428 



AGRICULTURAL ECONOMICS 



FIG. 4 



quantity offered is OP'; at the price SM', the quantity offered is OA'. 

 Evidently the line SPS', which is the supply curve, has an upward 

 inclination, the reverse of the inclination of the demand curve DD'. 

 A rise in price, which causes the quantity demanded to become less, 

 causes the quantity offered to become greater. 



The supply and demand curves, moving in opposite directions, 

 must meet; and in our figure they meet at P. The price PP' is the 

 equilibrium price, the market price fixed by the play of varying supply 



and demand. At that point the 

 quantity offered is equal to the 

 quantity demanded: the equation is 

 satisfied. If a higher price is asked, 

 the quantity demanded will be less 

 and the quantity offered will be 

 greater. Sellers will put on the 

 market more than buyers will take; 

 price will fall; some sellers will then 

 withdraw and some buyers will come 

 in, until equilibrium is reached. And 

 so in the reverse case: at any lower 



price, some sellers will withdraw, some buyers will be tempted 

 in, and readjustment will again bring the price to the point of 

 equilibrium, PP'. 



It has just been said that of these two modes of statement the 

 one proceeding on the supposition of a fixed supply, the other on that 

 of a variable supply the second is more in accord with the facts. 

 Yet the first also is so in accord. Both must be had in mind for an 

 understanding of the course of prices in a market. 



On any given day, in a well-organized market, the actual settle- 

 ment of market price undoubtedly takes place through an adjustment 

 of supply as well as through a response from demand. On the cotton 

 exchange or the produce exchange, or in any place where brokers and 

 dealers meet, a process of higgling and bargaining goes on. More or 

 less of the article is offered and demanded, with fluctuations in prices 

 which are usually within narrow limits on any one day and which 

 result in an equilibrium price for that day. But this daily equilibrium 

 price is itself affected by an underlying and more important equilib- 

 rium price. While the amount which is offered in the market from 

 day to day the supply varies considerably, and varies in response 

 to changes in price, the total amount which can be supplied over a 



