No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Nine: P31W: Enter the Entrepreneur! 204 production process, with certain expectations of complementary resource availability. We may want to increase the output of our farm, but are expecting fertilizer to be available at roughly the same price. But as the market process unfolds, we may find fertilizer prices have spiked because fossil fuel prices have risen dramatically (fertilizer is produced in part by fossil fuels). Everyone’s individual plans are dependent upon a whole series of assumptions about other people’s plans—those plans may or may not “dovetail” in a coordinated fashion. Individual market participant’s plans are said to “dovetail” when they are all mutually compatible (i.e., all parties’ plans are possible to implement). This is always a matter of degree in a world of time and ignorance. For example, if two people both plan on expanding their farms by purchasing a retiring neighbor’s tractor—one of their plans (at least) is not going to be satisfied. Whoever does not purchase the tractor will be forced to adjust his or her plan; either forgo the expanded production or purchase a more expensive alternative tractor. In the real world of the market process, our plans must be continually revised and adjusted to fit the competing realities of a myriad of others’ plans. Let’s go back to our dating game for a moment. If Bobby decides to ask Amelia out on a date, he may not know that Amelia was also asked out by Matt. Matt and Bobby’s plans are obviously not coordinated, and at least one of them is likely to be frustrated! Competition is a discovery process, as Matt and Bobby compete to discover Amelia’s underlying preferences. Indeed, Matthew and Bobby are not simply going to wait for her preferences to be made clear; rather, they will compete to shape her preferences— hopefully in favor of themselves! Markets are often no different, with firms aggressively trying to create a demand curve for their product. This is especially true in the dynamic markets of the real world, with unceasing innovation and new product introductions. What is the consumer’s preference for a product that has never been seen before? What was the demand curve for an iPad prior to its introduction? These unknowns cannot be solved by a traditional supply and demand analysis in isolation. ENTER THE ENTREPRENEUR! There is an equilibrating force in the market that tends to help individual plans work out in a coordinated fashion. As we will see, the market process provides the incentives necessary for someone to stand in the gap for the consumer. The entrepreneur steps in to coordinate plans by fulfilling the following market functions: § § Seeing a problem and stepping up to solve it—The entrepreneur is a problem solver, not just an observer of problems; this individual takes action. § § Appraising implications of changes in the data in the market—The entrepreneur is an appraiser of valuation. § § Seeing an opportunity to take advantage of differences in relative prices between