hapter 5 PRICE ELASTICITY OF DEMAND AND

SUPPLY
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Edition Tucker 1305926390 9781305926394
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Chapter 5
Price Elasticity of Demand and Supply
 CHAPTER IN A NUTSHELL
This chapter introduces the concept of price elasticity of demand. Elasticity can be thought of as
"sensitivity." The price elasticity of demand measures how sensitive the quantity demanded is to
a change in price. Based on the calculation of an elasticity coefficient, demand can be classified
as: elastic, inelastic, unitary elastic, perfectly elastic, or perfectly inelastic. Applications in the
chapter demonstrate the relationship between price elasticity of demand and changes in total
revenue in response to price changes. For example, if the price increases along an elastic segment
of a demand curve, total revenue decreases. Next, the determinants of price elasticity of demand
are discussed. These factors include: availability of substitutes, share of budget, and adjustment to
price over time. The chapter concludes by relating the concept of price elasticity to supply and the
burden of taxation.

 KEY CONCEPTS
Cross-elasticity of demand
Elastic demand
Income elasticity of demand
Inelastic demand
Perfectly elastic demand
Perfectly inelastic demand
Price elasticity of demand
Price elasticity of supply
Tax incidence
Total revenue
Unitary elastic demand

 LEARNING OBJECTIVES
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SUPPLY
After completing this chapter, you should be able to:

1. Understand that price elasticity of demand is a measure of consumer responsiveness

with respect to the amount purchased given a price change.
2. Calculate and interpret an elastic, inelastic, unitary elastic, perfectly elastic and perfectly
inelastic demand using the mid-points formula and the total revenue test.
3. Determine those factors which contribute to an inelastic and elastic demand for a
product.
4. Explain why the price elasticity of demand varies along a given demand curve.
5. Illustrate perfectly elastic and inelastic demand curves graphically.
6. Understand that income elasticity of demand is a measure of consumer responsiveness
with respect to the amount purchased given a change in income.
7. Calculate and interpret income elasticity of demand as it relates to determining whether
a product is normal (Ey > 0) or inferior (Ey < 0).
8. Understand that cross-elasticity of demand is a measure of consumer responsiveness
with respect to the amount purchased given a change in the price of a related product.
9. Calculate and interpret cross-elasticity of demand as it relates to determining whether
two products are substitutes (Ec > 0) or complements (Ec < 0).
10. Understand that price elasticity of supply is a measure of producer (seller)
responsiveness with respect to the quantity supplied given a price change.
11. Calculate and interpret an elastic, inelastic, unitary elastic, perfectly elastic and perfectly
inelastic supply.
12. Explain that the greater the amount of time sellers have to respond to a price change the
greater the elasticity of supply.
13. Explain what is meant by a tax incidence and indicate under what conditions consumers
will bear the greatest tax incidence using the concepts of price elasticity of demand and
supply.

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SUPPLY

THE ECONOMIST'S TOOL KIT

Determining the Incidence of Taxation
Step one: Start with equilibrium in a market before the Step two: Since the supplier must pay the tax, shift the
imposition of a tax that a supplier must pay. supply curve leftward. Note that the vertical distance at
E1 is the amount of the tax per unit.

S2
S After tax
Tax per unit S1
Before tax
Price
per P* Price
unit per P* E1
unit

D
D
Q* Q*
Quantity of good Quantity of good
Step three: Note that the impact of the tax increases the Step four: Determine that the consumers' tax burden
equilibrium price and decreases the equilibrium quantity. equals the new equilibrium price less the original
equilibrium price. The sellers' burden is the vertical
amount of the tax per unit less the consumer's burden.

3
 hapter 5 PRICE ELASTICITY OF DEMAND AND
SUPPLY

S2 S2
After tax After tax
S1 S1
Before tax Before tax
E2 E2
P 2* P 2*
Price Price Buyer’s Burden
per P1* E1 per P1* E1
unit unit Seller’s Burden

D D

Q2* Q1* Q2* Q1*

Quantity of good Quantity of good

***

4
 hapter 5 PRICE ELASTICITY OF DEMAND AND
SUPPLY

R
e
v
e
n
u
e
"
***

 COMPLETION QUESTIONS
1. The ratio of the percentage change in quantity demanded to the percentage change in price
is called .

2. is a more than 1 percent change in quantity demanded in

response to a 1 percent change in price.

3. is a less than 1 percent change in quantity demanded in

response to a 1 percent change in price.

4. is a 1 percent change in quantity demanded in response to

a 1 percent change in price.

5. An extreme case in which the demand curve is horizontal and the elasticity coefficient
equals infinity is called .

6. An extreme case in which the demand curve is vertical and the elasticity coefficient equals
zero is called .

7. The total number of dollars a firm earns from the sale of a good or service, which is equal
to its price multiplied by the quantity demanded is called .

8. is the ratio of the percentage change in the

quantity demanded of a good or service to a given percentage change in income.

9. is the ratio of the percentage change in the

quantity supplied of a product to the percentage change in its price.

10. The share of a tax ultimately paid by consumers and sellers is called .

11. The ratio of the percentage change in the quantity demanded of a good or service to a given
percentage change in the price of another good or service is called a (an)
.

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 hapter 5 PRICE ELASTICITY OF DEMAND AND
SUPPLY

 MULTIPLE CHOICE
1. If a decrease in the price of football tickets increases the total revenue of the athletic
department, this is evidence that demand is:
a. price elastic.
b. price inelastic.
c. unit elastic with respect to price.
d. perfectly inelastic.

2. If the percentage change in the quantity demanded of a good is greater than the percentage
change in price, price elasticity of demand is:
a. elastic.
b. inelastic.
c. perfectly inelastic.
d. perfectly elastic.

