This document discusses the concept of increasing returns and economic progress. It begins by noting that while economists have developed complex models to analyze industries with increasing returns, these models can obscure more general aspects of the phenomena. It argues that the growth of indirect or roundabout production methods, enabled by greater specialization and division of labor, is a key source of increasing returns. However, the extent of these returns depends on the size of the market, as larger markets allow for greater specialization and use of capital-intensive production methods. While rationalization may improve efficiency, the fundamental driver of economic progress is the expansion of markets that comes from overall economic growth and development.
This document summarizes a paper that examines the impact of Australia's recent minerals boom on manufacturing from 1989 to 2008. It begins with an introduction outlining the motivation and analytical approach. It then reviews relevant literature on commodity booms, industrialization, and the concept of "Dutch disease".
The paper draws on theoretical models by Corden and Neary (1982) and Krugman (1996) to analyze the effects of exchange rate appreciation on manufacturing. It analyzes financial data for 50 Australian manufacturing companies to qualitatively assess the impact. The results show non-traded goods firms generally fared well, while traded goods firms saw their competitiveness undermined by exchange rate changes, often relocating production offshore. The
This document summarizes a study that examines the determinants of growth in small and medium enterprises (SMEs) in Central and Eastern Europe. The study uses a panel dataset of 560 fast-growing SMEs from six transition economies over five years. It finds that firm size, as measured by total assets, is an important factor in explaining growth in sales revenues. Additionally, factors like leverage, liquidity, growth opportunities, internally generated funds, and productivity are found to influence a firm's growth performance. In contrast, age and ownership do not appear to impact growth. The results suggest that SMEs rely heavily on internal financing to support asset growth but require external capital to fuel sales growth.
K1108346 Working as an Economist EC6001 EssayRadoslav Velyov
This document provides an overview of innovation and theories of innovation. It discusses types of innovation including radical and incremental innovation. It describes Joseph Schumpeter's theory that innovation is driven by entrepreneurs and economic selection. Nelson and Winter's evolutionary theory that firms develop routines is also examined. The document analyzes how innovation occurs through a process of mutation and selection. It provides the example of Apple to illustrate how firms innovate.
The document outlines several theories of international trade including:
1. Mercantilism focused on accumulation of wealth through government-controlled trade. Classical theories introduced concepts of absolute and comparative advantage showing how trade benefits nations.
2. Factor proportions theory argues countries will specialize in exports of goods intensive in their abundant factors of production.
3. Product cycle theory explains trade through stages of a product's life cycle and how production shifts internationally.
4. New trade theory recognizes markets are imperfectly competitive and governments can strategically influence trade in areas of scale economies, costs, network effects, and externalities.
Schumpeter's theory discusses the role of entrepreneurship in economic development. He argues that development consists of reforming production equipment, outputs, marketing, and organizations. A key factor is innovative entrepreneurs who combine factors of production to make new products, markets, and production methods. This leads to periods of economic growth and boom, followed by recession as less competitive entrepreneurs fail, creating uncertainty. Overall, development raises the equilibrium level of income.
The Schumpeterian model of economic growth focuses on innovation as the driving force. It presents a cyclical process where entrepreneurs introduce new innovations or improvements, breaking the circular flow. This leads to profits, growth, and imitations by other firms. Eventually, the innovations are adopted widely and profits decline, leading to economic downturn. The model predicts capitalism will eventually be replaced by socialism as liberalism and dissatisfaction with the system grow over time.
The nature of co-movement between total output and employment during the 1990s indicates that the relationship between employment growth and economic activity has been peculiar in Finland. This has been reflected, for example, in the developments of aggregate labour productivity. In particular, the years from 1992 to 1994 were exceptional. During that period productivity growth was very rapid, and, what is important, the trend of aggregate labour productivity shifted upwards. By only analysing the relationship between total output and employment it is impossible to say what happened during the period between 1992 and 1994. In this paper the relationship is analysed by utilizing industry-level data. The analysis shows that the rapid growth in aggregate productivity and the upward shift in the productivity trend mainly reflect similar developments in manufacturing, particularly in the metal industry. Even though the investigation is based on the use of industry-level data, it is still aggregative, which makes the interpretation of the results less clearcut. The existing studies which are based on the use of micro-level (e.g. plant-level) data support the interpretation which emphasizes the role of business restructuring and labour reallocation within manufacturing as the causes of rapid productivity growth and the upward shift in the trend productivity. The analysis is based on the estimation of simple structural VAR models.
The document outlines several theories of international trade including:
1. Mercantilism focused on accumulation of wealth through government-controlled trade. Classical theories included absolute and comparative advantage showing benefits of specialization and trade.
2. Factor proportions theory argues countries should specialize in exports of goods intensive in their abundant factors of production.
3. Product cycle theory examines how products and manufacturing methods mature through innovation, mass production, and standardization, and how this impacts trade and investment.
4. New trade theory recognizes markets are imperfectly competitive and governments can strategically influence trade in areas of scale economies, costs, network effects, and externalities.
This document summarizes a paper that examines the impact of Australia's recent minerals boom on manufacturing from 1989 to 2008. It begins with an introduction outlining the motivation and analytical approach. It then reviews relevant literature on commodity booms, industrialization, and the concept of "Dutch disease".
The paper draws on theoretical models by Corden and Neary (1982) and Krugman (1996) to analyze the effects of exchange rate appreciation on manufacturing. It analyzes financial data for 50 Australian manufacturing companies to qualitatively assess the impact. The results show non-traded goods firms generally fared well, while traded goods firms saw their competitiveness undermined by exchange rate changes, often relocating production offshore. The
This document summarizes a study that examines the determinants of growth in small and medium enterprises (SMEs) in Central and Eastern Europe. The study uses a panel dataset of 560 fast-growing SMEs from six transition economies over five years. It finds that firm size, as measured by total assets, is an important factor in explaining growth in sales revenues. Additionally, factors like leverage, liquidity, growth opportunities, internally generated funds, and productivity are found to influence a firm's growth performance. In contrast, age and ownership do not appear to impact growth. The results suggest that SMEs rely heavily on internal financing to support asset growth but require external capital to fuel sales growth.
K1108346 Working as an Economist EC6001 EssayRadoslav Velyov
This document provides an overview of innovation and theories of innovation. It discusses types of innovation including radical and incremental innovation. It describes Joseph Schumpeter's theory that innovation is driven by entrepreneurs and economic selection. Nelson and Winter's evolutionary theory that firms develop routines is also examined. The document analyzes how innovation occurs through a process of mutation and selection. It provides the example of Apple to illustrate how firms innovate.
The document outlines several theories of international trade including:
1. Mercantilism focused on accumulation of wealth through government-controlled trade. Classical theories introduced concepts of absolute and comparative advantage showing how trade benefits nations.
2. Factor proportions theory argues countries will specialize in exports of goods intensive in their abundant factors of production.
3. Product cycle theory explains trade through stages of a product's life cycle and how production shifts internationally.
4. New trade theory recognizes markets are imperfectly competitive and governments can strategically influence trade in areas of scale economies, costs, network effects, and externalities.
Schumpeter's theory discusses the role of entrepreneurship in economic development. He argues that development consists of reforming production equipment, outputs, marketing, and organizations. A key factor is innovative entrepreneurs who combine factors of production to make new products, markets, and production methods. This leads to periods of economic growth and boom, followed by recession as less competitive entrepreneurs fail, creating uncertainty. Overall, development raises the equilibrium level of income.
The Schumpeterian model of economic growth focuses on innovation as the driving force. It presents a cyclical process where entrepreneurs introduce new innovations or improvements, breaking the circular flow. This leads to profits, growth, and imitations by other firms. Eventually, the innovations are adopted widely and profits decline, leading to economic downturn. The model predicts capitalism will eventually be replaced by socialism as liberalism and dissatisfaction with the system grow over time.
