Q1. Consider two countries—A and B. Country A is characterized by a command econ
ID: 1224508 • Letter: Q
Question
Q1. Consider two countries—A and B. Country A is characterized by a command economy, absence of property rights, high entry barriers for new businesses, and forced child labor. Country B, on the other hand, is characterized by well-defined private property rights, a developed market system, and no entry barriers for new businesses. a) Which of the two countries is likely to oppose creative destruction more? b) Why? Q2. Consider two countries: A and B. Assume that both countries are exactly similar to the year 2000. At the beginning of the year 2000, both countries decide to change their strategy for economic growth. Country A plans to encourage immigration and increase human capital in the economy to achieve sustained growth, while Country B decides to make significant investments in research and development to achieve sustained growth. A) Which of the two countries is more likely to experience continued growth and why?
Explanation / Answer
Q.1. Creative destruction refers to in simple terms as destruction of old techniques, products which get replaced with new and innovative techniques and products.
Country A does not have property rights that imposes threats to right of firms or individuals controls over an innovation. In such scenario protection of innovativeness is less. Beside barriers to entry create hurdles to fresh blood and fresh mind injections into the industries that prmotes innovation and creativity. Therefore, Country A is likely to oppose creative destruction more.
Q.2. Country B will experience continued growth. Country A has just increased its labour supply through immigration, this larger labour supply do not bring something innovative alon themselves and as this supply will someday become old hence continued growth of economy is at stake. Whereas, country B has invested in researc and development that will help it with better technology that would help economy grow even with lesser labour at continue basis.
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