All decisions result in both
private and social impacts,
nothing occurs in isolation
EU (11)
Why is it important to
recognize the seen and the
unseen outcomes of a
decision?
EQ 11, unit 3
Yesterday students in all three classes constructed towers out of marshmallows and
toothpicks. The goal was to earn the largest total profit.
All classes did a great job.
The picture below was a common scene.
But a few years ago one group did it differently . . .
This group made a profit of
$164,000!!!
How did the group demonstrate
entrepreneurship?
Entrepreneurs
Transform innovation into economic growth. They
develop new methods of production or new
products and change the industries.
Meet an unfilled need
But they must be aware of the risk of failing.
An entrepreneurs may . . .
1. Create new projects that fill voids in the market.
2. Or create new methods to produce that cut costs.
3. Provide money to someone who has an idea.
What groups would not like
entrepreneurs?
Why?
Firms already in the
market!!!!!!
Why?
Entrepreneurs turn their
world upside down.
Predict how the other groups
responded when they saw this idea.
It is not the smartest or most intelligent
species that survive, but the species that
is adaptable to change.
-Charles Darwin
The question is what is the change?
Is the change referring to changes in the
market leading to new ideas and innovations
resulting in “creative destruction.”
Or is the change referring to legislation passed
by people in government resulting in new
laws, regulations, etc. that may prevent
dynamic competition.
Should the Government prevent change?
Why would some say no and others say yes?
Should the government protect the business/industry
hurt by change?
Carry out your logic (think past phase 1 and isolated
impacts)
"You must separate out being “pro free-enterprise”
from being “pro-business.”- Milton Friedman
Why would someone who was such a strong
advocate for free-enterprise make this comment?
"You must separate out being “pro free-enterprise” from being “pro-business.”
Almost every businessman is in favor of free enterprise for everybody else, but
special privilege and special government protection for himself.
As a result, they have been a major force in undermining the free enterprise
system.
Stop kidding yourself into thinking you can use the business community as a way
to promote free enterprise.
Unfortunately, most of them are not our friends in that respect."
-Milton Friedman
What would Friedman’s opinion be on tariffs or business licenses?
The Government should let the
Invisible Hand allocate resources
At times the government should be
the Helping Hand
The government has evolved into the
Grabbing Hand, only making decisions
to help themselves and their “Cronies”
Free Enterprise
-
-
-
Markets work reasonably well
without any government
intervention.
People must be able to pursue
own-interest which in turn will
promote the general interests.
-
Individuals working in the public
sector are driven by their self
interest.
-
Government will exploit special
interest to keep power or special
interest will exploit government
officials to get their way.
-
Rent seeking which results in zero
sum
-
Capture Theory
-
Iron Triangles
Subsidizing goods, services, and
activities that are perceived to be
“under-supplied”
-
Government will use power
impact outcomes
-
Assumes that government officials
know what is good for society
-
Direct public resources to help
their political allies and hurt their
political foes.
-
In an effort to achieving “optimal
social” outcomes will help the
growth of some businesses while
hindering the growth of others.
-
Poor information leads to poor
decisions
-
Works to achieve “social good”
-
-
Increase of government
intervention to solve for market
failures caused by narrow selfinterest
The Government limits
involvement
Often increase taxes on those
goods, services, and activities that
are perceived to be “oversupplied”
Provides public goods
-
-
Contract Enforcement
-
Law and order
-
Some regulation
-
Leaves decisions involving
resource allocation up to private
sector
Business and Government
Directions: Assume you own a business that makes children’s clothes for both the American market and for export. For high end stores, is the
MC of extra regulations exceeded by the MB of removing dynamic competition from the market?
Half of the class owns Ralph Lauren (High End clothing) and the other half owns an up and coming children’s clothing store.
State whether you would want your elected representatives to support the following proposals and provide logical explanations.
Consider: Nothing happens in isolation, think past phase one.
1. Stricter pollution control on electric generating stations.
_________________________________________________________________________________________________________
2. Higher standards on the quality of clothing.
_________________________________________________________________________________________________________
3. A tax on imported clothing that will raise its price by 15 percent.
_________________________________________________________________________________________________________
4. Government gives money (subsidy) for day care for single parents.
_________________________________________________________________________________________________________
5. An import tax on inexpensive foreign fabrics, raising the price by 20 percent.
_________________________________________________________________________________________________________
6. Deregulation of the trucking industry designed to increase competition among firms that transport manufactured goods.
_________________________________________________________________________________________________________
Business and Government
7. An increase of the corporate tax rate to help reduce the federal budget deficit.
_________________________________________________________________________________________________________
8. Approval of a trans-pacific trade deal that will allow for foreign clothing to enter the markets tariff-free.
_________________________________________________________________________________________________________
9. A tax on imported cars that will raise car prices by 15%.
_________________________________________________________________________________________________________
10. Increase in minimum wage from $7.25 an hour to $15.00 an hour.
_________________________________________________________________________________________________________
11. A law requiring that labels be applied to all articles of clothing that are to be sold.
_________________________________________________________________________________________________________
12. A new law mandating that all new clothing producers are licensed to make clothing.
_________________________________________________________________________________________________________
13. A law that requires testing and certifications on all buttons and zippers.
_________________________________________________________________________________________________________
14. A government bailout to failing clothing companies.
_________________________________________________________________________________________________________
Why is it important to
recognize the seen and the
unseen outcomes of a
decision?
(write on a small piece of paper)
EQ 11, unit 3
Creative Destruction
Joseph Schumpeter
Entrepreneurs create new products or new methods- New
Creations and Destruction of the Old
Bailouts
A situation in which a business, individual or government
offers money to a failing business in order to prevent the
consequences that arise from a business's downfall. Bailouts
can take the form of loans, bonds, stocks or cash. They may or
may not require reimbursement.
Capture Theory
A situation where the regulatory agencies are dominated or
“Captured” by the very industry that it is suppose to regulate.
Cronyism
favor for favors.
Special Interests
Topic
Which one?
How?
What if?
Should?
Why?
Creative Destruction
Should creative destruction be
controlled by the people in the
government with the use of
bailouts regulations, and tariffs?
Should the people in the
government create a law that
protects the jobs of bank tellers??
Relate one of the concepts
covered today to a unit 3
essential questions.