Q.State and briefly explain Say's Law of Markets.

Say's Law is the foundational proposition of classical macroeconomics about how production and demand are automatically linked in a free market economy.

Say's Law of Markets, propounded by the French economist Jean-Baptiste Say, is the central proposition of classical economics on income and employment. It states that "supply creates its own demand."

The reasoning is that every act of production distributes income to the factors involved — wages to labour, rent to landowners, interest to capital and profit to the entrepreneur — and this income is exactly equal in value to the goods and services produced. Since this newly created income has no other origin, when it is spent (directly through consumption, or indirectly through savings that get invested), it generates demand exactly equal to the value of the output that was produced.

The practical implication is that a general glut — an economy-wide excess of goods over demand — is logically impossible; at most there can be a partial, temporary mismatch in a particular market, which prices and resource movement will correct. Because supply automatically calls forth its own demand, the classical economists concluded that the economy is naturally self-adjusting toward full employment, and that government intervention to manage aggregate demand is unnecessary.

Students sometimes state the law backwards as "demand creates its own supply," which reverses the classical causation. Another slip is describing Say's Law as a Keynesian idea — it is precisely the classical proposition that Keynes's theory of effective demand was built to refute.