3. Suppose the president of a textbook publisher argues that a 10 percent increase in the price
of textbooks will raise total revenue for the publisher. It can be concluded that the company
president thinks that demand for textbooks is:
a. unitary elastic.
b. inelastic.
c. elastic.
d. perfectly inelastic.

4. If the quantity of tickets to the fair sold decreases by 10 percent when the price increases by
5 percent, the price elasticity of demand over this range of the demand curve is:
a. price elastic.
b. price inelastic.
c. perfectly inelastic.
d. unitary elastic.

5. There is no change in total revenue when the demand curve for a good is:
a. unitary elastic.
b. perfectly inelastic.
c. elastic.

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 hapter 5 PRICE ELASTICITY OF DEMAND AND
SUPPLY
d. inelastic.
e. perfectly elastic.

6. Which of the following is true for a lower price elasticity of demand coefficient?
a. The quantity demanded is less responsive.
b. Few substitutes exist.
c. Many substitutes exist.
d. All of the answers above are correct.

7. The number of CDs purchased increased by 50 percent when consumer income

increased by 10 percent. Assuming other factors are held constant, CDs would be
classified as:
a. social goods.
b. normal goods.
c. Giffen goods.
d. inferior goods.

8. The number of computers bought increased by 20 percent when the price of on-line
services declined by 10 percent. Assuming other factors are held constant,
computers and on-line services are classified as:
a. complements.
b. unrelated goods.
c. substitutes.
d. social goods.

9. If demand price elasticity measures 2, this implies that consumers would:

a. buy twice as much of the product if the price drops 10 percent.
b. require a 2 percent drop in price to increase their purchases by 1 percent.
c. buy 2 percent more of the product in response to a 1 percent drop in price.
d. require at least a $2 increase in price before showing any response to the price
increase.
e. buy twice as much of the product if the price drops 1 percent.

10. If the price elasticity of demand for a product measures .45,

a. this good has many available substitutes.
b. this good must be a nonessential good.
c. this good is a high-priced good.
d. a decrease in price will increase total revenue.
e. this good is demand price inelastic.

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 hapter 5 PRICE ELASTICITY OF DEMAND AND
SUPPLY
Exhibit 1 Supply and demand curves for good X

800 S
W X
600
Price E
per unit 400
(dollars) Y Z
200
D
0 100 200 300 400 500

Quantity of output
(units per time period)

11. As shown in Exhibit 1, the price elasticity of demand for good X between points E and Z
is:
a. 3/13 = 0.23.
b. 3/3 = 4.33.
c. 1/3 = 0.33.
d. 1.

12. As shown in Exhibit 1, the price elasticity of supply for good X between points E and X is:
a. 1/5 = 0.20.
b. 7/5 = 1.40.
c. 1/2 = 0.50.
d. 5/7 = 0.71.

13. As shown in Exhibit 1, assuming good X is a normal good, a decrease in consumer income,
other factors held constant, will move the equilibrium from point E to point:
a. X.
b. Z.
c. Y.
d. W.

14. As shown in Exhibit 1, assuming good X is an inferior good, a decrease in consumer income,
8
 hapter 5 PRICE ELASTICITY OF DEMAND AND
SUPPLY
other factors held constant, will move the equilibrium from point E to point:
a. X.
b. W.
c. Z.
d. Y.

15. As shown in Exhibit 1, assuming goods X and Y are substitutes, a decrease in the price of
Y, other factors held constant, will move the equilibrium from point E to point:
a. W.
b. X.
c. Y.
d. Z.

16. In Exhibit 1, the price elasticity of supply for good X between points Y and E is:
a. 1/5 = 0.20.
b. 5/3 = 1.66.
c. 3/5 = 0.60.
d. 1.

17. In Exhibit 1, the price elasticity of supply for good X between points E and X is:
a. 7/5 = 1.40.
b. 1/5 = 0.20.
c. 5/7 = 0.71.
d. 1.

18. If the government wants to raise tax revenue and shift most of the tax burden to the sellers,
it would impose a tax on a good with a:
a. steep (inelastic) demand curve and steep (inelastic) demand curve.
b. steep (inelastic) demand curve and a flat (elastic) supply curve.
c. flat (elastic) demand curve and a steep (inelastic) supply curve.
d. flat (elastic) demand curve and a flat (elastic) supply curve.

19. Suppose that when price is $10, quantity supplied is 20. When price is $6, quantity supplied
is 12. The price elasticity of supply is:
a. 0.5.
b. 0.8.
c. 1.0.
d. 1.5.
e. 2.0.

20. The Smith family buys much more macaroni when someone in the family is laid off. This
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 hapter 5 PRICE ELASTICITY OF DEMAND AND
SUPPLY
means that the Smiths' ___________ is negative.
a. demand curve for macaroni
b. income elasticity for macaroni
c. Engel's law
d. income
e. price elasticity of demand for macaroni

21. The cross elasticity of demand between two goods is 2.5. These goods are:
a. perfect complements.
b. imperfect complements.
c. unrelated.
d. substitutes.
e. inferior.

22. Which of the following statements is true?

a. If the income elasticity of demand is less than zero, the good is an inferior good.
b. Only if the demand curve is vertical will sellers raise the price by the full amount of a
tax.
c. Two goods are substitutes if the cross-elasticity of demand coefficient is positive.
d. A price elasticity of supply coefficient equal to 1.5 means the product exhibits an elastic
supply and a 10 percent increase in the price will increase the quantity supplied by 15
percent.
e. All of the answers above are correct

 TRUE OR FALSE
1. T F If a 10 percent price increase causes the quantity demanded for a good to
decrease by 20 percent, demand is elastic.

2. T F If a 10 percent price increase causes the quantity demanded for a good to

decrease by 5 percent, demand is elastic.

