Chapter 13 Chapter 3 Levels of Consumer Demand

The first section is the law of saturation of desire or the law of diminishing utility.full utility.marginal increase.marginal utility. When a merchant or manufacturer buys things for production or resale, his need is based on the profit he expects to obtain thereby.These profits depend at any time on the risks of speculation and on various other reasons which we shall have to consider later on.But, in the long run, the price that a merchant or manufacturer can pay for a thing depends after all on what the consumer will pay for the thing, or for things made of it.The ultimate regulator of all needs, therefore, is the needs of the consumers.In this article we are almost exclusively concerned with consumer needs.

Utility is a noun taken as interrelated with wish or desire.We have said that desires cannot be measured directly, but only indirectly through the external phenomena they give rise to; The desire is expressed by the price that is willing to pay.He may have wishes and aspirations which he is not consciously seeking to be satisfied, but we are now concerned primarily with wishes and aspirations which are intended to be gratified; expected satisfaction. Desires are endlessly varied, but each individual desire has its limit.This ordinary and basic tendency of human nature can be explained by the law of saturation of desire or the law of diminishing utility: the total utility of a thing to any person (that is, the total pleasure or other benefits it gives him) increases every time he responds to it. increases with the increase in the quantity of things, but not as fast as the increase in the quantity of things.If his possession of the thing increases at the same rate, the benefit thereby increases at a diminishing rate.In other words, the newly increased benefit that a person gets from a certain increase in the amount of a thing decreases with the increase in the amount he already has.

When he is about to buy something, the part that he has just been attracted to buy can be called his marginal purchase volume, because he is still on the verge of hesitating whether it is worth spending money to buy it.The utility of his marginal purchase may be called the marginal utility of the thing to him.Or, if he does not buy the thing, but makes it himself, then the marginal utility of the thing is that part of the utility which he thinks is just worth his making.In this way, the law just mentioned can be explained as follows: The marginal utility of a thing to any man decreases with every increase in the quantity of the thing he owns.

There is, however, an implicit condition in this law which should be explained.That is, we assume that no time is allowed during this period for any change in the character and tastes of the consumer himself.There are, therefore, no exceptions to the rule: the more a man listens to fine music, the stronger his taste for it; greed and ambition are often insatiable; or, the virtue of neatness and the vice of drunkenness The same is getting worse.For, our observations extend over certain periods; And the observed person has a different character or hobby at the beginning and end of this period.If we treat a man as he is now, and allow no time for any change in his character, the marginal utility of a thing to him will continue to increase with each increase in the supply of that thing. Decrease down.

Section 2 Demand Price. Let us now illustrate this law of diminishing utility in terms of prices.Let me take as an example the commodity tea, which is often required and can be bought in small quantities.Suppose, for example, that tea of ​​a certain quality can be bought at two shillings a pound.A man may prefer to pay ten shillings for a pound of tea, once a year, rather than go without tea for a whole year; More than ten pounds of tea.But, in reality, he may have bought only ten pounds in a year; That is to say, the difference between the satisfaction he would get from buying nine pounds and the satisfaction he would get from buying ten pounds is enough to make him willing to pay two shillings: at the same time, the fact that he does not buy eleven pounds of tea shows that He did not think it would be wise for him to pay two shillings more for the eleventh pound.That is to say, two shillings a pound measures the utility to him of the tea which is at the margin or end or end of his purchase; this price measures the marginal utility of the tea to him.If the price he is just willing to pay for any pound of tea is called his demand price, then two shillings is his marginal demand price.This rule can be explained as follows:

The greater the quantity of a thing that a person owns, the less will he be willing to pay for a little more of it, other things being equal (that is, the purchasing power of money and the quantity of money at his disposal): In other words, his marginal demand price for this item is decreasing. Only when the price he is willing to pay reaches the price that others are willing to sell, his demand is valid. This last sentence reminds us: we have not considered the marginal utility of money or general purchasing power.At the same time, if a person's material wealth is constant, the marginal utility of money is a fixed quantity for him, so that the mutual ratio of the prices he is willing to pay for two commodities is proportional to the utility of those two commodities. same ratio.

In Section III changes in the utility of money must be considered. To make a person buy a thing has a greater effect on the poor than on the rich.We have already seen that a clerk with an income of £100 a year walks to his office even when it rains more than a clerk with an income of £300 a year. ①However, although in the eyes of the poor, the utility or advantage measured by two pennies is greater than in the eyes of the rich, the utility or advantage measured by the same two pennies is greater; and the poor man takes twenty times in a year, the utility of making the rich man just the hundredth ride is measured to the rich at twopence, while the utility of making the poor take the twentieth ride is just two pennies for the rich man. The poor are also twopence in measure.For each of them the marginal utility measures twopence; but it is greater for the poor than for the rich.

