Say's Law of Markets, proposed by the French economist Jean-Baptiste Say, posits that supply creates its own demand. This principle suggests that the production of goods and services will inherently generate an equivalent demand for those goods and services in the economy. In other words, when producers create products, they provide income to themselves and others involved in the production process, which will then be used to purchase other goods, thereby sustaining economic activity.
The law implies that overproduction or general gluts are unlikely to occur because the act of production itself ensures that there will be enough demand to absorb the supply. Say's Law can be summarized by the formula:
where represents supply and represents demand. However, critics argue that this law does not account for instances of insufficient demand, such as during economic recessions, where producers may find their goods are not sold despite their availability.
Start your personalized study experience with acemate today. Sign up for free and find summaries and mock exams for your university.