Adam Smith's Simplified Wealth of Nations, Book 1, Chap. 7a: Natural and Market price

Chapter 7a: Natural and Market Price of Commodities

1Average rates of wages and profits exist in all societies.

2Average rates of rent also exist in all societies.

Natural Price = Cost + Ordinary Profit

3 These average rates are the natural rates of wages, profit, and rent, at the time and place where they commonly prevail.

4 The natural price is the price which contains the payment for rent, wages, and profits, according to their natural rates.

5 A commodity sold at its natural price is sold precisely for what it is worth or for what it really costs the seller.

6 The natural price is the lowest price that a dealer can sell his goods for any considerable time in the state of perfect liberty, or where he may change his trade as he pleases.

The Market Price, Effectual Demand, And Absolute Demand

7 The market price is the actual price at which any commodity is commonly sold.

8 Market prices are regulated by the proportion between the quantity to be sold and the demand of buyers willing to pay the natural price.

9 When the commodities sold in a market falls short of the effectual demand, the shortage will cause some of the buyers give more for those few commodities. 10 When the amount sold in a market exceeds the effectual demand, the excess will remain unsold. 11 When the supply in the market is exactly sufficient to match the effectual demand, the market price naturally comes to match the natural price.

12 The quantity sold in a market naturally suits itself to the effectual demand.

13 If it exceeds the effectual demand, some of the parts of its price must be paid below their natural rate:

14 If it falls short of the effectual demand, some of the parts of its price must rise above their natural rate:

The Natural Price, or Cost + Ordinary Profits, is the Central Price

15 The natural price is the central price to which all commodity prices are continually gravitating, despite accidents and obstacles which may suspend them above it or force them below it.

16 The whole industry of society naturally suits itself to the effectual demand of that society.

17 In some employments, the same amount of industry will always produce the same amounts of commodities per year.

18The fluctuations in the market price of any commodity affect wages and profits more than rent.

19 Such fluctuations affect both the value and rate of wages or profit, according to the supply of: A public mourning raises the price of black cloth and increases the profits of the merchants who have black cloth.
Next: Chapter 7b: Secrets and Monopolies
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