The goals in addition to organization of an economic system Property rights Why do people trade Supply in addition to dem in addition to Effects of dem in addition to shifts
Hunter, Jim, Morning Show Host has reference to this Academic Journal, PHwiki organized this Journal Markets, Organizations, in addition to the Role of Knowledge Why do markets out per as long as m comm in addition to in addition to control economies Why does do much economic activity in market economies occur in large firms instead of the marketplace Professor Spry University of St. Thomas Economics 600 6:00pm-9:00pm Boxes Ltd. in isolated Sunrise Beach Texas Shrinking working age population Problems with hiring enough workers, despite $10 per hour wage (twice local going rate) Needs to increase hours worked to meet its growing dem in addition to as long as boxes in addition to production targets. The new manager launched a daily overtime wage of $15 per hour as long as hours worked in excess of 8 per day Why did the new manager institute the overtime plan instead of simply raising the wage rate in an attempt to attract more workers to the firm Boxes Ltd. in isolated Sunrise Beach Texas Use Consumer Theory Place leisure hours on x-axis (0 to 24 hours per day) Place all other goods on y-axis Slope of Budget constraint is the relative price of leisure time in terms of other (consumption) goods
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Boxes Ltd. in isolated Sunrise Beach Texas The goals in addition to organization of an economic system Basic Economic Issues What to produce How to produce For whom to produce Alternative mechanisms Markets Central Planning Comm in addition to in addition to Control Hierarchies Comparing effectiveness of economic systems Resource allocation is Pareto efficient if no alternative helps at least one person without harming anyone else This is a normative, value judgement about the properties of a good allocation of goods. In free markets, economic decisions are decentralized to individuals In firms in addition to planned economies, economic decisions are made by hierarchies
Property rights A property right is a socially en as long as ced entitlement to select use of an economic good Private rights are assigned to a specific entity private rights are alienable within limits Individuals have use rights within limits The sad story of the widow without property rights as long as her house. Why do people trade Buyer places higher value on item than does seller Voluntary trade is mutually advantageous Comparative Advantage The ability to per as long as m a given task at a lower cost. More efficient Able to per as long as m a given task at lower cost; having a comparative advantage. Specialization – Lower cost of focusing on production of one set of goods. You cant have a comparative advantage at everything!!!! People (nations) produce the goods that that have a comparative advantage in producing. Supply in addition to dem in addition to
Effects of dem in addition to shifts Effects of supply shifts Free markets versus central planning General knowledge is freely transferable Specific knowledge is expensive to transfer Factors influencing costs of in as long as mation transfer characteristics of sender & receiver available communications technology Nature of knowledge itself
Specific knowledge Examples Idiosyncratic knowledge of particular circumstances Scientific knowledge Assembled knowledge Free markets make superior use of specific knowledge dispersed among many participants Costs of transferring knowledge Discussion: The Oakl in addition to As What is the role of in as long as mation in the selection in addition to compensation of baseball players What is the As advantage in drafting in addition to trading players Should Beane have revealed his stuff to a reporter Additional Lessons thus far from Moneyball
The nature in addition to function of prices Coordination Incentives Rationing Signaling I, Pencil by L. Read http://www.econlib.org/library/Essays/rdPncl1.html I am a lead pencilthe ordinary wooden pencil familiar to all boys in addition to girls in addition to adults who can read in addition to write You may wonder why I should write a genealogy. Well, to begin with, my story is interesting. And, next, I am a mysterymore so than a tree or a sunset or even a flash of lightning. But, sadly, I am taken as long as granted by those who use me, as if I were a mere incident in addition to without background not a single person on the face of this earth knows how to make me. Externalities Externalities occur when the actions of one party impose a benefit or cost on another party outside an exchange relationship pollution Bach at bus stops Lojack – positive effects through less car theft Peer effects in education in addition to business The Coase Theorem The Coase Theorem: When transaction, or contracting costs are sufficiently low, property rights are well defined, in addition to readibly exchanged, than the resulting allocation of resources will be efficient, regardless of the assignment of property rights When the are transaction costs, the assignment of property rights will affect the efficiency of the allocation.
Why do firms exist The role of transaction costs Types of transaction costs search in addition to in as long as mation costs bargaining in addition to decision costs policing in addition to en as long as cement costs Optimal economic organization minimizes transaction costs General Motors in addition to Fisher Body Isolated Coal Mine in addition to Power Plant Husb in addition to s in addition to Wives Firms can reduce transaction costs Advantages of firms over markets Fewer transactions In as long as mation specialization Reputational concerns But firms can become large in addition to unwieldy, as long as egoing advantages Managerial lesson: If you can buy it on a spot market you are generally better off getting the input in a market, than through a subsidiary. Management needs incentive in order to align managements interests with owners interest. Discussion: hsx.com in addition to Iowa Electronic Markets HSX is just like the real stock market, only way more fun! Buy shares of your favorite actors in addition to their new movies. Watch their values rise or fall based on their success. Prices soar with a blockbuster opening at the box office in addition to plummet with a bomb no one went to see. Insider Trading: It’s absolutely legal on the Hollywood Stock Exchange. In fact, it’s encouraged!
Examples : 2000 Popular Vote The Iowa Electronic Market Predictions
The fundamental problem within firms Knowledge in addition to Incentives Profit maximization may face in as long as mation limitations controlled by many individuals may be costly to transfer Individuals may have incompatible incentives Organizational architecture must overcome these limitations Discussion: The Navy How did the Navy traditionally assign human capital to tasks Today, why does the Navy care about whether sailors like their location What changes did the Navy make Should this program be terminated or exp in addition to ed into other services Are there lessons as long as your business How are prices in addition to in as long as mation related
Basic Tenets of Economic Approach to Organizations Self interest Of employees, managers, even CEOs Present to some extent Architecture influences behavior Behavior shaped by incentives Implications as long as increasing value Balance the 3-legged stool Decision makers need specific knowledge to make appropriate decisions in addition to the incentives to use the in as long as mation productively Components of architecture three legs of the stool Decision-right assignment empowering employees who makes what decisions in organization What knowledge/in as long as mation does the decision maker have access to Reward system compensating employees Pecuniary; non-pecuniary sets incentives Per as long as mance-evaluation system evaluating employees accountability Corporate culture Culture is the set of explicit in addition to implicit expectations of behavior within the firm Culture includes as long as mal organizational architecture Communicating culture slogans, rituals, role models
Lincoln Electric Identify the objective in addition to subjective components of the evaluation system. How did the subjective components of the evaluation system add to the integrity of Lincoln’s rewards/evaluation scheme (Hint: discuss problems that may have occurred if the subjective components had not been included) What value-enhancing decisions in addition to behaviors were motivated by Lincolns rewards/evaluation scheme Did these decisions in addition to behaviors support Lincoln’s competitive strategy in its US business environment Lincoln Electric What sort of risk bearing was inherent in the compensation of workers What evidence can you provide of a compensating differential, that is greater employee pay because of employee risk-bearing What advice would you give to Lincoln when it considers exp in addition to ing into overseas markets with different historical labor practices in addition to regulations Looking Forward Assignment 1 Due Sept. 30, Oct. 4 in addition to 5 Due at start of class! Only two weeks left Read Managerial Economics Chapter 4 Try to finish Moneyball H in addition to out on Dem in addition to Estimation with Excel is be posted on Blackboard Very detailed, great as long as students with as long as ecasting interests Perhaps more challenging as long as some
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