The nature of co-movement between total output and employment during the 1990s indicates that the relationship between employment growth and economic activity has been peculiar in Finland. This has been reflected, for example, in the developments of aggregate labour productivity. In particular, the years from 1992 to 1994 were exceptional. During that period productivity growth was very rapid, and, what is important, the trend of aggregate labour productivity shifted upwards. By only analysing the relationship between total output and employment it is impossible to say what happened during the period between 1992 and 1994. In this paper the relationship is analysed by utilizing industry-level data. The analysis shows that the rapid growth in aggregate productivity and the upward shift in the productivity trend mainly reflect similar developments in manufacturing, particularly in the metal industry. Even though the investigation is based on the use of industry-level data, it is still aggregative, which makes the interpretation of the results less clearcut. The existing studies which are based on the use of micro-level (e.g. plant-level) data support the interpretation which emphasizes the role of business restructuring and labour reallocation within manufacturing as the causes of rapid productivity growth and the upward shift in the trend productivity. The analysis is based on the estimation of simple structural VAR models.
The document outlines several theories of international trade including:
1. Mercantilism focused on accumulation of wealth through government-controlled trade. Classical theories included absolute and comparative advantage showing benefits of specialization and trade.
2. Factor proportions theory argues countries should specialize in exports of goods intensive in their abundant factors of production.
3. Product cycle theory examines how products and manufacturing methods mature through innovation, mass production, and standardization, and how this impacts trade and investment.
4. New trade theory recognizes markets are imperfectly competitive and governments can strategically influence trade in areas of scale economies, costs, network effects, and externalities.
The document discusses the author's happy family, including their father and baby sister, pretty mother, mysterious brother and sweet brother and sister-in-law. It expresses love for family memories like birthday celebrations, describes the big family and their big smiles. The author states their family is their inspiration, that they are caring, loving and smiling, and that family is what matters most as they are one's heart and can motivate one to face challenges.
Roberto's favorite subject is math because he finds it easy and enjoys adding and subtracting numbers. He wrote a short note about his interest in math and specifically mentioned that he likes performing basic arithmetic operations like addition and subtraction. Roberto signed his name at the end of the brief document.
Global futurist and trends expert Anne Lise Kjaer, of London, shared her expertise with attendees in the closing session at ICF on Saturday afternoon, October 30.
Her specialty is bridging the creative and intellectual process-shaping the strategy and the core concepts that are driving businesses and brands of the future.
Resources and Lessons on Open Data from the World Banktariqkhokhar
Delivered by Tariq Khokhar at the European Association of Development Research and Training Institute's Information Management Working Group Conference in Antwerp, Belgium on September 13th, 2012.
О чем не знают марсиане? Ошибки инопланетных захватчиковJulia Lebedeva
Большинство казуальных игроков – женщины, в то время как разработчики, в основном, мужчины. Согласно известной книге психолога Джона Грэя получается, что разработчики с Марса, а игроки с Венеры. Откуда марсиане могут знать, что нравится венерианкам? Если и в реальной жизни мужчинам трудно понять женскую логику, откуда они могут знать, что женщины хотят видеть в мире виртуальном? Разработчики ошибаются! Игроки – никогда. «Невософт» представляет эксклюзивное видео интервью с русскими казуальными игроками о том, что их раздражает в играх.
"Новые герои индустрии социальных игр: приложения для iOS и Android", Richar...Julia Lebedeva
This document summarizes key trends in the mobile app market based on data from Flurry Analytics. It finds that the iOS and Android app markets have grown enormously, with over 530 million active devices, but still represent only 25% of their total addressable market. Mobile games are the most popular app category and have surpassed traditional game revenue. Free-to-play games with in-app purchases are the most common business model. User retention for apps is low, with most people only using 5-10 out of the 85 apps they download. The document identifies several successful game genres like endless pass times, social RPGs, and gamer's games. It concludes by promoting Flurry's analytics, advertising, and monetization
"Tap the Frog 2: Все аспекты создания мобильного хита" Антон Вольных, основат...Julia Lebedeva
This document discusses the success of Tap the Frog 2, a mobile game sequel launched in February 2012 that achieved a perfect 5-star rating from over 25,000 players and reached the top 5 in 15 countries and number 1 across Europe. The developer discusses how they created the sequel's character and gameplay, implemented a ranking system, and built a strong community through engagement and ads, which led to the game being featured and helped make marketing the app more affordable.
The document summarizes a school project where students visited teashops in Yangon, Myanmar to learn how where people live affects their lives. They interviewed the owner of one teashop, Daw Than Than Win, who still works hard at her age. The students photographed different aspects of life in the communities near the teashops, including homes, grocery stores, children helping with chores, the teashop kitchen, children playing, and popular transportation like trishaws. The document shares insights into the daily lives of those living in these communities in Myanmar.
The document is the lyrics to the song "What a Wonderful World" by Louis Armstrong. It describes the singer thinking about how wonderful the world is, from seeing trees and flowers bloom for people, to observing the colors of the sky and faces of people walking by saying hello. The singer watches children grow and realizes how much they will learn compared to his own knowledge. He concludes by reiterating how wonderful the world is.
In 1823, William Webb Ellis picked up the ball and ran toward the opponents' goal while playing a game at Rugby School in England, giving birth to the sport of rugby. The document then provides the positions of the 15 players on a rugby team, describes the basic rules including two 40-minute halves, how points are scored by grounding the ball, and includes links for further reading on rugby positions, history, and basic rules.
This document summarizes an article titled "Increasing Returns and Long-Run Growth" by Paul M. Romer. It proposes an alternative model of long-run economic growth where knowledge, rather than physical capital, is the main driver of growth. Knowledge exhibits increasing marginal returns in production but decreasing returns in research and development. This allows for perpetual economic growth without limits in a competitive market equilibrium framework. The model overturns conventional assumptions that growth rates decrease and countries converge over time by introducing externalities from new knowledge and increasing rather than diminishing returns to knowledge accumulation.
This document summarizes an article titled "Increasing Returns and Long-Run Growth" by Paul M. Romer. It proposes an economic growth model where knowledge is assumed to have increasing marginal productivity, unlike standard models that assume diminishing returns. The key aspects of the model are: 1) Knowledge exhibits increasing returns in production but decreasing returns in creation; 2) Knowledge spillovers create externalities; 3) The model can generate unbounded long-run growth without exogenous technological change. The model aims to explain how long-run growth rates may increase over time and initial conditions can have permanent effects, challenging standard neoclassical assumptions.
The document discusses the author's happy family, including their father and baby sister, pretty mother, mysterious brother and sweet brother and sister-in-law. It expresses love for family memories like birthday celebrations, describes the big family and their big smiles. The author states their family is their inspiration, that they are caring, loving and smiling, and that family is what matters most as they are one's heart and can motivate one to face challenges.
Roberto's favorite subject is math because he finds it easy and enjoys adding and subtracting numbers. He wrote a short note about his interest in math and specifically mentioned that he likes performing basic arithmetic operations like addition and subtraction. Roberto signed his name at the end of the brief document.
Global futurist and trends expert Anne Lise Kjaer, of London, shared her expertise with attendees in the closing session at ICF on Saturday afternoon, October 30.
Her specialty is bridging the creative and intellectual process-shaping the strategy and the core concepts that are driving businesses and brands of the future.
Resources and Lessons on Open Data from the World Banktariqkhokhar
Delivered by Tariq Khokhar at the European Association of Development Research and Training Institute's Information Management Working Group Conference in Antwerp, Belgium on September 13th, 2012.
О чем не знают марсиане? Ошибки инопланетных захватчиковJulia Lebedeva
Большинство казуальных игроков – женщины, в то время как разработчики, в основном, мужчины. Согласно известной книге психолога Джона Грэя получается, что разработчики с Марса, а игроки с Венеры. Откуда марсиане могут знать, что нравится венерианкам? Если и в реальной жизни мужчинам трудно понять женскую логику, откуда они могут знать, что женщины хотят видеть в мире виртуальном? Разработчики ошибаются! Игроки – никогда. «Невософт» представляет эксклюзивное видео интервью с русскими казуальными игроками о том, что их раздражает в играх.
