What is meant by creative destruction?

Creative destruction is the process by which innovation creates new products and methods that destroy the market position of established firms and the older ways of producing.

Give an example of creative destruction in a consumer market.

Streaming services displaced high-street film and DVD rental, destroying that business model while creating a new one.

Why can creative destruction raise living standards even though established firms fail?

The resources released by failing firms are redeployed into more productive uses, and consumers gain better or cheaper products.

What is the main cost of creative destruction to workers?

Workers in declining industries lose their jobs and can face long-term structural unemployment where their skills do not transfer.

Edexcel A-Level Economics B 9EB0

Scarcity, Choice and Potential Conflicts

Topic overview Scarcity and the economic problem Choice, trade-offs and opportunity cost Profit maximisation, sales maximisation and satisficing Survival, market share and other business objectives Stakeholders and their objectives Stakeholder conflicts and corporate social responsibility

Enterprise, Business and the Economy

Topic overview The entrepreneur and creative destruction Adding value Entrepreneurial motives Factors of production Division of labour and specialisation The wider economic environment and the firm

Introducing the Market

Topic overview Consumer objectives and the demand curve Movements along and shifts of the demand curve Producer objectives and the supply curve Movements along and shifts of the supply curve Equilibrium price and quantity Excess demand, excess supply and market forces Shifts in demand and supply in real markets Limitations of the supply and demand model Functions of the price mechanism Mass markets, niche markets and market growth Market research and consumer insight Market segmentation Market mapping and competitive advantage Adding value, pricing decisions and dynamic markets

The Role of Credit in the Economy

Topic overview Banks and the channelling of savings into investment Bank lending, interest rates and collateral Risk in business decision-making Limited and unlimited liability Loans, overdrafts and trade credit Venture capital, share capital and leasing Owner's capital, retained profit and other sources of finance Challenges in obtaining credit and the impact of credit on the economy

Market Failure and Government Intervention

Topic overview Private, external and social costs Private, external and social benefits Externalities in production and consumption Strengths and weaknesses of the market economy The purpose and methods of government intervention Government failure

Revenue, Costs, Profits and Cash

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Business Growth and Competitive Advantage

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Firms, Consumers and Elasticities of Demand

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Life in a Global Economy

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The Economic Cycle

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Introduction to Macroeconomic Policy

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Globalisation

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Economic Factors in Business Expansion

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Impact of Globalisation on Global Companies

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Impact of Globalisation on Local and National Economies

Topic overview Multinational corporations and local labour markets Multinational corporations and local firms Multinationals, the local community and the environment Foreign direct investment, growth and the balance of payments Technology transfer, skills and business culture Multinationals and consumers Tax revenues and transfer pricing Stakeholder conflicts, pay and working conditions Emissions, waste disposal and supply chain ethics Ethical marketing: labelling and promotion Controlling multinational corporations

Global Labour Markets

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Inequality and Re-Distribution

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Competition and Market Power

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Market Power and Market Failure

Topic overview Cartels, collusion and restrictive practices Monopsony, natural monopoly and power in the labour market The implications of market failure for firms, consumers and government Promoting competition: anti-competitive practices, mergers and privatisation Regulating natural monopolies and protecting consumers and employees The Competition and Markets Authority and EU competition policy The benefits and costs of regulation

Market Failure Across the Economy

Topic overview Merit and demerit goods Factor immobility and information failure Externalities and social costs and benefits Environmental externalities and environmental change Policies to correct market failure

Macroeconomic Policies and Impact on Firms and Individuals

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Risk and the Financial Sector

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Enterprise, Business and the Economy

The entrepreneur and creative destruction

3 things to know
Papers 1 and 3

Overview

The entrepreneur, creative destruction and Schumpeter, its benefits for living standards and cost to workers, the risks of starting a business, the entrepreneur as residual claimant, start-up decisions, organic growth and expansion, entrepreneurs against salaried managers, the opportunity cost of self-employment, and business failure.

What you need to know

Answer each one before you reveal it.

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Evaluation

Who named creative destruction, and what does the process gain and cost an economy?

Key term

Define an entrepreneur.

Key term

Which economist is associated with the idea of creative destruction?

Questions from this subtopic

Each one with the model answer underneath.

1
Define an entrepreneur.
Model answer
An entrepreneur is the person who organises the other factors of production into a business and bears the risk of the venture.
2
What is meant by creative destruction?
Model answer
Creative destruction is the process by which innovation creates new products and methods that destroy the market position of established firms and the older ways of producing.
3
Which economist is associated with the idea of creative destruction?
Model answer
Joseph Schumpeter is associated with creative destruction.
4
Give an example of creative destruction in a consumer market.
Model answer
Streaming services displaced high-street film and DVD rental, destroying that business model while creating a new one.
5
Why can creative destruction raise living standards even though established firms fail?
Model answer
The resources released by failing firms are redeployed into more productive uses, and consumers gain better or cheaper products.
6
What is the main cost of creative destruction to workers?
Model answer
Workers in declining industries lose their jobs and can face long-term structural unemployment where their skills do not transfer.

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