I.

Overview Learn Why "We're Di

A. A purely competitive market exists when the number of is the Battle Cry of All C
independently acting buyers and sellers is so large
that individual participants have no affect on market
price and quantity. Adjacent adver
B. Products sold are virtually identical. Agricultural products the makers of t
such as potatoes and wheat are examples of (machines that
competitively sold products. undesired mine
C. Pure competition industries as defined is difficult to find price is lower, a
because some monopoly power usually exists. efficiency was d
D. Price is determined by intersection of industry supply which are gene
and demand.
E. Individual firms are Price Takers as they inherit
From chapter 22 on Understa
a horizontal demand-marginal revenue curve from
their industry.
1. A firm can not sell above market as products are
identical and no one will buy higher than market.
2. There is no reason to sell below market as it would
mean less revenue and less profit.
Unit I. Review PC requires many independent competitors
selling virtually identical products.
II. Purely Competitive Company Making a Profit

A. Price is higher than average total cost so total is greater than total cost.
B. Cost includes a reasonable return on investment called "normal profit"
so under this definition of cost, any profit is an excess.
C. Videos
1.Profit Maximization for a Competitive Firm from Dennis Kaufman Wisconsin-Parkside.
2. Profit Maximization in Perfect Competition by Fiona Maclachlan
3. Perfect Competition Graphing Practice from Econ in 60 seconds
Unit II. Review PC making a profit doesn't last long a people see the abnormal profit and try to get some.
III. Purely Competitive Adjustment

A. Suppose industry demand and supply yield an equilibrium price P at

which a firm's economic profit is zero.
1. Step 1 indicates an increase in demand to D' causing economic
profit.
2. Market entry is relatively easy and this profit draws in new firms in-
creasing supply to S', Step 2, and economic profit disappears.
3. This automatic purely competitive adjustment causes equilibrium
long un economic profit for pure competition to be zero.
4. Many feel a zero long run economic profit represents an ideal
economic model as all the company earns is a normal return on
investment.
 B. Perfect Competition in the Long Run from Econ in 60 seconds E. A Growing Nation shows how prod
C. Market Equilibrium in the Long Run from Dennis Kaufman explored in explored in chapter 21 a
Wisconsin-Parkside.
D. An Invisible hand provided by competition, regulates the market. F. Book Summaries Internet Library
Hoodwinked, book by John Perkins
corporations are altering capitalism
Unit III. Review Easy entry and exit of firms keeps profit near zero.

G. Application
Is Purely Competitive Adjustment Causing a New Normal Or Is England Matched Our GDP Incre
The New Normal Not New Because the Old Normal Was Not But the World Began
Normal?

Beginning with economic expansion caused by WWII, demand for U.S.

manufactured goods increased dramatically. As a result, demand
increase from D to D.' Profits maximization resulted. Thanks in part to
Unions, these manufactures shared their excess profits with unionized
workers and wages increases spilled over to many nonunion workers. It
took Germany, England and Japan many years to repair war damaged
manufacturers and bring an end to U.S. manufacturer's monopoly
power.
Serious competition from foreign manufacturers beginning with
automobiles and steel increased supply causing Rust Belt Industries to
lose their pricing power. This eliminated excess profits. Some industries
incurred a loss as supply increased too much. Wage give backs began
and many workers found themselves with stagnating wages. Companies A Few US Company
used technology and outsourcing to be more competitive and maintain Most Do Not T
profit but this put pressure on wages. Recovery from the Great R
This also happened in the finance industry with competition coming from
foreign banking and cheap Internet trading. Their attempt to increase D
for their services with exotic products like derivatives has not worked out
well as of 07/01/10.
The bottom line is the standard of living enjoyed by U.S. citizens, their
micro-lives, will grow more slowly as it is forced to share the wealth with
people from around the world. We may even have to give some
back because of our energy dependence and recent decadence though
increased production of energy with shale has lessened lessen this
dependency. But we will still enjoy the highest standard of living in the
industrialized world.
Technology will continue to make our macro-lives better, especially now
that the Asians are contributing with their R&D investments and
collaborative competition in science helped by the Internet has
accelerate scientific advancement. Plus gains from science are often
cumulative and while not a straight line upward they eventually make our
macro lives better. Think childhood diseases being cured and smart
phones. Plus its always good remember the best things in life
will continue to be free and having enough money is a function of
demand, not supply. 08/12/11 updated 8/24/15
Citizen Well-Being is More Important and should grow more rapidly.
 Some Successful Companie

