supply creates its own demand. explain

Expert Solution

Supply creates it's own demand is a very famous theory and formulated by Say's Law. The keynesian economists reject this law but this statement does hold to a certain extent on it's own. This theory was formulated by Jean Baptiste Say, an economist in the 19th century. It states that supply creates it's own demand and overproduction of goods is not possible.

This theory is correct in normal times when the market is stable and there is full employment and wages are flexible.The supply of what people have is done in order to exchange for goods they want so supply is demand.Example Unless a farmer sells his goods, he wont be able to demand an automobile or unless labor supplies their services and earn wages,they wont be able to demand for goods they want.

The supply and demand depends on production of goods and when the economy is in recession or boom ,one stimulates the economy by encouraging production which in turn encourages demand. As there is more production,it will lead to creation of more demand.

Rahul Sunny answered 2 years ago

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