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:

Say’s Law: Production (supply) creates the income to buy goods (demand).

Answer 1

The Correct Option is A

Say’s Law of Market, proposed by Jean-Baptiste Say, is a classical economic principle stating that supply creates its own demand (option 1). The idea is that the act of producing goods and services generates income (e.g., wages, profits) sufficient to purchase those goods, ensuring that total supply creates equivalent demand in the economy.
- Option (2) describes the law of supply, where higher prices incentivize greater production.
- Option (3) describes the law of demand, where lower prices increase consumer purchases.
- Option (4) refers to market equilibrium, not Say’s Law, as the law does not guarantee constant equality but suggests supply generates demand.
Thus, option (1) is correct.

Answer 2

Derivation from first principles:
Instead of matching the statement against a memorised label, derive it from the income-expenditure identity classical economists relied on. When a producer manufactures a good, the process itself pays out wages, rent, interest and profit to the factors of production involved - so the value of what is produced is simultaneously paid out as income to someone. That income, in the classical view, is then spent on other goods, so the very act of producing generates a matching amount of purchasing power in the economy.
This chain of reasoning - production creates income, income creates demand - is exactly the content of Say's Law, captured by the phrase "supply creates its own demand." The other three options describe the ordinary law of supply, the law of demand, and market equilibrium respectively, none of which is what Say's Law asserts, confirming option (1).