has increased since the 1930's and the success of the federal
children's bureau. Think economic distress in Russia, Europe,
and even Japan.
2) Scientific achievements have continuously added to citizen
well-being. Think public health, smart phones with loads of
free stuff not part of GDP or wages, streaming audio-
video, Gillette Stadium ... See Health Problems Solved
3) Personal Income which is a function of nature and Think nurture has from economist.com 01
increased continuously if not always rapidly. Russia, China,
IV. Economic Analysis of Pure Competition
A. Competition is efficient.
1. Price settles where long-run ATC is at its lowest point indicating
goods are produced efficiently.
2. P = MR = MC indicating that resources are allocated efficiently as
$'s spent by consumers (P) = the
$'s received by producers (MR) = the
$ cost of producers (MC) and
economic profit is zero.
B. Shortcomings
1. Spillover costs (pollution) and benefits (education) aren't properly
measured resulting in goods being over and under produced.
a. Government intervention was needed to lower automobile pollution.
b. Governments supports education with grants and inexpensive loan
problems to students and colleges. U.

2. Monopoly power develops to negate Adam Smith's "invisible hand" of Econintersec

competition which is required to assure that the purely competitive in the ranking
adjustment occurs. 2012. source
3. Eliminating economic profit makes it difficult for competitive firms to Last year the
afford expensive R & D and technology. marked the fo
4. Economic Growth Volatility that used to r
Unit IV. Review Price equal ATC where MR = MC with no profit More f
V. Competitive Supply IMD D
1. A firm's MC curve is its short-run supply curve. Co
VII. Readings
A. For a conservative view of competition Read Pure and Perfect"
Competition? from Capitalism Magazine By What Standard?
Part 5 in a Series of articles on Capitalism, Free-competition,
Antitrust, and Microsoft, By Richard M. Salsman
B. Present Day Application of the Purely Competitive Adjustment
C. Collaboration Competition is the New Competition
D. SWITZERLAND tops the latest competitiveness ranking from the World Economic Forum
Best known for its annual
shindig in Davos (a Swiss ski
resort). It is closely followed by
Singapore. Finland has topped
Sweden to third place. Of the
big emerging economies, China
remains on top, with Brazil
moving up.
The most striking fall is the
United States, which has
dropped in the rankings for four
years in a row. It is now
seventh. The rankings are
based on criteria such as
institutions, infrastructure,
financial systems, flexible labor
markets, economic stability,
innovations and public services.
Plotting the scores against GDP
per person reveals an
unsurprising correlation:
competitiveness brings wealth,
but rich countries can most
easily afford to provide the
conditions for it. They can
squander competitiveness too.
Editors Note: Comparing the
U.S. to anyone other than
Germany and Japan is difficult as
others are either small or
developing. Plus we get a benefit
from our being the world's currency
which accrues from our being
easily the world's strongest military
and industrial nation. China
assembles parts from all over Asia
and has a way to go to be
considered in this group.
A Growing Nation from Turning
Point in American History
depicts 19th American
Capitalism at Work

Editor's Note: S&P 500

volatility depicts the problem of
growth volatility systemic to
capitalism. This puts pressure on
monetary and fiscal policy
especially as the first is better at
controlling inflation and the later
better increasing a lagging
Aggregate Demand .