Essentials of Economic Theory: As Applied to Modern Problems of Industry and Public PolicyClark, John Bates
General
Essentials of Economic Theory: As Applied to Modern Problems of Industry and Public Policy
Clark, John Bates
Economics
If the cost of a unit of each of ten articles be represented by the
lines falling from the letters _A_, _B_, _C_, etc., to the base of the
figure, a considerable fall in the cost of _A_ would put it below the
cost of each of the other articles represented. If in the case of a
large class of persons who did not formerly buy any of the _A_ it is
as desirable as any of these goods, it will take its place as the most
desirable subject of purchase instead of the least desirable.
Those whose available means enabled them to acquire all the articles
from _J_ to _B_ inclusive, but did not suffice for _A_, will now take
the _A_ and omit the _B_. Those whose acquisitions stopped with _C_
will substitute _A_ for that article, and in general every buyer of
any of these things who has not heretofore acquired _A_ will now put
this in the place of the one which it was least worth while to
acquire.
[Illustration]
_Substitutions caused by a Cheapening of one Utility in an Article
which is a Composite of Several._--When different goods cost unlike
amounts but are objects of equally strong desires, only one of them is
a marginal purchase, and the others afford a personal gain to the
consumer which is not offset by a cost. We have seen that this rule
applies to the different utilities in a single good. In the case of
every article several grades of which are sold, there is one component
element or one utility which is worth to the buyer exactly what it
costs, while the others afford a consumers' surplus. If the letters in
the diagram represent, not whole articles, but utilities in articles,
as discussed in Chapter VI, it will accurately express the essential
facts. In such cases, which are very numerous, it is only necessary to
reduce the price of the one utility which is now just worth its cost
in order to induce more consumers to buy the grade containing this
utility, instead of a lower grade of the same thing. In doing this,
they forego the purchase of something else altogether, or content
themselves with a lower grade of that other commodity. If jeweled
watch cases should become cheaper, some persons would substitute them
for plain cases and would forego buying, say, pictures which were just
within their purchase limit, or would content themselves with cheaper
pictures. This taking of one thing within the margin of consumption
and discarding others is far less frequently done than is the taking
of a lower grade of one kind of goods for the sake of securing a
higher grade of another.
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