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Salient. Official Newspaper of Victoria University of Wellington Students Association. Volume 40, No. 5. 27 March 1977

You Must Be Made To Believe This

page 13

You Must Be Made To Believe This

To most people, except of course an economist, a priceless commodity means that the commodity has such a high value to the owner, that no amount of money would induce him to sell it. This is rather an over-simplified view, and in fact priceless commodities have been the subject of considerable micro-economic research resulting in a complex theory to explain why a commodity becomes priceless.

In order to develop our theory, we must state two basic assumptions (rather good for an economic theory, as most theories require at least six basic assumptions,) however, the second assumption will be disregarded at a later stage where enough contradictions will have arisen to force the assumption to be disregarded in order to preserve what little credibility the theory has.

Assumption 1: 'You must be made to believe this.'

This is a very important assumption, supported by considerable empirical evidence and is the foundation upon which the whole theory lies.

Assumption 2: "There may exist a demand and supply for priceless commodities such that at the intersection of these two curves (preferably drawn on graph paper) an equilibrium price could exist."

This second assumption may already seem contradictory to the student, but it must be realised, in order to prove that equilibrium price does not exist we must first assume that it does exist; this of course is consistent with any good economic theory. At this point, the student may wish to refresh himself on the basic theory of supply and demand, so it is suggested that the student confuse himself by reading any Stage I textbook, and for the more advanced student requiring a more advanced explanation to the law of Supply and Demand, it is suggested that the student ask the "average man in the street." A word of warning here: "the average man in the street" is often hard to find, especially in small towns on a Sunday. However, all this is unnecessary if the student accepts like the mindless moron that all economic students are assumed to be, that there is such a thing as supply and demand.

Figure 1 shows six supply and demand curves with five corresponding prices. The astute student will have realised that both supply and demand curve number 5-are missing. Those who have displayed this degree of intelligence may find difficulty in following the rest of the theory. The more astute student will have realised that the equilibrium prices and quantities do not in fact correspond with the correct supply and demand curves. Any student who has discovered this obviously has no flair for economics and should continue no further. The majority of students who understand and accept the diagram should read on.

The main purpose of Figure 1 is to show that supply and demand curves do exist, on the basis that the more curves the student sees the more inclined he is to being brainwashed into believing they do exist. At Stage I level this type of proof (weight of numbers) is considered sufficient. It should be noted that these curves do not necessarily have to be drawn as straight lines, but this will depend on the students artistic talent.

Now that the complexities of supply and demand curves have been proven beyond doubt we can carry on expanding our theory using only one supply curve and one demand curve.

Figure 2 shows a supply curve taken at random from a book of supply curves (Economists Lecturing Guide 1976 edition). The student will notice that the slope is upwards to the right (depending on which way you're looking at it); the simple explanation to this is that if it was drawn downwards to the left it wouldn't be on the diagram. The two lines immediately to the left of S, (arrows to those students who never played Cowboys and Indians) demonstrate how the supply curve for a priceless commodity shifts inward, depending on how priceless it is.

Prediction 1: "Because the owners of priceless commodities don't want to sell them to anyone at any price, the supply curve will shift inwards, until finally it lies parallel and upon the vertical axis."

Figure 3 shows a demand curve again taken at random from a book of demand curves (Economists Lecturing Guide 1976 edition). This time the student will notice that the slope is downwards to the right; again the simple explanation is that if it was drawn upwards to the left, it wouldn't be on the diagram. The arrows again demonstrate how the demand curve for a priceless commodity shifts downwards depending on how priceless it is.

Prediction 2: "If there were people who wanted to buy priceless commodities, they would not want to buy them from anyone at any price, therefore the demand curve will shift downwards until finally it lies parallel and upon the horizontal axis."

In order to demonstrate the interaction of the supply and demand for a priceless commodity, we need to combine figures 2 and 3 to produce Figure 5. The obvious mistake that a student will make here is that it should be Figure 4, but the mathematical proof is 2 + 3 = 5.

It can be seen from Figure 5 that because the supply curve lies on the vertical axis and the demand curve lies on the horizontal axis, equilibrium price and quantity will be zero.

Conclusion: "Because the equilibrium price and quantity of a priceless commodity is zero, there is no such thing as a priceless commodity and if there was it would be worth nothing."

If the student has knowledge of someone owning a priceless commodity and in fact has knowledge of a priceless commodity selling for a huge price, a little thought here will help him realise that this does not disprove the theory and in fact really refutes the claim that the commodity was priceless in the first place. Anyway, what happens in the real world is of no consequence to the economist. Another word of warning: if you know of anyone who owns or wishes to buy a priceless commodity they are not maximising their satisfaction, and are therefore irrational and should be treated with extreme caution.

Fig. 1 Fig. 2 Fig. 3 Fig. 4