a price as high as 14 if he can do no better, but he will, of course, buy at a lower figure if possible. B 2 will, if he must, pay as high as 13 for a unit. Other buyers 2 are willing to buy (one unit each) at prices I This set of valuations with which a trader enters a market reflects a disposition, an attitude of choice, a provisional judgment, which is subject to change with new conditions. See below on social factors in individual valuations.
2 Elasticity of demand. The changes of demand (and of supply) relative to a certain amount of change of price are very different ac 81 respectively lower-12, 11, etc. At the extreme end of the scale there are certain individuals who would be induced to buy only by a price extremely low-4, 3, 1, etc. The diagram, therefore, represents this situation where the individual (pros pective) buyers have different mental attitudes (valuations) as cording to kinds of goods, to times, and to circumstances. A fall of a particular price by 1 per cent may correspond with an increase of demand by 1 per cent or 2 per cent or 10 per cent as the case may be. When eggs were 35 cents a dozen in Chicago (between 1909-1911)
and fell to 34 cents the change in demand was hardly noticeable. But at 30 cents (about 15 per cent less) the demand rose from about 15,000 cases to 30,000 a week (100 per cent),—a considerable degree of elastic ity. (The standard case contains 30 dozen.) At 20 cents a dozen de mand was remarkably elastic, and additional supplies to the amount of 50,000 to 100,000 cases were taken (probably used as substitutes for meat, and to put into cold-storage) with hardly noticeable decline in price. Later, in June and July, however, when the demand for cold storage purposes falls off, and possibly because eggs are somewhat less palatable in hot weather, the price fell lower (to 18, and one year even to 15 cents). When at a given price a small reduction in price in regards the good in question, and where in the aggregate the whole body of buyers stand ready to take the various amounts indicated, according as the prevailing price is higher or lower. If it is high they will take a relatively small quantity : if it is low they will take a larger amount. If, for example, the price should prove to be 12, it will be seen that only four units will be taken by the would-be purchasers. They will be secured, of course, by the most urgent buyers, B 1, B 2, B 3, and B 4. There is no one else who stands ready to buy at a price as high as 12. There are others who would buy at a lower figure, but if the ruling market price is as high as 12 they are, by their own attitude of choice, necessarily excluded from the actual market transactions. Similarly for any other price in the creases largely the amount that will be bought and sold, demand and supply are said to be elastic. For example, at 35 cents the demand for eggs in Chicago is relatively inelastic, and at 20 cents it is very elastic. See Fetter, Source Book in Economics, pp. 25-33, for descrip tion and diagrams of some seasonal price variations in food, from Professor H. C. Taylor's study of the subject.