Economics Private and Public Choice
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Economics: Private and Public Choice is an aid for students and general readers to develop a sound economic reasoning. The book discusses several ways to economic thinking including six guideposts as follows: (i) scarce goods have costs; (ii) Decision-makers economize in their choices; (iii) Incentives are important; (iv) Decision-makers are dependent on information scarcity; (v) Economic actions can have secondary effects; and (vi) Economic thinking is scientific. The book explains the Keynesian view of money, employment, and inflation, as well as the monetarist view on the proper macropolicy, business cycle, and inflation. The book also discusses consumer decision making, the elasticity of demand, and how income influences demand. The text analyzes costs and producer decisions, the firm under pure competition, and how a competitive model functions. The book explains monopoly, and also considers the high barriers that prevent entry such as legal barriers, economies of scale, and control over important resources. The author also presents comparative economic systems such as capitalism and socialism. This book can prove useful for students and professors in economics, as well as general readers whose works are related to public service and planning in the area of economic development.
Table of Contents
Suggested Outlines for One-Semester Courses
I The Economic Way of Thinking - An Introduction
1 The Economic Approach
What Is Economics About?
Man's Losing Struggle with Scarcity
The Economic Way of Thinking
Normative and Positive Economics
Looking for Action?—Try Economics
Myths of Economics: "Economics rejects the humanitarian side of man."
Perspectives in Economics: Do Material Goods Bring Happiness?
2 Some Tools of the Economist
Opportunity Cost Is the Highest Valued Opportunity Lost
The Production Possibilities Curve
Trade Tips and Comparative Advantage
Dependence, Specialization, and Exchange
Three Economizing Decisions Facing All Nations: What, How, and for Whom
Two Methods of Making Decisions—The Market and Government Planning
Myths of Economics: "In exchange, if someone gains, someone else must lose. Trading is a zero-sum game."
3 Market Decisions and the Market Process
Scarcity Necessitates Rationing
Consumer Choice and the Law of Demand
Producer's Choice and the Law of Supply
Price and Market Equilibrium
Shifts in Demand and Advice on How to Pass Your First Economics Exam
Shifts in Supply
Time and the Adjustment Process
Supply and Demand in Action
Repealing the Laws of Supply and Demand
Rationing and Motivating, the Two Great Attributes of the Market
Myths of Economics: "Rent controls are an effective method of assuring adequate housing at a price the poor can afford."
4 A Bird's-Eye View of the Public Sector
Ideal Economic Efficiency
Why Might the Invisible Hand Fail?
Government—A Potential Vehicle for Gain
Redistribution—Dividing the Economic Pie
The Market and the Public Sector—Two Methods of Economic Organization
Conflicts between Good Economics and Good Politics
Outstanding Economist: James Buchanan
5 Taxes and Government Spending
What Do Federal, State, and Local Governments Buy?
Sources of Tax Revenues
The Concept of Incidence
Who Pays the Tax Bill?
The Taxes Others Paid
Myths of Economics: "The growth of the federal government has been the major source of government expansion."
Controversies in Economics: Is There an Energy Crisis or a Policy Crisis?
6 Taking the Nation's Economic Pulse
The Concept of the GNP
Two Ways of Measuring GNP
Gross National Product or Gross National Cost?
Five Problems with GNP as a Measuring Rod
What the GNP Does Not Measure
The Great Contribution of GNP
Other Related Income Measures
Outstanding Economist: Simon Kuznets
7 Unemployment, Inflation, and Business Cycles
Swings in the Economic Pendulum
A Hypothetical Business Cycle
Three Different Views of the Business Cycle
The Normal Rate of Unemployment
Actual and Potential GNP
Questions and Answers about Inflation
Myths of Economics: "Unemployed resources would not exist if the economy were operating efficiently."
8 Aggregate Equilibrium and a Simple Keynesian Model
Keynes and the Views of Classical Economists
Tools of Modern Keynesian Analysis
Equilibrium and the Keynesian Model
Adding Government Demand
Leakages and Injections—Another Way of Looking at Equilibrium
Pulling It Together
Outstanding Economist: John Maynard Keynes
9 The Multiplier, Accelerator, and a Keynesian View of the Business Cycle
The Multiplier Principle
Business Pessimism - A Self-Fulfilling Prophecy
Investment Instability and the Accelerator
A Keynesian View of the Business Cycle
Investment and the Cycle
10 Fiscal Policy
Public Policy to Deal with a Recession
Fiscal Policy to Deal with Inflation
The Central Idea of Fiscal Policy
The Full-Employment Budget Concept
Has Real World Fiscal Policy Been Stabilizing?
Spending versus Taxing Alternatives
Outstanding Economist: Walter Heller
Perspectives in Economics: Fact and Fiction about the National Debt
11 Money and the Banking System
What Is Money?