In other words, the richer a person is, the less is the marginal utility of money for him; every increase in his assets increases the price he is willing to pay for any given benefit.In the same way, with every decrease in his assets, the marginal utility of money to him increases, and the price he is willing to pay for any benefit decreases. The fourth section is a table of needs for a person. The meaning of the phrase "increase in demand". In order to know fully the demand for a good, we must determine how much a person is willing to buy at each price at which the good might be supplied.His demand for tea, say, is best shown by a list of prices he is willing to pay—that is, his several demand prices for different quantities of tea.This table may be called his requirements table.

For example, we can see that he will buy: At 50p per pound - 6 lbs.At 24p a pound - 10 lbs. At 40p a pound - 7 lbs.At 21p a pound - 11 pounds. At 33p per pound - 8 lbs.At 19p a pound - 12 pounds. At 28p a pound - 9 lbs.At 17p a pound - 13 pounds. If we add the corresponding prices to all intermediate purchase quantities in the table above, our need for him is precisely stated. We can't just use "the amount he is willing to buy" or "the intensity of his desire to buy a certain amount" to indicate a person's need for a thing, without explaining the various prices that he wants to buy this amount and other quantities.Only by enumerating the various prices at which he would buy different quantities of a thing can we properly express his wants.

When we talk about a person's need for a thing, we mean that if the price remains the same, he will buy a little more of the thing than before, and if the price is higher, he will buy as much as before.The total increase in his needs is the increase in all the prices at which he is willing to buy different quantities of the thing, not just at the current price he is willing to buy more. The fifth section is the demand of the market.law of demand. What we have studied above is nothing more than the needs of a single person.In the particular case of something like tea, the want of a single individual is quite representative of the total want of the market: for the want of tea is a constant want; If there is a change, it will affect the quantity that a person buys.But even among those things which are frequently used, there are many things for which the wants of individuals do not change constantly with every small change in price, but only with large changes in price.For example, a slight drop in the price of a hat or a watch will not affect everyone's purchases, but it will cause the few people who are still hesitant to buy a new hat or a new watch to decide to buy it.

In any one man, his needs for many kinds of things are infrequent, but occasional and irregular.For wedding cakes or the services of surgical specialists, there will be no individual need price lists.Economists, however, are indifferent to the particular contingencies of individual life.He studied "the course of activity of the members of an industrial group as it would under certain conditions," but only so far as the motives for that activity could be measured in money prices; Variety and variability are eliminated in the more regular totality of the activities of the majority. Thus in large markets--where rich and poor, old and young, men and women, men and women, of all tastes, temperaments, and occupations mingle--the peculiarities of individual desires will prevail in the aggregate. offset each other in a more regular hierarchy of needs.Every fall, however slight, in the price of a commodity in general use, other things being equal, will increase its total sale; just as an unhealthy autumn climate increases the number of deaths in a great town, though there are Many people were not harmed by it.So, if we have the necessary knowledge, we can make a list of prices, at which prices, for every quantity of the same commodity in a given place and in a year (for example) can find buyers . The total need for tea (for example) in this place is the sum total of all individual needs in that place.Some will be richer and some poorer than the individual consumer of need we have recorded above; some will have a greater taste for tea than he will, and some will not.Let us suppose that there are a million tea buyers in this place, and that their average consumption is equal to his consumption at various prices.The wants of the place can then be expressed by the same scale of prices as above, only by changing the pound of tea to a million pounds. Hence a general law of demand follows: the greater the quantity to be sold, the less must be the quantity sold for in order to find a buyer; or, in other words, the quantity required increases as the price falls. large, and decreases as prices increase.But there is no consistent relationship between falling prices and rising demand.A drop in price by a tenth might increase sales by a twentieth or a quarter, or double them.However, when the numbers in the left column of the demand table increase, the numbers in the right column always decrease. The price measures the marginal utility of the commodity to each buyer individually: But we cannot say that price can measure general marginal utility, because everyone's desires and circumstances are different. Section 6. The need for competing commodities The demand price in our demand table above is the price of different quantities of a thing that can be sold in the market in a certain period of time and under certain conditions.If conditions in any respect were changed, prices would probably be changed too; When major changes occur, prices are constantly changing.For example, the required price list for tea is made assuming that the price of coffee is known; but a poor crop of coffee raises the price of tea.As the demand for gas is apt to be diminished by improvements in electric light, so the fall in the price of a certain kind of tea may cause it to substitute for an inferior but cheaper one. Our next step is to consider the general nature of the want in respect of certain important commodities ready for immediate consumption.We shall thus continue our study of the diversification and saturation of desires in the previous chapter; but we shall approach this question from a rather different point of view, that of price statistics.