To simplify matters, let us suppose that seven men, each desiring to purchase one bicycle, attend a bicycle auction where the goods offered for sale are alike in every respect, and where both buyers and sellers are permitted freely to make offers. These seven buyers we will indicate by the letters A, B, C, D, E, F, G. To complete our supposition let us attach to each of the seven buyers the following maximum prices: A - 30, B - 28, C - 27, D - 24, E - 21, F - 16, G - 11. Clearly, the valuations differ widely, but that is exactly the situation under actual business conditions; for the valuations we have attached to these seven buyers represent desires which may or may not become demands; and we can know whether or not they become demands only when we know the exact location of the market price. If, for example the market price should be fixed at 25, D, E, F, and G would not have a demand for bicycles, for demand implies both the willingness and the ability to pay the market price. Obviously, then, we must next turn our attention to the sellers, who are equally as necessary as the buyers in fixing a market price.

Fig. 4.