Private and Public Choice

2nd Edition - January 1, 1980

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  • Authors: James D Gwartney, Richard Stroup
  • eBook ISBN: 9781483264431

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Economics: Private and Public Choice, Second Edition deals with modern Keynesian theory, monetarist theory, collective decision-making, and the traditional demand-side of macroeconomics. The book explains economic principles, such as taxation, government expenditure, public choice theory, rate of employment, aggregate supply, fiscal policy, low productivity, inflation, and adaptive expectation hypothesis. The text also covers microeconomics, particularly, capital interest, profits, energy market, and the indifference curve analysis. The book discusses inequality, income mobility, and the battle against poverty where a market system can encourage the careful use of resources, high productivity, and freedom of choice for individuals to bear the costs and reap the benefits. The text points out that income redistribution can result in some conflicts. As an example, the book analyzes income inequality in the United Sates, income inequality in other countries, as well as its causes. The book also describes the characteristics of less developed countries as having low per capita income, dominance of agriculture-household sector, rapid population growth, income that is more unequally distributed, including inadequate health care and education. The book is suitable for economists, sociologists, and policy makers involved in national economic development.

Table of Contents

  • Suggested Outlines for One-Semester Courses



    Part One: The Economic Way of Thinking—An Introduction

    Chapter 1 The Economic Approach

    What Is Economics About?

    The Economic Way of Thinking

    Positive Economics

    Normative Economics

    Pitfalls of Positive Economics

    What Do Economists Do?

    Outstanding Economist: Adam Smith (1723-1790) and the Historical Roots of Economics

    Myths of Economics: "Economic Analysis Assumes that People Act Only Out of Selfish Motives. It Rejects the Humanitarian Side of Humankind."

    Chapter 2 Some Tools of the Economist

    Opportunity Cost Is the Highest Valued Opportunity Lost

    The Production Possibilities Curve

    Trade Tips and Comparative Advantage

    Three Economizing Decisions Facing All Nations: What, How, and for Whom?

    Two Methods of Making Decisions—The Market and Government Planning

    Outstanding Economists: David Ricardo (1772-1823) and the Early Followers of Smith

    Myths of Economics: "In Exchange, if Someone Gains, Someone Else Must Lose. Trading is a Zero-Sum Game."

    Chapter 3 Supply, Demand, and the Market Process

    Scarcity Necessitates Rationing

    Consumer Choice and the Law of Demand

    Producer Choice and the Law of Supply

    Markets and the Coordination of Supply and Demand

    Shifts in Demand and Advice on How to Pass Your First Economics Exam

    Shifts in Supply

    Time and the Adjustment Process

    Repealing the Laws of Supply and Demand

    The Communicating, Coordinating, and Motivating Functions of the Market

    Outstanding Economist: Alfred Marshall (1842-1924)

    Myths of Economics: "Rent Controls are an Effective Method of Ensuring Adequate Housing at a Price the Poor can Afford."

    Chapter 4 A Bird's-Eye View of the Public Sector

    Ideal Economic EfEciency

    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 (1919- )

    Chapter 5 Taxes and Government Spending

    What Do Federal, State, and Local Governments Buy?

    How Big Is Government?

    The Growth of Government

    Taxes to Pay for a Growing Government

    Politics, Tax Incidence, and the Structure of Taxes

    Who Pays the Tax Bill?

    The Taxes Paid in Other Countries

    Taxes and Politics—A Final Word

    Myths of Economics: "The Growth of the Federal Government has been the Major Source of Government Expansion."

    Part Two: Macroeconomics

    Chapter 6 Taking the Nation's Economic Pulse

    The Concept of the GNP

    The Circular Flow of Expenditures and Resource Costs

    Two Ways of Measuring GNP

    The Expenditure Approach

    The Resource Cost-Income Approach

    Gross National Product or Gross National Cost?

    Five Problems with GNP as a Measuring Rod

    What GNP Does Not Measure

    The Great Contribution of GNP

    Other Related Income Measures

    The Real Income—Real Output Link

    Outstanding Economist: Simon Kuznets (1901- )

    Perspectives in Economics: Beyond the GNP—Pioneering Research on the Measurement of Economic Welfare

    Chapter 7 Unemployment, Inflation, and Business Cycles

    Micro- and Macroeconomics

    Swings in the Economic Pendulum

    Three Different Views of the Business Cycle

    Employment Fluctuations in a Dynamic Economy

    What Is Full Employment?

    A Closer Look at the Employment Statistics

    The Economics of Inflation

    The Cost of Inflation

    Myths of Economics: "Unemployed Resources would not Exist if the Economy were Operating Efficiently."

