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‘Effectual Demand’ in Adam Smith

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Smith’s notion of ‘effectual demand’ is still the subject of several discussions dealing with the role of demand in classical and neoclassical theories of price and distribution and with the influence of demand on ‘division of labour’ and economic progress. Smith defined ‘effectual demand’ as the ‘demand of those who are willing to pay the natural price of the commodity, or the whole value of rent, labour and profit, which must be paid in order to bring it thither’ (Smith 1776, vol. 1, p. 58). According to him, when the quantity of any commodity brought to market falls short of the effectual demand, those who demand it.


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This chapter was originally published in The New Palgrave: A Dictionary of Economics, 1st edition, 1987. Edited by John Eatwell, Murray Milgate and Peter Newman

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Panico, C. (1987). ‘Effectual Demand’ in Adam Smith. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London.

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  • Publisher Name: Palgrave Macmillan, London

  • Online ISBN: 978-1-349-95121-5

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