Discuss the extent to which the economic theories in the Market's Reader can be applied to the "New Economy".

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Q1-Discuss the extent to which the economic theories in the Market’s Reader can be applied to the “New Economy”.

In this part of the question, I will describe the old and new Economy, after that I will point out the main characters of New Economy and what is different between NEW and Old Economy. later than, I will discuss the demand of knowledge, ideas, innovation, and individual creative destruction, change in market and competitive as the main resource needed to make economic prosperity. I will discuss Innovation reduce costs and improve product quality and how advances technology achieve the cost reduction and reserve the economic scale in good level. Finally I will apply the Economic theories in market reader.

From around 1938 to 1974, the economy was built on a manufacturing base geared in the direction of standardized production (It was manual labor). It was organized into stable, hierarchical and generally high-handed organizations. These organizations achieved a competitive edge in the market by making standardized products faster and more economically. They focused on incremental cost reductions and a national marketplace.  In addition, that how this organization success and achieved there ogles in most courtiers, for example textile and steel industry.

That kind of economic start to collapse during the mid-70s and the early 90s. The crisis  included both textiles and steel industry, in a period of changeover from the old economic to the new economic ,a lot of countries loss their competitive frame because others were changing the production process more faster and cheaper. The cheap labor which had brought industries to the South Asia was being very cheap. At the same time, the social demand for the individual has change, workers become looking for a higher standard of living, new cars, washing machines, clothes and  bigger houses, which effect the economy.

On the other hand, the new economy is rising as a demand of knowledge and idea-based economy. The new economy, which was making success and prosperity used the new technology to produces high quality, low price production, also the new ideas and innovation that apply to all sectors of the economy which enhance the whole economy. For example, 80% of the jobs in US today do not depend on making things, process things, or generate information. In 50s, 60% of the firm's in US could use unskilled labor now a day only around 15 per sent of jobs can use unskilled labor.

Robert M. Howe author said ‘technology is in the hands of society at large’. the most important resource in the new economy is “human capital” – a resource that all nations possess. Development of productive capacity and its measurement is one of the challenges that nations and firms face in the “New Economy. It's being used to change the way that people and companies do business. Sellers and Buyers began to getting together in new manner.  Which give the Consumers more alternatives in deferent Prices? and that what make the knowledge society which has no borders to prevent that knowledge to transfer between nations  ,  also its available to everyone through easily acquired formal .

Globalization is becoming a truth mater, in our dally life, This new knowledge economy will rely heavily on knowledge workers. At present, this term is widely used to describe people with considerable theoretical knowledge and learning: doctors, lawyers, teachers, accountants, chemical engineers. But the most striking growth will be in “knowledge technologists”: computer technicians, software designers, analysts in clinical labs, manufacturing technologists, paralegals.

The decline of farming as a producer of wealth and of livelihoods has allowed farm protectionism to spread to a degree that would have been unthinkable before the second world war. In the same way, the decline of manufacturing will trigger an explosion of manufacturing protectionism

One of the most important jobs ahead for the top management of the big company of tomorrow, and especially of the multinational, will be to balance the conflicting demands on business being made by the need for both short-term and long-term results, and by the corporation's various constituencies: customers, shareholders (especially institutional investors and pension funds), knowledge employees and communities.

Where the old economy primarily focused toward local, state and national markets, the new economy has a global focus. Between 1960 and 1997, U.S. imports and exports grew at a rate 1.5 times faster than growth in domestic targeted production. The old industrialism focused on things and products and the new industrial (post industrial) economy depends on ideas and information. The new economy has meant a change in how states try to attract business and industry. In the old economy, the factors which drew industry to a state included low taxes, cheap land, abundant low priced labor, adequate natural resources, good transportation and other physical infrastructures. States trying to attract industry provided incentives such as tax breaks, free or low cost land, and other business incentives. Two key differences between the old and new economy in terms of how states or communities try to attract business and industry are:

Infrastructure now emphasizes information flow. Highways are still necessary, but ready access to the “information highway” is essential. Abundant low priced labor is not enough. Low priced US labor does not compete cost-wise with low priced overseas labor. Education is more important than cost to the technology oriented companies of the new economy. For example, in 1950, 60% of the workforce worked in unskilled jobs. In 2000, only 15% of the workforce is employed in unskilled jobs. The percentage of technical jobs has remained steady at around 20%. The unskilled jobs have gone away in favor of skilled jobs

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There are four models that in the market reader, that I will explain and how it could ably in the new economy.  First model; to consider is one that emphasizes the importance of competition in stimulating innovation in new products and new process. This competition was created by Joseph Schumpeter. Schumpeter views market as a dynamic model characterized by innovations which reduces costs and improves quality. Furthermore, costs can be reduced through achieving the economies of scales and this can be realized only by large and successful firms. Moreover, firms who do not go for innovations go bust, where firms reach market failure.

Schumpeter's point of view; monopolies in the short term are not regarded to be necessarily harmful since firms always require large financials resources to invest in developing innovations. The existence of short term monopolies enabled firms to accumulate the required resources.

In my point of view, this kind of free competition could reach to monopolies. Monopolies are representing one of market failures. They are considered harmful because they have less incentive to be efficient in the absence of effective rivals. In addition they may have higher costs and prices than what the consumer is intend to need. Therefore, free markets are obliged to interfere and introduce legislation in an attempt to control the growth of monopolies (maintain its freedom) and cartel agreements.

 

 Second model; It identifies competition with the absence of such corporate power in the market. 'Neoclassical model' of competition are productively efficient, that is, costs are at the minimum known level given the state of technology, and prices are at the minimum possible level.  Under Neoclassical model, no single firm can influence the market price through its action. All firms are price taker. Interests of consumers and suppliers are harmonized – brought into equilibrium. In this model, prices are determined impersonally in the market and this secures the equality between those demanding the good and those supplying the good.

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Neoclassical model examines the commodity prices influences by grouping them into two categories; side of supply (such as: right kind of labour, raw materials, machinery, power and the used technology) and side of demand (such as: influences affecting consumer demand e.g. income, lifestyle, age, and the social conventions and expectations)

 third model; F.A. Hayek is representing the third theoretical perspective of the competitive market. He admire the basic idea of the Neoclassical model (perfect competition) pointing out its main weakness; lack of emphasis on the process of competitive price information. Hayek theory concentrates in the process of competition according ...

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