Using the insight provided by Say’s Law, explain the consequences of a significa

Question

Using the insight provided by Say’s Law, explain the consequences of a significant distortion of the structure of production relative to consumer preferences. How does the initial crisis or cluster of errors snowball into a recession?
Using the insight provided by Say’s Law, explain the consequences of a significant distortion of the structure of production relative to consumer preferences. How does the initial crisis or cluster of errors snowball into a recession?
Using the insight provided by Say’s Law, explain the consequences of a significant distortion of the structure of production relative to consumer preferences. How does the initial crisis or cluster of errors snowball into a recession?

Explanation / Answer

The Say's law can be summarized as " supply creates its own demand " . According to him if aggregate supply increases , then aggregate demand must also increase to that level . If it does not then there must have been under production in some other sector . If there is distortion in the structure of production which does not match consumer preference then there will be unsold inventories pilled up in the market . People will not buy all that is produced . So now the firms in order to sell their unsold goods will try to sell them at lower prices to attract consumers . This ultimately leads to recession .

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