Presentation on theme: "Introduction to Microeconomics Long-run profit. Dropping the Assumption of the short-run The short-run is defined by whether you can vary any factor of."— Presentation transcript:
Dropping the Assumption of the short-run The short-run is defined by whether you can vary any factor of production This typically means piece-work labour (I can hire and fire with complete freedom) In most cases contracts/regulations impede the freedom of the firm – Labour law requires two weeks notice – Professional sports contracts often have “no cut” clauses What is the short-run for the following – Hot dog stand? – Flower shop? – Law firm? – Car assembly plant?
“Capitalism [...] is by nature a form or method of economic change and not only never is but never can be stationary. [...] The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation [...] that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.” Joseph Schumpeter 1883 – 1950
Schumpeter starts with the circular flow The basic circular flow of income model consists of seven assumptions: The economy consists of two sectors: households and firms. Households spend all of their income (Y) on goods and services or consumption (C). There is no saving (S). All output (O) produced by firms is purchased by households through their expenditure (E). There is no financial or government sector. It is a closed economy with no exports or imports. http://en.wikipedia.org/wiki/Circular_flowhttp://en.wikipedia.org/wiki/Circular_flow, accessed Oct 15, 2012
The entrepreneur is the hero for Schumpeter Profit motive creates the incentive to disrupt production/consumption cycles – Steve Jobs – Bill Gates – Anita Roddick – Ray Kroc
Can Apple Still Work Magic? http://video.ft.com/v/1821265005001/Big-Apple (right click to open link) Pay attention to the chart that appears at about 3:40 Who is likely to be more innovative? – Apple – Samsung – Blackberry What does the failure of Apple Maps mean?