Sec.6. General Relation between Price, Utility and Cost.  Let us conclude this chapter by summing up the conclusions which have emerged as to the relations of utility and cost to price.

The price of a commodity is determined by the conditions of both supply and demand; and neither can logically be said to be the superior influence, though it may sometimes be convenient to concentrate our attention on one or other of them.  The chief factor on which the conditions of demand depend is the utility (as measured in terms of money).  The chief factor on which the conditions of supply depend is the cost of production (again as measured in terms of money).  The prevailing trend towards an equilibrium of demand and supply can thus be expressed as follows:—­

LAW VI.  A commodity tends to be produced on a scale at which its
   marginal cost of production is equal to its marginal utility, as
   measured in terms of money, and both are equal to its price.

CHAPTER V

JOINT DEMAND AND SUPPLY

Sec.1. Marginal Cost under Joint Supply.  Several references have been made above to joint products, a relation which it will be convenient now to describe as that of Joint Supply.  Our sense of symmetry should make us look for a parallel relation on the side of demand; and it is not far to seek.  There is a “joint demand” for carriages and horses, for golf clubs and golf balls, for pens and ink, for the many groups of things which we use together in ordinary life.  But the most important instances of Joint Demand are to be found when we pass from consumers’ to producers’ goods.  There, indeed, Joint Demand is the universal rule.  Iron ore, coal and the services of many grades of operatives are all jointly demanded for the production of steel; wool, textile machinery and again the services of many operatives are jointly demanded for the production of woollen goods (to mention in each case only a few things out of a very extensive list).  Now we have already noted that, when commodities are jointly supplied, there is an obvious difficulty in allocating to each of them its proper share of the joint cost of production.  There is a similar difficulty in estimating the utility of a commodity which is demanded jointly with others.  Thus, the utility of wool is derived from that of the woollen goods which it helps to make.  But the utility of the factories, the machinery and the operatives employed in the woollen and worsted industries is derived from precisely the same source.  How much, then, of the utility of woollen goods should be attributed to the wool and how much to the textile machinery?  Can we make any sense of the notion of utility as applying to one of these things, taken by itself?  And, if not, how can we explain the price of a thing like wool in terms of utility and cost, since we cannot disentangle its cost from that of mutton, nor its utility from that of a great variety of other things?