"Новые герои индустрии социальных игр: приложения для iOS и Android", Richar...Julia Lebedeva
This document summarizes key trends in the mobile app market based on data from Flurry Analytics. It finds that the iOS and Android app markets have grown enormously, with over 530 million active devices, but still represent only 25% of their total addressable market. Mobile games are the most popular app category and have surpassed traditional game revenue. Free-to-play games with in-app purchases are the most common business model. User retention for apps is low, with most people only using 5-10 out of the 85 apps they download. The document identifies several successful game genres like endless pass times, social RPGs, and gamer's games. It concludes by promoting Flurry's analytics, advertising, and monetization
"Tap the Frog 2: Все аспекты создания мобильного хита" Антон Вольных, основат...Julia Lebedeva
This document discusses the success of Tap the Frog 2, a mobile game sequel launched in February 2012 that achieved a perfect 5-star rating from over 25,000 players and reached the top 5 in 15 countries and number 1 across Europe. The developer discusses how they created the sequel's character and gameplay, implemented a ranking system, and built a strong community through engagement and ads, which led to the game being featured and helped make marketing the app more affordable.
The document summarizes a school project where students visited teashops in Yangon, Myanmar to learn how where people live affects their lives. They interviewed the owner of one teashop, Daw Than Than Win, who still works hard at her age. The students photographed different aspects of life in the communities near the teashops, including homes, grocery stores, children helping with chores, the teashop kitchen, children playing, and popular transportation like trishaws. The document shares insights into the daily lives of those living in these communities in Myanmar.
The document is the lyrics to the song "What a Wonderful World" by Louis Armstrong. It describes the singer thinking about how wonderful the world is, from seeing trees and flowers bloom for people, to observing the colors of the sky and faces of people walking by saying hello. The singer watches children grow and realizes how much they will learn compared to his own knowledge. He concludes by reiterating how wonderful the world is.
In 1823, William Webb Ellis picked up the ball and ran toward the opponents' goal while playing a game at Rugby School in England, giving birth to the sport of rugby. The document then provides the positions of the 15 players on a rugby team, describes the basic rules including two 40-minute halves, how points are scored by grounding the ball, and includes links for further reading on rugby positions, history, and basic rules.
This document summarizes an article titled "Increasing Returns and Long-Run Growth" by Paul M. Romer. It proposes an alternative model of long-run economic growth where knowledge, rather than physical capital, is the main driver of growth. Knowledge exhibits increasing marginal returns in production but decreasing returns in research and development. This allows for perpetual economic growth without limits in a competitive market equilibrium framework. The model overturns conventional assumptions that growth rates decrease and countries converge over time by introducing externalities from new knowledge and increasing rather than diminishing returns to knowledge accumulation.
This document summarizes an article titled "Increasing Returns and Long-Run Growth" by Paul M. Romer. It proposes an economic growth model where knowledge is assumed to have increasing marginal productivity, unlike standard models that assume diminishing returns. The key aspects of the model are: 1) Knowledge exhibits increasing returns in production but decreasing returns in creation; 2) Knowledge spillovers create externalities; 3) The model can generate unbounded long-run growth without exogenous technological change. The model aims to explain how long-run growth rates may increase over time and initial conditions can have permanent effects, challenging standard neoclassical assumptions.
This document summarizes a paper by Richard R. Nelson and Sidney G. Winter titled "The Schumpeterian Tradeoff Revisited". It discusses Joseph Schumpeter's view that competition between firms involves research and development and innovation, and that technological progress provides greater long-term gains to society than competitive pricing. It also discusses the "Schumpeterian Hypothesis" that market power and large firms are necessary for rapid technological advancement, representing a tradeoff between static efficiency and dynamic innovation. The document outlines the authors' model of Schumpeterian competition and how it examines the relationship between technological change, market structure, and industry performance under different conditions.
What is a business and how do firms set prices. mario samuel camacho compressedMario Samuel Camacho
This document explores the definition of firms and how firms set prices. It begins by defining a firm as a business organization that allows for management of resources to reduce costs and maximize profits. It then discusses factors that motivate firms to adjust prices, including rational choice theory of profit maximization by weighing costs and benefits. The document outlines several key factors that influence how businesses set prices, such as costs, competitive pressures, industry-specific factors, and seasonality. It also examines economic concepts like monopoly power, product differentiation, and elasticity of demand that impact pricing decisions. The report provides an overview of the functionality of firms and price-setting mechanisms from an economic perspective.
This document summarizes a paper that aims to test the hypothesis that accurately measured real product and real factor input growth can fully explain observed total factor productivity growth. It defines key economic concepts like production functions, real product, real factor input, and total factor productivity. It also outlines the authors' methodology for developing a system of social accounts to more accurately measure real product and real factor input, thereby providing an empirical test of the hypothesis.
Financial and Institutional Reforms for an Entrepreneurial SocietyDr Lendy Spires
This document introduces a special issue on financial and institutional reforms needed to transition Europe to a more entrepreneurial society. It summarizes the key findings and contributions of the 12 papers in the issue, which address different facets of Europe's entrepreneurial ecosystem including access to knowledge, financial resources, labor markets, and how institutions and entrepreneurship drive economic growth. The papers find that Europe needs more fundamental reforms to improve its entrepreneurial ecosystem compared to past approaches. Access to knowledge, financial resources, and labor are particularly important for supporting more startups and challengers that drive innovation and economic growth through creative destruction.
The Impact of Innovation in Marketing StrategyYogeshIJTSRD
The purpose of this article is to share a vision of how todays organisations increase their effectiveness by promoting internally among their members including top management , the development of the capacity to generate innovative ideas that can be incorporated into the production processes of goods and services and even into corporate development plans. Innovation is associated with the discovery or invention of something radically new, linked to aspects of high technology or representing a substantial change in a given field. Planning carried out by the company to successfully channel the process of innovation or generation of new and impacting ideas among its members, must be considered as the most important marketing strategy to face competitiveness and, therefore, to obtain greater profitability. Maksud Kurolov "The Impact of Innovation in Marketing Strategy" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-3 , April 2021, URL: https://www.ijtsrd.com/papers/ijtsrd38680.pdf Paper URL: https://www.ijtsrd.com/economics/market-economy/38680/the-impact-of-innovation-in-marketing-strategy/maksud-kurolov
The document discusses how entrepreneurship can be allocated between productive and unproductive activities, and how this allocation is influenced by the prevailing rules and reward structures in a society. It uses historical examples from ancient Rome, medieval China, and medieval Europe to show how societies have differed in how they allocated entrepreneurship over time. The key point is that policies can more effectively influence this allocation than the overall supply of entrepreneurship.
Schumpeter's theory of business cycles analyzes recurring periods of economic boom and bust that define capitalism. He argues that innovation, primarily driven by entrepreneurs, is the main catalyst of economic change and growth. Innovations take many forms, from new products to new ways of organizing firms and markets. While innovation provides profits for entrepreneurs, it also creates disruption as existing firms and social arrangements are challenged. This process of "creative destruction" is an endless cycle that powers capitalism but faces resistance from entrenched interests. For capitalism to survive long-term, constant internal change through innovation is necessary despite its destabilizing effects.
This document is a response by Nicholas Kaldor to criticism from Professor Wright regarding Kaldor's previous work on economic methodology and models of business cycles. Kaldor argues that Wright misunderstood the purpose of analytical models, which is to isolate causal factors, not prove hypotheses as absolutely "true". Kaldor also defends using simplified assumptions and examples to illustrate essential features, noting more realistic assumptions were introduced later. While acknowledging room for improvement, Kaldor maintains Wright failed to demonstrate any logical flaws or inconsistencies in the work.