The Business of Banking
Fractional Reserve Goldsmithing
Fractional Reserve Banking
The Federal Reserve System
How the Fed Controls Our Money Supply
The Fed and the Treasury
Dynamics of Monetary Policy
Outstanding Economist: Arthur Burns
12 Money, Employment, Inflation, and a More Complete Keynesian Model
The Demand and Supply of Money
Interest Rates and Investment
Expansionary and Restrictive Monetary Policy
How Monetary Policy Works - The Keynesian View
Combining Monetary and Fiscal Policy
Did Macropolicy Cause the Inflation of the 1970s?
Will Monetary Policy Always Stimulate Demand?
Full Employment and Inflation in the Real World
Outstanding Economist: Paul Samuelson
Controversies in Economics: Will There Ever Be Another Great Depression?
13 The Business Cycle and Inflation—The Monetarist View
The Equation of Exchange
The Classical View—Money Does Not Matter
The Early Keynesians—Money Still Does Not Matter Much
The Modern Monetarist—Money Matters Most
The Impact of Money—The Monetarist View
Money and Business Cycles
Money, Recessions, and Inflation—The Record
Money and Inflation in Other Countries
Outstanding Economist: Milton Friedman
Myths of Economics: "Inflation is caused by greedy businessmen and union leaders."
Perspectives in Economics: Inflation: Its Cause and Cure—A Monetarist's View
14 Proper Macropolicy—The Monetarist View
Two Things That Monetary Policy Cannot Do—The Monetarist View
Limited Effectiveness of Monetary Policy—The Monetarist View
Three Things Monetary Policy Can Do—The Monetarist View
Why Macroplanners May Do the Wrong Thing
Constant Rate of Monetary Growth—The Monetarist View of Proper Policy
The Monetarist View of Fiscal Policy
Myths of Economics: "The high interest rates of the 1970s resulted because the Fed was reducing the rate of monetary expansion."
Perspectives in Economics: Why Fiscal Policy Is Impotent - An Interview with a Monetarist
15 Dealing with Unemployment and Inflation
Can Wage-Price Controls Make Macro-"Solutions" More Effective?
Dealing with Youth Unemployment
Could We Better Target Government Spending?
Do Unemployment Compensation and Welfare Benefits Increase the Unemployment Rate?
Indexing—Learning to Live with Inflation
Pulling It All Together
Controversies in Economics: Keynesians, Monetarists, and Middle-of-the-Roaders on Macroeconomics
16 Demand and Consumer Choice
Consumer Decision-Making—Deciding What to Buy
Consumer Choice and Market Demand
What Will Cause the Demand Curve to Shift?
Time Cost and Consumer Choice
Elasticity of Demand
How Does Income Influence Demand?
Why Do Consumers Buy That?
Outstanding Economist: John Kenneth Galbraith
Controversies in Economics: Advertising—The Views of Its Critics and Defenders
17 Costs and Producer Decisions
The Business Firm
Calculating Economic Costs and Profits
Total Costs, Average Costs, and Marginal Costs
Rate of Output and the Firm's Cost in the Short Run
Costs in the Long Run
What Factors Will Cause the Firm's Cost Curves to Shift?
Costs and the Economic Way of Thinking
Myths of Economics: "A good business decision-maker will never sell a product for less than its production cost."
18 The Firm under Pure Competition
Two Meanings of Competition
The Assumptions of the Purely Competitive Model
Why Is Pure Competition Important?
The Workings of the Competitive Model
The Firm and Competitive Markets
The Role of Profits in the Competitive Model
Supply Elasticity and the Role of Time
Market Adjustments to Changing Production Costs
Efficiency and the Competitive Model
19 Monopolistic Competition, Product Differentiation, and Low Barriers to Entry
The Hypothetical Model of Monopolistic Competition
Price and Output under Monopolistic Competition
Real World Monopolistic Competitors
Competition and the Economic Way of Thinking
Contrasting Pure and Monopolistic Competition
Outstanding Economist: Joan Robinson
Controversies in Economics: Is Monopolistic Competition Inefficient?
Perspectives in Economics: Is Planned Obsolescence Good Business?
20 Monopoly and High Barriers to Entry
Competition is Great, But
What Is a Monopoly?
The Hypothetical Model of Monopoly
Why Monopoly Is Bad
When Can a Monopolized Industry Be Competitive?
Economies of Scale and Natural Monopoly
Regulating the Monopolist
The Government Operated Firm
There Are No Ideal Solutions
Perspectives in Economics: How the Regulators Promote Inefficiency and Protect You from Low Prices—The Case of Transportation
21 Oligopoly and the World of Big Business
Characteristics of Oligopoly
Price and Output Determination
It Pays to Collude . . . and to Cheat
The Kinked Demand Curve
Monopoly Power and Profit—The Early Bird Gets the Worm
Real World Oligopolists
Outstanding Economist: George Stigler
Perspectives in Economics: Profits and Other Four-Letter Words
22 Business Structure, Competition, and Public Policy
The Two Faces of Business Power
How Much of Our Economy Is Competitive?
