IN GEOMETRIC TERMS

general market, in which a single buyer, or lender, is sosmall a factor that he is not actuated by any consciousnessof influencing the market rate of interest. Each personfinds the rate fixed for him. We assume, for the purpose ofthe present illustration, that the rate so fixed for himby the market is 10 per cent.

§13. How an Individual Adjusts his Income Positionto the Market

Under these assumptions it is clear that Individual 1will borrow $100 at precisely 10 per cent, and that In-dividual 2 will lend $100 at precisely 10 per cent, themarket rate. Their individuality will find conscious playonly in determining how far they will make use of themarket. Let us now see how far beyond $100 each willborrow or lend at this fixed 10 per cent rate.

To do this we need merely compare Willingness lineswith the Market line. Will Individual 1, who has shiftedfrom P x to M\ along the 10 per cent Market line with a$100 loam, again shift from M\ for an additional $100 loan,along this same 10 per cent Market line? He will do soonly if he is still willing to pay more than the market rate.

Whether this is true can be tested by precisely the sameprocess as before, namely by drawing from this new in-come position on the Market line a new Willingness lineand ascertaining whether or not it is steeper than theMarket line. And so, step by step, $100 by $100, as heshifts along the Market line, we can always test whetherhe will shift still further. Any individual has but oneWillingness line, cutting through any one income position,but when he sets out from any P, he is going to shift alongthe Market line and, at each shift, he encounters a newWillingness line.

[253 ]