PRINCIPLES OF VALUE AND PRICE 



431 



FIG. 6 



the ease of entering on the industry and of withdrawing from it, the 

 more rapid and certain would be the adjustment of supply to that 

 amount which would just sell at cost price. If perfect flexibility in 

 supply be assumed, the adjustment of 'value to cost would be 

 perfect, and the article would always sell for just what it cost to 

 produce it. 



II. Let us suppose now that the several producers who compete 

 with each other in putting a given article on the market have not the 

 same facilities; that for some of them the expenses of production are 

 greater than for others. We need 

 not concern ourselves for the present 

 with the question why there are such 

 differences. Let us assume them to 

 exist and consider what consequences 

 follow. 



The situation is illustrated by 

 the diagram (Fig. 6). The condi- 

 tions of demand are again indicated 

 by the descending line DD' '. The 

 conditions of supply are indicated by 

 the rising line SS'. The varying 

 distance from the horizontal axis OX to the line SS f measures the 

 varying cost of different installments of the supply. Some producers 

 those most favorably equipped can put the commodity on the 

 market at the comparatively low cost OS. Perhaps a certain moder- 

 ate quantity can be so produced at constant cost. If the conditions 

 of demand were such that only this moderate quantity were wanted 

 at the constant cost price if the demand curve were to intersect the 

 supply curve somewhere near S the normal price would be OS. So 

 far the case would be identical with that studied in the preceding 

 chapter. But now the conditions of demand, as indicated by the line 

 DD', are such that a much greater quantity is wanted at the price 

 OS than can be furnished at that price. The supply put on the 

 market increases, but as it increases, additional installments can no 

 longer be produced at the cost OS. With the quantity OA, for 

 example, the cost of the last installment reaches AA r . As more is 

 produced, cost still increases, indicated by the continuing ascent of 

 the supply curve from A' to P'. At P' finally the demand curve is 

 met. At the price BP' (=OP) the quantity OB can be disposed of. 

 Equilibrium is established; the quantity demanded equals the quan- 

 tity supplied; and price settles at the amount BP'. 



