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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Describe the mechanism by which supply creates its o’si1 demand.

To determine

Mechanism by which supply creates its own demand.

Explanation

It is based on criteria that someone’s expenditure is another person’s income. Supply of goods requires combination of inputs which are used for production of goods and services. These inputs are called factor of production. These are Land, Labor, capital, entrepreneurship. Combination of factor inputs produces goods, which is considered as production activity. Firms or producers supply goods to the consumers who are demanders of goods. As income is earned by these factor inputs in the form of wages, profits, interest etc. They use such income for demand of another goods and services.

So, supply of goods creates income which is used to demand other goods and services in an economy.

Concept

Say’s Law states that” Supply creates its own demand”.

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