Lesson 9: Entrepreneurship and Innovation

KEY FORCES IN AMERICAN HISTORY

1.       A key to understanding people’s behavior is figuring out the incentives they face.
2.       Economic freedom, rule of law, and well-defined property rights promote growth and prosperity.
5.       Entrepreneurship, business, and the pursuit of profit create opportunities and economic growth.
7.       Worker mobility and competition among employers prevent exploitation of workers.

ECONOMIC CONCEPTS that support the historical analysis:

Scarcity
Opportunity Cost
Incentives
Labor Markets
Supply and Demand
Expected Benefits v. Expected Costs
Monopoly
Economies of Scale
Risk and uncertainty
Profit

CONTENT STANDARDS

History Standards (from National Standards for History by the National Center for History in the Schools)

Era 6 – 1:  The student understands how the rise of corporations, heavy industry, and mechanized farming transformed the American people

Economics Standards (from Voluntary National Content Standards in Economics)

Standard 4:  People respond predictably to positive and negative incentives.

Standard 5:  Voluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation, and among individuals or organizations in different nations.

Standard 6:  When individuals, regions, and nations specialize in what they can produce at the lowest cost and then trade with others, both production and consumption increase.

Standard 9:  Competition among sellers lowers costs and prices, and encourages producers to produce more of what consumers are willing and able to buy. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them.

Standard 14:  Entrepreneurs are people who take the risks of organizing productive resources to make goods and services. Profit is an important incentive that leads entrepreneurs to accept the risks of business failure.

KEY IDEAS

• An entrepreneur (one who organizes, manages and assumes the risk of a business or enterprise) has many motives, but even if their goal is simply to maximize their own profits, they tend of benefit society as a whole by a) developing new and improved products, b) developing more efficient methods of production, c) tapping new markets, d) finding new and improved sources of supply, and e) discovering better methods of organization.
•  In a competitive economy opportunities to earn high profits are fleeting, because entrepreneurs and businesses will quickly enter markets where profits are high, thus increasing the supply, decreasing prices and driving profits down to the normal rate.
•  Because of entrepreneurs markets are dynamic, not static. In responding to profit opportunities, entrepreneurs continually move economic resources to their highest valued uses – and competition among entrepreneurs and businesses for workers drives up their wages.
• Often entrepreneurs try to stifle this relentless competition. Monopolies and collusion among businesses are difficult to achieve, so entrepreneurs may turn to the government to erect barriers to entry and keep potential competitors out. Historically, government has adopted many policies to encourage competition, but has also undercut these policies in important ways.
• Due to cultural norms and economic incentives, the U.S. economy has a strong record of entrepreneurship. Men and women of every racial and ethnic group – and of every social and educational background – have been successful entrepreneurs.
• Successful entrepreneurs have often become cultural icons (e.g. Cornelius Vanderbilt, Andrew Carnegie, John Rockefeller, Henry Ford, Walt Disney, Ray Kroc, Sam Walton, Bill Gates, Steve Jobs, Oprah Winfrey, and Russell Simmons) and many have established large philanthropies.