# effectual-demand

## Definition

Effectual demand is the demand by consumers who are both willing and able to pay the natural price of a commodity - the whole value of rent, wages, and profit required to bring it to market. It differs from absolute demand (mere desire) in that it represents purchasing power sufficient to actually bring the commodity to market. Only effectual demand can effectuate the supply of a commodity.

## Source Chapter

Book 1, Chapter 7: "OF THE NATURAL AND MARKET PRICE OF COMMODITIES."

## Context

Smith introduces effectual demand as a crucial concept for understanding price determination. He contrasts it with absolute demand to show that economic power, not just desire, drives market outcomes. The relationship between effectual demand and market supply determines whether market prices rise above or fall below natural prices.

## Economic Domain

Exchange

## Smith's Original Wording

"Such people may be called the effectual demanders, and their demand the effectual demand; since it may be sufficient to effectuate the bringing of the commodity to market. It is different from the absolute demand. A very poor man may be said, in some sense, to have a demand for a coach and six; he might like to have it; but his demand is not an effectual demand, as the commodity can never be brought to market in order to satisfy it."

## Modern Interpretation

Effectual demand represents the intersection of desire and purchasing power - the economically relevant demand that actually influences market prices and production decisions. This concept anticipates later economic theories about effective demand and aggregate demand in macroeconomics.
