Question : Say's Law states that:
Option 1: Supply creates its own demand
Option 2: Demand creates its own supply
Option 3: Saving creates investment
Option 4: Investment creates saving
Correct Answer:
Supply creates its own demand
Solution : The correct answer is (a) Supply creates its own demand
Say's Law, named after the French economist Jean-Baptiste Say, posits that the production and supply of goods and services in an economy generate enough income and purchasing power to ensure that all goods produced are eventually bought and consumed. According to this principle, the act of supplying goods creates the necessary demand for those goods.
In other words, the production and sale of goods and services generate income for workers, which enables them to purchase other goods and services. This circular flow of income ensures that the supply of goods creates its own demand.
Say's Law challenges the idea that there can be a general overproduction or oversupply of goods in an economy. It suggests that as long as resources are allocated efficiently and markets are allowed to function freely, supply will naturally create sufficient demand for all produced goods.
