Lecture 1/2

Question 1

What is an entrepreneur?

Answer 1

Someone who creates and/or exploits change for profit by innovating, accepting risk and managing resources to areas of higher returns

Question 2

What is a gazelle?

Answer 2

a business that grows at a rate of 20% a year for 3+ consecutive years from a base of $100k

Question 3

What is a unicorn?

Answer 3

A tech start up that reaches a $1 billion market value

Question 4

What is Bolton’s (1971) definition of a small business? (3 points) and what are the problems with this definition?

Answer 4

• Owned and managed by the same individuals
• legally independent
• small share of the market - price taker
  problems: small in one sector is large in another, small businesses are heterogeneous (not the same)

Question 5

What are some problems with measuring SME’s?

Answer 5

• figures only count formal businesses
• may operate in the informal economy
• no standard measure of an SME

Question 6

What does Schumpeter believe?

Answer 6

• entrepreneur as innovator and agent of change

- uses new information to innovate (intro of new methods of production, open new markets)

Question 7

What does Kirzner believe?

Answer 7

• entrepreneur as a carrier of knowledge
• use existing information to create business
• focus on arbitrage (differences in prices)
• entrepreneurial profits are secured on the basis of knowledge and information gaps

Question 8

What is the entrepreneur as an INNOVATOR and as an ARBITRAGER?

Answer 8

Innovator: shifts production possibilities outwards, allows for higher output and therefore increases productivity
Arbitrager: reallocates resources in more efficient manner

Question 9

What are Baumol’s 3 types of entrepreneur?

Answer 9

productive: benefits society and individual
unproductive: no value to society, mainly the individual
destructive: negative impact on society

Question 10

What are some advantages of small businesses?

Answer 10

• quicker decision making
• flatter structure
• focus on smaller market
• fewer resources committed so less likely to fear failure

Question 11

What are some disadvantages of small businesses?

Answer 11

• less professional management
• lack market power (price takers)
• reliant on internal sources of finance
• pay more for external sources of finance

Question 12

What are some barriers to innovation?

Answer 12

• cost factors (availability of finance, direct innovation cost too high)
• knowledge factors (lack of qualified personnel, lack of info on markets)
• market factors (market dominated by established businesses)
• other factors (UK or EU gov. regulations)