PowerPoint Slides © Michael R. Ward, UTA 2014

Kidney Transplants Two prominent hospitals recently refused patients for kidney transplants because the organs were from “directed donations.” Why? Most People: Trafficking in human organs is morally repugnant. Most Economists: A market would keep people from dying. Killing people is more repugnant. Good Business Person: Who cares. Lack of market implies a profit opportunity! Econ 5313

Dell/Alienware In 2006 Dell Computers purchased Alienware, a much smaller computer maker of high performance gaming computers. Why might this create value? Why might many mergers not create value? What evidence might you have of a major corporation’s acquisition of another firm creating or destroying value? Why would a merger occur if it destroyed value? Econ 5313

Selling an Existing Asset I recently sold my used car. If no new production occurred for this transaction, how could it have created value? Econ 5313

Corporate Raiders and Value Video from “Other People’s Money” Econ 5313

Government Policy What roles does government policy have in the creation of wealth? What affect does a tax have on wealth creation? Would subsidies have the same effect? In what situations would government intervention in a market create value? Econ 5313

Price Regulation What are the effects of anti-gouging laws? A “fair” price Mismatch between buyers and sellers Price no longer reflects value Black market Prices “unfair” again, but distribution more expensive No new supply Profit motive blunted Gas lines due to Superstorm Sandy Econ 5313

Flood Insurance The US government subsidizes flood insurance because those who want to buy it live in the flood plain and cannot get it at reasonable rates. How does this affect the efficient consummation of wealth creating transactions? Econ 5313

Sources of Value How do factories create value? How do restaurants create value? How do entertainers create value? How does an middle-manager with an MBA create value? How do corporate raiders create value? Econ 5313

From the Blog Chapter 2 Dallas Buyers Club Living Wage Market for Corporate Control Flood Subsidies Econ 5313

Main Points Wealth (or value) is created by moving assets from lower- to higher- valued uses. Voluntary transactions create moving assets to higher-valued uses. Wealth (or value) is destroyed by impediments to the movement of assets to higher-valued uses, like taxes, subsidies, or price controls. The art of business consists of identifying assets in low-valued uses and devising ways to profitably move them to higher-valued ones. Economic analysis is useful to business for identifying assets in lower-valued uses. A company can be thought of as a series of transactions. Design your organization to reward employees who identify and consummate profitable transactions or who stop unprofitable ones. Econ 5313