The name of the town is La Paz, which is indeed on the Baja Peninsula in Mexico.
La Paz is a gossip-ridden town. As such, everyone and their mother knows that Kino is going to sell his pearl today.
It used to be, we are told, that the pearl buyers would try to outbid one another to buy a pearl. But this form of self-regulating, free-market capitalism proved too costly for the merchants; so now they collude and agree on a price beforehand that is far below the pearl’s actual value.
None of the pearl-divers are even going out diving today since there’s too much excitement to be had on land (namely, watching Kino sell his pearl).
All the spectators stand around and talk about the things they would do if they had found the pearl, like buy world peace.
Juana dresses herself and Coyotito in their finest clothes (from her marriage and his baptism), and she and Kino lead the procession into town.
Juan cautions his brother not to get cheated by the pearl-buyers.
He then reminds Kino of a story their father told them when they were young: the locales, realizing that the agents wouldn’t give them fair prices, pooled their pearls and sent them all with one man to the capital, to sell in a larger and presumably more just market. The man disappeared. They tried it again, same deal. So they were stuck getting cheated by the resident pearl-buyers.
Kino knows that trying to sell the pearls elsewhere went against religion; apparently the priests in the area have convinced them that every man has a station in life, and trying to move away from that station is evil.
At the agents’ offices, a man sits waiting at a desk, dressed for business and mechanically twirling a coin in between the knuckles of his fingers.
When Kino arrives and declares he has a pearl to sell, the buyer continues to twirl the coin in his hand – but hidden under the desk.
Kino slowly unwraps the pearl and looks the buyer’s eyes for a reaction, but he sees none.
The coin, however, slips from the buyer’s hand and falls silently into his lap.
The buyer pokes at the pearl and calls it "clumsy" for being too large.
Finally, he offers a thousand pesos. Kino counters that it’s worth fifty thousand.
The dealer is fearful, but he hides it and tells Kino to go ask the other dealers independently (since they’re all working together to keep the offers very low).
The next guy offers six hundred, so Kino snatches his pearl back and declares he will go sell it in the capital.
As he storms out, one of the dealers calls that he could do fifteen hundred pesos, but Kino is having none of it.
The dealers share a collective, "Drat!" and go back to playing with their coins. The crowd, meanwhile, wonders if maybe Kino is being. After all, fifteen hundred pesos is a lot of money for a poor man, they say.
Kino goes home, buries the pearl, and feels afraid. He’s hesitant to take the journey to the capital because he’s never been away from home before, and he doesn’t know anything about different lands.
His brother Juan comes to visit. Kino declares the buyers are cheats, and Juan affirms that they have been cheated all their lives. He is worried for Kino’s safety, and leaves him with "Go with God."
Kino then sits around and worries for a bit. Juana knows there’s nothing she can do but comfort him with her presence.
She then fights the song of evil with the song of family.
As the night grows darker, Kino gets more and more paranoid that something is outside waiting to attack. He goes to the doorway, and when Juana follows she finds him on the ground bleeding from the head – there is a long gash from his ear to his chin.
Once again, Juana tells her husband that the pearl is evil and they must get rid of it.
He argues and concludes with (no joke): "Believe me, I am a man."
Kino plans for them to leave tomorrow in their canoe for the capital.