Chapter 4: Book Outline Flashcards
Comparative statics
implies that demand and supply curves exist independent of the institutions of market exchange.
study of entrepreneurship is seen to have
direct policy relevance and focuses on practitioners
Joseph Schumpeter
- ‘New Combinations’ is the essence of entrepreneurship
- Ent. is the catalyst for change
- ## creative desctruction
5 types of ‘new combinations’
- New Productions - something consumers aren’t familiar with, or an improvement in the quality of an existing product.
- New Production Methods - Can be a technological improvement to reduce costs or a new way of handling a product commercially
- New Markets - either by creating a new market, or selling the product in an existing market where it wasn’t previously sold.
- New sources of materials - either newly created or simply applied from other sectors they might be raw materials of half-manufactured.
- New organizations of industry - market power or more competition
innovation
the discovery of new combinations
innovation is more likely to come from
new firms rather than old ones
innovation is
unavoidable part of progress.
Richard Cantillon
- Ent is the undertaker of business ventures;
- Ents know the price of their inputs when they are bought; don’t know price when they will be able to sell outputs
- Ents are risk
Frank Knight
- Uncertainty vs. Risk
Risk can be _____; Uncertainty ______
Measured; can’t
entrep. discovery is a
signal
Profit
residual earnings after all contractural claims - incurred for the use of the resources - have been met and therefore profit is the reward, but not the return, for ent.
Israel Kirzner
- Assumed there is a single commodity, no innovation, and a single time period, no uncertainty. He posited that entrepreneurs exploit profit opportunities via reckless arbitrage.
- “alertness” is “costless discovery”
Ent is not just anticipating demand but
anticipating unarticulated demand
key to innovation is
thinking in terms of satisfying customer needs, rather than making modifications and improvements to existing products.
the act of ent is the
best guess judgement of those best able to anticipate what will be of value to customers. An ent is someone that is performing that function.
Ent is the pursuit
of opportunity without regard to resources currently controlled.
Coase
- The Nature of the Firm
- Transaction costs
Coase Theorem
When transaction costs are zero the allocation of property rights will be the same regardless of initial endowments
Price Discrimination
charging different customers different prices for the same product. Based on different customers’ willingness to pay.
3 Main Forms of Price Discrimination
- Perfect
- Direct
- Indirect
Perfect Price Discrimination
Where the price reflects the unique marginal value of each customer and captures all consumer surplus.
Costly to engage in; more common when the sales price is high.
Direct Price Discrimination
Certain groups of people have similar demand curves
In order for direct price discrimination to work, it must be
reaosnable easy to know which group any individual belongs to and you must be able to prevent those who receive the good for less to sell it on to those who have to pay more.
Direct Price Discrimination segments customers into two groups
- those with an inelastic demand (Not very responsive to price changes) you charge a high price
- Those with an elastic demand (very responsive to price changes) you charge a low price
Indirect Price Discrimination
Accept that customers with a high willingness to pay could get away with pretending that they had a low willingness to pay but you use a hurdle to discourage them from doing so
Examples of Indirect Price Discrimination strategies
- quantity discounts
- coupons
- performance-based
- purchase/usage restrictions
- paywalls
- drop out discount
- knowledge-based
price discrimination only applies
if it is the same good
Ludwig Von Mises
assumption that the incentive problem was solved; pointed out that even if there’s a transformation in human nature, this doesn’t solve the economic problem of knowing how to allocate scarce resources.
States goals of socialism
- increased prosperity
- efficient use of resources
- elimination of business cycles
- elimination of monopoly power
- equitable distribution of wealth
Mises argued that socialist planning was
impossible
- without private property there is no exchange
- Without exchange there are no prices
- Without prices there is no information
Mise argued that socialism was
inconsistent with its stated aims. Socialism cannot deliver on its promises because ‘socialism is the abolition of rational economy’.
Oskar Lange
- ‘Market socialism’
- What if central