Chapter 31 Chapter II Temporary Equilibrium of Demand and Supply

The first section is the balance between desire and labor.There is generally no true equilibrium in casual barter. A simple illustration of the equilibrium between desire and labor is found when a person uses his labor to satisfy a need of his own.When a child picks blackberries for his own consumption, the picking itself may be temporarily interesting, but for a little longer, the pleasure of eating more than compensates for the hard work of picking.But when he had a big meal, he didn't want to eat more.Boring with picking begins, perhaps as a feeling of monotony rather than fatigue.Eventually, equilibrium is reached when his playfulness and distaste for picking work balances out his desire to eat.And the satisfaction he could get from picking blackberries was as high as it could be.For, up to then, each plucking had given him more satisfaction and less satisfaction, and every pluck since then had given him less satisfaction and more loss.

In the occasional exchange of one person for another, as in two woodlanders exchanging guns for boats, what is called a true equilibrium of supply and demand is extremely rare.For both parties may have insufficient satisfaction, and the first may be willing to exchange something for the boat except the gun if he cannot get the boat by other means; And the second, if necessary, might have exchanged the gun for something other than the boat. True equilibrium is indeed possible under barter; although barter is historically earlier than buying and selling, it is in some respects more complicated; The simplest example of true equilibrium value can be seen.

We can set aside the kind of deals that have caused a lot of discussion because they don't really matter.They are related to famous paintings, ancient coins and other things that cannot be "graded".The selling price of various things in it will depend on whether the rich people who appreciate it are present, or if they are not present, it may be bought by merchants who want to profit from it. Although the price difference between the same painting before and after the sale is very large, if there is no stable influence of professional buyers, it may be much larger. Section II A true (though temporary) equilibrium can generally be established in the local grain market.

Let us, then, discuss the day-to-day transactions of modern life and take the grain market of a certain town as an example.For simplicity, let us assume that all grains in the market are of the same quality.The quantity which each farmer or other seller sells at any price is governed by his need for cash and his estimate of the present and future conditions of the market which concerns him.There are some prices that no seller will accept, and other prices that no seller will reject.Moreover, there are intermediate prices at which many or all sellers are willing to sell larger or smaller quantities.Everyone tries to understand the market situation and use it to control their actions.Let us suppose that there are actually only 600 quarts of corn which the corn owner is willing to sell for as low as thirty-five shillings.But thirty-six shillings would make the corn-owners sell an extra hundred quarts, and thirty-seven shillings would make them three hundred more.Suppose further that the price of thirty-seven shillings induces the buyer to buy only six hundred quarts, at thirty-six shillings one hundred more quarts, and at thirty-five shillings an additional two hundred quarts. .These facts can be illustrated as follows:

Price Quantity sellers are willing to sell Quantity buyers are willing to buy 37 shillings 1000 quarts 600 quarts 36 shillings 700 quarts 700 quarts 35 shillings 600 quarts 900 quarts Of course, among those who are actually willing to accept thirty-six shillings rather than leave the market unsold, there are some who do not immediately express their willingness to accept that price.Likewise, buyers will be on the defensive and pretend not to be very keen.Thus, the price is like a shuttlecock that swings back and forth as one party or the other gains momentum in the "bargain".But unless they are very disproportionately powerful, for example, unless one party underestimates the other's strength, or unfortunately underestimates it, the price will probably not be far off thirty-six shillings; shilling.For if a seller thinks that the buyers will actually be able to buy at thirty-six shillings all the corn they would like to buy at that price, he will be unwilling to pass up any chance of being considerably higher than that price.

The same estimate will be made on the part of the buyers; whenever the price is much above thirty-six shillings, they will think that the supply at that price will be much greater than the demand.Thus even those buyers who would rather pay that price than go home empty-handed wait; and by waiting they contribute to the fall of the price.On the other hand, if the price is well below thirty-six shillings, even those sellers who would rather accept that price than leave the market with nothing, will think that at that price the demand will exceed the supply.So, they will wait, and by waiting, they promote the price increase.

