ECN 340 Lecture Notes - Lecture 12: Economic Planning
27 Apr 2017
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Document Summary
Failure arises because of: basic human condition of scarcity, human search for greater rewards. Lack on information, particularly in the market system. Information is costly both in the product and resource (land, labour and capital) market. Firms can"t always tell what products will sell. The resources in the failing firms could be used in successful firms: people usually don"t stay unemployed forever. Idea of a balanced portfolio in the stock market has the idea of planned failure in it. Some stocks will fail: example: putting less money into a bunch of different stocks rather then putting all money into only two. In business, firms can carry more than one line of goods or services. Profitable ones cover the cost of the failures: workers may try to protect themselves by investing in more than one skill. Failures are instructive and productive: feedback mechanism. They help outline bounds of profitable and productive economic activity.
