Lecture 12

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26 Mar 2011
The Economic Value of Failure
Failure arises because of:
1. Basic human condition of scarcity
2. Human search for greater rewards
Trying sets up failure (i.e. Saying “I am going to be richer than Bill Gates)
3. Because of market system
Failures of Scarcity:
Choices have to be made, some of which will not work out
Some producers will not be able to get the necessary resources they need
Others already in production will fail to retain the resources they have
oEmployees leave
oInvestors pull out money invested
Pervasiveness of scarcity ensures failure
But failure causes
1.A release of resources that can be re-employed (possibly at lower prices) in more
successful undertaking
2. A decrease in abundant G & S produced that can be sold at higher prices (when
supply falls)
Searching for Greater Rewards:
Even efficient firms should fold if more efficient firms exist
In market economy; No such thing as good ABSOLUTE performance
Relative performance matters
A beautiful female can fail to attract
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