Thus, the price of thirty-six shillings can be called the real equilibrium price.Because if this price is chosen at the beginning and remains constant throughout, it just makes supply and demand equal (that is, the quantity that buyers are willing to buy at that price is exactly equal to the quantity that sellers are willing to sell at that price); Because every trader who grasps the market situation also hopes to have that price.If he sees a price far from thirty-six shillings, he expects a change soon, and by this anticipation he promotes its rapid realization. It is indeed unnecessary for our argument that both buyers and sellers have complete knowledge of market conditions.Many of the buyers probably underestimated the willingness of the sellers to sell, so that for the time being the price was kept at the highest level at which a buyer could be found; therefore, it was possible to sell until the price fell below thirty-seven shillings. Five hundred quarts.But then the price was bound to fall, and the result was likely to be another two hundred quarts sold, and to close at about thirty-six shillings.For after the sale of seven hundred quarts, no seller was eager to sell more, nor any buyer eager to buy more, except at a price above thirty-six shillings. Some.In the same way, if the sellers underestimate the willingness of the buyers to pay a high price, some of them may begin to sell at the lowest price they would like to charge, rather than keep their corn in their hands; At thirty-five shillings a great deal of corn would be sold; but the market would perhaps close at thirty-six shillings and a total sale of seven hundred quarts.

Section III In the course of grain market transactions, the intensity of the demand for money usually does not change significantly.But it does happen in the labor market.See Appendix VI. The above illustration implies an assumption that is true of most markets, but this assumption should be defended so that it does not sneak into situations where it should not.We have implicitly assumed that the amount of money the buyers are willing to pay for the seven hundredth quart of corn, and the amount of money the sellers are willing to receive for the sale of the seven hundredth quart, is independent of previous higher or lower prices. impact of this issue.We take into account that buyers' demand for corn (its marginal utility to them) decreases as the quantity purchased increases, but we do not consider any significant change in their reluctance to sell money (its marginal utility); we It has been assumed that the marginal utility of money is virtually constant regardless of previous payments of large or small amounts.

For most of the market transactions we actually deal with, this assumption holds water.When a man buys something for his own consumption, the money he spends on that thing is a very small part of his total funds, whereas when he buys something for business, he has to sell it again. It, therefore, did not diminish his potential funding.In either case, there was no noticeable change in his willingness to sell currency.This may not work for some people.But there are certainly some people with large amounts of money present whose influence acts as a stabilizing effect on the market. In the commodity market these exceptions are rare and unimportant; but in the labor market they are frequent and important.If a worker is in danger of starvation, his need for money (its marginal utility to him) is great.If at first he is at a disadvantage in bargaining, and is employed at low wages, his need for money will still be great, and he may continue to sell his labor at low wages.The reason why this possibility is greater is that the advantage in bargaining in the labor market is often on the buyer's side, not on the seller's side, but in the commodity market, buyers and sellers mostly have the opportunity to share this advantage.Another difference between the labor market and the commodity market arises from the fact that each labor seller has only one unit of labor to sell.These are two of the many facts which we will use in the course of our discussion to illustrate in general terms the attitude of the working class to economists, and especially to the employer class, of labor as a commodity and the labor market as a commodity market in general. Instinctive resistance to this approach.In fact, the distinction between the labor market and the commodity market is not fundamental from a theoretical point of view, but it is quite striking, and it is often very important in practice.

Thus, the theory of exchange becomes more complicated when we take into account that marginal utility depends on both the quantity of goods and the quantity of money.The practical importance of this consideration is not great.But in Appendix VI we contrasted barter with transactions in which one party always appears in the form of general purchasing power in each exchange. In barter, the quantity of goods exchanged by a person must be closely adapted to his personal needs.If his stock is too high, he may not have a proper use.If his stock is too small, it may be difficult for him to find such a person who can satisfy his needs and use what is left.But no matter who has ordinary purchasing power, as soon as he meets someone who has a surplus, he can get what he needs: he doesn't need to find a person who "has one job and two jobs", he can provide for him. need, and take all.Consequently, every individual, especially a merchant, can save large amounts of money, and thus buy in large quantities without exhausting his savings or causing great variations in its marginal value.