Common Sense Economics: What Everyone Needs to Know about Wealth and Prosperity
Profits direct businesses toward productive activities that increase the value of resources, while losses direct them away from wasteful activities that reduce resource value.
In a market economy, losses and business failures work constantly to bring inefficient activities – such as producing shirts that sell for less than their cost – to a halt. Losses and business failures will redirect the resources toward the production of other goods that are valued more highly. Thus, even though business failures are often painful for the owners, investors, and employees involved, there is a positive side: They release resources that can be directed toward wealth-creating projects.
- Are we better off with Netflix than we were having to go to a video store to get a movie?
- Should Netflix have to pay the former employees of Blockbuster a salary, since it made them lose their job?
- What do you think the former employees of Blockbuster are doing these days? Are their talents and skills likely being better used?
This reading is an excerpt from Certell’s Common Sense Economics eBook. Certell offers curriculum materials and eBooks free of charge for students and teachers. Click here to download the Common Sense Economics Materials.
10, Sept. 2018, Blockbuster [Digital photograph]. Retrieved from <google.com>.
10, Sept. 2018, Netflix 2018 [Digital photograph]. Retrieved from <google.com>.