Economics for Leaders Lesson 6: Incentives, Innovation & the Role of Institutions.

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Presentation transcript:

Economics for Leaders Lesson 6: Incentives, Innovation & the Role of Institutions

How Was The Fashion Show?

Economics for Leaders Incentives & the Entrepreneur How do incentives motivate entrepreneurial activity? Do it if…… MB > MC

Climbing Out on a Limb (Risk)

Climbing Out on a Limb Incentives MB > MC ?

Incentives MB > MC ? Climbing Out on a Limb Profit

Economics for Leaders Production & Competition People engage in risky behavior based on the expectation of earning a profit. Competition between producers drives prices down, squeezing profits. Competition between producers leads to innovation and improves quality. PROFIT is the MOTIVATOR. COMPETITION is the REGULATOR.

Makin’ Muffins

MB > MC ?

Makin’ Muffins Lots of stuff for YOU!

Makin’ Muffins MB > MC ?

Makin’ Muffins No stuff for YOU!

Makin’ Muffins

Lots of stuff for YOU!

Makin’ Muffins = Entry & Innovation + =

Makin’ Muffins: Entry More Entry & Innovation += =

Makin’ Muffins And More Entry & Innovation + =

The Story of Ernő Rubik Institutions Matter!

Economics for Leaders

The Lollipop Game Let’s Play!

Economics for Leaders Big Ideas People engage in risky behavior based on the expectation of earning a profit. The entrepreneur is the residual claimant. Competition between producers drives prices down, squeezing profits. Competition between producers leads to innovation and improves quality.

Economics for Leaders Big Ideas Resources chase profit (entry) Resources run away from loss (exit) PROFIT is the MOTIVATOR COMPETITION is the REGULATOR INSTITUTIONS MATTER!

Economics for Leaders Quote of the Day Where there is no risk, there can be no pride in achievement! WHO said this?

Quote of the Day Where there is no risk, there can be no pride in achievement! Residual Claimant gets profit for taking risk. PROFIT is the MOTIVATOR. COMPETITION is the REGULATOR. Ray Kroc