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Demand and Supply

price, economy and consequent

DEMAND AND SUPPLY, inpolitical economy, the desire for services or utilities on the one hand, and the production or offer of them on the other, which tend to complete an act of exchange. Demand is therefore the amount of a commodity that will be taleen at a given price; supply the amount that will be offered at a given price. Demand is commonly said to be relative to supply, but in reality it is reciprocal to it. Certain political economists qualify the term demand by the word effectual, but it is scarcely necessary to make such a limitation. A mere desire for objects has no commercial significance, but that desire simply which contemplates a mutual benefit. Thus the wish of a beggar to possess a diamond cannot affect the price of the article, as he can offer no desirable object in return. The intensity of demand, and the consequent effect upon values, will be proportionate to the necessity which exists for satisfying the demand. Different rules, therefore, will apply to the increase of price consequent upon increased demand and reduced supply in articles of voluntary use, and to the same rise in price when affecting articles of necessary use. The demand for the latter

class of utilities is constant, and a deficiency in supply cannot be met by abstinence, except to a scarcely appreciable degree, whereas any con siderable deficiency in the supply of articles of voluntary use is to some extent met by economy. Prices will, therefore, increase in different ratios according to the degree in which the commodities demanded are necessary or con venient. Thus the price of grain may rise, in the case of a bad harvest, from 50 to 100 per cent; cotton or wool, in similar circumstances, would certainly fluctuate, but not to anything like the same extent; wine would vary in price least of all; the deficiency in the last two com modities being artificially restored by the de crease of demand consequent on economy and abstinence. In recent economic theory the law of demand and supply is accepted as a pre liminary step, but chief interest is held to cen tre in the forces underlying demand and suit ply, such as cost of production, etc. See POLITICAL ECONOMY.