Bernard Shaw's Remarkable Religion: A Faith That Fits the Facts

Ethics, Economics, and Government 159
declaring: “First Umbrellas: Ten Dollars”; the next’s sign says: “Second
Umbrellas: One Dollar”; and the last proclaims: “Third Umbrellas: Five
Cents.” So what do you do? Unless your conscience is particularly sensitive
and troublesome, you will probably buy from the third stand without
bothering to mention that you do not actually have two more like it at
home. Of course, you are not likely to see three such stands. If the quality
of the products is the same, the price will be either the same or very close to
it. Every stand owner wants to make as much as possible from each umbrella
but does not want to price his merchandise so high as to drive all the
customers away. If he lowers the price he will sell more umbrellas (but
make less on each); if he raises the price he will make more for each umbrella
but sell fewer. If his price is grossly higher than that of his competitors,
no one will come to his stand. So the price of the market is effectively
set by the person who is willing to accept the least. But which price? That
depends on the total Utility these umbrellas represent to all the people in
this market.
For the sake of simplicity, let us assume that everyone is just like you:
none already has an umbrella, and they all value first, second, and third
umbrellas as you do. What happens if there are one hundred umbrella
shoppers and each stand has thirty-three umbrellas. Clearly, no one will
want to sell for less than ten dollars because all the umbrellas will be gone
before the highest (ten dollar) Utility is exhausted. But what if there are
more than one hundred items for sale? If each retailer gets his umbrellas
from the same wholesaler (so that any stand could conceivably sell all
available items) you might think that everyone would just sell at the highest
price until there were no more takers, then sell at the “second umbrella”
price. If all the stand owners can agree, that might happen. That is
what OPEC tried (for a while successfully) to do. But greed tends to take
over; someone is apt to figure that if he can sell lots of umbrellas for just a
little bit less money, he will do better than if he sells his “share” of the first
umbrella market (one-third of one hundred) and then is forced to sell at
the “second umbrella” price. It does not matter greatly how much of the
“second umbrella” demand is matched by the supply—whether, for example,
there are two hundred or one hundred fifty umbrellas for sale—so
long as it is important to everyone to sell all or nearly all of the available
umbrellas. In the competition to sell more of an item, the sellers will lower
the price until it reaches the level of the Utility of the buyers’ “second
umbrella.” This is the Final or Marginal Utility. Jevons declared that the
price in any given market would automatically drop to the level of the least