ut let us go back to the laws themselves, and probe them and dissect
them, and turn them this way and that, so that we may perceive their
full content, and grasp it firmly in our minds. The third law implies
a prevailing tendency for demand to be equal to supply. This
tendency, as was suggested in Chapter I, can be verified by anyone
from his experience and observation (provided he is a reasonable
person, and not the tiresome kind who would dispute the law of
gravitation because he sees that a feather falls to the ground more
slowly than a stone). But it can also be deduced as a corollary from
the two preceding laws; and to regard it in this way will help us to
appreciate its significance. Start, for instance, by supposing that
demand is in excess of supply. Then the price will tend to rise. After
the price has risen, the supply will become larger, while the demand
will fall away. The excess of demand with which we started will thus
clearly be diminished. But if there remains any portion of this
excess, the same reactions will continue; the price will rise further,
and for the same reason; demand will be further checked and supply
further stimulated. In other words, these forces must persist until
the entire excess of demand over supply is eliminated. If we start by
supposing supply to exceed demand, the converse chain of sequences
will operate. Now these very simple steps of reasoning illuminate the
nature of the normal equilibrium of demand and supply. They reveal
that the equilibrium is established and maintained by the agency of
_changes in price_, and they enable us to lay it down as perhaps the
most important thing that can be said about the price of anything that
it will tend to be such as will equate demand and supply. But that is
not all that they reveal. They reveal also the extreme dependence of
both demand and supply upon price.

Now this is a fact which it is most important to realize vividly. It
is apt to be obscured by customary modes of speech. In ordinary times
the prices of most commodities and services do not change by very
much, unless indeed over a long period of years; the amounts demanded
and supplied may therefore seem to maintain a fairly constant level;
and we may be tempted to speak of Great Britain producing so many
million tons of coal, or America consuming so many millions of
motor-cars per annum, almost as though these quantities were
independent of price considerations. But we should neve