3. T F If a 10 percent price increase causes the quantity demanded for a good to

decrease by 10 percent, demand is unitary elastic.

4. T F If the demand curve for a good is elastic, consumers will spend more on
that good when its price increases.

5. T F Suppose an economist found that total revenues increased for the bus
system when fares were raised. The conclusion is that the price elasticity
demand for subway services over the range of fare increase is inelastic.

6. T F A horizontal demand curve is perfectly elastic.

10
 hapter 5 PRICE ELASTICITY OF DEMAND AND
SUPPLY

7. T F If a good has a price elasticity of demand coefficient greater than 1, total

revenue can be increased by raising the price.

8. T F Other factors held constant, if there are few close substitutes for a good,
demand is more elastic for it.

9. T F If demand for a good is price elastic, it must also be income elastic.

10. T F In response to a price change for good Y, if the cross-elasticity of demand

for good Y is positive, good X and good Y are complements.

11. T F If a supply curve has a constant slope throughout its length, it must have a
constant price elasticity throughout its length.

12. T F Applying supply and demand analysis, other factors held constant, the
steeper the supply curve (less elastic), the larger the burden of a sales tax
that is borne by the sellers.

 CROSSWORD PUZZLE
Fill in the crossword puzzle from the list of key concepts. Not all of the concepts are used.

ACROSS DOWN
11
 hapter 5 PRICE ELASTICITY OF DEMAND AND
SUPPLY

2. The percentage change in quantity demanded
is less than the percentage change in price.
3. The price multiplied by the quantity demanded.
4. The percentage change in quantity demanded
divided by the percentage change in price.
5. The percentage change in quantity demanded
exceeds the percentage change in price.
1. The percentage change in price causes
an equal percentage change in quantity
demanded.
6. A perfectly ______ demand is a condition
in which a small percentage change in
price brings about an infinite percentage
change in quantity demanded.

 ANSWERS

Completion Questions
1. price elasticity of demand 7. total revenue
2. elastic demand 8. income elasticity of demand
3. inelastic demand 9. price elasticity of supply
4. unitary elastic demand 10. tax incidence
5. perfectly elastic demand 11. cross elasticity of demand
6. perfectly inelastic demand

Multiple Choice
1. a. 2. a 3. b 4. a 5. a 6. b 7. b 8. a 9. c 10. e 11. a 12. d 13. c 14. a 15. c 16. c 17. c 18. c 19. c 20.
b 21. d 22. e

True or False
1. True 2. False 3. True 4. False 5. True 6. True 7. False 8. False 9. False 10. False 11. False
12. False

12
 hapter 5 PRICE ELASTICITY OF DEMAND AND
SUPPLY
Crossword Puzzle

13
Another random document with
no related content on Scribd:
a point which His Majesty's Government can afford to concede.
I think it would have a deplorable effect in Cape Colony and
Natal to obtain peace by such a concession." Mr. Chamberlain
agreed with the High Commissioner, writing in reply: "His
Majesty's Government feel that they cannot promise to ask for
complete amnesty to Cape and Natal rebels who are in totally
different position to burghers without injustice to those who
have remained loyal under great provocation, and they are
prepared substantially to adopt your words, but you must
consider whether your last line is strictly applicable to
Natal." Mr. Chamberlain made numerous other criticisms of Lord
Kitchener's suggested letter, and amended it in many
particulars, the most important of which related to the form
of government under which the late republics would be placed.
Lord Kitchener would have said: "Military law will cease and
be at once replaced by civil administration, which will at
first consist of a Governor and a nominated Executive with or
without an advisory elected Assembly, but it is the desire of
His Majesty's Government, as soon as circumstances permit, to
establish representative Government in the Transvaal and
Orange River Colony." His political superior instructed him to
change the statement as follows: "For 'military law will
cease' say 'military administration will cease.' It is
possible that there may be disturbed districts for some time
after terms have been accepted, and Governor of Colonies
cannot abandon right of proclaiming martial law where
necessary. In the same sentence omit the words 'at the same
time' and 'at once' and substitute at the beginning the words
'at the earliest practicable date.' For 'consist of a
Governor' down to 'Assembly' read 'consist of a Governor and
an Executive Council composed of the principal officials with
a Legislative Council consisting of a certain number of
official members to whom a nominated unofficial element will
from the first be added.' In place of the words 'to establish
representative government' substitute 'to introduce a
representative element, and ultimately to concede to the new
Colonies the privilege of self-government.' It is desirable at
this stage to be quite precise in order to avoid any charge of
breach of faith afterwards."

Out of the instructions he received, Lord Kitchener finally

framed the following letter to Commandant Botha, sent to him
on the 7th of March: "With reference to our conversation at
Middelburg on 28th February, I have the honour to inform you
that in the event of a general and complete cessation of
hostilities and the surrender of all rifles, ammunition,
cannon, and other munitions of war in the hands of the
burghers or in Government depots or elsewhere, His Majesty's
Government is prepared to adopt the following measures:

"His Majesty's Government will at once grant an amnesty in the

Transvaal and Orange River Colonies for all bona fide acts of
war committed during the recent hostilities. British subjects
belonging to Natal and Cape Colony, while they will not be
compelled to return to those Colonies, will, if they do so, be
liable to be dealt with by the law of those Colonies specially
passed to meet the circumstances arising out of the present
war. As you are doubtless aware, the special law in the Cape
Colony has greatly mitigated the ordinary penalties for high
treason in the present cases.

"All prisoners of war now in St. Helena, Ceylon, or elsewhere

will, on the completion of the surrender, be brought back to
their country as quickly as arrangements can be made for their
transport.

