. Outlines of political economy. elong run if demand rises ? A rise in demand means that thedemand prices in our table are raised. Obviously consump-tion will be increased, but how price will be affected will de-pend upon whether supply prices fall, rise, or keep constantwith an increased output. If supply prices fall price will fall,if they rise price will rise, if they are constant price will be 170 OUTLINES OF POLITICAL ECONOMY constant. The effect on price of diminished demand, that is afall in demand, is settled similarly. Equilibrium of demand and supply diagrammaticallytreated.—Consider
. Outlines of political economy. elong run if demand rises ? A rise in demand means that thedemand prices in our table are raised. Obviously consump-tion will be increased, but how price will be affected will de-pend upon whether supply prices fall, rise, or keep constantwith an increased output. If supply prices fall price will fall,if they rise price will rise, if they are constant price will be 170 OUTLINES OF POLITICAL ECONOMY constant. The effect on price of diminished demand, that is afall in demand, is settled similarly. Equilibrium of demand and supply diagrammaticallytreated.—Consider fig. 8. Units of output are measured along OXand units of money along OY. Ignore at first the dotted line. D iathe demand curve (pp. 43-4). S ia the supply curve, which in-dicates, by the heights of its points above OX, what, in the caseof the marginal firm, complete costs of production and marketingwould be per unit of output when the industry was of the sizesrequisite to secure the corresponding outputs measured along OX. V. Fig. 8. Both curves express long-period or normal conditions. As S de-scends, we have increasing returns. The position of equilibrium isgiven by the intersection of D and S. So the normal output will?be the amount Oct and the price will be ac. Now suppose demand rises. A rise in demand can be repre-sented by raising D to a higher level. Let the new demand curvebe D. Then the new output in the long run will be 06 and thenew price will be bd. Price falls because S descends to representIncreasing returns. If S ascended (to represent decreasing returns),price would have risen. A brief contemplation of demand and supply curves in relation NORMAL PRICE 171 to one another will disclose the fact that more than one position ofequilibrium is possible. But multiple positions are only possibleif supply is subject for some outputs to increasing returns ; for Dmust descend—we may ignore any exceptions—and S can only cutit more than once by descending also. Now c
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