e 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,
when it comes out, makes a room warmer, although it may very well
happen, if a fire is dying at the same time, that the room grows
colder in point of fact. For in our general statement we assume
implicitly that "other things" such as fires, are unchanged. But
assumptions of this kind are legitimate only when there is no reason
to suppose that the cause, the effects of which are being studied,
will itself produce a change in the "other things." If (as I have
often been told; I really do not know if it is true) the rays of the
sun help to put a fire out, the statement made above would be the
better for some qualification.

Now we can only say that an increase in demand raises price if we
assume the conditions of supply (as represented by the supply curve)
to remain unchanged. But in practice, an increase in demand may cause
a change in the _conditions_ of supply. An increase, for instance, in
the demand for a commodity may give rise to a revolution in the
methods of production, to the introduction of labor-saving machinery
and so forth, which will eventually result in the commodity being
produced more cheaply. It will certainly take a considerable time
before reactions of this kind can exert an apprec