"At the earliest practicable date military administration will

cease and will be replaced by civil administration in the form
of Crown Colony Government. There will therefore be, in the
first instance, in each of the new Colonies a Governor and an
Executive Council, consisting of a certain number of official
members, to whom a nominated unofficial element will be added.
But it is the desire of His Majesty's Government, as soon as
circumstances permit, to introduce a representative element
and ultimately to concede to the new Colonies the privilege of
self-government. Moreover, on the cessation of hostilities a High
Court will be established in each of the new Colonies to
administer the law of the land, and this Court will be
independent of the Executive.

"Church property, public trusts, and orphans funds will be

respected.

"Both the English and Dutch languages will be used and taught
in public schools where parents of the children desire it, and
allowed in Courts of Law.

"As regards the debts of the late Republican Governments, His

Majesty's Government cannot undertake any liability. It is,
however, prepared, as an act of grace, to set aside a sum not
exceeding £1,000,000 to repay inhabitants of the Transvaal and
Orange River Colonies for goods requisitioned from them by the
late Republican Governments, or, subsequent to annexation, by
Commandants in the field being in a position to enforce such
requisitions. But such claims will have to be established to
the satisfaction of a Judge or Judicial Commission appointed
by the Government to investigate and assess them, and if
exceeding in the aggregate £1,000,000, they will be liable to
reduction pro rata.

"I also beg to inform your Honour that the new Government will
take into immediate consideration the possibility of assisting
by loan the occupants of farms who will take the oath of
allegiance to repair any injury sustained by destruction of
buildings or loss of stock during the war, and that no special
war tax will be imposed on farmers to defray the expense of
the war.

"When burghers require the protection of fire-arms such will

be allowed to them by licence and on due registration,
provided they take the oath of allegiance. Licences also will
 be issued for sporting rifles, guns, &c., but military
firearms will only be allowed for means of protection.

{513}

"As regards the extension of the franchise to Kaffirs in the

Transvaal and Orange River Colony, it is not the intention of
His Majesty's Government to give such franchise before
representative government is granted to these Colonies, and if
then given it will be so limited as to secure the just
predominance of the white races. The legal position of
coloured persons will, however, be similar to that which they
hold in Cape Colony.

"In conclusion, I must inform your Honour that if the terms

now offered are not accepted after a reasonable delay for
consideration they must be regarded as cancelled."

On the 16th of March the following reply came from the Boer
Commandant: "I have the honour to acknowledge receipt of your
Excellency's letter stating what steps your Excellency's
Government is prepared to take in the event of a general and
total cessation of hostilities. I have advised my Government
of your Excellency's said letter; but, after the mutual
exchange of views at our interview at Middelburg on 28th
February last, it will certainly not surprise your Excellency
to know that I do not feel disposed to recommend that the
terms of the said letter shall have the earnest consideration
of my Government. I may add also that my Government and my
chief officers here entirely agree to my views." This ended
the negotiations.

A discussion of the negotiations in Parliament occurred on the

28th of March, when Mr. Bryce (Liberal) said "they were agreed
that the Government took an onward step when they allowed the
peace negotiations to be entered into, and it was important to
observe that, not only Lord Kitchener, but Sir Alfred Milner
was persuaded that General Botha meant business. It was
possible there were causes at work with which the House were
not acquainted which caused the negotiations to be broken off.
General Botha wrote to Lord Kitchener:—'You will not be
surprised to hear that my answer is in the negative.' One of
two things must have happened—either Lord Kitchener heard from
General Botha something that the House had not heard of, or
else General Botha was so much struck by the difference
between the terms which Lord Kitchener had discussed and the
terms contained in the letter that he conceived a distrust of
us altogether and believed that the Government would not
accept what Lord Kitchener had offered. He thought the
Government were right in asking that the oath of allegiance
should be taken, that they were entitled to insist upon the
provision that all hostilities must cease, and that they could
not pledge themselves as to the precise time when they would
bring back the prisoners. But there were three points on which
there were substantial differences between the terms Lord
Kitchener appeared to have offered and the terms in the final
letter. The first is the question of amnesty for the Cape
rebels. Lord Kitchener and General Botha appeared to have come
to an agreement on that subject. General Botha did not object
to the disfranchisement of the Cape rebels, and Lord Kitchener
did not appear to have conveyed any suggestion whatever of
anything except disfranchisement. He could conceive nothing
more likely to turn back the pacific desires of the Boers than
the fact that they found that, instead of the Cape rebels
having nothing but disfranchisement to fear, they were to be
held subject to the Cape laws as to treason. He was not
arguing whether that was right or wrong. The question was what
the Boers would think, and he put it to the House that it was
the most natural thing that they should be struck by the
contrast between the terms which Lord Kitchener appeared to
offer and the terms which were offered when the final letter
came, and that that was just the point upon which brave men,
feeling for their comrades, would be inclined to stand out.
They would be told that they would displease the loyalists at
the Cape if they did not exact all the penalties for treason.
He hoped they would never in that House consider it any part
of their business to satisfy the vindictive feeling of the
colonists at the Cape."

