BOOK V. Putting aside cases of retail dealing, § 5. At the opposite extremity to international stockexchange securities and the more valuable metals are, firstly, things which must be made to order to suit particular individuals, such as well-fitting clothes; and secondly, perishable and bulky goods, such as fresh vegetables, which can seldom be profitably carried long distances. The first can scarcely be said to have a wholesale market at all; the conditions by which their price is determined are those of retail buying and selling, and the study of them may be postponed. There are indeed wholesale markets for the second class, but they are confined within narrow boundaries; we may find seems to be our typical instance in the sale of the commoner kinds of confined, vegetables in a country town. The market-gardeners in the we pass to a market which narrowly though even this is subject neighbourhood have probably to arrange for the sale of their vegetables to the townspeople with but little external interference on either side. There may be some check to extreme prices by the power on the one side of selling, and on the other of buying elsewhere; but under ordinary circumstances the check is inoperative, and it may happen that the dealers in such a case are able to combine, and thus fix an artificial monopoly price; that is, a price determined with little direct reference to cost of production, but chiefly by a consideration of what the market will bear. On the other hand, it may happen that some of the market-gardeners are almost equally near a second country to indirect town, and send their vegetables now to one and now to the from great other; and some people who occasionally buy in the first influences distances. town may have equally good access to the second. The least variation in price will lead them to prefer the better market; and thus make the bargainings in the two towns to some extent mutually dependent. It may happen that this second town is in close communication with London or some other central market, so that its prices are controlled by the prices in the central market; and in that case prices in our first town also must move to a considerable extent in harmony with them. As news passes from mouth to mouth till a - rumour spreads far away from its forgotten source, so even the most secluded market is liable to be influenced by changes of which those in the market have no direct pgnizance, LOCAL MARKETS. 389 changes that have had their origin far away and have spread вOOK V. gradually from market to market. Thus at the one extreme are world markets in which competition acts directly from all parts of the globe; and at the other those secluded markets in which all direct competition. from afar is shut out, though indirect and transmitted competition may make itself felt even in these; and about midway between these extremes lie the great majority of the markets which the economist and the business man have to study. CH. I. tions of regard affect the the causes we have § 6. Again, markets vary with regard to the period of Limitatime which is allowed to the forces of demand and supply to market bring themselves into equilibrium with one another, as well as with with regard to the area over which they extend. And this to time element of Time requires more careful attention just now nature of than does that of Space. For the nature of the equilibrium of which itself, and that of the causes by which it is determined, to take depend on the length of the period over which the market is account. taken to extend. We shall find that if the period is short, the supply is limited to the stores which happen to be at hand: if the period is longer, the supply will be influenced by the cost of producing the commodity in question; and if the period is very long, this cost will be influenced by the cost of producing the labour and the material things required for producing the commodity. This latter distinction will be seen to be one of degree only, and to be not clearly and firmly drawn: and even the former is not perfectly definite, but yet it is definite enough to merit a separate discussion. Accordingly we shall consider in the next chapter those temporary equilibria of demand and supply, in which the cost of producing the commodity exerts either no influence or merely an indirect influence. A simple instance of between effort. CHAPTER II. TEMPORARY EQUILIBRIUM OF DEMAND AND SUPPLY. § 1. THE simplest case of equilibrium between desire equilibrium and effort is found when a person satisfies one of his wants desire and by his own direct action, as for instance when he picks blackberries. At first the pleasure of eating is much more than enough to repay the trouble of picking; in fact the action of picking may itself be pleasurable for a time. But after he has eaten a good deal, the desire for more diminishes; while the task of picking begins to cause weariness, which at last counterbalances the desire for eating, and equilibrium is reached. The satisfaction which he can get from picking fruit has arrived at its maximum: for up to that time every fresh picking has added more to his pleasure than it has taken away; and after that time any further picking would take away from his pleasure more than it would add1. In a casual barter there is generally no true equilibrium. The case of systematic In a casual bargain that one person makes with another, as for instance when two backwoodsmen barter a rifle for a canoe, there is seldom anything that can properly be called an equilibrium of supply and demand: there is probably a margin of satisfaction on either side. Probably the one would be willing to give something besides the rifle for the canoe, if he could not get the canoe otherwise; while the other would in case of necessity give something besides the canoe for the rifle. It is indeed possible that a true equilibrium may be barter may arrived at under a system of barter; but barter, though earlier in history than buying and selling, is in some ways more be de ferred. 