Israel M. kirzner’s theory of Adjustment:
Kirzner, the noted economist, has coined the theory of adjustment of price. According to him, the essential entrepreneurial element is the alertness to information rather than its possession alone. He contends that those entrepreneurs who have the superior telescopic faculty keep themselves all the while alert to confront any disequilibrium in the market.
His theory has got the following features:
- Adjustment of Price: The chief role of entrepreneur is based upon the adjustment of price in the market. He contemplates that prevalence of wrong price in the market may reduce the profit of the entrepreneur. In this case, the buyer may pay higher price or seller may accept a lower price which may give rise to opportunities for profit. Further, if different prices prevail in the same market, there is the opportunity for profitable arbitrage between the two segments of the market. Thus, adjustment of price is the chief role of the entrepreneur.
- Alertness to disequilibrium: according to M. Kirzner, entrepreneur possessing superior foresight are alert to disequilibrium. Alertness enables the entrepreneur to intervene in the market by changing the price. Thus, economy in purchase & profitable selling results in economic gains.
- Knight’s theory of Profit:
This theory was given by Knight who says that the entrepreneur receives pure profit. Pure office according to him is the profit received for bearing the cost of uncertainty in business. According to Knight, uncertainty can be reduced through consolidation of individual experiences.