Length3,000 wordsDetails The world of international buJospehStull43
Length:
3,000 words
Details:
The world of international business is complex and contested. It is also changing rapidly. These changes apply to international business as a whole, the frameworks and structures of businesses themselves, and the way we understand them.
The task of this assignment is to select one of the four international business
theories
that we have looked at in weeks 6 and 7 of this course – global value chains, global production networks, the global factory, or the platform economy – and apply it to a specific
industry
of your choosing. Once you have chosen your theory and industry, the essay should be written in response to the following question:
“Does the [your selected theory] theory accurately reflect the current nature of the [your selected industry] industry?”
Some examples:
Does the global factory theory accurately reflect the current nature of the clothing industry?
Does the global value chain theory accurately reflect the current nature of the consumer electronics industry?
Does the platform economy theory accurately reflect the current nature of the transport industry?
Does the global production network theory accurately reflect the current nature of the food industry?
This full question should be written at the opening of your essay.
Further Guidance
In order to successfully complete this assignment, your final essay should include the following (note that this is NOT a suggested essay structure):
A firm understanding of your chosen
theory
, including:
Its scholarly origins
The problems that it tries to address.
How it differs from theories that came before it
Its contemporary critics and alternatives
A firm understanding of your chosen
industry
, including:
Key firms
Industry structure
Ownership and financing
The influence of government or civil society institutions in firm behaviour
Changes to the above over time, and the reasons for these changes.
A thorough
application
of theory to industry, including:
The strengths of the theory in understanding the current nature of the industry
The limitations of the theory in understanding the current nature of the industry
A consistent
argument
in response to the question: does this theory accurately reflect the current nature of your chosen industry?
See also the rubric below for guidance on what we are looking for.
Structure
You are free to use whatever essay structure you feel best conveys this analysis (some structures may be better suited to some theory/industry combinations). However the following suggested structure is recommended:
Introduction
Overview of your theory
History of your industry
Application of theory to industry
Critiques/limitations of this theory’s application to your industry
Conclusion
Other tips for this assignment
Take the time to read extensively on your theory – do not base your understanding on a single text or our summary below.
The essay should blend historica ...
This document provides an overview of key concepts used in industrial economics. It defines the firm as an organization engaged in productive activity for profit. The industry is defined as a group of firms producing similar or substitute products for a common market. The market is where buyers and sellers transact for goods and services, with supply and demand equalizing price. Different types of markets are business-to-business and business-to-consumer, and markets can be segmented.
Economics and corporate_strategy(bookos.org)nguyendodlong
Here are the key points about alternative optimizing models:
- Some models assume firms optimize an objective other than short-run profit maximization, such as sales revenue maximization, long-run profit maximization, or maximization of growth rates. These allow firms to consider longer time horizons.
- Other models assume firms are owned/managed by multiple individuals/groups with potentially different objectives (e.g. shareholders want profits but managers want growth). The firm's behavior reflects bargaining between these groups.
- Still other models assume firms face uncertainty and aim to optimize subjectively defined expected utility or satisfaction of objectives rather than precisely defined mathematical functions. This allows for attitudes to risk.
So in summary, alternative optimizing
This document provides an introduction to key economic concepts relevant to managerial decision making. It defines economics as the study of how societies deal with scarce resources to meet unlimited wants. The document outlines the basic differences between microeconomics and macroeconomics, positive and normative analyses, and short and long run timeframes. It also discusses production possibility curves, opportunity costs, marginal analysis, and the time value of money - all important principles for managers to consider when allocating scarce resources to achieve organizational objectives.
1. China has experienced rapid economic growth over the past 23 years, becoming the world's second largest economy based on purchasing power parity. This growth has been driven by three successive waves of investment: initial investment in rural township and village enterprises in the 1980s, foreign direct investment from Hong Kong and Taiwan in the 1990s, and more recent investment from developed countries.
2. The article analyzes China's growth by examining the different systems of production that emerged with each investment wave. The initial growth was led by rural enterprises investing agricultural profits. Foreign investment established export-oriented manufacturing. Recent growth relies on attracting investment from advanced economies.
3. Understanding these systems of production provides insights into China's growth that transcend
Private Equity and Buyouts A Study of Value Creation in Portfolio CompaniesPedro Alves
This document presents a study on the value creation from private equity buyouts of portfolio companies. It begins with an introduction discussing the importance and debates around private equity investments. Private equity has faced criticism around asset stripping, employment impacts, use of leverage, and short-termism. There are also debates around whether private equity creates value or redistributes it through mechanisms like tax benefits, expropriation of other shareholders, and transfers from creditors. The study aims to provide new empirical evidence on whether buyouts create value after adjusting for changes in risk profiles.
,
strategic and organizational requirements for competitive advantage
,
the context of strategic hrm
,
strategic and organizational requirements for comp
,
jr.
This research begins by showing the different meanings attributed to the term cluster by different currents and authors, which suggests definitions that are found around its spatial framework. Next, the factors that intervene in the competitiveness of a region and its growth are shown, for the development of these, Porter’s model of competitiveness which was taken as reference, and the contexts: geographical and economic. Therefore, the methodology was used based on a qualitative design, with descriptive and correlational scope since it will analyze differences of each cluster, with respect to the factors of dimensions, establishments, growth, economic impact and policies. To do this, the information-gathering tool was two semi-structured interviews with cluster leaders in both countries, because the approach is based on data collection methods that are not completely standardized or predetermined. And finally, the results of the comparison of the Mexican Bajío automotive cluster with the German cluster located in Baden-Württemberg are presented.
This paper proposes a theoretical model to distinguish between "reproductive cycles" and "nonreproductive cycles" and explain their relationship to long economic expansions and crises. The authors define a reproductive cycle as one where a economic downturn restores conditions for rapid economic growth, while a nonreproductive cycle requires fundamental changes to institutions. They argue long expansions are characterized by reproductive cycles that sustain profitability, while long crises feature nonreproductive cycles that lead to stagnation until a new social structure of accumulation is established. The authors present evidence that business cycles function differently depending on whether it is an expansion or crisis period of the long swing in economic activity.
La Unión Europea ha acordado un embargo petrolero contra Rusia en respuesta a la invasión de Ucrania. El embargo prohibirá las importaciones marítimas de petróleo ruso a la UE y pondrá fin a las entregas a través de oleoductos dentro de seis meses. Esta medida forma parte de un sexto paquete de sanciones de la UE destinadas a aumentar la presión económica sobre Moscú y privar al Kremlin de fondos para financiar su guerra.
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1. Increasing Returns and Economic Progress
Author(s): Allyn A. Young
Source: The Economic Journal, Vol. 38, No. 152 (Dec., 1928), pp. 527-542
Published by: Blackwell Publishing for the Royal Economic Society
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2. THE ECONOMIC JOURNAL
DECEMBER, 1928
INCREASING RETURNS AND ECONOMICPROGRESS'
MY subject may appear alarmingly formidable, but I did
not intend it to be so. The words economic progress,taken by
themselves, would suggest the pursuit of some philosophy of
history, of some way of appraisingthe resultsof past and possible
future changes in forms of economic organisation and modes of
economic activities. But as I have used them, joined to the
other half of my title, they are meant merely to dispel appre-
hensions, by suggesting that I do not propose to discuss any of
those alluring but highly technical questions relating to the
precise way in which some sort of equilibrium of supply and
demand is achieved in the market for the products of industries
which can increase their output without increasing their costs
proportionately, or to the possible advantages of fostering the
development of such industries while putting a handicap upon
industries whioseoutput can be increased only at the expense of
a more than proportionate increase of costs. I suspect, indeed,
that the apparatus which economists have built up for dealing
effectively with the range of questions to which I have just
referredmay stand in the way of a clear view of the moregeneral
or elementary aspects of the phenomena of increasing returns,
such as I wish to comment upon in this paper.
