Bus 305 Module 1 - Market Behavior

TUI UNIVERSITY

Module 1 Case Assignment

BUS305: Market Behavior

October 11, 2010

As defined in Merriam-Webster dictionary, a fallacy is often a plausible argument using false or invalid inference. The broken window fallacy describes the rippled effects of actions both seen and unseen. In the story itself, a hoodlum breaks a window of a bakery with a brick. The baker of the store must make a decision as to fix his window or not. He had planned on purchasing a new suit prior to his window being broken. So now a glazier will make money to fix the glass that was broken. That would be the immediate effects that are seen. Because the baker is no longer able to purchase a new suit, the tailor will not generate any income to his business. That would be the effects of the unseen.

The local townspeople have experienced both seen and unseen effects. Some have stated that it is unfortunate for the baker but fortunate for the glazier. Other stated it is unfortunate for the baker and the tailor, but fortunate for the glazier. Then there is still the thought that no one profited from this act as the town itself did not benefit. Maybe the glazier will use the money for the repair and buy himself something new, which then could become the town’s revenue. The cycle could probably continue throughout the town based on the money spent for the window. But realistically, destruction is not profitable. I think the easiest way to interpret this story is simply that unless new business is created our economy does not move ahead, it stays stagnant. New industries and labor creates business. In order for the economy to increase revenue, new business must be generated. If a town were to continue to purchase items from each other’s businesses, the town would stay relatively the same as far as profit. However, if a new business opened up in the town, it creates new jobs and more revenue overall. Still, the bottom line is left up to...