Question

Which one of the following statements defines the Say's Law of Market?

• A. Supply creates its own demand.
• B. Everything else being equal, producers offer to sell more of a product at a higher price than at a lower price.
• C. Everything else being equal, consumers buy more of a product as its price falls and less as its price rises.
• D. Aggregate supply in a market is always equal to aggregate demand.

Hint:

Remember that Say's Law was later challenged by J.M. Keynes during the Great Depression of the 1930s.
Keynes argued that demand creates supply (Effective Demand), and that saving can lead to underemployment equilibrium.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
Say's Law of Markets is a classical economic principle formulated by the French economist Jean-Baptiste Say.
It serves as a core pillar of classical macroeconomic theory, which assumes that markets naturally correct themselves and tend toward full employment.

Step 2: Detailed Explanation:
Say's Law of Markets is summarized by the famous phrase: "Supply creates its own demand."
The core theory is that producing goods generates incomes of equal value (paid as wages, rent, interest, and profits to the factors of production).
These incomes are then spent to purchase the produced goods.
Consequently, the act of production (supply) automatically creates a corresponding demand of equal value in the economy.
Under this classical view, general overproduction (glut) or persistent unemployment is impossible, as any temporary imbalance between supply and demand is quickly corrected by price adjustments.
Let us analyze the other options:
- Option (B) defines the Law of Supply, which describes the positive relationship between price and quantity supplied.
- Option (C) defines the Law of Demand, which describes the negative relationship between price and quantity demanded.
- Option (D) describes macroeconomic equilibrium, but is not the definition of Say's Law.
Therefore, the statement defining Say's Law is "Supply creates its own demand."

Step 3: Final Answer:
The definition of Say's Law of Market is Option (A).