As to the difference between the terms of future government

for the inhabitants of the late republics proposed by Lord
Kitchener and those laid down by the Colonial Secretary, Mr.
Bryce said: "He should like to have known what the proposals
were that General Botha made with regard to a modified
independence, for he thought it was quite possible that it
might turn out in the long run that some kind of what was
called modified independence, protection, would be a great
deal easier for this country to work than a system of Crown
colony government. He thought the contrast between the
elective assembly which Lord Kitchener offered and the purely
arbitrary and despotic system which the final letter conveyed
must at once have struck the Boers as indicating the
difference between the views which the military man on the
spot entertained and the proposal which they might expect from
the Government. Of course there were objections to the
immediate grant of self-government. So also there were
objections to any course, and that course should be chosen
which was open to the fewest objections. But the proposal of
Crown colony government was, of all courses, the worst that
could be suggested. It had been suggested that members of the
Liberal party had asked for full-grown representative and
responsible government, but they never had suggested that.
What they had objected to was Crown colony government. They
admitted that when the war ended there must be an intermediate
period of administration, military or civil, but there was all
the difference in the world between an admittedly provisional
administration understood to be provisional and the creation
of the whole apparatus of Crown colony government. The Boer
population had an aversion to Crown colony administration,
associated in their minds with the days of Sir Owen Lanyon,
and an arbitrary form of government it was known to be. Of
 course it was arbitrary; honourable members who questioned
that could not know what Crown colony administration was. The
existence of a nominated council did not prevent it being
arbitrary inasmuch as the members were obliged to vote as they
were directed by the Governor. He could not help thinking that
Lord Kitchener might, if he were asked to do so, throw some
light on a remarkable expression in the letter from General
Botha in which he said, after the mutual interchange of views
at their meeting, Lord Kitchener would not be surprised to
learn that he was not disposed to recommend the terms
proposed."

{514}

The radical Mr. Labouchere was sharper in his criticism: "He

held that it was nonsense to call the terms offered to the
Boers liberal and lenient; they were neither. We had burnt
their farms and desolated their country, and then we offered
them a small gift of money to put them back on their farms
while we took away their independence and their flag. He
honoured the men who resisted, no matter at what cost, when
the question was the independence of their native land. How
right General Botha was in distrusting the alterations made by
the Secretary for the Colonies in the matter of the gift was
shown by the right honourable gentleman himself, when he said
that, whereas the gift was to be limited to a certain sum, the
loyalists were to be paid first. In that case what would
remain to the burghers of the two colonies? The position of
the Boers in the Empire under the terms of the Colonial
Secretary would be little better than that of Kaffirs. As far
as ultimate self-government was concerned, they were to put
their faith in the Colonial Secretary. If he might offer them
a word of advice it would be—Put no faith in the Colonial
Secretary; get it in black and white. We had lost a great
opportunity of ending the war and settling South Africa. Peace
won by the sword would create a dependency in which racial
feuds would go on and the minority would be maintained over
the majority by a huge British garrison. The Dutch majority
was certain to increase every decade. The Transvaal farmers
lived in a poor, rude manner which English people would not
accept. …

"He did not particularly admire the Boers. To his mind they
had too much of the conservative element in them; but, judging
between the Afrikanders and the English who went to South
Africa, whilst fully recognizing that among the latter there
were many respectable men, he thought, taking them
collectively, the Boers were the better men. If we wanted to
maintain our rule in South Africa the Boers were the safest
men with whom to be on good terms. What were the Boers ready
to do? As he read the correspondence, they were ready to enter
the area of the British Empire, but only upon terms. Surely
our problem was to find terms honourable to us and to them,
which would lead to South Africa becoming one of those great
commonwealths connected with the Empire such as existed in
Australia and Canada. He suggested that, in the first place,
we should offer a full and absolute amnesty. He urged that the
Orange State and the Transvaal should as soon as possible be
made self-governing colonies. The Orange State was regarded by
every Englishman who had written about it as a model State. As
to the Transvaal, he admitted there was a difficulty, but he
would suggest that the main area of the country should be
separated from the Rand. The Rand might be administered by a
governor, a military governor if they liked, while in the rest
of the country the Dutch would have a majority. If this course
were adopted, instead of our giving some sort of pecuniary aid
to the Transvaalers, they might be paid a reasonable rent for
the Rand district, of which they would be deprived. … They on
that side of the House would be perfectly ready to agree to
the establishment of a provisional government, military or
civil—he should himself prefer Lord Kitchener to Sir Alfred
Milner—to carry on the country while they were arranging for
the colony to be self-governing. They were accustomed to be
told that Sir Alfred Milner was a sort of divine pro-consul.
 He believed Sir Alfred Milner to be a most honourable man, and
very intelligent in many walks of life; but the truth was that
he began life as an Oxford don and then became an official in
the Treasury, facts which militated against his success in
practical politics. He believed that a man like Lord Dufferin
would do more for the cause of peace in South Africa than all
our soldiers."

SOUTH AFRICA: The Field of War: A. D. 1901 (February-April).

The High Commissioner, Sir Alfred Milner, on the situation
and prospects.
Leave of absence obtained by Sir Alfred.

A British Blue Book, made public in London on the 18th of

April, contains an interesting despatch from Sir Alfred
Milner, frankly reviewing the general situation in South
Africa, as it appeared to him on the 6th of February, when he
wrote, from Cape Town, and giving his forecast of future
prospects. The following are the more important passages of
the communication:

"A long time has elapsed since I have attempted to send to you
any general review of South African affairs. The reason is
twofold. In the first place, I am occupied every day that
passes from morning till night by business, all of which is
urgent, and the amount and variety of which you are doubtless
able to judge from the communications on a great variety of
subjects, which are constantly passing between us. In the next
place, I have always hoped that some definite point would be
reached at which it might be possible to sum up that chapter
of our history which contained the war, and to forecast the
work of administrative reconstruction which must succeed it.
But I am reluctantly forced to the conclusion that there will
be no such dividing line. I have not the slightest doubt of
the ultimate result, but I foresee that the work will be
slower, more difficult, more harassing, and more expensive
than was at one time anticipated. At any rate, it is idle to
 wait much longer in the hope of being able to describe a clear
and clean-cut situation. Despite the many other calls upon my
time, and despite the confused character of the present
position, I think it better to attempt to describe, however
roughly and inadequately, the state of things as it exists
to-day.

