Cost of Production
Adam Smith argued that competition would tend to establish the ‘natural prices’ of commodities produced, i.e. the prices at which ‘the price of any commodity is neither more nor less than what is sufficient to pay the rent of land, the wages of labour, and the profit of stock employed…according to their natural rates’ (Smith 1776, p. 65). In other words, the price of any produced commodity will, under the pressure of competition, be equal to its cost of production.
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