Another name for the same is 'trickle down economics'. The basic theory of supply side economics is based on the principle that the government chooses to give huge tax reduction to large companies and investors, so that this money eventually seeps to the lower earning sections of the society.Supply side economics has three major aspects, namely; tax policy, regulatory policy and monetary policy. This theory was first formulated once the Keynesian theory failed. The latter was based on simple supply demand basics, wherein it stated that demand needs to be increases so as to profit from the supplies. However, supply side economics states the exact opposite. According to this theory, the supply of goods needs to be increased initially, which will eventually encourage growth of demand.

The Keynesian theory works more or less around demand, whereas the supply side economics theory works around supply. To a lay man, that may not always make sense, mainly because as soon as supply of goods increases before demand, the prices reduce. So how does that benefit the retailers or any other parts of the economic cycle? The crux is that, according to this theory, such a system will help maintain a consistent profit margin for everyone. So, even if it does not give a jump start to the profit margin, it will ensure a regular income and no dry patches.

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