Consider, for example, Alfred Marshall's fruitful distinction
between the internal productive economies wlich a particular
firm is able to secure as the growth of the market permits it to
enlarge the scale of its operations and the economies external
to the individual firm which show themselves only in changes of
the organisation of the industry as a whole. This distinction
has been useful in at least two differentways. In the first place
it is, or ought to be, a safeguard against the common error of
assuming that whereverincreasingreturns operate there is neces-
sarily an effective tendency towards monopoly. In the second
1 Presidential Address before Section F (Economic Science and Statistics)
of the British Association for the Advancement of Science, Glasgow, September 10,
1928.
No. 152.-vot. xxxviii. N N
3. 528 THE ECONOMIC JOURNAL [DEC.
place it simplifiesthe analysis of the mannerin which the prices
of commodities produced under conditions of increasing returns
are determined. A representative firm within the industry,
maintaining its own identity and devoting itself to a given range
of activities, is made to be the vehicle or medium through which
the economiesachievedby the industry as a whole aretransmitted
to the market and have their effect upon the price of the product.
The view of the nature of the processes of industrial progress
which is implied in the distinction between internal and external
economies is necessarily a partial view. Certainaspects of those
processes are illuminated, while, for that very reason, certain
other aspects, important in relation to other problems, are
obscured. This will be clear,I think, if we observethat, although
the internal economies of some firms producing, let us say,
materials or appliances may figure as the external economies of
other firms. not all of the economies which are properly to be
called external can be accounted for by adding up the internal
economiesof all the separatefirms. Whenwe look at the internal
economies of a particular firm we envisage a condition of com-
parative stability. Year after year the firm,like its competitors,
is manufacturinga particularproduct or group of products, or is
confiningitself to certain definite stages in the worl of forwarding
the products towards their final form. Its operations change in
the sense that they are progressively adapted to an increasing
output, but they are kept within definitely circumscribedbounds.
Outbeyond,in that obscurerfieldfromwhichit derivesits external
economies, changes of another order are occurring. New pro-
ducts areappearing,firmsareassumingnew tasks, and new indus-
tries are coming into being. In short, change in this external
field is qualitative as well as quantitative. No analysis of the
forces making for economic equilibrium, forces which we might
say are tangential at any moment of time, will serve to illumine
this field, for movements away from equilibriuLm,departures
from previous trends, are characteristic of it. Not much is to
be gained by probing into it to see how increasing returns show
themselves in the costs of individual firms and in the prices at
which they offer their products.
Instead, we have to go back to a simpler and more inclusive
view, such as some of the older economists took when they con-
trasted the increasing returns which they thought were charac-
teristic of manufacturing industry taken as a whole with the
diminishing returns which they thought were dominant in agri-
culture because of an increasingly unfavourable proportioning
4. 1928] INCREASING RETURNS AND ECONOMIC PROGRESS 529
of labour and land. Most of them were disappointingly vague
with respectto the originsand the precisenature of the " improve-
ments " which they counted upon to retard somewhat the opera-
tion of the tendency towards diminishing returns in agriculture
and to secure a progressively more effective use of labour in
manufactures. Their opinions appear to have rested partly
upon an empirical generalisation. Improvements had been
made, they were still being made, and it might be assumed that
they would continue to be made. If they had looked back they
would have seen that there were centuries during which there
were few significant changes in either agricultural or industrial
methods. But they were living in an age when men had turned
their faces in a new direction and when economic progress was
not only consciously sought but seemed in some way to grow
out of the nature of things. Improvements, then, were not
something to be explained. They were natural phenomena, like
the precession of the equinoxes.
There were certain important exceptions, however, to this
incurious attitude towards what might seem to be one of the
most important of all economic problems. Senior's positive
doctrine is well known, and there were others who made note of
the circumstance that with the growth of population and of
markets new opportunities for the division of labour appear and
new advantages attach to it. In this way, and in this way
only, were the generally commonplace things which they said
about " improvements " related to anything which could properly
be called a doctrine of increasing returns. They added nothing
to Adam Smith's famous theorem that the division of labour
depends upon the extent of the market. That theorem, I have
always thought, is one of the most illuminating and fruitful
generalisationswhich can be found anywherein the whole litera-
ture of economics. In fact, as I am bound to confess, I am
taking it as the text of this paper, in much the way that some
minor composer borrows a theme from one of the masters and
adds certain developments or variations of his own. To-day, of
course, we mean by the division of labour something much
broaderin scopethan that splitting up of occupationsand develop-
ment of specialised crafts which Adam Smith mostly had in
mind. No one, so far as I know, has tried to enumerate all of
the differentaspects of the division of labour,and I do not propose
to undertake that task. I shall deal with two related aspects
only: the growthof indirect orroundaboutmethodsof production
and the division of labour among industries.
N N 2
5. 530 THE ECONOMIC JOURNAL [DEC.
It is generally agreed that Adam Smith, when he suggested
that the division of labour leads to inventions because workmen
engaged in specialised routine operations come to see better
ways of accomplishingthe same results, missed the main point.
The important thing, of course,is that with the division of labour
a group of complex processesis transformedinto a succession of
simpler processes, some of which, at least, lend themselves to
the use of machinery. In the use of machineryand the adoption
of indirect processes there is a further division of labour, the
economiesof which are again limited by the extent of the market.
It would be wasteful to make a hammerto drive a single nail; it
would be better to use whatever awkward implement lies con-
veniently at hand. It would be wasteful to furnish a factory
with an elaborateequipment of specially constructedjigs, gauges,
lathes, drills, presses and conveyors to build a hundred auto-
mobiles; it wouldbe betterto rely mostly upontools and machines
of standardtypes, so as to make a relatively largeruse of directly-
applied and a relatively smaller use of indirectly-appliedlabour.
Mr.Ford's methods would be absurdlyuneconomicalif his output
were very small, and would be unprofitable even if his output
were what many other manufacturersof automobiles would call
large.
Then, of course, there are-economies of what might be called
a secondary order. How far it pays to go in equipping factories
with special appliances for making hammers or for constructing
specialised machinery for use in making different parts of auto-
mobiles depends again upon how many nails are to be driven
and how many automobiles can be sold. In some instances, I
suppose, these secondary economies, though real, have only a
secondary importance. The derived demands for many types of
specialised production appliances are inelastic over a fairly large
range. If the benefits and the costs of using such appliances
are spread over a relatively large volume of final products, their
technical effectivenessis a largerfactor in determiningwhether it
is profitable to use them than any difference which producing
them on a large or a small scale would commonly make in their
costs. In other instances the demand for productive appliances
is more elastic, and beyond a certain level of costs demand may
fail completely. In such circumstancessecondaryeconomiesmay
become highly important.
Doubtless, much of what I have said has been familiar and
even elementary. I shall venture, nevertheless, to put further
stress upon two points, which may be among those which have
6. 1928] INCREASING RETURNS AND ECONOMIC PROGRESS 531
a familiar ring, but which appear sometimes to be in danger of
being forgotten. (Otherwise, economists of standing could not
have suggested that increasing returns may be altogether illusory,
or have maintained that where they are present they must lead
to monopoly.) The first point is that the principal economies
which manifest themselves in increasing returns are the economies
of capitalistic or roundabout methods of prodtuction. These
economies, again, are largely identical with the economies of the
division of labour in its most important modern forms. In fact,
these economies lie under our eyes, but we may miss them if
we try to make of large-scale production (in the sense of pro-
duction by large firms or large industries), as contrasted with
large production, any more than an incident in the general pro-
cess by which increasing returns are secured and if accordingly
we look too much at the individual firm or even, as I shall suggest
presently, at the individual industry.
