Class Notes (786,783)
Canada (482,282)
Economics (1,260)
ECN 340 (193)

chapter 13 Economic Value of Failure ecn 340.docx
chapter 13 Economic Value of Failure ecn 340.docx

3 Pages
Unlock Document

Ryerson University
ECN 340
Thomas Barbiero

ECN 340 Lecture notes chapter 13 Economic Value of Failure Failure arises because of: 1. Basic human condition of Scarcity! 2. Search for greater rewards 3. Because of the market system Failure 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, (firms) already in production will fail to retain the resources they do have  Choices and the necessity of allocation make failure unavoidable (a firm that has resources or can't have sufficient resources,)  Pervasiveness of scarcity ensures failure.  But failures cause 1. A release of resources that can be re-employed (possibly at lower prices) in more successful undertaking 2. A decrease of abundant good and services produced that can then be sold at a higher price (when supply falls) - As some business fail, others will start and grow Searching for Greater Rewards  Even efficient firms should fold if more efficient firms exist  No such thing as good ABOSLUTE performance  Relative performance matters  A beautiful female can fail to attract a particular male if an even more beautiful female competes Information Failures  Information is costly both in product and resources ( land, labour, and capital) market  Firms can't tell which products to sell, resource owners (including labour) can't always correctly guess what sectors will be lucrative(when you make a lot of money) in the future  You don't know what is to happen in the future  But information problems may not be correctible b/c of scarcity of information  Public policy may try to redistribute successes and failures through the tax system (I or subsidies)  Centralizing decision making process will not solve information problems  Central planning impose superhuman demand on limited capacity of planners to handle information Risk, uncertainty, and rational failures  Information deficiencies = problem of risk and uncertainty about future economics events  risk = probability distribution example, 7 out of 10 restaurants will fail  Uncertainty = lack of information makes it impossible to estimate probability of success  one can sometimes get a little more information at a cost but sometimes you can't have it at all  Risk and uncertainty will INSURE some firms, plants, and workers will fail  Plants that close simply find cost of counting outweighs the benefits  Preventing failures may be very costly in that the cost of keeping the firms going would be high  ( information problem!: they didnt know...)  The resources in the 'failing' firms could be used in successful firms 
More Less

Related notes for ECN 340

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.