Book I: Chapter 7 - Page 2

price of every particular commodity is regulated by the
proportion between the quantity which is actually brought to market, and the
demand of those who are willing to pay the natural price of the commodity,
or the whole value of the rent, labour, and profit, which must be paid in
order to bring it thither. Such people may be called the effectual
demanders, and their demand the effectual demand; since it maybe sufficient
to effectuate the bringing of the commodity to market. It is different from
the absolute demand. A very poor man may be said, in some sense, to have a
demand for a coach and six; he might like to have it; but his demand is not
an effectual demand, as the commodity can never be brought to market in
order to satisfy it.

When the quantity of any commodity which is brought to market falls short of
the effectual demand, all those who are willing to pay the whole value of
the rent, wages, and profit, which must be paid in order to bring it
thither, cannot be supplied with the quantity which they want. Rather than
want it altogether, some of them will be willing to give more. A competition
will immediately begin among them, and the market price will rise more or
less above the natural price, according as either the greatness of the
deficiency, or the wealth and wanton luxury of the competitors, happen to
animate more or less the eagerness of the competition. Among competitors of
equal wealth and luxury, the same deficiency will generally occasion a more
or less eager competition, according as the acquisition of the commodity
happens to be of more or less importance to them. Hence the exorbitant price
of the necessaries of life during the blockade of a town, or in a famine.

When the quantity brought to market exceeds the effectual demand, it cannot
be all sold to those who are willing to pay the whole value of the rent,
wages, and profit, which must be paid in order to bring it thither. Some
part must be sold to those who are willing to pay less, and the low price
which they give for it must reduce the price of the whole. The market price
will sink more or less below the natural price, according as the greatness
of the excess increases more or less the competition of the sellers, or
according as it happens to be more or less important to them to get
immediately rid of the commodity. The same excess in the importation of
perishable, will occasion a much greater competition than in that of durable
commodities; in the importation of oranges, for example, than in that of old
iron.

When the quantity brought to market is just sufficient to supply the
effectual demand, and no more, the market price naturally comes to be either
exactly, or as nearly as can be judged of, the same with the natural price.