Briefly explain Schumpeter’s model of innovation. Why does an innovator’s economic profit eventually reduce to zero?
What will be an ideal response?
Professor Schumpeter argued that the successful innovative entrepreneur’s reward is a monopoly profit, which accrues because the entrepreneur is the first to bring a new product into the market. Having no rivals, that profit temporarily exceeds what can be earned under perfect competition. This high profit attracts imitating rivals who “reverse engineer” the new product and are able to enter the market with their rival product and thereby erode the initial entrepreneur’s “monopolistic” earnings. Eventually, those economic profits will be reduced to zero because entry by imitators will continue as long as earnings are higher than that.
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If real GDP in year 1 is $72 million and real GDP in year 2 is $87 million, then the growth rate of real GDP is
A) 15 percent. B) $15 million. C) 20.8 percent. D) 17 percent. E) 83 percent.
When the Fed buys bonds on a mass scale
A) bonds go to the Fed, and dollars go into the banking system, so the money supply tends to rise. B) bonds go to the Fed, and dollars exit the banking system, so the money supply tends to fall. C) banks have more bonds and fewer dollars, so the money supply tends to fall. D) banks have more bonds and fewer dollars, so the money supply tends to rise.
During the past 100 years, the United States has transformed into primarily
A. A service economy. B. An agricultural economy. C. A closed economy with little foreign trade. D. A manufacturing economy.
Keynesians are skeptical of the classical theory that recessions are periods of increased mismatch between workers and jobs because
A. people are indifferent between being employed or not. B. help-wanted advertising falls during recessions. C. workers spend a lot of time searching for work in recessions. D. help-wanted advertising rises during recessions.