Specify the assumption of the Say's Law of Market
Answers
Ten Assumptions underlying say’s law are: 1. Optimum Allocation of Resources 2. Perfect Equilibrium 3. Perfect Competition 4. Market Economy 5. Laissez-Faire Policy of the Government 6. Elastic Market 7. Market Automatism 8. Circular Flow 9. Savings-Investment Equality 10. Long-term.
Ten Assumptions underlying say’s law are: 1. Optimum Allocation of Resources 2. Perfect Equilibrium 3. Perfect Competition 4. Market Economy 5. Laissez-Faire Policy of the Government 6. Elastic Market 7. Market Automatism 8. Circular Flow 9. Savings-Investment Equality 10. Long-term.
1. Optimum Allocation of Resources:
There is optimum allocation of resources as they are allocated to different channels of production in terms of proportionality and equality of marginal products.
2. Perfect Equilibrium:
Commodity prices and factor prices are determined in perfect equilibrium of their demand and supply.
3. Perfect Competition:
There is perfect competition prevailing in the commodity market as well as factor market. Thus, commodity prices are equal to average costs and factor prices are equal to marginal productivities.
4. Market Economy:
There is free enterprise economy.
5. Laissez-Faire Policy of the Government:
There is no government intervention in the economic field. The government follows a laissez-faire policy to facilitate automatic adjustment and smooth working of the market mechanism in the capitalist economic system.
6. Elastic Market:
The size of the market has no limits. Thus, there is automatic expansion of the market with an increase in output offered for sale.
7. Market Automatism:
The free market economy and its working of price mechanism provide due scope to labour supply and the rising population also stimulates capital formation. In an expanding economy, new workers and firms will be automatically absorbed into the productivity channels by their own products in exchange without displacing or supplanting the existing firms and workers.
8. Circular Flow:
The circular flow of money is regular and continuous without any leakages. This implies that saving is nothing but another form of spending on capital goods. Savings are, thus, automatically invested.
There is absence of hoarding. Hence, there is no break in the flow of income and expenditure. Income is automatically spent through consumption expenditure and investment expenditure.
9. Savings-Investment Equality:
Since all savings are automatically invested, savings always equal investment. Savings-investment equality is the basic condition of equilibrium in the economy. It is maintained by interest flexibility.
10. Long-term:
The economy’s equilibrium process is perceived from the long-term point of view.
Answer:
assumptions of says law of market
