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 Prices of the Goods are fixed when they are sold in Various
Combinations._--How do these articles get their valuation when they
are tied in bundles containing all five of them and the bundles are
sold unbroken? In essentially the same way as when sold separately.
Article A, we will suppose, is one of the necessaries of life and is
to be had by itself in the market. Article B represents a comfort, and
C and D are luxuries. The bundles are so made that A and B are often
sold together; as are also A, B, and C; and A, B, C, and D. A
purchaser may have at his option the first only, the first and the
second combined, the first three, or all four. Article A, when it
stands alone, can be had at the natural or cost price and in quantity
sufficient to supply the wants of all classes of buyers from the
highest down to the class which will take it at ten dollars--the cost
of making it--but at no higher price. Any one can have the A either
alone or tied to other articles at this price. One who buys A and B in
combination will pay for article A only the same price that it
commands when sold separately; and since he buys B, the utility of
which is less than that of A, at ten dollars, it is clear that he gets
A for less than it is worth to him, but the ten dollars may be all he
would give for the B. This man is not the marginal purchaser of A, for
in buying it he realizes a consumers' surplus; but for the article B,
which is tied to it, he may pay all that it is worth to him. For that
he is a marginal purchaser, and as such he gets no consumers' surplus
out of it. What he pays for B will just suffice to buy something else
which is equally important to him. The price of this bundle of two
articles is ultimately determined by the cost of the two components,
which is twenty dollars, and enough of each component is made and
offered in the market to supply the wants of a class of persons who
will barely decide to take it at the cost rate. The class that
hesitates at taking A will not consider B, but the class that
hesitates at taking B gets a clear benefit from buying A at the price
that expresses the utility of A to a poorer class of persons.
Public-domain text, read in full here on John Shaqi.
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