Question

In about a half page discuss about the impact of " Creative Destruction " in microeconomics

Answer 1

Creative destruction:

The phenomenon of creative destruction was given by Austrian economist, Joseph Schumpeter in 1942. This process was described as a process of modification in industry that continuously changes the economic structure by destroying the old firms continuously and creating a new firm at the same time.

In this process, the old firms of the industries, which are not profitable anymore, are close down and its resources are used in other firms, which is more productive. The process of creative destruction said that the when a company is closed and the jobs are lost, it is said to be good for a economy of a country in long run. Hence, it can have both positive and negative effects.

Joseph Schumpeter described that the point of importance here is that which the economy deals with capitalism, it is dealing with the evolution process as well. For Schumpeter, the development in economy was a result of internal forces of the market, which in itself create the changes to earn profits and property.

The process of creative destruction is organic and dynamic. There are various examples of creative destruction. They are:

1. Powered looms: When the steamed powered looms were invented, it reduced the costs of making clothes, thus it made the traditional cottage industries to go out of business.
2. Music: Various inventions and technological changes have lead to rise and fall of various music companies.
3. Electronic mail: With the invention of e-mail, all the traditional ways of sending messages have gone out of business.
4. And others like invention of steam engine, mechanical agriculture, shipping process etc.