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Unformatted text preview: nd) by individuals. Resources include capital, labour, materials, etc., all of which
must receive at least their own opportunity cost Free markets are a powerful tool in achieving economic
efficiency Price theory (or the theory of
This theory is based on self-serving behaviour
(greed is good)! In a competitive equilibrium, everyone is selfishly
maximizing his or her own objective function. This is the argument for making shareholder value
the objective: as the residual, all other parties must
be assured of their opportunity costs Price theory (or the theory of
Notes: The pursuit of profits typically requires an improved
product or cost reduction, which leads to creative
destruction (Joseph Schumpeter) Profit opportunities often reflect the creation of better
goods and The pursuit of profit inevitably ‘destroys’ the value of
some existing goods (as new markets replace old).
This makes some agents worse off (e.g. downsizing,
unemployment). Price theory (or...
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- Fall '14