Effective Demand Principle

The Effective Demand Principle is an economic concept indicating that the overall level of economic activity depends on the actual demand for goods and services. It suggests that for businesses to produce and hire workers, there must be sufficient willingness and ability of consumers and investors to purchase what’s offered. Simply producing goods isn’t enough; demand must be strong enough to absorb the supply. This principle highlights that the economy's growth is driven by real purchasing power and not just the capacity to produce, emphasizing the importance of demand in determining overall economic performance.