PowerPoint Slides © Michael R. Ward, UTA 2014
Econ 5313
Kidney Transplants
• Two prominent hospitals recently refused patients for
kidney transplants because the organs were from
“directed donations.” Why?
• Most People: Trafficking in human organs is morally
repugnant.
• Most Economists: A market would keep people from
dying. Killing people is more repugnant.
• Good Business Person: Who cares. Lack of market implies
a profit opportunity!
Econ 5313
Dell/Alienware
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In 2006 Dell Computers purchased Alienware, a
much smaller computer maker of high performance
gaming computers.
Why might this create value?
Why might many mergers not create value?
What evidence might you have of a major
corporation’s acquisition of another firm creating or
destroying value?
Why would a merger occur if it destroyed value?
Econ 5313
Selling an Existing Asset
• I recently sold my used car. If no new production
occurred for this transaction, how could it have
created value?
Econ 5313
Corporate Raiders and Value
Video from “Other People’s Money”
http://www.youtube.com/watch?v=62kxPyNZF3Q
Econ 5313
Government Policy
• What roles does government policy have in the creation of
wealth?
• What affect does a tax have on wealth creation?
• Would subsidies have the same effect?
• In what situations would government intervention in a
market create value?
Econ 5313
Price Regulation
• What are the effects of anti-gouging laws?
• A “fair” price
• Mismatch between buyers and sellers
• Price no longer reflects value
• Black market
• Prices “unfair” again, but distribution more expensive
• No new supply
• Profit motive blunted
• Gas lines due to Superstorm Sandy
Econ 5313
Flood Insurance
The US government subsidizes flood insurance because those
who want to buy it live in the flood plain and cannot get it at
reasonable rates. How does this affect the efficient
consummation of wealth creating transactions?
Econ 5313
Sources of Value
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How do factories create value?
How do restaurants create value?
How do entertainers create value?
How does an middle-manager with an
MBA create value?
• How do corporate raiders create value?
Econ 5313
From the Blog
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Chapter 2
Dallas Buyers Club
Living Wage
Market for Corporate Control
Flood Subsidies
Econ 5313
Main Points
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Wealth (or value) is created by moving assets from lower- to highervalued uses.
Voluntary transactions create moving assets to higher-valued uses.
Wealth (or value) is destroyed by impediments to the movement of
assets to higher-valued uses, like taxes, subsidies, or price controls.
The art of business consists of identifying assets in low-valued uses
and devising ways to profitably move them to higher-valued ones.
Economic analysis is useful to business for identifying assets in
lower-valued uses.
A company can be thought of as a series of transactions. Design your
organization to reward employees who identify and consummate
profitable transactions or who stop unprofitable ones.