sold at one price they must be reduced in price until they can be sold, or if a great demand exists for goods the prices may be increased. It is no longer necessary that buyers and sellers should come to the same place. They may trade by letter, telephone, telegraph, or cable.

For some relatively non-perishable articles there is a world market. For example, the wheat market is in normal times a world market and prices are fixed in Liverpool, which has become the great market for the European wheat trade. Some countries do not produce enough wheat for their own use, while others have wheat to export after meeting their own needs. Wheat is graded according to quality, and a trader may buy without ever seeing the wheat. The following tables show the countries which produce wheat in excess of their own requirements and the countries which produce less than they need and must import.

These figures are the average imports and exports per year for six years immediately preceding the Great War.

Demand and Supply.-Demand for an article does not mean mere desire. It must be desire accompanied by ability to purchase at the market price. Likewise, supply does not mean possession of a commodity, but willingness to sell at the market price. Demand and supply vary with price. For example, if potatoes are five dollars a bushel there will be few purchasers, but all persons who have more potatoes than they need will be willing to sell. With potatoes at fifty cents a bushel there will be more purchasers and fewer sellers. Thus it is seen that when prices are high, demand tends to fall and supply to increase, and when prices are low demand tends to increase and supply to decrease. With perfect competition there is only one price in the same market at the same time, because no buyer will pay more than his neighbor and no seller will sell for less than others are getting.

Elastic and Inelastic Demand. Although the demand for all economic goods increases as the price decreases, the demand for different goods does not vary at the same rate. If the demand for a good increases or diminishes rapidly with the fall or rise in price, the demand is said to be elastic. If a change in price does not very greatly affect the demand, it is then said to be an inelastic demand. The demand for salt in the United States is inelastic. We consume about the same quantity of salt no matter what may be the price, though if the price were to rise very greatly, economy would be practised and the demand would decrease. Elasticity in demand varies in regard to the same article in reference to the wealth of purchasers.

A recent rise in the price of gasoline caused many owners of automobiles to restrict their use of gasoline, but it made little, if any, difference in the demand of the very wealthy. The demand for eggs by people of great wealth is inelastic, but the demand of the average person is very elastic. At thirty cents a dozen, eggs are eaten for breakfast and are a cheap food, but at one dollar a dozen they are little used except by the rich.

The Law of Substitution.-There are few articles for

which there is no substitute. When the price of any article rises, substitutes are used by many people. When butter is forty cents a pound and oleomargarine is thirty cents, the demand for butter is very great and the demand for oleomargarine correspondingly small, but let the price of butter rise to eighty cents and the demand is much less for it, while the demand for oleomargarine becomes much more intense. The falling off in the demand for butter tends to decrease its price, while the rise in the demand for oleomargarine tends to increase its price. In the same way a rise in the price of potatoes causes an increase in the demand for rice and macaroni, or a rise in the price of wheat causes an increased use of corn and rye. The use of substitutes tends to stabilize prices by decreasing the demand for the article and increasing the demand for its substitute.

Subjective Value.-There are two senses in which the term value is used: Value in use and value in exchange. Value in use refers to the satisfaction that may be obtained from an article by the individual who uses it, while value in exchange refers to what the article will bring if offered for sale. Value in use is called subjective value; value in

exchange is objective value or market value. The subjective value of an article may differ with different persons and with the same person at different times. A first edition of Adam Smith's Wealth of Nations would be highly esteemed by an economist, but to an illiterate man it would be only an old book which he might be glad to exchange for a bag of tobacco.* A watch, the market value of which is $100, might be a priceless possession to the owner because of association. Even an article which at one time may have little subjective value, at another time may be of great subjective value. A glass of water which is ordinarily a free good, might on a wrecked ship have a very high subjective value.

Price is value expressed in terms of money. When an article is displayed in a store and is priced at $100, a customer may say, "It is not worth that to me," which means that its value in use to him is less than that of other things which the $100 would purchase.

Subjective value appears to be far removed from market value, but it really is a determining factor in fixing market value, as will be seen.

Market Value when there Are Many Purchasers and One Seller. Let us imagine a case in which a man has an automobile for sale and there are many persons who wish to buy an automobile, their subjective values differing in each case. The seller would take $100 rather than not make a sale, but he does not let that fact be known, naturally wishing to secure as large a price as possible.

*A daily newspaper expressed unconsciously the distinction when it remarked: "The hide of a rabbit is not worth two cents on the market but it is worth more than a million dollars to the rabbit."

Here we have six persons wishing to purchase, their subjective valuations in each case differing and each desiring to purchase for as little as possible, but none being willing to pay more than the sum indicated. In an open market it is quite apparent that the man who would pay only $250 would not get the machine, because five persons would bid over his valuation. The automobile will sell at a price at which the number of buyers and sellers will be the same and this will be somewhere between $500 and $450, depending upon the bargaining ability of the seller and the most capable buyer, or the man who would pay $500 rather than not get the automobile.

Market Value when there Are Many Sellers and One Buyer. Let us take the reverse of the example given above and consider market price when many sellers are present and only one buyer. Suppose the buyer will pay $400 rather than not secure the automobile and the sellers will part with their machines at prices varying from $250 to $500.