"It is no use denying that the last half-year has been one of
retrogression. Seven months ago this Colony was perfectly
quiet, at least as far as the Orange River. The southern half
of the Orange River Colony was rapidly settling down, and even
a considerable portion of the Transvaal, notably the
south-western districts, seemed to have definitely accepted
British authority, and to rejoice at the opportunity of a
return to orderly government, and the pursuits of peace.
To-day the scene is completely altered. It would be
superfluous to dwell on the increased losses to the country
caused by the prolongation of the struggle, and by the form
which it has recently assumed. The fact that the enemy are now
broken up into a great number of small forces, raiding in
every direction, and that our troops are similarly broken up
in pursuit of them, makes the area of actual fighting, and
consequently of destruction, much wider than it would be in
the case of a conflict between equal numbers operating in
large masses.
{515}
Moreover, the fight is now mainly over supplies. The Boers
live entirely on the country through which they pass, not only
taking all the food they can lay hands upon on the farms,
grain, forage, horses, cattle, &c., but looting the small
village stores for clothes, boots, coffee, sugar, &c., of all
which they are in great need. Our forces, on their side, are
compelled to denude the country of everything moveable, in
order to frustrate these tactics of the enemy. No doubt a
considerable amount of the stock taken by us is not wholly
lost, but simply removed to the refugee camps, which are now
being established at many points along the railway lines. But
even under these circumstances, the loss is great, through
animals dying on the route, or failing to find sufficient
grass to live upon when collected in large numbers at the
camps. Indeed, the loss of crops and stock is a far more
serious matter than the destruction of farm buildings, of
which so much has been heard. I say this not at all as an
advocate of such destruction. I am glad to think that the
measure is now seldom if ever resorted to. At the same time,
the destruction of even a considerable number of farms, having
regard to the very rough and inexpensive character of the
majority of these structures in the Orange River Colony and
Transvaal, is a comparatively small item in the total damage
caused by the war to the agricultural community.

"To the losses incidental to the actual course of the

campaign, there has recently been added destruction of a
wholly wanton and malicious character. I refer to the injury
done to the head-gear, stamps, and other apparatus of some of
the outlying mines by Boer raiders, whose sole object was
injury. For this destruction there is, of course, no possible
excuse. … Fortunately the damage done to the mines has not
been large, relatively to the vast total amount of the fixed
capital sunk in them. The mining area is excessively difficult
to guard against purely predatory attacks having no military
purpose, because it is, so to speak, 'all length and no
breadth'—one long thin line, stretching across the country
from east to west for many miles. Still, garrisoned as
Johannesburg now is, it is only possible successfully to
attack a few points in it. Of the raids hitherto made, and
they have been fairly numerous, only one has resulted in any
serious damage. In that instance the injury done to the single
mine attacked amounted to £200,000, and it is estimated that
the mine is put out of working for two years. This mine is
only one out of a hundred, and is not by any means one of the
most important. These facts may afford some indication of the
ruin which might have been inflicted, not only on the
Transvaal and all South Africa, but on many European
interests, if that general destruction of mine works which was
contemplated just before our occupation of Johannesburg had
been carried out. However serious in some respects may have
been the military consequences of our rapid advance to
Johannesburg, South Africa owes more than is commonly
recognized to that brilliant dash forward, by which the vast
mining apparatus, the foundation of all her wealth, was saved
from the ruin threatening it.

"The events of the last six or seven months will involve a

greater amount of repair and a longer period of recuperation,
especially for agriculture, than anybody could have
anticipated when the war commenced. Yet, for all that, having
regard to the fact that both the Rand and Kimberley are
virtually undamaged, and that the main engines of prosperity,
when once set going again, will not take very long to get into
working order, the economic consequences of the war, though
grave, do not appear by any means appalling. The country
population will need a good deal of help, first to preserve it
from starvation, and then, probably, to supply it with a
certain amount of capital to make a fresh start. And the great
industry of the country will need some little time before it
is able to render any assistance. But, in a young country with
great recuperative powers, it will not take many years before
the economic ravages of the war are effaced.

"What is more serious to my mind than the mere material

destruction of the last six months is the moral effect of the
recrudescence of the war. I am thinking especially of the
Orange River Colony, and of that portion of the Transvaal
which fell so easily into our hands after the relief of
Mafeking, that is to say, the country lying between
Johannesburg and Pretoria, and the border of Bechuanaland.
Throughout this large area the feeling in the middle of last
year was undoubtedly pacific. The inhabitants were sick of the
war. They were greatly astonished, after all that had been
dinned into them, by the fair and generous treatment they
 received on our first occupation, and it would have taken very
little to make them acquiesce readily in the new regime. At that
time too, the feeling in the Colony was better than I have
ever known it. The rebellious element had blown off steam in
an abortive insurrection, and was glad to settle down again.
If it had been possible for us to screen those portions of the
conquered territory, which were fast returning to peaceful
pursuits, from the incursions of the enemy still in the field,
a great deal of what is now most deplorable in the condition of
South Africa would never have been experienced. The vast
extent of the country, the necessity of concentrating our
forces for the long advance, first to Pretoria and then to
Komati Poort, resulted in the country already occupied being
left open to raids, constantly growing in audacity, and fed by
small successes, on the part of a few bold and skilful
guerrilla leaders who had nailed their colours to the mast.
The reappearance of these disturbers of the peace, first in
the south-east of the Orange River Colony, then in the
south-west of the Transvaal, and finally in every portion of
the conquered territory, placed those of the inhabitants who
wanted to settle down in a position of great difficulty.
Instead of being made prisoners of war, they had been allowed
to remain on their farms on taking the oath of neutrality, and
many of them were really anxious to keep it. But they had not the
strength of mind, nor, from want of education, a sufficient
appreciation of the sacredness of the obligation which they
had undertaken, to resist the pressure of their old companions
in arms when these reappeared among them appearing to their
patriotism and to their fears. …

