DEMAND AND SUPPLY. It is a familiar axiom of political economy that price depends upon demand and supply. Simple as the propo sition appears, it has been the subject of inter minable dispute because of the inevitable ten dency to make of the rule a sweeping generaliza tion applicable to all times and all places. None the less it remains a convenient form of stating the phenomena which determine market price. If in a given market the supply of goods is increased, prices cannot be maintained. If, on the other hand, the demand increases with a stationary supply, prices will rise. lf, in the foregoing statement, there is little ambiguity about the word supply, which means a certain physical quantity of goods. it cannot be said that the notion of demand, a psychological factor, is so simple. While demand is not merely desire, but is always associated for the purpose of eco nomic reasoning with the ability to satisfy the desire, it is clear that the volume of demand depends itself upon the price. There are certain areas of demand which generally grow larger as the price diminishes. In the first instance, when supply is increased, larger areas of demand must be reached in order to effect the sale of the goods, and to do so the price must lie reduced. In the second case, it is assumed that demand increases in its several grades. it will now be possible to sell the goods by serving only the higher areas of demand, and in so doing the price can lie raised. Within narrow limit.. therefore. the adjustment of demand and supply can so proceed that irregularities in either will reveal themselves in price changes. But it is clear that changes might be quite abnormal, that supply, for instance, might lie so vastly in creased that the goods would not lie salable, while demand might so diminish that a like re sult would lie reached.
The law of supply and demand is most simply stated for a given commodity in a given market as we have done, but no acemint of it would be complete without a reference to the reaction of demand upon supply. Whether by an increase of the supply of a particular elass of the price would he permanently lowered would de pend upon whether this increased supply became a permanent factor. If by the price reduction a lowering of is the result. we must ex pest a curtailment in the product. (In the other hand, a permanent increase of demand Nvhich in the first instanee led to an enhancement of pride utusl in time lead to a prospect of profits which invites capital into that line of business, and hence an enhancement of the supply. In the case of freely reproducible goods we find this tendency at work to prevent abnormal changes in customary and usual price relations. If. on tln utht r hand. the are net freely repro dw ‘%4• are apt to tied the tendency of :t diminishing suppl:, to raise prices checked by the pro•e-- of substitution. and hence a falling in demand. l•hus. in the I Wiled State, the -til-tittItion of coal for woOd a, fuel, and 11011 and for Ill ill %Turk, has checked 1 he in price 11111111 might otherwise himc been expected. There are certain goods however. like the autographs of distinguished men now dead. or paintings by the old masters, which seen to lie wholly outside the ordinary rules fixing prices. as they cannot be duplicated or their places tilled by lint such illustrations serve only to make clear how wide i- the application of the law to the great bulk of the N\ bail exchanges. For a clear 01 demand and supply. consult /.0 PrinripieS L'conoray (Lon don. ISS-1)..