g prices of other things which are produced by the same
expenditure of labor and capital that has to be made in raising the
wheat. The market price would, for the time being, be unnatural and
would in due time be brought down; but this would have to be done by
the raising of more wheat. In other words, though the selling price of
a small supply of wheat may be _normal for that amount_, the amount
supplied is itself abnormally small, and in view of that fact the
resulting price is too high to be allowed to continue. As a permanent
price it would not be natural. The quantity supplied tends to increase
till the market price conforms to the cost of raising the wheat. We
have to see, first, how demand fixes the price of a definite amount of
anything which is offered for sale and, later, how the quantity
offered is controlled.

_How Prices are Determined._--It is certain that if, in a given
market, we increase the quantity of goods that are to be sold, we
lower the price,[1] while, if we diminish the quantity, we raise the
price. That is the commercial fact and it furnishes a beginning for a
theory of value.

[1] The term _market_, as used in this discussion, means a
local area within which goods of given kinds are bought and
sold; and for different purposes we may make the area small
or large. For some purposes it is necessary to take a "world
market" into consideration, while for others it is desirable
to include only that part of the world within which
competition is very active and within which also goods and
persons move freely and cheaply from place to place. A single
country like the United States affords a market large enough
to illustrate the laws of value, though one must always keep
in view the relation of this circumscribed area to its
environment. How local areas may, in a scientific way, be
delimited and isolated for purposes of study will appear in a
later chapter.

Let us suppose that we have a fixed quantity of goods on hand, that
all must be sold, and that no one knows at the outset what price they
will bring. There might conceivably go on an inverted kind of
auctioning process, in which the sellers at the outset would ask a
high rate, sell a few of their goods, and then gradually reduce the
price till the last article should be sold. At each reduction of the
price the "effectual demand," so-called, would increase. This means
that the people who wa