The law of property determines who owns something, but the market determines how it will be used.
Ronald CoaseRead
Roughly speaking, when you are dealing with business firms operating in a competitive system, you can assume that they're going to act rationally. Why? Because someone in a firm who buys things at $10 and sells them for $8.00 isn't going to last very long in that firm.
Interpretation
What this quote means
Firms in a competitive market act rationally to survive.
The quote by Ronald Coase emphasizes that in a competitive business environment, firms are incentivized to make rational decisions in order to remain viable. If a firm consistently operates at a loss, such as buying products for $10 and selling them for $8, it will struggle to survive because rational economic behavior dictates that firms must seek profit to continue their operations effectively.
Themes
BusinessRationalityCompetitionProfitEconomics
In practice
Example use cases
During a business seminar to illustrate the importance of making wise financial decisions.
More from Ronald Coase
All quotes →During the two centuries since the publication of 'The Wealth of Nations,' the main activity of economists, it seems to me, has been to fill the gaps in Adam Smith's system, to correct his errors and to make his analysis vastly more exact.
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We must first note that economic factors are taken into account in a world in which ignorance, prejudice, and mental confusion, encouraged rather than dispelled by the political organization, exert a strong influence on policy making.
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