E a lower demand by individuals resources include

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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 competitive equilibrium): 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 competitive equilibrium): 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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