The correct answer is: B. Supply creates its own demand.
Say’s law of markets, also called Say’s law, is an economic theory that states that, in a market economy, aggregate supply creates its own aggregate demand. In other words, the production of goods and services creates an equivalent demand for those goods and services.
This theory was first proposed by French economist Jean-Baptiste Say in his book “Treatise on Political Economy” (1803). Say argued that the act of production creates income for the producers, which they then use to purchase goods and services. This creates a circular flow of income and expenditure, which ensures that aggregate demand will always be equal to aggregate supply.
Say’s law was widely accepted by economists in the 19th century, but it has since been criticized by many economists. One of the main criticisms is that it ignores the role of money in the economy. Say’s law assumes that all income is immediately spent, but this is not always the case. People may save their income, or they may use it to pay down debt. This can lead to a decrease in aggregate demand, even if aggregate supply is increasing.
Another criticism of Say’s law is that it ignores the role of government spending. Government spending can increase aggregate demand, even if aggregate supply is not increasing. This is because government spending creates income for the people who receive it, and they then use that income to purchase goods and services.
Despite these criticisms, Say’s law remains an important concept in economics. It is a reminder that production and demand are two sides of the same coin, and that an increase in one will lead to an increase in the other.
Option A is incorrect because supply and demand are not always equal. In fact, they can often be out of balance, leading to either shortages or surpluses.
Option C is incorrect because demand does not create its own supply. Supply is determined by the costs of production, the availability of resources, and the technology used to produce goods and services.
Option D is incorrect because supply is not always more than demand. In fact, supply can be less than demand, leading to shortages.