1 See Mathematical Note XII. MARKET DAY IN A LOCAL CORN-EXCHANGE. intricate; and the simplest cases of a true equilibrium are found in the markets of a more advanced state of civilization'. 391 BOOK V. CH. II. tion from a which a reached. § 2. Let us take an illustration from a corn-market in a Illustracountry town. The amount which each farmer or other local cornseller offers for sale at any price is governed by his own need market in for money in hand, and by his calculation of the present and true though future conditions of the market with which he is connected. temporary equiThere are some prices which no seller would accept, some librium is which no one would refuse. There are other intermediate prices which would be accepted for larger or smaller amounts by many or all of the sellers. Let us assume for the sake of simplicity that all the corn in the market is of the same quality. An acute dealer having corn for sale may perhaps, after looking around him, come to the conclusion that if 378. could be got throughout the day, the farmers between them would be willing to sell to the extent of about 1,000 quarters; and that if no more than 36s. could be got, several would refuse to sell, or would sell only small quantities, so that only 700 quarters would be brought forward for sale; and that a price of 35s. would only induce some 500 quarters to be brought forward. Suppose him further to calculate that millers and others would be willing to buy 900 quarters if they could be got at 35s. each, but only 700 if they could not be got for less than 36s., and only 600 if they could not be 1 We may put aside also as of very little practical importance, a class of dealings which have occupied a good deal of space in economic literature. They relate to such things as pictures by the old masters, rare coins and other things, which cannot be "graded" at all; for each of them is unique, and has no direct equivalent or competitor. Anyone who offers to buy such a thing, without any thought of selling it again, has to assure himself only that the pleasure he will derive from its possession is as great as that which he could get by spending its price in any other way; the highest price to which he will go is governed by the utility or pleasure giving power to him of money on the one hand and the object of worth on the other. And therefore the price at which such a thing is sold will depend very much on whether any rich persons with a fancy for that particular thing happen to be present at its sale. If not, it will probably be bought by dealers who reckon on being able to sell it at a profit; and the variations in the price for which the same picture sells at successive auctions, great as they are, would be much greater still if it were not for the steadying influence of professional and semi-professional purchasers. The "equilibrum price" for such sales is very much a matter of accident; but the curious might reap some reward from a minute study of it. CH. II. BOOK V. got for less than 37s. He will conclude that a price of 36s., if established at once, would equate supply and demand, because the amount offered for sale at that price would equal the amount which could just find purchasers at that price. He will therefore take at once any offer considerably over 368.; and other sellers will do the same. Even though dealers of the con Buyers on their part will make similar calculations; and if at any time the price should rise considerably above 368. they will argue that the supply will be much greater than the demand at that price; therefore even those of them who would rather pay that price than go unserved, wait, and by waiting they help to bring the price down. On the other hand, when the price is much below 36s. even those sellers who would rather take the price than leave the market with their corn unsold, may argue that at that price the demand will be in excess of the supply: so they wait, and by waiting help to bring the price up. The price of 36s. has thus a claim to be called the true equilibrium price: because if it were fixed on at the beginning, and adhered to throughout, it would exactly equate demand and supply; and because every dealer who has a perfect knowledge of the circumstances of the market expects that price to be established. If he sees the price differing much from 36s. he expects that a change will come before long, and by anticipating it he helps it to come quickly. It is not indeed necessary for our argument that any dealer should have a thorough knowledge of the circumhave an stances of the market. Many of the buyers may perhaps imperfect knowledge underrate the willingness of the sellers to sell, with the effect ditions of that for some time the price rules at the highest level at there will which any buyers can be found; and thus 500 quarters may probably be sold before the price sinks below 37s. But afterwards the approach price must begin to fall and the result will still probably be to this equilibrium. that 200 more quarters will be sold, and the market will close the market, be a near 1 This result of his study of the market may be put in a tabular form thus |