This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 8. The point of price-adjustment. Picture now a market, let us say a village, to which the farmers of the surrounding country are bringing eggs, butter, apples, etc. The price of eggs to-day is 20 cents a dozen, and at that price just 100 dozen are brought to market and sold. If but 80 dozen a day come to market the price will rise, let us say, to 25 cents. Altogether there must be 20 dozen fewer bought. Who ceases to demand eggs because price has risen only five cents a dozen? Some few wealthier families may continue to buy the same number as before, a few poorer families will stop using eggs entirely, and between these two extremes will be many families which will use eggs a little more sparingly. Now the group of poorest families, which before was buying some eggs, was just at the margin of choice as regards its whole demand; the middle group was just at the margin as regards a certain part of its demand. In the contrary case, say a fall of price from 20 to 18 cents, many of the families will somewhat increase their use of eggs (substituting them for other kinds of food and packing them for winter use), and perhaps still other families, which could before not afford to use eggs, will now buy some. And so with respect to every good, in a market of any size, there are always persons already buying some, who will be ready to buy more, and there are others not now buying any, who will begin to buy some, at a lower price. At the higher price they are excluded would-be buyers; in respect to certain quantities, they are merely potential buyers, but when the price falls they become actual buyers. (A similar view must be taken of the sellers, actual and potential, at a certain price.) Each price is clearly the resultant of all the actual demand and all the actual supply that brings about the equilibrium; but certain units both of demand and of supply are more responsive to price changes and are more immediately the occasion in bringing about changes than are others. The necessary adjustments of price, of demand, and of supply, are made by those traders who are in a most sensitive, unstable condition in reference to certain units of goods. Therefore our attention in studying price is directed more toward the buyers and the sellers who are just excluded, or are about to be excluded with any alteration of the conditions in the market. When the two pans of a balance are nearly in equilibrium, either a bit taken out of one pan or a bit added to the other will bring the balance to equilibrium. We speak of these bits added or taken away as causing the equilibrium, but we know that this is only on condition that the other contents of the pan are present and remain unchanged while this one change is made.
§ 9. Social factors in individual valuations. Men of to-day are accustomed to look to the market-price as in some measure a guide to their valuations. We have just seen why this must be so, because by trade men are constantly bringing their valuations into accord with that represented in price (so far as they have the purchasing power). But in still other ways, outside of trade and often preceding the actual trade, the influence of other men's choices comes to play a large part in our valuations. Traditional and conventional values, foolish fashions, fads, and imitation of others in very different walks of life and with very different needs, modify and determine our choices. It is easy to see this in every one but one's self. These phenomena are variously spoken of as the mob-mind, the hypnotism of the crowd, suggestion, snobbery, social ambition, idealism, etc. Each of us is so affected by his surroundings, his associates, his education from youth up, that even what seem to be our coldest calculations are based on these more or less fixed and fundamental standards of opinion, prejudice, and preference. Nevertheless, the individual's choice, when he makes it, is his choice and helps to maintain or alter price. It will be recalled that from its very beginning choice was impulsive, not rational, and continues to be in a large part guided by habit as well as by impulse. Choice has become in part rational only as primitive impulses have been inhibited, and choice, which is action, has been postponed in view of larger interests.
§ 10. Objective conditions to be studied. In the foregoing analysis there is not an ultimate explanation of price ;6 we must not think that price is fixed by choice rather than by the objective conditions affecting abundance of supply, etc. There is no such contrast between alternative explanations. Each choice is made in a given situation; so far as the choice
6 It is easy "to confuse the idea of natural cause with that of final cause. Science knows nothing of the latter; any natural cause is only a link in the chain of cause and effect; it is itself the result of antecedent causes and the cause of subsequent results." Conklin, "Heredity and Environment," p. 164. This warning of the natural scientist is just as important in the social sciences as it is in biology. is deliberate it is made in view of all the conditions, which include the abundance and scarcity of material things. It is impossible to conceive of choice determining price without having regard to the quantities and qualities of economic goods. In choice, men are at nearly all times touching the world of reality. In price, we see a most significant meeting point of economic forces. The market-price of the moment contains within itself many other problems the solution of which must be sought in a study of natural resources, inventions, machinery, growth of population, ability of men to produce, and many other concrete conditions of industry.