    Chapter 8 Aggregate Equilibrium and a Simple Keynesian Model

    Tools of the Modern Keynesian Analysis

    Saving, Investment, and the Circular Flow Analysis

    Keynes and the Views of Classical Economists

    The Determinants of Consumption

    The Determinants of Investment

    Equilibrium and the Keynesian Model

    Leakages and Injections—Another Way of Looking at Equilibrium

    The Major Message of Keynes

    Outstanding Economist: John Maynard Keynes (1883-1946)

    Chapter 9 The Multiplier, the Accelerator, and a Keynesian View of the Business Cycle

    The Multiplier Principle

    The Paradox of Thrift

    Business Pessimism—A Self-fulfilling Prophecy

    Investment Instability and the Accelerator

    A Keynesian View of the Business Cycle

    Investment and the Cycle

    Chapter 10 Fiscal Policy

    The Birth of Real-World Keynesian Fiscal Policy

    Fiscal Policy for Dealing with a Recession

    Fiscal Policy for Dealing with Inflation

    The Balanced-Budget Multiplier—The Simple Keynesian Model

    Adding Realism to the Keynesian Multiplier Analysis

    A Simple Verbal Explanation of Why Fiscal Policy Works during Normal Times

    The Central Idea of Fiscal Policy

    The Full-Employment Budget Concept

    The Practical Limitations of Real-World Fiscal Policy

    Has Real-World Fiscal Policy Had a Stabilizing Effect?

    Automatic Stabilizers

    Outstanding Economists: Charles L. Schultze (1924- )

    Perspectives in Economics: Fact and Fiction about the National Debt

    Chapter 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

    Chapter 12 Money, Employment, Inflation, and a More Complete Keynesian Model

    The Demand for and Supply of Money

    Interest Rates and Investment

    Expansionary and Restrictive Monetary Policy

    How Monetary Policy Works—The Keynesian View

    The Evolution of Keynesian Thought

    The Basic Propositions of the Modern Keynesian View

    Did Macropolicy Cause the Inflation of the 1970s?

    Outstanding Economist: Paul Samuelson (1915- )

    Perspectives in Economics: Will There Ever Be Another Great Depression? Yes. Will

    There Ever Be Another Great Depression? No.

    Addendum: Tax Cuts, Supply-Side Fiscal Policy, and the Work-Leisure Substitution Effect

    Chapter 13 The Monetarist Challenge to the Keynesian View

    Historical Background on the Importance of Money

    The Modern Monetarist View—Money Matters Most

    The Impact of Money—The Monetarist View

    The Basic Propositions of Monetarism

    Constant Rate of Monetary Growth—The Monetarist View of Proper Policy

    Monetarists-Past and Future

    Outstanding Economist: Milton Friedman (1912- )

    Chapter 14 Unemployment, Inflation, and the Limits of Macropolicy

    Monetary and Fiscal Policies—A Consensus View

    The Phillips Curve—The Dream and the Reality

    The Shifting of the Real-World Phillips Curve

    The Long-Run Phillips Curve

    The Economics of Inflation

    The Economics of Cost-Push Inflation

    The Great Inflation (1967-Present)—A Closer Look

    Stop-Go Policy and the Racheting Upward of the Rate of Inflation

    Myths of Economics: Two Popular Myths of Inflation: Myth 1: "Consumers Cause Inflation by Failing to Buy Selectively." Myth 2: "Inflation is Caused by Abnormally Large Price Increases in some Sectors."

    Chapter 15 Instability, Stagflation, and the Direction of Macroeconomics

    The Economics of Discretionary Macropolicy

    The Failure of Macroeconomists

    Stabilization Policy and Macropolicy Rules

    Putting the Rates of Unemployment and Growth of the 1970s into Perspective

    The Natural Rate of Unemployment during the 1980s

    The New Microapproach to Macroeconomic Problems

    Macroeconomics in the 1980s

    Outstanding Economist: Martin Feldstein (1939- )

    Perspectives in Economics: The Economics of Constitutional Amendments Limiting Spending and Mandating a Balanced Budget

    Part Three: Microeconomics

    Chapter 16 Demand and Consumer Choice

    Consumer Decision-Making—Deciding What to Buy

    Individual Demand

    Consumer Choice and Market Demand

    Time Cost and Consumer Choice

    The Elasticity of Demand

    The Elasticity of Demand in the Real World

    Elasticity and Total Expenditures

    How Does Income Influence Demand?

    Why Do Consumers Buy That?

    Advertising-How Useful Is It?