{516}

"As the guerrilla warfare swept back over the whole of the
western Transvaal, and practically the whole of the Orange
River Colony, its effect upon the Cape Colony also became very
marked. There was a time, about the middle of last year, when
the bulk of the Dutch population in the Cape Colony, even
those who had been most bitter against us at the outset,
seemed disposed to accept the 'fait accompli,' and were
prepared to acquiesce in the union of all South Africa under
the British flag. Some of them even began to see certain
advantages in such a consummation. The irreconcilable line
taken in the Cape Parliament, during its recent Session from
July to October, was a desperate effort to counteract this
tendency. But I doubt whether it would have succeeded to the
moderate extent to which it has, had it not been for the
recrudescence of the war on the borders of the Colony, and the
embittered character which it assumed. Every act of harshness,
however necessary, on the part of our troops, was exaggerated
and made the most of, though what principally inflamed the
minds of the people were alleged instances of needless cruelty
which never occurred. Never in my life have I read of, much
less experienced, such a carnival of mendacity as that which
accompanied the pro-Boer agitation in this Colony at the end
of last year. And these libels still continue to make
themselves felt. …

"The present position of affairs, alike in the new territories

and in a large portion of the Cape Colony, if by no means the
most critical, is possibly the most puzzling that we have had
to confront since the beginning of the war. Naturally enough
the public are impatient, and those who are responsible for
the government of the country are bombarded with most
conflicting advice. On the one hand, there is the outcry for
greater severity and for a stricter administration of Martial
Law. On the other hand, there is the expression of the fear
that strict measures would only exasperate the people.
Personally, I am of the opinion, which I have always held,
that reasonable strictness is the proper attitude in the
presence of a grave national danger, and that exceptional
regulations for a time of invasion, the necessity of which
every man of sense can understand, if clearly explained and
firmly adhered to, are not only not incompatible with, but
actually conducive to, the avoidance of injustice and cruelty.
I am satisfied by experience that the majority of those Dutch
inhabitants of the Colony who sympathize with the Republics,
however little they may be able to resist giving active
expression to that sympathy, when the enemy actually appear
amongst them, do not desire to see their own districts
invaded, or to find themselves personally placed in the
awkward dilemma of choosing between high treason and an
unfriendly attitude to the men of their own race from beyond
the border. There are extremists who would like to see the
whole of the Cape Colony overrun. But the bulk of the farmers,
especially the substantial ones, are not of this mind. …

"The inherent vice, if I may say so, of almost all public

discussion of our South African difficulties is the tendency
to concentrate attention too exclusively upon the Boers. Say
what we will, the controversy always seems to relapse into the
old ruts—it is the British Government on the one hand, and the
Boers on the other. The question how a particular policy will
affect, not merely our enemies, but our now equally numerous
friends, seems seldom to be adequately considered. And yet it
would seem that justice and policy alike should lead us to be
as eager to consider the feelings and interests, and to retain
the loyalty, of those who are fighting on our side, as to
disarm the present enmity and win the future confidence of
those who are fighting against us. And this principle would
seem an the easier to adhere to because there is really
nothing which the great body of the South African loyalists
desire which it is not for the honour and advantage of the
Mother Country to insist upon. Of vindictiveness, or desire to
oppress the Afrikanders, there is, except in hasty utterances,
inevitable in the heat of the conflict, which have no
permanent significance, or in tirades which are wholly devoid
of influence, no sign whatever. The attitude of almost all
leading and representative men, and the general trend of
public feeling among the loyalists, even in the intensity of
the struggle, is dead against anything like racial
exclusiveness or domination. If this were not so, it would be
impossible for a section of pure bred Afrikanders, small no
doubt in numbers but weighty in character and position, to
take the strong line which they do in opposition to the views
of the majority of their own people, based as these are, and
as they know them to be, upon a misconception of our policy
and intentions. These men are among the most devoted adherents
to the Imperial cause, and would regard with more disfavour
and alarm than anyone the failure of the British nation to
carry out its avowed policy in the most complete manner. They
are absolutely convinced that the unquestioned establishment
of the British supremacy, and the creation of one political
system from Cape Town to the Zambesi, is, after all that has
happened, the only salvation for men of their own race, as
well as for others. Of the terms already offered, a great
majority, I believe, of the South Africans at present in arms
on our side entirely approve. There is, no doubt, an extreme
section who would advocate a sterner attitude on our part, but
they are not numerous, and their feelings are not lasting. The
terms offered by Lord Kitchener, which are, in substance,
identical with repeated declarations of policy on the part of
His Majesty's Government, are generally regarded as a generous
and statesmanlike offer, as one which, if firmly adhered to,
will ultimately be accepted, but as an offer which we cannot
afford to enlarge. On the other hand, there is a very general
desire that no effort should be spared to make the generous
character of our intentions widely known, and to encourage any
disposition on the part of the enemy to parley, with the object
of making them better acquainted with the terms on which we
are prepared to accept their submission.

"If I might sum up the predominant, indeed, the almost

unanimous feeling of those South Africans who sympathise with
the Imperial Government, I should describe it as follows:—They
are sick to death of the war, which has brought ruin to many of
them, and imposed considerable sacrifices on almost all. But
they would rather see the war continue for an indefinite time
than run the risk of any compromise which would leave even the
 remotest chance of the recurrence of so terrible a scourge in
the future. They are prepared to fight and suffer on, in order
to make South Africa, indisputably and for ever, one country
under one flag, with one system of government, and that system
the British, which they believe to ensure the highest possible
degree of justice and freedom to men of all races.
{517}
But, with that object accomplished, they are willing, and,
indeed, ready, to bury racial animosities. They have fought
against the principle of race oligarchy in one form, and they
do not wish to re-establish it in another. For the attainment
of that object, they would rely for the present on the
vigorous prosecution of the war in which they are prepared
themselves to take the most active part, coupled with every
inducement to the enemy to come in on the terms already
offered, and for the future, as soon as public security is
assured and the circumstances permit, on the extension to the
newly acquired territories of a system of Colonial
self-government. For my own part, I have no doubt that this
attitude is a wise one, and that it only requires persistence
in it, in spite of the discouraging circumstances of the
moment, to lead us to ultimate success."

