Question

In July of this year, Secretary of Energy, Rick Perry, gave an impromptu lesson on supply and demand while visiting a business in Virginia. He stated," Here's a little economics lesson: supply and demand. You put supply out there and demand will follow," in reference to the product the business sold. Was Perry correct in his statement on supply and demand? Yes or no, and why?

Answer 1

Perry was not correct in his statement as it is the demand that creates supply. In the market place, people demand for the product & services and firms identify this demand and act accordingly to produce the product that is in demand. It makes a positive relationship between the firm and households. Households create demand and firms create supply to cater the demand. At the same time, firms demand labor as factor of production and it is supplied by the households. So, in any given scenario, demand, creating supply is the correct statement and principle.

Regarding the Perry statement, the misconception of supply creating the demand as proposed by the Say’s law was one of the chief reasons for the great depression of 1930s in the USA.