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
_How the Normal Price of a Single Good in a Bundle of Unlike Goods
would be Fixed._--Let us see how a bundle made up of commodities A, B,
C, and D would get its value in the market. We will suppose that these
articles are here named in the order of their importance, and that A
has the highest utility, since it renders the most important service,
and that D has the least. It may be that the article A has a utility
rated at one hundred dollars in a particular man's esteem. He would
give one hundred dollars for it rather than do without it altogether.
The service, then, that one article of this kind can render is
expressed by the sum one hundred dollars. Article B taken separately
may be worth fifty dollars, since it may render such services that the
man would give fifty dollars rather than be without it. A third
article, C, may in the same way be valued at twenty dollars and a
fourth at ten. Now, if a man has to buy the whole bundle, must he pay
one hundred dollars plus fifty plus twenty plus ten, or one hundred
and eighty for the whole? This does not by any means follow. The first
article may be sold separately at a price far below one hundred
dollars. There may be so large a supply of it that, in order to find a
market for it all, the makers must take ten dollars for it. This fixes
the market price of that amount of this commodity at ten dollars. If
we now glance beyond the question of the "market price" of the goods
and consider their more permanent or "normal price," the inquiry
requires us to do more than ascertain why a definite quantity of the
goods offered at a certain time sells for a certain amount. An appeal
to the law of final utility answers that question. To know, however,
why the permanent price is what it is, we have to know what fixes the
permanent supply, and we discover that the cost of making the goods is
here a dominant influence. For the present we assume that this cost
does not change, since such changes are a subject for the dynamic
studies which will come later. The present fact is that production has
been carried to such a point that no more of these goods can be sold
at the cost price, and there the enlargement of the output has
stopped; the supply has at some time in the past reached this normal
point and now remains there. Ten dollars represents the final utility
of the article, and this sum is what it costs to make it. If it could
be sold for any more than that, competition would bring new producers
into this business and would impel those already in it to enlarge
their production till the price would stand at the normal or cost
level of ten dollars.
Public-domain text, read in full here on John Shaqi.
Reviews
Reviews
No reviews yet
Be the first to share your thoughts on this work.
Elsewhere in the archive
Join the Discussion
Join the discussion
Sign in to leave a comment or review.
Sign InorCreate an account