The second point is that the-economies of roundabout methods,
even more than the economies of other forms of the division of
labour, depend upon the extent of the market-and that, of
course, is why we discuss them under the head of increasing
returns. It would hardly be necessary to stress this point, if
it were not that the economies of large-scale operations and of
" mass-production " are often referred to as though they could
be had for the taking, by means of a " rational " reorganisation
of industry. Now I grant that at any given time routine and
inertia play a very large part in the organisation and conduct of
industrial operations. Real leadership is no more common in
industrial than in other pursuits. New catch-words or slogans
like mass-production and rationalisation may operate as stimuli;
they may rouse men from routine and lead them to scrutinise
again the organisation and processes of industry and to try to
discover particular ways in which they can be bettered. For
example, no one can doubt that there are genuine economies to
be achieved in the way of " simplification and standardisation,"
or that the securing of these economies requires that certain
deeply rooted competitive wastes be extirpated. This last
requires a definite concerted effort-precisely the kind of thing
which ordinary competitive motives are often powerless to effect,
but wghichmight come more easily as the response to the dis-
semination of a new idea.
There is a danger, however, that we shall expect too much
from these " rational " industrial reforms. Pressed beyond a
certain point they become the reverse of rational. I have
7. 532 TIRE ECONOMIC JOURNAL [DEO.
naturallybeeninterestedin IBritishopinionsrespectingthe reasons
for the relatively high productivity (per labourer or per hour of
labour) of representative American industries. The error of
those who suggest that the explanation is to be found in the
relatively high wages which prevail in America is not that they
confuse cause and effect, but that they hold that what are really
only two aspects of a single situation are, the one cause, and the
other effect. Those who hold that Americanindustry is managed
better, that its leaders study its problems more intelligently 'and
plan more courageously and more wisely can cite no facts in
supportoftheiropinionsave the differencesin the resultsachieved.
Allowing for the circumstancethat British industry, as a whole,
has proved to be rather badly adjusted to the new post-war
economic situation, I know of no facts which prove or even
indicate that British industry, seen against the background of
its own problems and its own possibilities, is less efficiently
organised or less ably directed than American industry or the
industry of any other country.
Sometimesthe fact that the average Americanlabourerworks
with the help of a larger supply of power-driven labour-saving
machinerythan the labourerof other countriesis cited as evidence
of the superior intelligence of the average American employer.
But this will not do, for, as every economist knows, the greater
the degree in which labour is productive or scarce-the words
have the same meaning-the greater is the relative economy of
using it in such indirect or roundabout ways as are technically
advantageous, even though such procedure calls for larger
advances of capital than simpler methods do.
It is encouraging to find that a fairly large number of com-
mentators upon the volume of the American industrial product
and the scale of American industrial organisation have come to
surmise that the extent of the American domestic market, un-
impeded by tariff barriers, may have something to do with the
matter. This opinion seems even to be forced upon thoughtful
observers by the general character of the facts, whether or no
the observers think in terms of the economists' conception of
increasing returns. In certain industries, although by no means
in all, productive methods are economical and profitable in
America which would not be profitable elsewhere. The import-
ance of coal and iron and other natural resourcesneeds no com-
ment. Taking a country's economic endowment as given, how-
ever, the most importantsinglefactor in determiningthe effective-
ness of its industry appears to be the size of the market. But
8. 1928] INCREASING RETURNS AND ECONOMIC PROGRESS 533
just what constitutes a large market ? Not area or population
alone, but buying power, the capacity to absorb a large annual
output of goods. This trite observation, however, at onice sug-
gests another equally trite, namely, that capacity to buy depends
upon capacity to produce. In an inclusive view, considering the
market not as an outlet for the products of a particular industry,
and therefore external to that industry, but as the outlet for goods
in general, the size of the market is determined and defined by
the volume of production. If this statement needs any quali-
fication, it is that the conception of a market in this inclusive
sense-an aggregate of productive activities, tied together by
trade-carries with it the notion that there must be some sort
of balance, that different productive activities must be pro-
portioned one to another.
Modified, then, in the light of this broader conception of the
market, Adam Smith's dictum amounts to the theorem that the
division of labour depends in large part upon the division of
labour. This is more than mere tautology. It means, if I read
its significance rightly, that the counter forces which are con-
tinually defeating the forces which make for economic equilib-
rium are more pervasive and more deeply rooted in the con-
stitution of the modern economic system than we commonly
realise. Not only new or adventitious elements, coming in from
the outside, but elements which are permanent characteristics
of the ways in which goods are produced make continuously for
change. Every important advance in the organisation of pro-
duction, regardless of whether it is based upon anything which,
in a narrow or technical sense, would be called a new " invention,"
or involves a fresh application of the fruits of scientific progress
to industry, alters the conditions of industrial activity and
initiates responses elsewhere in the industrial structure which
in turn have a further unsettling effect. Thus change becomes
progressive and propagates itself in a cumulative way.
The apparatus which economists have built up for the analysis
of supply and demand in their relations to prices does not seem
to be particularly helpful for the purposes of an inquiry into these
broader aspects of increasing returns. In fact, as I have already
suggested, reliance upon it may divert attention to incidental
or partial aspects of a process which ought to be seen as a whole.
If, nevertheless, one insists upon seeing just how far one can
get into the problem by using the formulas of supply and demand,
the si'mplest way, I suppose, is to begin by inquiring into the
operations of reciprocal demand when the commodities exchanged
9. 534 THE ECONOMIC JOURNAL [DEC.
are producedcompetitively underconditions of increasingreturns
and when the demandfor each commodity is elastic, in the special
sense that a small increase in its supply will be attended by an
increase in the amounts of other commodities which can be had
in exchange for it.1 Under such conditions an increase in the
supply of one commodity is an increase in the demand for other
commodities, and it must be supposed that every increase in
demand will evoke an increasein supply. The rate at which any
one industry grows is conditioned by the rate at which other
industriesgrow, but since the elasticities of demandand of supply
will differfor differentproducts, some industries will grow faster
than others. Even with a stationary population and in the
absence of new discoveries2 in pure or applied science there are
no limits to the process of expansion except the limits beyond
which demand is not elastic and returns do not increase.
If, under these hypothetical conditions, progress were un-
impeded and frictionless, if it were not dependent in part upon
a process,of trial and error,if the organisation of industry were
always such as, in relation to the immediate situation, is most
economical, the realising of increasing returns mnightbe pro-
gressive and continuous, although, for technical reasons, it could
not always proceed at an even rate. But it would remain a
process requiring time. An industrial dictator, with foresight
and knowledge, could hasten the pace somewhat, but he could
not achieveanAladdin-liketransformationof a country'sindustry,
so as to reap the fruits of a half-century's ordinaryprogressin a
few years. The obstacles are of two sorts. First, the human
material which has to be used is resistant to change. New
trades have to be learnt and new habits have to be acquired.
Therehas to be a new geographicaldistribution of the population
and establishedcommunalgroupshave to be brokenup. Second,
the accumulation of the necessary capital takes time, even
though the process of accumulation is largely one of turning
part of an increasing product into forms which will serve in
securing a further increase of product. An acceleration of the
rate of accumulation encounitersincreasing costs, into which
both technical and psychological elements enter. One who likes
1 If the circumstance that commodity a is produced under conditions of
increasing returns is taken into account as a factor in the elasticity of demand
for b in terms of a, elasticity of demand and elasticity of supply may be looked
upon as different ways of expressing a single functional relation.
2 As contrasted with such new ways of organising production and such new
"inventions " as are merely adaptations of known ways of doing things, made
practicable and economical by an enlarged scale of production.
10. 1928] INCREASING RETURNS AND ECONOMIC PROGRESS 535
to conceiveof alleconomicprocessesin termsoftendenciestowards
an equilibrium might even maintain that increasing returns, so
far as they depend upon the economies of indirect methods of
production and the size of the markIet,are offset and negated by
their costs, and that under such simplified conditions as I have
dealt with the realising of increasing returns would be spread
through time in such a way as to secure an equilibriumof costs
and advantages. This would amount to saying that no real
economic progress could come through the operation of forces
engenderedwithin the economic system-a conclusion repugnant
to common sense. To deal with this point thoroughly would
take us too far afield. I shallmerelyobserve,first,that the appro-
priate conception is that of a moving equilibrium, and second,
that the costs which (underincreasingreturns) grow less rapidly
than the product are not the "costs " whichfigurein an "equilib-
rium of costs and advantages."