    Outstanding Economist: John Kenneth Galbraith (1908- )

    Addendum: Consumer Choice and Indifference Curves

    Chapter 17 Costs and the Supply of Goods

    The Organization of the Business Firm

    Costs Indicate the Desire of Consumers for Other Goods

    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

    Economies and Diseconomies of Scale

    What Factors 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 Costs."

    Chapter 18 The Firm under Pure Competition

    The Significance of Competition as a Process

    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 Costs of Production

    Efficiency and the Competitive Model

    Chapter 19 Monopolistic Competition, Product Differentiation, and Low Barriers to Entry

    Product Differentiation

    Price-Searchers with Competition

    Real-World Monopolistic Competitors

    Price Discrimination

    Competition and the Economic Way of Thinking

    Contrasting Pure and Monopolistic Competition

    Outstanding Economist: Joan Robinson (1903- )

    Perspectives in Economics: Is Monopolistic Competition Inefficient? Yes. Is Monopolistic Competition Inefficient? No

    Chapter 20 Monopoly and High Barriers to Entry

    Competition Is Great, But . . .

    When Are Barriers to Entering a Market High?

    What is A Monopoly?

    Why Is Monopoly Bad?

    When Can a Monopolized Industry Be Competitive?

    Economies of Scale and Natural Monopoly

    Natural Monopoly—The Policy Alternatives

    Putting the Monopoly Problem into Perspective

    Perspectives in Economics: The Economics of Government Regulatory Activities

    Chapter 21 Oligopoly and the World of Big Business

    Characteristics of Oligopoly

    Price and Output Determination

    When Is Successful Collusion Least (Most) Likely?

    The Kinked Demand Curve

    Real-World Oligopolists

    Monopoly Power and Profit-The Early Bird Catches the Worm

    Dynamic Competition, Entrepreneurship, and Oligopoly

    Outstanding Economist: George Stigler (1911- )

    Myths of Economics: "The Prices of Most Goods are Unnecessarily Inflated by at Least 25 Percent as a Result of the High Rate of Profit of Producers

    Perspectives in Economics: Product Obsolescence, Monopoly Power, and the Dynamics of Product Development

    Chapter 22 Business Structure, Competition, and Public Policy

    The Changing Composition of U.S. Industry

    Two Concerns about Bigness

    How Much of Our Economy Is Competitive?

    Does Big Business Dominate the U.S. Economy?

    Antitrust Legislation—The Policy Objectives

    The Effectiveness of Antitrust Policy—The Dominant View

    Antitrust Policy—The Dissenting Views

    Perspectives in Economics: A Program to Promote Competitive Markets

    Perspectives in Economics: A Galbraithian View of a Modern Industrial Economy

    Part Four: Factor Markets and Income Distribution

    Chapter 23 The Supply of and Demand for Productive Resources

    Human and Nonhuman Resources

    The Demand for Resources

    Marginal Productivity, Demand, and Economic Justice

    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 (1930- )

    Chapter 24 Earnings, Skill Acquisition, and the Job Market

    Why Do Earnings Differ?

    Earnings Differentials due to Nonhomogeneous Labor

    Earnings Differentials due to Nonhomogeneous Jobs

    Earnings Differentials due to Immobility of Labor

    Productivity and the General Level of Wages

    How Is the Economic Pie Divided between Nonhuman and Human Capital?

    Myths of Economics: "Automation is the Major Cause of Unemployment. If we Keep Allowing Machines to Replace People, we are Going to Run Out of Jobs."

    Perspectives in Economics: The Minimum Wage—An Economic Appraisal

    Chapter 25 Capital, Interest, and Profit

    The Construction of Tools and the Current Sacrifices Required by Roundabout Methods of Production

    Interest Is the Price of Earlier Availability

    Why Is the Interest Rate Positive?

    The Demand for and Supply of Loanable Funds

    The Value of Future Income

    When Should an Investment Project Be Undertaken?

    Investing in Human Capital

    The Components of the Returns to Capital

    Outstanding Economist: Joseph Schumpeter (1883—1950)

    Chapter 26 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 Bargaining

    How Does the "Big Stick" Affect the Public?

    Getting More for Union Members

    What Gives the Union Muscle?

    How Much More Do Union Members Get?

    Unionism, Productivity, and Real Wages

    Unions and Inflation

    The Power of Big Labor

    The Great Contribution of Unions

    Myths of Economics: "Unions have Increased the Share of Income Going to Labor."

    Perspectives in Economics: Public Employee Unions—A Growing Power

    Chapter 27 Inequality, Income Mobility, and the Battle against Poverty

    Income Inequality in the United States

    Differences in the Characteristics of High- and Low-Income Families

    What Causes Income Inequality?

