Supply Creates Its Own Demand free essay sample

Each enlargement of output adds to the wages and other incomes that constitute the funds needed to purchase added output. Classical economists had complete faith in markets. They believed that the economy would always settle automatically at the full employment equilibrium in the long-run. However, they did acknowledge that there might be a slightly different reaction in the short run as the economy adjusted to its new long-run equilibrium. Keynes provides the following formulation of Says Law in Chapter Two of his General Theory: The classical economists have taught that supply creates it own demand, meaning by this in some significant, but not clearly defined, sense that the whole of the costs of production must necessarily be spent in the aggregate, directly or indirectly, on purchasing the product. Keynesian economics places central importance on demand, believing that on the macroeconomic level, the amount supplied is primarily determined by effective demand or aggregate demand, and Keynes summarized Says law as supply creates its own demand. We will write a custom essay sample on Supply Creates Its Own Demand or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page For example, without sufficient demand for the products of labour, the availability of jobs will be low; without enough jobs, working people will receive inadequate income, implying insufficient demand for products Says Law had to an important extent replaced theorie de debouches or law of markets as the name for a particular set of economic principles that was part of the core foundation of classical economic thought. Two questions therefore intrude themselves. Firstly, were the words, supply creates its own demand a fair characterisation of the meaning that classical economists wished to convey? And, secondly, where might the words supply creates its own demand have originated in the first place? J. B Say believed that it is production that creates market for goods. He says every producer finds its buyer in other words every supply of output creates an equivalent demand for output, and so therefore there can never be a problem of general over production. For Example, in the Nigerian economy if a manufacturer/producer decides to go into the production of blankets, he/she would already have a target market where he can take his products for sale. Like in our case the blanket manufacturer would target his market in places like Jos, Plateau state where the weather condition is cold and therefore the populace of this area would purchase it more thus, â€Å"supply creates its own demand†.   A free market enterprise is one within which all markets are unregulated by any parties other than market participants. In its purest form, the government plays a neutral role in its administration and legislation of economic activity, neither limiting it (by regulating industries or protecting them from internal/external market pressures) nor actively promoting it (by owning economic interests or offering subsidies to businesses or RD). It is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts. Free-market economics is closely associated with laissez-faire economic philosophy, which advocates approximating this condition in the real world by mostly confining government intervention in economic matters to regulating against force and fraud among market participants. Some free-market advocates oppose taxation as well, claiming that the market is more efficient at providing all valuable services of which defense and law are no exception, that such services can be provided without direct taxation and that consent would be the basis of political legitimacy making it a morally consistent system. Free-market economy is a system for allocating goods within a society: purchasing power mediated by supply and demand within the market determines who gets what and what is produced, rather than the state. A free market may refer narrowly to national economies, or internationally; specific reference to international markets is referred to as free trade (for goods) or lack of capital controls (for money). The major reason why unemployment is impossible in the free market enterprise is because of the laissez faire system they adopt. They believe that the market forces of demand and supply will bring the economy back to equilibrium which is the full employment level. They had strong belief in free and perfect competition idea of the profit motive and price mechanism to remedy the temporary ills of the economic system and ensure full employment. So, basically i feel the reason why unemployment is impossible in the free market enterprise is based on the invisible hand/laissez faire system of the interplay of the market forces to bring back the economy to full employment.