Great Britain, Papers by Command, Cd. 547.

The same Blue Book made known the fact that, on the 3d of
April, Sir Alfred Milner applied for and obtained leave of
absence for three months from his duties in South Africa.

SOUTH AFRICA: The Field of War: A. D. 1901 (April).

The situation.

Early in April it was announced that the seat of government of

the South African Republic had been transferred from
Pietersburg to Leydsdorp in the Zoutpansberg by the
Vice-President, General Schalk-Burger, which seems to indicate
the beginning of another stage of the South African war. The
 Boers are said to have been for some time past collecting
great quantities of cattle and sheep in the fastnesses of the
Zoutpansberg, where also they have ample supplies of
ammunition, and intend making it a point of ultimate
resistance as well as a base of present operations.

SOUTH AFRICA: The Field of War: A. D. 1901 (April).

The cost of the war to Great Britain as stated
by the Chancellor of the Exchequer.

In his speech (April 18), on introducing the budget for 1901,

in the House of Commons, the Chancellor of the Exchequer, Sir
Michael Hicks-Beach, made the following statements of the cost
of the war to Great Britain: "I would remind the Committee
that so far we have borrowed towards the cost of the war
£67,000,000—£13,000,000 Treasury bills, £10,000,000 Exchequer
Bonds maturing rather less than three years hence, £14,000,000
Exchequer Bonds maturing about five years hence, and
£30,000,000 War Loan maturing in 1910. Now, Sir, in what mode
may we fairly borrow such a large sum as we now require? This
can no longer be considered a small war. In cost it is a great
war. Let me just make a statement to the Committee as to what,
so far, the estimated cost of this war has been. In 1899-1900 the
Estimates were £23,217,000. Last year they were £68,620,000,
and this year's Estimates amount to £60,230,000, including in
each case the interest on the sums borrowed. That amounts to
over £152,000,000. I must ask the Committee to remember that
in those figures I include the cost of both the South African
and Chinese wars. Then I have to add a million and a quarter
for this year's borrowing, making in all over £153,000,000.
That is double the cost of the Crimean War, and when I look
back at the Peninsular War I find the two most expensive years
were 1813 and 1814. The forces engaged, of course, were very
much smaller than those engaged now; but in those two years
the total cost of our Army and Navy amounted to £144,581,000.
This amount is less than the charges of the South African and
Chinese wars. Therefore, I think I am justified in saying that
 in cost this has been a great war. I think, then, it is clear
we can no longer, in borrowing towards the cost of it, rely
upon temporary borrowing. We have already £67,000,000 of
unfunded debt borrowed for this purpose and maturing within
the next ten years. We have also some £36,000,000 of 2¾ and 2½
per cent., redeemable in 1905. Therefore, whatever may be the
prosperity of the country, whatever may be the condition of
our finances, it is perfectly obvious to my mind that the
stanchest advocate of the redemption of the debt will have
ample scope for his energies in the years that are now before
us. For this reason I propose to ask the Committee to extend
the powers of borrowing which they gave me in previous Acts,
to Consols."

----------SOUTH AFRICA: End--------

SOUTH AFRICAN REPUBLIC, The.

See (in this volume)

SOUTH AFRICA (THE TRANSVAAL);

also,
CONSTITUTION (GRONDWET) OF THE SOUTH AFRICAN
REPUBLIC.

SOUTH AUSTRALIA.

See (in this volume)

AUSTRALIA; and CONSTITUTION OF AUSTRALIA.

SOUTH CAROLINA: A. D. 1892-1899.

The Dispensary Law.

In 1892 the Legislature of South Carolina passed an Act,

commonly called the Dispensary Law, which caused turbulent
agitations in the State, and excited much interest in the
country at large. It was based upon the principle of what is
 known as the Gothenburg system of regulation for the sale of
intoxicating liquors, making the traffic a State monopoly,
carried on by officials, under rigorous restrictions, with
profit to the public treasury, and none else. It provided for
the creation of a State Board of Control, under the direction
of which a Commissioner, appointed by the Governor, should
purchase all intoxicating liquors allowed to be sold in the
State, and should furnish the same to such agents (called
"dispensers") in the several counties as might be appointed by
county boards to sell them, in accordance with the regulations
prescribed. It required all liquors purchased by the
Commissioner to be tested by an official chemist and declared
to be pure and unadulterated. It allowed nobody but the
official "dispensers" to deal in any manner with any kinds of
intoxicating liquors after the 1st of July, 1893. It forbade
the selling of such drinks by the authorized salesmen to
minors and drunkards, and it required all who bought to sign
and date a printed or written request, stating their residence
and age.

The law was fiercely resisted in many parts of the State by

mobs, and powerfully assailed in the courts; but Governor
(afterwards Senator) Tillman, who then occupied the executive
chair, gave it resolute enforcement and support. The attack in
the courts had momentary success in 1894, the Supreme Court of
the State rendering a decision adverse to the
constitutionality of the law; but, meantime, the Legislature,
in 1893, had made changes in the Act, and its new enactment
was held to be untouched by the judgment of the court.
{518}
Before a new case could be brought to issue, the retirement of
one of the justices of the Supreme Court brought about a
change of opinion in that tribunal, and the law in its new
form was sustained. Disorderly resistance to the enforcement
of the law was long kept up; but in the end such resistance
seems to have been mostly overcome.