432 AGRICULTURAL ECONOMICS 



The whole supply will be sold at the price OP ( = BP')\ and the 

 selling value of the whole, i.e., the quantity multiplied by the price, 

 will be indicated by the rectangle OPP'B. It is true that the more 

 fortunate producers could sell the commodity to advantage at a less 

 price. At the price OS or A A' they would still find it worth while 

 to bring it to market. But the total quantity which will meet the 

 demand at an equilibrium price cannot be supplied unless producers 

 less fortunate contribute their quota. These will not do so unless 

 they get their higher cost price BP r . At that price the whole supply 

 will be disposed of. The more favorably situated producers will get 

 the price necessary to induce their rivals, who have poorer facilities, 

 to contribute to the supply. 



We may speak of the producers at B, whose cost of production 

 is BP', as the marginal producers. Their cost price is also the measure 

 of the marginal utility of the commodity. Marginal cost and mar- 

 ginal utility thus coincide; and when they coincide there is equilib- 

 rium. If the quantity supplied should increase beyond B, in the 

 direction of F, marginal utility would be less, and marginal cost 

 would be greater. Supply could not long be maintained beyond 

 the point B, for producers would then be receiving less than cost. 

 So long as the conditions of demand and supply remained as 

 indicated by the lines DD' or SS' ', price would settle at the 

 amount BP'. 



The relation of demand and supply to value is somewhat different 

 here from what it was in the cases discussed above. Where the 

 supply of a commodity is fixed, the value of it is settled by the con- 

 ditions of demand; that is, by the marginal utility of that supply. 

 Where, on the other hand, the cost of a freely produced commodity 

 is fixed, the value of the commodity is settled by the conditions of 

 supply; that is, by cost. Demand in this case determines, in the long 

 run, only the quantity which shall be put on the market. But in the 

 case now under consideration, the conditions of demand and of supply 

 both have a permanent influence in settling price. As the quantity 

 shifts, not only does marginal utility vary, but marginal cost. A 

 lessening of demand would not only lessen the quantity put on the 

 market, but would also lessen marginal cost. Conversely, an increase 

 of demand would not only cause more to be put on the market, but 

 would also raise normal price, since the additional quantity would be 

 produced at greater cost. Hence demand and supply marginal utility 

 and cost mutually determine normal price. 



