1.2.1 Role of an entrepreneur in the economy Flashcards
Explain Creative destruction?
Example of CD market, Blu-ray market
This is when new firms entering the market are more innovative than old firms and are more productive causing their production costs to fall and creating new markets where goods are higher quality and lower prices due to costs falling. As a result the firms which are not innovative will exit the market.
What is a common cause of creative destruction?
Technological advancements as it allows for increased productivty, innovation and higher quality goods which can then be sold for lower prices due to avergae costs falling. Firms which then do not take advantage of the technological advancements will be forced to exit the market.
What does the entrepreneur have to take into account when entering a market?
Will need to take into account the market conditions, size if there are any gaps in the market and potential profitability. Entrepreneurs will also have to consider whether or not they have enough capital and if it will provide a higher return.
How may entrepreneurs expand their businiess
This can be done through taking over or merging with another business, widening their product range to supply to a wider customer base and employing more workers to take on different roles within the economy. However the entrepeneur must decide whether they have the factor inputs to grow and sustainably grow in the market.
How can entrepeneurs ensure they sell their output for more than their input
Entrepeneurs want to make a profit as that is their incentive and they do this by keeping costs low. Reducing costs by having high productivity levels perhaps through technological advancements so that cost of production is low but quality of goods remain high. This will allows for them to maximise profits.
