being what it is, they may perhaps have been about the best policies
that were practicable. But the problems would have been easier to
handle, if the public generally were a little less disposed to think
in terms of averages, and a little more in terms of margins, if we all
of us instinctively realized that the cost that really matters is the
cost at which additional production is profitable under the conditions
ruling at the time, or in the immediate future.


§6. _General Relation between Price, Utility and Cost_. Let us
conclude this chapter by summing up the conclusions which have emerged
as to the relations of utility and cost to price.

The price of a commodity is determined by the conditions of both
supply and demand; and neither can logically be said to be the
superior influence, though it may sometimes be convenient to
concentrate our attention on one or other of them. The chief factor on
which the conditions of demand depend is the utility (as measured in
terms of money). The chief factor on which the conditions of supply
depend is the cost of production (again as measured in terms of
money). The prevailing trend towards an equilibrium of demand and
supply can thus be expressed as follows:--

LAW VI. A commodity tends to be produced on a scale at which its
marginal cost of production is equal to its marginal utility, as
measured in terms of money, and both are equal to its price.



CHAPTER V