Tuesday, October 18, 2011
EWOT #7
This past week, I found online that Eastman Kodak is on the edge of bankruptcy. They have not had a profit since 2007, and has had huge stock decreases recently. A main reason that they are going under is because they are not keeping up with other companies like cannon and polaroid in their camera technology. This relates back to the discussion of business do well based on if the product they are selling are considered valuable to people at a good price. Most people today with cameras have digital cameras. Kodak is not known for its digital cameras. It is known for its cameras that have film. Since film cameras are not valued by most people and there are better digital cameras than the ones kodak sells, Kodak has little sales compared to other camera companies. If kodak produced a better camera that was valued people, then it would be doing well. SInce its products aren't valued by a lot of people anymore, they are likely to go bankrupt. The link to the article is http://finance.yahoo.com/blogs/daily-ticker/picture-kodak-not-pretty-161831444.html
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Profits and losses are signals and are vital in a well-functioning free market economy. I was emailing one of your classmates earlier this week about a remark Bill Clinton made in his speech, paraphrased here, "In a free market economy we need some experimentation, some level of failure of businesses in order for us to get the best products." Now Clinton said that we need to set what this level of failure is and "decide" on the right amount of experimentation, whereas in a true free market economy the "correct" amount of failure and losses are signaled and set by the market itself, not by an official, as Clinton seemed to imply. Your EWOT post plays on this concept, as if Kodak is losing money and suffering losses, it is a signal that consumers no longer value the products produced by the firm, and that it should be let go out of business, after all, that is what losses mean. Something like 90% of new firms go out of business, but this is not a "market failure", but instead a necessary function and feature of the system itself.
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