The Law of Demand 69 



The effects of these two fundamental changes may be 

 eliminated approximately by a single statistical device, 

 namely, by deducing the law of demand from a gen- 

 eralized treatment of the elasticity of demand. 



The degree of elasticity of demand, according to the 

 classic formula, is measured by the ratio of the relative 

 change in the amount of the commodity that is bought 

 to the relative change in the price per unit of the com- 

 modity. Suppose, now, that instead of restricting 

 this conception to infinitesimal changes in price and in 

 amount of commodity, we extend it to the finite changes 

 that actually occur in the market. Then, the relative 

 change in the amount of commodity that is bought 

 may be correlated with the relative change in the 

 corresponding price, and the resulting appropriate 

 regression equation will give the statistical law of 

 demand for the commodity. By taking the relative 

 change in the amount of the commodity that is de- 

 manded, instead of the absolute quantities, the effects 

 of increasing population are approximately eliminated; 

 and by taking the relative change in the corresponding 

 prices instead of the corresponding absolute prices, the 

 errors due to a fluctuating general price level are par- 

 tially removed. If the observations should cover the 

 period of a major cycle of prices, and the commodity 

 under investigation should be a staple commodity such 

 as the representative agricultural products with which 

 we shall have to deal, the above method of deriving the 

 demand curve will give an extremely accurate formula 

 summarizing the relation between variations in price 



