scale there will be a definite number of included or actual buy ers, and a definite amount of the good which in the aggregate will be taken by those buyers at that price. This amount, the demand, which the buyers will take at any specified price is a composite, the combined result, of course, of the bids of the various individuals concerned.
§ 2. Sellers' composite valuation curve. We may show in a similar way by Figure 10 the conditions of supply. S 1, the most urgent seller, is willing to sell one unit at a price as low as 4; 8 S 7 will part with a unit at a price of 7.5 if he can do no better ; S 12 will not be tempted to sell unless he can get 10 for a unit of the good, etc. Here again the diagram simply depicts the fact that at any given price there will be a certain number of actual or included sellers, and the amount offered by those sellers at that price, or the supply, will also be a definite quantity. At a low price this quantity is small ; at a high price it is large.
§ 3. Price the resultant of demand and supply. Our question now is what is the market-price which naturally emerges from the demand- and supply-conditions which we have been considering. If one of these curves be superimposed upon the other, they are seen to cross at the point correspond ing to ten units of sale-goods, and to the price of nine per unit. All that the diagram means is that under the supposed 8 It must not be thought that in the above diagrams B 1, B 2, B 3, etc., are necessarily all different people. B 1, who is willing to pay (if he must) 14 for one unit, may appear again as B 2, willing to buy a second unit, but not willing to pay as much for it as he would for a single unit, or as B 4, B 6, etc. That is, he is willing, like the other buyers individually, and like the group of buyers as a whole, to take a certain sum at a high price, and a larger sum at a lower price. This is in accordance with the principle of diminishing gratification which we have already discussed (ch. 4). Similarly Si may enter again as S 2, S 5, S 6, etc. That is to say, each seller (of divisible amounts of goods) is willing to offer more at a high price than at a low price. It is evident, then, that the principle of diminishing gratification lies at the bottom of the demand conditions and also of the supply conditions as they exist in a market at any given time.
conditions of demand and supply (i.e., ten units offered by the sellers, and ten asked by the buyers at the same price, 9), the market-price which actually prevails will be the price (9) at which the demand and supply are equal. It is obvious that the number of units bought must be the same as the number sold. At the price 9, there can be and will be ten trades. In
each of these ten trades there is some gain for each buyer and for each seller. (It matters not whether the most urgent buyer buys from the most urgent seller.) But not one of the buyers with a valuation less than 9 could trade with any of the sellers with a valuation more than 9. The only way in which any one of these excluded buyers or sellers could get into the trading would be by inducing some one on the other side to act by mistake contrary to his own interest, or from motives of pity or generosity, while at the same time one on the same side fails to act in accord with his own interest.* 4 Effect of trading outside of the market. For example, B 11 might take 8 8 apart and persuade him to exchange at the price 8, at which both would gain something as compared with not trading at all. But it would be folly for S 8 to isolate himself in effect from the market It appears then that a logical market-price 5 is that price common to all trades made at the time, which permits the maximum number of transfers with some gain to both parties. This may be expressed also as: that price common to all trades at a given moment, at which no less urgent bidder on either side of the market can trade while any more urgent bidder is excluded. Such a price brings the desires underlying demand and supply to an equilibrium; no buyer is willing to bid more and no seller is willing to take less. It may therefore be called an equilibrium price.
§ 4. The market as a two-sided auction. It may be help ful to think of the market as a double auction-sale in which each bidder in either group has in mind a "reserve-price," a valuation at which he will withdraw from the market. Now in this way. For at that price there would be 8 traders willing to sell and 11 willing to buy. Three buyers able to outbid B 11 must, at the price 8, fail to get into the trade at all. One of them (logically it should be B 10 with a bid of 9) must leave the market without making a purchase (S 10 having a valuation of 9.5). Any buyer from B 11 to B 16 therefore could succeed in getting into the market only as a result of persuading one of the sellers against his own interest, and of outwitting a competing buyer. Similarly, S 11 might get B 9 apart (or any other buyer from B 1 to B 8) and make a trade at 9.5 mutually advantageous (tho not so good for B 9 as he might get otherwise). But at this price there would be 11 sellers and but 9 buyers, and as in the converse case, the less urgent traders would be displacing more urgent traders. Under the assumed valuations any other price than 9 involves the displacing of some more urgent bidder (or bidders) by a less urgent bidder on the same side.