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SAY'S LAW: A classical economic proposition stating that the production of aggregate output creates sufficient aggregate demand to purchase all of the output produced. In other words, supply creates its own demand. This is one of the three assumptions underlying the macroeconomic theory of classical economics which concluded that unrestricted market activity would generate full employment. The other two assumptions are flexible prices and saving-investment equality. Say's law is closely associated with the circular flow model.

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Lesson 16: Perfect Competition | Unit 5: Evaluation Page: 25 of 28

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  • Economists are very fond of perfect competition. The reason is efficiency

  • Here's how perfect competition achieves efficiency.

    • First, perfectly competitive firms maximize profit by producing the quantity of output that equates marginal revenue and marginal cost.

    • Second, perfectly competitive firms produce at the minimum point of the short-run and long-run average cost.

    • Third, perfectly competitive firms earn only a normal profit, equating price and average cost.

  • Perfect competition is the ONLY market structure that achieves efficiency.

  • This is why economists use perfect competition as THE benchmark for efficiency.


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CHANGE IN DEMAND

A shift of the demand curve caused by a change in one of the demand determinants. A change in demand is caused by any factor affecting demand EXCEPT price. A related, but distinct, concept is a change in quantity demanded.

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During the American Revolution, the price of corn rose 10,000 percent, the price of wheat 14,000 percent, the price of flour 15,000 percent, and the price of beef 33,000 percent.
"Think not of yourself as the architect of your career but as the sculptor. Expect to have to do a lot of hard hammering and chiseling and scraping and polishing. "

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