Price war or advertising collaboration?

One of the things I like about my textbook, is that it treats advertising as a separate influence on demand. In Dutch textbooks this is often raked up with other influences on taste. The author of my textbook even takes it one step further, by pointing out, in the chapter on price elasticity, that, in theory, you could calculate elasticity for anything that influences demand. So, I figured, this includes advertising. Therefore I did some research on advertising elasticity.

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Purpose: to allocate resources

I am pleasantly surprised that my textbook introduces the topic of economic systems with “The function of an economy is to resolve the basic economic problem” – the allocation of resources. I would like to be a little bit more specific though: The function of an economic system is to resolve the basic economic problem within the boundaries of the earth system, and with the inclusion of all.

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Division of labour

In the era of industrialisation, specialisation was the driver. It’s improvement of productivity was unsurpassed. The author of my textbook uses the well known example of the worker who could make 20 pins a day if he did all the stages in pin-making himself, whereas the same person can make 4,800 pins when he and nine others divide the work. This is virtuous when production needs to grow and labour and capital are scarce – it is then essential to increase labour productivity and the rate of capital utilisation. But what if labour is not scarce?

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