    Income Inequality in Other Countries

    Income Mobility—Do the Poor Stay Poor and the Rich Stay Rich?

    Poverty in the United States

    Government Transfers and the Shrinking Poverty Population

    Incentives and the Economics of Redistributing Income

    Perspectives in Economics: Social Security and the Intergenerational Redistribution of Income

    Perspectives in Economics: The Merits of Antipoverty Economic Policy—A Debate

    Chapter 28 Employment Discrimination and the Earnings of Blacks and Women

    What Is Employment Discrimination?

    How Does Discrimination Influence Earnings?

    Is Discrimination Profitable to the Employer?

    Employment Discrimination and the Earnings of Blacks

    Are Things Improving?

    Employment Discrimination and the Earnings of Women

    The Future Status of Minorities and Women

    Outstanding Economist: Juanita Kreps

    Chapter 29 The Energy Market

    Energy Demand—Does Price Really Matter?

    Price and the Supply of Energy

    The Historical Roots of the Energy Crisis

    The Energy Crisis and Our Policy Response

    Are We Running Out of Oil?

    Are the Big Oil Companies Ripping off the Consumer?

    Gasoline Shortages and the Summer of 1979

    Energy and the Future

    Part Five: Public Choice

    Chapter 30 Problem Areas for the Market

    External Effects and the Market

    Market Failure: External Costs

    Market Failure: External Benefits and Missed Opportunities

    Alternative Public Sector Responses to Externalities

    Should the Government Always Try to Control Externalities?

    Market Failure: Public Goods

    Market Failure: Poor Information

    Outstanding Economist: Allen Kneese (1930- )

    Chapter 31 Public Choice and Gaining from Government

    Voters and the Demand for Political Action

    Supply, Profits, and the Political Entrepreneur

    The Opportunity Cost of Government

    Market Failure and Gaining from Government

    Gaining from Government Provision of Public Goods

    Income Redistribution and Public Policy

    Outstanding Economist: Kenneth Arrow (1921- )

    Chapter 32 The Economics of Government Failure

    Government Failure: Voter Ignorance and Inefficient Public Policy

    Government Failure: The Special Interest Effect

    Government Failure: Imprecise Reflection of Consumer Preferences

    Government Failure: The Shortsightedness Effect

    Government Failure: Little Entrepreneurial Incentive for Internal Efficiency

    Is the Economic Analysis of the Public Sector Cynical?

    Perspectives in Economics: Bureaucracy, Competition, and Improving the Efficiency of Government

    Perspectives in Economics: Dealing with Special Interests

    Part Six: International Economics and Comparative Systems

    Chapter 33 Gaining from International Trade

    The Composition of the International Sector

    Why Is There Trade between Nations?

    The Export-Import Link

    Supply, Demand, and International Trade

    Tariffs and Quotas

    Why Industries Are on the Dole

    International Trade, Export Taxes, and the OPEC 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."

    Chapter 34 International Finance and the Foreign Exchange Market

    Exchange Rates and the Price of Foreign Goods

    Balance of Payments and International Exchanges

    The Determination of Exchange Rates

    Changing Market Conditions and Exchange Rates

    The Evolution of International Monetary Arrangements

    The Current System—A Flexible Rate with Selective Intervention

    Chapter 35 Economic Development and the Growth of Income

    Characteristics of Less Developed Countries

    How Wide Is the Economic Gap between the Developed and Less Developed Nations?

    Are Growth and Development the Same Thing?

    The Importance of Small Differences in Rates of Growth

    Sources of Economic Growth

    Why Poor Nations Remain Poor

    Perspectives in Economics: Rich and Poor Nations—Are They Two Worlds Drifting Apart?

    Chapter 36 Comparative Economic Systems

    Comparing Capitalism and Socialism

    Classifying Real-World Economies

    Common Constraints and the Universality of Economic Tools

    The Soviet Economy

    Yugoslavia—Socialism or the Market?

    The Japanese "Miracle"

    Outstanding Economist: Karl Marx (1818—1883)

    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

    Appendix D Production Theory and Isoquant Analysis

    Appendix E Quarterly Economic Indicators, 1965-1979

    Suggestions for Additional Reading

    Hints for Answering Discussion Questions


Product details

  • No. of pages: 945
  • Language: English
  • Copyright: © Academic Press 1980
  • Published: January 1, 1980
  • Imprint: Academic Press
  • eBook ISBN: 9781483264431

About the Authors

James D Gwartney

Richard Stroup

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