in the theory of value and prices. 



V3 



§ 12. 



Since OA and OB represent quantities A and B of commodities 

 [a) and [h) purchasable for the same sum ($25), they are inversely 

 proportional to the prices of (ct) and (b). 



If prices remain the same but the individual grows richer and the 

 sum he can afford to spend on (ct) and [b) is no longer |25 but $50* 

 the line AB simply recedes twice as far remaining parallel to itself. 

 As it changes, its varying point of tangency follows a tortuous line 

 the locus of all points at which the individual would arrange his 

 combination of A and B at the given prices. 



If the price of [a) increases, OA relatively diminishes and a new 

 point of tangency is found. If the articles are completing (fig. 22) 

 a change of price will not cause the tangent line to very greatly 

 alter the proportion of consumption of the articles for it will merely 

 change the position of I to (say) I', and it is clear that the coordin- 

 ates of r have nearly the same ratio as those of I ; if substitutes 

 (fig. 20) a slight relative change in price will cause an enormous 

 change in the proportions used (I and I'). This was found to be the 

 case in 1889 when a copper syndicate attempted to raise the price 

 of copper. Hardly any article exists which has not some substi- 

 tute. This sort of dependence keeps manufacturers watchful. It 

 is because of this dependence that some " useful " articles go out of 

 use. 



§ 13. 



Fig. 24 represents two " grades " of the same commodity, as brown 

 and granulated sugar. The superior grade is laid off on the B (hor- 

 izontal) axis, and the inferior on the ,-,^ 

 A (vertical) axis. The point of maxi- 

 mum satisfaction is in or near the B 

 axis. If the individual is poor and can 

 afford to spend little on the article he 

 will buy the poorer quality. The line 

 AB is tangent to an indifference curve 

 in or near the A axis at I. If he grows 

 richer the line AB recedes from the 

 origin and he purchases the combina- 

 tion I' containing considerably more of 

 B; he uses this superior quality on Sun- 

 days (say) while consuming A on week days. If he grows richer 

 still, he changes the position to I" using none of A or only a little. 



