Supposing competition is perfect, the price will not be below $250 and will be less than $300, since below $250 no sale will take place and at $300 there will be one buyer and two sellers.

Market Value when there Are Many Buyers and Many Sellers. In actual market conditions there are usually many buyers and many sellers. Let us suppose there are many persons wishing to sell automobiles of the same kind and in the same condition and many persons wishing to purchase. This is always the case in the market for used cars. One man may be willing to sell his car at $800, but has no urgent demand for money and will keep it rather than accept a smaller sum; another has purchased a larger car and though he still has use for his old car will sell for $500, and another has lost his interest in automobiles because of an accident and will gladly sell for $100, though he, and all the others, wants to get as much as he can for his automobile. Other sellers have other subjective valuations. On the other hand, buyers have different intensity of desire, though desire alone is no factor in the market. It must be desire plus ability to purchase.

It is clear that the price will not be $100, for at this figure there would be one seller and fifteen buyers, who, in a perfect market, will compete to raise the price. At $150, there would be two sellers and fourteen buyers, and by following out this plan of exclusion, at length we would find that at $450 there will be eight buyers and eight sellers, and this will be the market price under the conditions assumed.

Competition Not Always Perfect. In the stock exchange competition is perfect and there is always the same price for the same stock at any one time. Competition is perfect at an auction sale. Sometimes there are different prices for the same goods in the same city because of lack of knowledge of prices which others are charging. Social considerations also cause prices to be higher in one place than another. Prices may be higher for the same article on Fifth Avenue, Manhattan, than on Fifth Avenue, Brooklyn, or on State Street, Chicago, than on Clark Street in the same city.

Market Value of Complementary Goods.-Complementary goods are those which are used in connection with one another. Shoes are complementary goods; to the vast majority of persons one shoe has no value unless accompanied by its mate. But some complementary goods have value as separate articles and a different value when taken together. Thus a span of well-matched horses has more than twice the value of either horse considered separately, and a string of perfectly matched pearls has more

value than the value of a single pearl multiplied by the number of pearls. The value of complementary goods usually is considered with the whole as a unit and not one of its parts.

The Market Value of Future Goods.-Many goods are not in a condition to satisfy present wants. Iron ore can satisfy no present want, but it has a market value because it can be made to satisfy a future want. The market value of a future good depends upon its demand and supply, and the time which must lapse before it can be put in shape to supply a want and the expense involved.

The Relation of Cost of Production to Value.-The older economists thought that cost of production measured value. By cost of production they meant cost of the raw material, cost of labor, insurance, taxes, interest on investments, a reasonable profit, and other necessary expenses to put the goods upon the market. It is clear that cost of production often fails to explain value, as does cost of reproduction.

A painting by an old master may have a market value of $500,000 and this has no relation to the original cost of the canvas, the pigments, or the price which the painting commanded when first sold. A crate of strawberries may be sold on a Saturday night in June for much less than the cost of producing them. Other illustrations might be given ad infinitum.

There is, however, a relation between cost of production (often called normal value) and market value. In all except monopoly goods* the tendency is for market value to coincide with the cost of production of the marginal plant.

* Monopoly prices are considered in the chapter devoted to monopolies.

In goods freely produced (that is, with no monopoly features) if prices are above the cost of production, which includes a reasonable profit, other producers will be attracted into the business, and, on account of the increased supply, prices will fall. Should the price be below the cost of production, the least capable producer, or marginal producer, will in time be forced out of business, and, because of the resultant decrease of supply, prices will rise.

The Marginal Producer. In the previous paragraph, the term "marginal producer" was used and this requires some additional explanation. Probably no two producers of goods ever had exactly the same cost of production at the same time. Among the factors that vary are efficiency of labor, proximity to raw material, nearness to market, managerial ability, economy in the use of coal or water power, purchasing ability, selling agencies, insurance, rent, and taxes.

Let us take, for example, the production of crude-oil of the highest grade, known as Pennsylvania Crude. The wells producing this oil may be a few hundred feet deep or may be a few thousand feet deep, the deeper they are the more the cost of drilling and up-keep, but the productivity does not vary directly or indirectly with the depth. Some are near to railroads and the cost of hauling materials is comparatively low, others are many miles from the nearest railroad and wagon-roads are few and poor.

These are but two of the more obvious differences in the cost of putting down an oil-well. The well that produces the most oil may have cost the less, or the reverse may be true, or a very expensive well may produce no oil. In the long run, however, drilling will not continue in territory

which does not promise to pay at least the cost of production.

Forty years ago one dollar a barrel was considered a fair price for crude-oil; a well producing only a barrel or so a day hardly paid the cost of operating, and many small wells disadvantageously situated were abandoned. As the price of crude oil rose, not only were new wells drilled but old ones were again operated after having been abandoned. At any one time the marginal well would be the one that it just paid to operate at the then current price of crude .oil.

The following table will more clearly show the marginal well at different times:

Well No. I can produce oil at a profit at $1 a barrel.

When oil is five dollars a barrel, well No. 5 is the marginal well. Well No. 6 will not be operated. If demand should increase and the price rise to six dollars a barrel, well No. 6 will then become the marginal well, or if price of oil should fall to four dollars, well No. 4 becomes the marginal well.

The Example of Oil Wells a Complicated One.—Many plants may be used for several purposes. A building constructed for a blacksmith shop may be turned into a garage, or a storage-house or any number of other things. An oil-well produces oil or gas, or both, but nothing else. It may cost $5,000 to drill a well, and the well may pay