CHAPTER III 
SUPPLY AND ITS RELATION TO DEMAND 
It has become a commonplace to say that the 
price of things is settled by demand and 
supply. The statement, though true, gives 
little information so long as the meanings of 
demand and supply remain unexplained. 
Demand has already been dissected. We have 
discerned that it expresses the relation between 
prices and quantities bought, declaring that 
so much will be bought at one price and so 
much at another price, and that it is derived 
from the marginal utilities of things to con 
sumers. We have now to interpret supply. 
It too expresses a relation and declares that 
at one price one quantity will be produced 
and at another price another quantity. 
This statement must be expanded. 
Let us think of an industry as constituted 
of half a dozen businesses or firms. Each of 
these producing units has its own cost of pro 
duction (meaning cost of production per unit 
of output), and it is exceedingly unlikely that 
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