THE PRICE OF WHEAT 163 



But the fact that the price of wheat did not fall in 

 exact proportion to the fall in general prices should 

 only in certain circumstances lead us to this conclusion. 

 In general, relative prices do not remain unchanged with 

 changes in the general level. The abundance or scarcity 

 of the money material is only one factor. When consider- 

 ing individual commodities we must take account of 

 the important conception of the degree of elasticity of 

 demand. If we regard the problem in its simplest form, 

 we see that an individual will distribute his expenditure 

 over the various commodities in such a way as to obtain 

 the maximum satisfaction. Now, suppose the money 

 material decreases and there is a tendency therefore 

 for all prices to fall, will these decreases in relative 

 prices be in proportion to the corresponding decrease in 

 general prices which, ceteris paribus, will result from 

 a diminution in the supply of money? Obviously 

 not. The elasticity of the demand for the individual 

 commodities differs greatly. Those commodities which 

 are necessaries will not fall to such an extent as the 

 fall in general prices, while those for which the elasticity 

 of demand is unity will tend to fall, other things 

 remaining the same, in the same proportion, and those 

 commodities whose elasticity of demand is greater than 

 unity, more than proportionally. 



Professor Irving Fisher, pursuing this question in 

 detail,* selects four typical commodities and shows how, 

 in each case, the effect on the general level will be 

 different. In the case of highly elastic demand, the 

 probability is that a fall in the price of the commodity 

 will cause a rise in general prices, a proposition which 

 Dr. Fisher regards as the pons asinorum in "the test 

 of one's knowledge of the fundamental distinction 

 between those influences affecting the general price level, 



*' < The Purchasing Power of Money. ' ' Page 382. 



