Austrian economics & local business

Key points

• Subjective Value

Austrian economics emphasizes that value is subjective. Individuals determine the value of goods and services based on their personal preferences and needs.

• Opportunity Cost

It suggests that individuals make decisions based on the opportunity cost, which is the value of the next best alternative foregone.

• Time Preference

It also considers time preference, meaning individuals value present goods more than future goods, influencing savings and investment decisions.

• Entrepreneurship

Austrian economics views individuals as entrepreneurs who seek to discover and exploit opportunities for profit in the market.

• Spontaneous Order

It proposes that order in markets arises spontaneously from the actions of individuals without central direction.

These principles guide individual decision-making in personal finance, business, and other economic activities.

Austrian Economics & Entrepreneurship

In Austrian economics, entrepreneurship is seen as a key driver of economic activity. Below's a deeper look into this concept:

Discovery of Opportunities

Entrepreneurs are individuals who notice and act upon opportunities for profit that others may not see. They are alert to discrepancies between current prices and potential future prices.

Risk and Uncertainty

Entrepreneurs assume the risk and deal with uncertainty in the market. They make decisions based on their judgment of what consumers will want in the future.

Coordination Function

Entrepreneurs help coordinate resources in the economy by moving them from less valued to more valued uses, according to consumer preferences.

Innovation

They drive innovation by introducing new products, processes, or methods of production, often leading to economic growth and development.

Dynamic Change

Austrian economics views the market as a dynamic process, with entrepreneurship at the heart of this change, constantly shifting resources in response to changing conditions and preferences.

Entrepreneurship, from an Austrian perspective, is about the individual’s role in creating and responding to economic signals in a way that promotes efficiency and growth.

Illustration

Here’s a hypothetical example of entrepreneurial action.

Imagine a person notices that in their city, there’s a growing demand for organic food, but there are few suppliers. Recognizing this opportunity, the individual decides to start an organic food delivery service. They source produce from local organic farms and create a subscription model where customers can receive weekly deliveries of fresh organic produce.

This entrepreneur has identified a gap in the market (opportunity), assumed the risk of starting a new venture (risk and uncertainty), coordinated resources (coordination function), introduced a new service (innovation), and contributed to the dynamic nature of the market by responding to consumer preferences (dynamic change).

This action exemplifies how entrepreneurs can drive economic activity by being attuned to the needs and wants of consumers and taking calculated risks to meet those demands.