15: Producers' Income and Consumers' Desire

While the subject of the present book is the distribution of wealth, the source of wealth is the value that someone ascribes to receiving a benefit. Autistically, the value of a benefit is the incentive of performing an action that renders that benefit. Commercially, the value of a benefit is reflected in the price an individual pays for a good or service - and generally the price represents the effort they put into getting the money to pay. Hence the lower the price, the less effort it takes to acquire the benefit.

The author returns to the marginal utility of commodities - that the more of something a person has, the less effort he is willing to put into getting more of the same. A starving man desperately wants an ounce of food, but when his appetite is satisfied and his larder is full, he is no longer interested in acquiring more food no matter how easily it could be had - and instead focuses his resources of meeting other needs. It is likewise the rational man prioritizes his purchases, spending his first dollar on the most important need, the next of a slightly less important one, and so on until his needs are fulfilled, his appetites sated, and he has saved enough for him to be comfortable with his ability to address his future purchasing needs.

It is suggested that vendors price their goods at the level of the last unit of a good that a person may purchase, so as to sell as many units as possible - but this is not often true in practice. The vendor considers how to maximize his own profit, and is indifferent to the satisfaction of all customers in the market. He will sell as many goods to as many customers as will pay the price he demands, and is moved to lower his price only when selling more units at a lower price yields more profit than selling fewer units at a higher price.

It is only when a supplier's stock is perishable - and soon - that he shows concern for making as much profit of it as he can before it becomes worthless. In this situation, the supplier's interest is in setting a price that will sell his inventory to the last unit, but no lower. In some instances, this price may be less than his cost to procure/produce the items - in which case he is minimizing his losses rather than maximizing his profits.

He considers the various complexities that cause a customer to place a value on a given good or service, but ultimately concludes that this is more in the nature of psychology than economics to investigate. Ultimately, the economist sees the price that customers are willing to pay for a given quantity of goods, regardless of their reasons - and we may infer that the price represents the value they place upon the benefit to them, whatever that benefit happens to be. For practical purposes, the producers of items are interested only in the quantity of goods that will sell at a given price, and whether production will be profitable to them. It is worthwhile to consider the complexity of valuation, but of little use to delve too deeply into the details.