Moving away from these abstract considerations,so as to get
closer to the complications of the real situation, account has to
be taken, first, of various kinds of obstacles. The demand for
some products is inelastic, or, with an increasing supply, soon
becomes so. The producersof such commodities, however, often
share in the advantages of the increase of the general scale of
productionin related industries, and so far as they do productive
resources are released for other uses. Then there are natural
scarcities,limitations orinelasticities of supply, such as effectively
block the way to the securing of any important economiesin the
production of some commodities and which impair the effective-
ness of the economies secured in the production of other com-
modities. In most fields, moreover, progress is not and cannot
be continuous. The next important step forwardis often initially
costly, and cannot be taken until a certainquantumof prospective
advantages has accumulated.
On the other side of the account are various factors which
reinforcethe influences which make for increasingreturns. The
discovery of new natural resources and of new uses for them
and the growth of scientific knowledge are probably the most
potent of such factors. The causal connections between the
growth of industry and the progressof science run in both direc-
tions, but on which side the preponderantinfluence lies no one
can say. At any rate, out of better knowledge of the materials
and forces upon which men can lay their hands there come both
new ways of producing familiar commodities and new products,
and these last have a presumptive claim to be regarded as em-
11. 536 THE ECONOMICJOURNAL [DEC.
bodying more economical uses of productive resourcesthan the
uses which they displace. Some weight has to be given also to
the way in which, with the advance of the scientific spirit, a new
kind of interest-which might be describedas a scientificinterest
conditioned by an economic interest-is beginning to infiltrate
into industry. It is a point of controversy, but I venture to
maintain that under most circumstances, though not in all, the
growth of population still has to be counted a factor making
for a larger per capita product-although even that cautious
statement needs to be interpreted and qualified. But just as
there may be population growth with no increase of the average
per capita product, so also, as I have tried to suggest, markets
may grow and increasing returns may be secured while the
population remains stationary.
It is dangerousto assign to any single factor the leading role
in that continuing economic revolution which has taken the
modernworld so far away from the world of a few hundredyears
ago. But is there any other factor which has a better claim to
that role than the persisting search for markets? No other
hypothesis so well unites economic history and economic theory.
The Industrial Revolution of the eighteenth century has come
to be generally regarded, not as a cataclysm brought about by
certain inspired improvements in industrial technique, but as a
series of changes related in an orderly way to prior changes in
industrial organisation and to the enlargement of markets. It
is sometimes said, however, that while in the Middle Ages and
in the early modern period industry was the servant of com-
merce, since the rise of " industrial capitalism " the relation has
been reversed, commercebeing now merely an agent of industry.
If this means that the finding of markets is one of the tasks of
modern industry it is true. If it means that industry imposes
its will upon the market, that whereasformerlythe things which
were produced were the things which could be sold, now the
things which have to bUesold are the things that are produced,
it is not true.
The great change, I imagine, is in the new importance which
the potentialmarkethas in the planning and managementof large
industries. The differencebetween the cost per unit of output
in an industry or in an individual plant properly adapted to a
given volume of output and in an industry- or plant equally well
adapted to an output five times as large is often much greater
than one wouldinfer from looking merely at the economieswhich
may accrue as an existing establishment gradually extencdsthe
12. 1928] INCREASING RETURNS AND ECONOMIC PROGRESS 537
scale of its operations. Potential demand, then, in the planning
of industrial undertakings, has to be balanced against potential
economies, elasticity of demand against decreasing costs. The
search for markets is not a matter of disposing of a " surplus
product," in the Marxian sense, but of finding an outlet for a
potential product. Nor is it wholly a matter of multiplying
profits by multiplying sales; it is partly a matter of augmenting
profits by reducingcosts.
Although the initial displacement may be considerable and
the repercussions upon particular industries unfavourable, the
enlarging of the market for any one commodity, producedunder
conditions of increasing returns, generally has the net effect,
as-I have tried to show, of enlarging the market for other com-
modities. The business man's mercantilistic emphasis upon
marketsmay have a sounderbasis than the economist who thinks
mostly in terms of economic statics is prone to admit. How far
" selling expenses,"for example, areto be counted sheereconomic
waste depends upon their effects upon the aggregate product of
industry, as distinguished from their effects upon the fortunes of
particular undertakings.
Increasing returns are often spoken of as though they were
attached always to the growth of " industries," and I have not
tried to avoid that way of speaking of them, although I think
that it may be a misleading way. The point which I have in
mindis something morethan a quibbleabout the properdefinition
of an industry, for it involves a particular thesis with respect
to the way in which increasing returns are reflected in changes
in the organisation of industrial activities. Much has been said
about industrial integration as a concomitant or a natural result
of an increasing industrial output. It obviously is, under par-
ticular conditions, though I know of no satisfactory statement
of just what those particular conditions are. But the opposed
process,industrial differentiation,has been and remains the type
of change characteristically associated with the growth of pro-
duction. Notable as has been the increase in the complexity
of the apparatusof living, as shown by the increasein the variety
of goods offeredin consumers'markets,the increasein the diversi-
fication of intermediateproducts and of industries manufacturing
special products or groups of products has gone even further.
The successorsof the earlyprinters,it has often been observed,
are not only the printers of to-day, with their own specialised
establishments, but also the producers of wood pulp, of various
13. 538 THE ECONOMIC JOURNAL [DEC.
kinds of paper, of inks and their different ingredients, of type-
metal and of type, the group of industries concerned with the
technical parts of the producing of illustrations, and the manu-
facturers of specialised tools and machines for use in printing
and in these various auxiliary industries. The list could be ex-
tended, both by enumerating other industries which are directly
ancillary to the present printing trades and by going back to
industries which, while supplying the industries which supply
the printing trades, also supply other industries, concerned with
preliminary stages in the making of final products other than
printed books and newspapers. I do not think that the printing
trades are an exceptional instance, but I shall not give other
examples, for I do not want this paper to be too much like a
primer of descriptive economics or an index to the reports of a
census of production. It is sufficiently obvious, anyhow, that
over a large part of the field of industry an increasingly intricate
nexus of specialised undertakings has inserted itself between the
producer of raw materials and the consumer of the final
product.
With the extension of the division of labour among industries
the representative firm, like the industry of which it is a part,
loses its identity. Its internal economies dissolve into the
internal and external economies of the more highly specialised
undertakings which are its successors, and are supplemented by
new economies. In so far as it is an adjustment to a new
situation created by the growth of the market for the final pro-
ducts of industry the division of labour among industries is a
vehicle of increasing returns. It is more than a change of form
incidental to the full securing of the advantages of capitalistic
methods of production-although it is largely that-for it has
some advantages of its own which are independent of changes
in productive technique. For example, it permits of a higher
degree of specialisation in management, and the advantages of
such specialisation are doubtless often real, though they may
easily be given too much weight. Again, it lends itself to a
better geographical distribution of industrial operations, and this
advantage is unquestionably both real and important. Nearness
to the source of supply of a, particular raw material or to cheap
power counts for most in one part of a series of industrial pro-
cesses, nearness to other industries or to cheap transport in
another part, and nearness to a larger centre of population in
yet another. A better combination of advantages of location,
with a smaller element of compromise, can be had by the more
14. 1928] INCREASING RETURNS AND ECONOMIC PROGRESS 539
specialised industries. But the largest advantage secured by
the division of labour among industries is the fuller realising of
the economies of capitalistic or roundabout methods of pro-
duction. This should be sufficiently obvious if we assume, as
we must, that in most industries there are effective, though
elastic, limits to the economicalsize of the individual firm. The
output of the individual firm is generally a relatively small pro-
portion of the aggregate output of an industry. The degree in
whichit can secureeconomiesby making its own operationsmore
roundabout is limited. But certain roundabout methods are
fairly sure to become feasible and economical when their advan-
tages can be spreadoverthe output of the whole industry. These
potential economies, then, are segregated and achieved by the
operations of specialised undertakings which, taken together,
constitute a new industry. It might conceivably be maintained
that the scale upon which the firmsin the new industry are able
to operate is the secret of their ability to realise economies for
industry as a whole, while presumably making profits for them-
selves. This is true in a way, but misleading. The scale of
their operations (which is only incidentally or under special con-
ditions a matter of the size of the individual firm)merely reflects
the size of the market for the final products of the industry or
industries to whose operationstheir own are ancillary. And the
principal advantage of large-scale operation at this stage is that
it again makes methods economicalwhich would be uneconomical
if their benefits could not be diffused over a large final product.
