basics of economics are supporting Theory of Constraints !!,
Great book. Very compact for those not familiar to economics. Also very inspiring to understand business environment.
I am amazed to realize how strong the basics of economics are supporting Theory of Constraints.
Definition says "scarce resources" and "motivation to use them" as in TOC constraint and local vs global performance issues.
Basic assumption is "people has relevant info and full understanding to use it to make decisions". This is also matching with TOC objection about Cost World vs Throughput World paradigm shift.
Another assumption is "each person's goal when allocating scarce resources is to maximize his utility, utility = happiness". This is the core message in The Race and Th Choice books by Goldratt. We are supposed to have fast and remarkably good results at work to be successful and meanwhile devote the rest of time to our families and friends..
Mike Piper says "there is a misinterpretation of maximizing utility as being selfish". This is another TOC concept of local optima and cost World. We are selfishly going for our local optimas and sacrificing global optima.
Marginal utility is, by definition, additional utility per additional use of scarce resource which is coinciding with TOC concept of througput per constraint unit.
In economics there are accounting costs and economic costs. The difference is opportunity cost; accounting costs cover all documented cost and on top of it we place opportunity cost we achieve economic cost. Here comes the interesting point. We do accounting for our formal business but make our business decisions per economic cost! Because it fits better to our intuition. In TOC, former one is representing traditional cost accounting and other one is Througput Accounting (T, I, OE).
Diminishing rate of returns concept is well matching to TOC Viable Vİsion Green Curve. It also explains, in an implicit way, why we need to find next leverage point to focus for improvement.
Factors of production listed in economics and two alternative use methods are defined.
Productive efficiency means using all resources to their fullest capacity which is reductionist, cost World, push, local attitude.
Allocative efficiency means using min resorces to satisfy demand which is synchronized, throughput World, pull, global, TOC attitude.
I could place 5 focusing steps on well known production possibilities frontier graph easily.
Normal - inferior - substitute - complementing goods classification is a mean to go for market segmentation.
Market equilibrum concept is the root of why a mafia offer Works, if you could provide an option for client than he will switch to you to come towards equilibrum point of market.
Price ceiling in a market or price equiibrum point not attractive for every producer moments are real opportunities for TOC operating companies WHO has excess capacity to offer.
In economics there is another assumption saying "in a competitive market all producers do know how to produce and have similar cost characteristics" Consider a TOC operating company with excess capacity offering aggressive prices.. Consider a TOC operating company providing shorter lead times, better due date performance.... In cost World paradigm company "phantom product cost" concept is locking the future prosperity of the company...
As above the book is inspiring.. I strongly suggest to read it.