142 WHEAT PRODUCTION IN NEW ZEALAND 



adjust their supply to the demand as best they can with 

 the appliances already at their disposal. 



In long periods, on the other hand, the flow of 

 appliances for production is adjusted to the demand for 

 the products of those appliances. All investments of 

 capital and effort in providing the material plant and 

 the organisation of a business, and in acquiring trade 

 knowledge and specialized ability, have time to be 

 adjusted to the conditions of demand. The length of 

 this transitional period depends on the mobility of 

 capital and labour, and the time required for the attain- 

 ment of the necessary trade knowledge and skill in 

 organisation. Those producers who were on the margin 

 of profitable production will now, if market price rises, 

 commence to produce. Their influence in bringing 

 supplies on the market quickly may accelerate consider- 

 ably the rate at which the transition is effected. The 

 result of this adjustment is a new equilibrium between 

 demand and supply at which a price approximating to 

 cost of production will be determined. Of course the 

 price will not be below the expenses of producing on 

 the margin of production. If price were to fall to such 

 a level then ultimately supply would be contracted until 

 the production at the margin was profitable. 



In the long period, then, the price tends to be 

 equal to the marginal cost of production, that is, 

 the cost of production per unit of output of the 

 marginal firm, or also the marginal cost of pro- 

 duction of each normal firm. The price thus arrived at 

 is the normal or long period price, and the degree to 

 which this price approximates to cost of production will 

 depend upon the prevalence of "economic friction." 

 If capital and labour are free to move from one industry 

 to another, if every man is sufficiently well-informed as 

 to the course of action most beneficial to him, if compe- 

 tition is free, then, ceteris paribus, normal price and 