In recapitulation of these variations on a theme from Adam
Smith there arethree points to be stressed. First, the mechanism
of increasingreturnsis not to be discernedadequately by observ-
ing the effects of variations in the size of an individual firm or
of a particularindustry, forthe progressivedivision and specialisa-
tion of industries is an esserLtialpart of the process by which
increasingreturnsarerealised. What is requiredis that industrial
operationsbe seen as an interrelatedwhole. Second,the securing
of increasing returns depends upon the progressive division of
labour, and the principal economies of the division of labour, in
its modernforms, arethe economies which are to be had by using
labour in roundabout or indirect ways. Third, the division of
labour depends upon the extent of the market, but the extent of
the market also depends upon the division of labour. In this
circumstance lies the possibility of economic progress, apart
from the progresswhich comes as a result of the new knowledge
15. 540 THE ECONOMIC JOURNAL [DEC.
which men are able to gain, whether in the pursuit of their
economic or of their non-economic interests.
ALLYN A. YOUNG
NOTE
IN the accompanying construction (which owes much to Pareto),
a collective indifference curave,I, is defined by the condition that, at
equal cost, there would be no sufficient inducement for the community
to alter an annual production of x units of one commodity and y units
of another in order to secure the alternative combination of the two
commodities indicated by any other point on the curve.' Each com-
moditymight be taken as representative of a specialclass of commodities,
Y
C
d
P
Pt
0~~~
I X
produced under generally similar conditions. Or one commodity
might be made to represent " other goods in general," the annual
outlay of productive exertions being regarded as constant. Alter-
natively, one commodity muightrepresent " leisure " (as a collective
name for all non-productive uses of time). The other would then
represent the aggregate economic product.
There will be equilibrium (subject to instability of a kind whichwill
be described presently) at a point P, if at that point a curve of equal
costs, such as d, is tangent to the indifference curve. The curve of
equal costs defines the term-nsupon which the community can exchange
one commodity for the other by merely producing less of the one and
more of the other (abstraction being made of any incidelntalcosts of
1 The collective indifferenceis to be taken as an expository device, not as a
rigorous conception. The relative weights to be assigned to the individual in-
differencecurves of which it is compoundedwiU depend upon how the aggregate
productis distribuLted,and this will not be the same for all positions of P.
16. 1928] INCREASING RETURNS AND ECONOMIC PROGRESS 541
change). Negative curvature, as in d, reflects a condition of decreasing
returns, in the sense that more of either commodity can be had only
by sacrificing progressively larger amounts of the other. Although a
sufficientcondition, the presenceof decreasingreturnsis not a necessary
condition of equilibrium. There would be a loss in moving away from
P if equal costs were defiiled by the straight line c, which represents
constant returns. Increasing returns, even, are consistent with
equilibrium, provided that the degree of curvature of their graph is less
than that of the indifference curve. It might happen, of course, that
returns would decrease in one direction and increase in the other.
Curved, for example, might have a point of inflexion at or near P.
Consider now the conditions of departure from equilibrium. The
curve i is drawn so as to representpotentialincreasing returns between
P and P1, which lies on a preLerredindifference curve. If these
increasing returns were to be had merely for the taking, if i were, for
example, merely a continuation of the upper segment of d or c, P would
not be a point even of unstable equilibrium. The advance from P to P,
would be made by merely alteringthe proportions of the two commod-
ities produced annually. To isolate the problemof increasing returns
it is necessary to assume that P is a true point of equilibrium in the
sense that it is determined by a curve of equal costs, such as d or c.
The problem, then, has to do with the way in which the lower segment
of d or c can be transformedinto orreplacedby such a curve as i. This
requires, of course, that additional costs be incurred, of a kind which
have not yet been taken into account. To diminish the amount of the
one commodity which must be sacrificed for a given increment of the
other, some of the labour hitherto devoted to its production must be
used indirectly, so that the increase of the annual output of the one
lags behind the curtailing of the output of the other.
This new element of cost might be taken into account by utilising a
third dimension, but it is simplerto regard it as operating upon Ax,the
incrementin x accompanying the movement from P to P1, so as to move
the indifferencecurve upon which P1 lies towards the left. It would be
an error,however, to think that the combinations of x with y and x +
(AXx)with y - Ay (where (Ax) is the contracted form of Ax) are
themselves indifferent, so that P1 is, in effect, brought over on to the
original indifference curve, I, and no advantage is reaped. The path
fromP to P1 is apreferredroute, not merely a segment of an indifference
curve. The cost of moving along that route is a functlon of the rate
(in time) of the movement. An equilibrium rate (which need not be
constant), such as would keep the movement from P to P1 continuous
and undeviating, would be determined by the condition, not that
(Ax) and - Ay should negate one another, but that either an accelera-
tion or a retarding of the rate would be costly or disadvantageous.
Because a mountain climberadjusts his pace to his physical powersand
to the conditions of the ascent, it does not follow that he might as
well have stayed at the foot. Or, alternatively but not inconsistently,
17. 542 THE ECONOMIC JOURNAL [DEC. 1928
the movement from P to P1 may be conceived as made up of a series of
small steps, each apparently yielding no more than a barely perceptible
advantage, but only because the scale of reference for both costs and
advantages depends at each step upon the position which has then been
reached.
Several sets of circumstances will affect the amount and direction
of the movement. (1) Even if i has no point of inflexion, such as has
been indicated at P1 (merelyto simplify the first stages of this analysis),
it will sooner or later (taking into account the " contraction " of Ax)
become tangent to an indifferencecurve. In the absence of any other
factor making for change, progress would then come to an end. (2)
There may be another possible alternative path of increasing returns
extending upwards from P and curving away from 1. The most
advantageous route will then be a compromisebetween (or a resultant
of) the two limiting alternatives. In such circumstances the only
effective limitation imposed upon the extent of the movement may
come from the failure of elasticity of demand on one side or the other.
(3) Successiveindifferencecurvescannot be supposedto be symmetrical,
in the sense that dy/dx remains the same function of y/x. If, for
example, the slope of successive indifference curves at points corre-
sponding to given values of y/x decreases (indicating that the demand
for the commodity measured in units of y is relatively inelastic),
freedom of movement in the direction of P1 is reduced,while it becomes
advantageous to move a little way in the opposite direction along even
such a path as c or d. Under inverse conditions (with - dy/dx in-
creasing relatively to y/x for successive indifferencecurves) the extent
of the possible movement in-the direction of P1 is increased. This
conclusionamountsto no morethan the obvious theoremthat the degree
in which the decreasingreturnsencounteredin certain fieldsof economic
activity operate as a drag upon the securing of increasing returns in
other fields depends upon the relative elasticities of demandfor the two
types of products. But this consideration,like the others of which note
has been made, serves to make clear the generalnature of the reciprocal
relation between increasing returns and the " extent of the market."
(4) Discoveries of new supplies of natural resourcesor of newproductive
methods may have either or both of two kinds of effects. They may
tilt the curves of equal cost and they may modify their curvature
favourably. In either event a point such as P is moved to a higher
indifference curve, and the paths along which further progress can be
made are altered advantageously.