unaltered, the new price P'M', must be greater than the old.


§4. _Reactions of Changes in Demand and Supply on Price_. Having now
made clear the meaning that must be attached to the terms, let us
consider the question which naturally arises, whether we can lay down
any general propositions or laws as to the effect upon price, of an
increase or decrease in demand or supply. Another glance at the
diagram suggests that we can. An increase in demand is represented in
Fig. 2 by a movement from DD' to _dd'_, which cuts the supply curve,
SS', at _p_, to the right of P. Since the supply curve (drawn, as it
is best to draw it, to represent the amount which will be supplied in
response to a given price) must always slope upwards from left to
right, the new price, _pm_, must be greater than the old, PM.
Conversely a decrease in demand is represented by a movement from
_dd'_ to DD', and the new price is seen to be less than the old. We
have already seen that a decrease in supply, which is represented by a
movement from SS' to _ss'_ results in a higher price; and it is the
obvious converse that an increase in supply will have the opposite
effect. It would seem then that we might lay down quite generally that
an increase in demand or a decrease in supply will raise the price
while a decrease in demand or an increase in supply will lower it.

But here it is necessary to be cautious. All conclusions as to the
effects of causes are necessarily based, implicitly, if not
explicitly, upon the assumption "other things being equal." This
method of reasoning, which some people appear to find so irritating in
the economic sphere, and as they say so "theoretical" and "unreal," is
one which they adopt readily enough in every other department of
life. No one, for instance, objects to the statement that the sun,