Does Big Business Dominate the U.S. Economy?
Antitrust Legislation—The Policy Objectives
Major Antitrust Legislation
Alternative Views on Antitrust Policy
Perspectives in Economics: A Program to Promote Competitive Markets
Perspectives in Economics: A Galbraithian View of a Modern Industrial Economy
IV Factor Markets and Income Distribution
23 The Supply and Demand of Productive Resources
Human and Nonhuman Resources
The Demand for Resources
The Firm's Hiring Decision
The Supply of Resources in the Short Run
The Supply of Resources in the Long Run
Supply, Demand, and Resource Prices
Outstanding Economist: Gary Becker
24 Earnings and the Job Market
Why Do Earnings Differ?
Productivity and the General Level of Wages
How Is the Economic Pie Divided between Physical and Human Capital?
Can Higher Wages Be Legislated?
Myths of Economics: "Automation is the major cause of unemployment."
25 Union Power—A Shield or a Threat?
What Is a Collective Bargaining Contract?
The Strike—A "Big Stick" of the Union
The Strike and Serious BargainingHow Does the "Big Stick" Affect the Public?
Getting More for Union Members
What Gives the Union Muscle?
How Much More Do Union Members Get?
Unions and Inflation
The Power of Big Labor
Myths of Economics: "Unions have increased the share of income going to labor."
Perspectives in Economics: What Can We Expect from the Rapid Growth of Public Sector Unionism?
26 Inequality, Income Mobility, and Poverty
Income Inequality in the United States
Income Inequality in Other Countries
Inequality and Income Inequality
Intergenerational Income Mobility
Poverty in the United States
Three Approaches to Poverty
Controversies in Economics: The Cases for and against the Negative Income Tax
27 Employment Discrimination and the Earnings of Blacks and Women
What Is Employment Discrimination?
How Does Discrimination Influence Earnings?
Does It Pay to Discriminate?
The Cost of Discrimination—The Case of Baseball
Employment Discrimination and the Earnings of Blacks
Are Things Improving?
Everything You Always Wanted to Know about Female Earnings—But Were Afraid to Ask
The Future Status of Minorities and Women
Outstanding Economist: Juanita Kreps
V Public Choice
28 Problem Areas for the Market
Market Failure: External Cost
Market Failure: External Benefits and Opportunities Missed
Market Failure: Public Goods
Market Failure: Poor Information
Outstanding Economist: Allen Kneese
Perspectives in Economics: An Emissions Charge Strategy to Control Pollution
29 Public Choice and Gaining from Government
Voters and the Demand for Political Action
Supply, Profits, and the Political Entrepreneur
Money, Political Advertising, and the Successful Politician
The Opportunity Cost of Government
Market Failure and Gaining from Government
Can Income Redistribution Promote Social Gain?
Actual Income Redistribution—Winners and Losers
Perspectives in Economics: Externalities, No-Fault Insurance, and Government Action to Improve on the Market
30 The Economics of Government Failure
Government Failure: Voter Ignorance and Inefficient Public Policy
Government Failure: The Special Interest Effect
Government Failure: The Shortsightedness Effect
Government Failure: Little Entrepreneurial Incentive for Internal Efficiency
Government Failure: Imprecise Reflection of Consumer Preferences
Is an Economic Analysis of the Public Sector Too Cynical?
Public Sector and the Market—Revisited
Outstanding Economist: Kenneth Arrow
Perspectives in Economics: Dealing with Special Interests
VI International Economics
31 Gaining from International Trade
The Size of the International Sector
Why Do Nations Trade?
Supply, Demand, and International Trade
Tariffs and Quotas
Why Industries Are on the Dole
International Trade and the Great Oil Cartel
Myths of Economics: "Free trade with low-wage countries such as China and India would cause the wages of U.S. workers to fall."
32 International Finance and Balance of Payments
Foreign Exchange Markets
Balance of Payments and Exchange Markets
Deficits, Surpluses, and Balance of Payments
Trading with Flexible Exchange Rates
Trading with Fixed Exchange Rates
Fixed versus Flexible Exchange Rates
33 Comparative Economic Systems
Comparing Capitalism and Socialism
Common Constraints and the Universality of Economic Tools
The Soviet Economy
Yugoslavia—Socialism or the Market?
Socialism or Capitalism?
Outstanding Economist: Wassily Leontief
Appendix A A Graphic Look at Economics
Appendix B Analyzing the Equilibrium Level of Income with Equations
Appendix C Analyzing Aggregate Equilibrium with the IS-LM Model
Suggestions for Additional Reading
Hints for Answering Discussion Questions
- No. of pages: 678
- Language: English
- Copyright: © Academic Press 1976
- Published: January 1, 1976
- Imprint: Academic Press
- eBook ISBN: 9781483264301
About the Author
James D Gwartney
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