What is the concept of creative destruction? Describe two industry examples and how it has worked over time
What will be an ideal response?
The concept is that competition has two effects in transforming an economy. Competition stimulates creative development of new products and business processes, but over time this creative advancement leads to the destruction of existing business and industries. New products and ways of doing business replace old products and ways of doing business in the world of creative destruction transform an economy. There are many examples of it in economic history. In the domestic transportation industry, railroads replaced much water transport (canal barges). Automobiles replaced horses as the major means of individual transportation. The auto was later challenged for long-distance transportation by the airplane. In the entertainment industry, movies replaced live theater when they became popular. The introduction of broadcast television challenged the dominant position of movies. Then cable television and the Internet undercut the dominant position of broadcast television.
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A bank's reserves
A) can be held as deposits with the Federal Reserve. B) are the sum of its excess and required reserves. C) can be held as cash in its vault. D) all of the above.
Which of the following can eliminate the inefficiency inherent in monopoly pricing?
a. arbitrage b. cost-plus pricing c. price discrimination d. regulations that force monopolies to reduce their levels of output
If expectations are formed rationally, wages and prices are completely flexible in the short run and policy is correctly anticipated, increases in aggregate demand will
A) cause lower short-run price level increases than a Keynesian would expect. B) cause higher short-run price level increases than a Keynesian would expect. C) not impact the general price level. D) produce both increases and decreases in the price level at different times.
Suppose the US is in a recession while foreign countries that trade with the US are not. How will this affect the US?
A. US imports will fall, US exports will rise, and AD will fall B. US imports will fall, US exports will rise, and AD will rise C. US imports will rise, US exports will fall, and AD will fall D. US imports will fall, US exports will fall, and AD will remain unchanged