Say's Law is based on the argument that:

markets are usually in equilibrium.
assets earning higher returns are usually more risky.
in a barter economy a decision to sell is also a decision to buy.
if all markets but one are in equilibrium, then the last also must be in equilibrium.

The island of economy of Mini Ini is primitive, with trade being conducted purely in barter terms. There are only three items that are exchanged: fish, coconuts, and bananas. Today there is a surplus of fish and bananas. What can we say about the condition of the coconut market?

It must have a surplus too.
It must have a shortage.
It is in equilibrium.
We cannot say anything with this information.

Back to Reading Overview Next Page