ABSTRACT
Economics 101 typically starts with a gloomy characterization of a post-Eden world of scarcity. Resources such as land, labour, buildings, and machines, that together can be used to produce goods, are limited. An attractive feature of free prices is that people have incentives to provide what other people are willing to pay a high price for, i.e., what people value highly. There are also good incentives for producing goods in the least costly way. Entrepreneurs have inducement to develop new products that consumers will value, and to find innovative methods to lower production costs. Incremental changes were also in the best interests of managers and workers. Enterprise managers lacked strong incentives to radically upgrade their existing facilities, because the short-term drop in output that such restructuring would entail would mean a loss of bonuses for workers and management, and the future benefits from the upgrading would largely accrue to the state, not the managers.
