It is only by thus piecing together fragmentary laws of demand that we can hope to get any approach to an accurate law relating to widely different prices.(That is to say, the general demand curve for a commodity cannot be drawn with confidence except in the immediate neighbourhood of the current price, until we are able to piece it together out of the fragmentary demand curves of different classes of society.Compare the second section of this chapter.
When some progress has been made in reducing to definite law the demand for commodities that are destined for immediate consumption, then, but not till then, will there be use in attempting a similar task with regard to those secondary demands which are dependent on these -the demands namely for the labour of artisans and others who take part in the production of things for sale; and again the demand for machines, factories, railway material and other instruments of production.The demand for the work of medical men, of domestic servants and of all those whose services are rendered direct to the consumer is similar in character to the demand for commodities for immediate consumption, and its laws may be investigated in the same manner.
It is a very important, but also difficult task to ascertain the proportions in which the different classes of society distribute their expenditure between necessaries, comforts and luxuries; between things that provide only present pleasure, and those that build up stores of physical and moral strength; and lastly between those which gratify the lower wants and those which stimulate and educate the higher wants.Several endeavours have been made in this direction on the Continent during the last fifty years; and latterly the subject has been investigated with increasing vigour not only there but also in America and in England.(11*)NOTES:
1.We may say that the elasticity of demand is one, if a small fall in price will cause an equal proportionate increase in the amount demanded: or as we may say roughly, if a fall of one per cent.in price will increase the sales by one per cent; that it is two or a hal, if a fall of one per cent in price makes an increase of two or one half per cent respectively in the amount demanded; and so on.(This statement is rough; because 98 does not bear exactly the same proportion to 100 that 100 does to 102.) The elasticity of demand can be best traced in the demand curve with the aid of the following rule.Let a straight line touching the curve at any point P meet Ox in T and Oy in t, then the measure of the elasticity at the point P is the ratio of PTto Pt.
If PT were twice Pt, a fall of 1 per cent in price would cause an increase of 2 per cent, in the amount demanded; the elasticity of demand would be two.If PT were one-third of Pt, a fall of 1 per cent in price would cause an increase of 1/3 per cent.in the amount demanded; the elasticity of demand would be one-third; and so on.Another way of looking at the same result is this: the elasticity at the point P is measured by the ratio of PT to Pt, that is of MT to MO (PM being drawn perpendicular to Om); and therefore the elasticity is equal to one when the angle TPM is equal to the angle OPM; and it always increases when the angle TPM increases relatively to the angle OPM, and vice versa.
See Note III in the Mathematical Appendix.
2.Let us illustrate by the case of the demand for, say, green peas in a town in which all vegetables are bought and sold in one market.Early in the season perhaps 100 lb.a day will be brought to market and sold at 1s.per lb., later on 500 lb.will be brought and sold at 6d., later on 1,000 lb.at 4d., later still 5,000 at 2d., and later still 10,000 at 1 1/2d.Thus demand is represented in fig.(4), an inch along Ox representing 5,000 lb.
and an inch along Oy representing 10d.Then a curve through p1, p2,..., p5, found as shown above, will be the total demand curve.
But this total demand will be made up of the demands of the rich, the middle class and the poor.The amounts that they will severally demand may perhaps be represented by the following schedules: --At price in Number of lbs.bought by pence per lb.richmiddle class poor Total12 100 0 01006 300 200 05004 500 400 100 1,0002 800 2,500 1,700 5,0001 1/2 1,000 4,000 5,000 10,000These schedules are translated into curves figs.(5), (6), (7), showing the demands of the rich, the middle class and the poor represented on the same scale as fig.(4).Thus for instance AH, BK and CL each represents a price of 2d.and is.2 inches in length; OH =.16 in.representing 800 lb., OK =.5 in.
representing 2,500 lb.and OL =.34 in.representing 1,700 lb., while OH + OK + OL = 1 inch, i.e.= Om4 in fig.(4) as they should do.This may serve as an example of the way in which several partial demand curves, drawn to the same scale, can be superimposed horizontally on one another to make the total demand curve representing the aggregate of the partial demands.
3.We must however remember that the character of the demand schedule for any commodity depends in a great measure on whether the prices of its rivals are taken to be fixed or to alter with it.If we separated the demand for beef from that for mutton, and supposed the price of mutton to be held fixed while that for beef was raised, then the demand for beef would become extremely elastic.For any slight fall in the price of beef would cause it to be used largely in the place of mutton and thus lead to a very great increase of its consumption: while on the other hand even a small rise in price would cause many people to eat mutton to the almost entire exclusion of beef.But the demand schedule for all kinds of fresh meat taken together, their prices being supposed to retain always about the same relation to one another, and to be not very different from those now prevail ing in England, shows only a moderate elasticity.And similar remarks apply to beet-root and cane-sugar.Compare the note on p.100.
