Economics - 2nd Edition - ISBN: 9780123110404, 9781483264431


2nd Edition

Private and Public Choice

Authors: James D Gwartney Richard Stroup
eBook ISBN: 9781483264431
Imprint: Academic Press
Published Date: 1st January 1980
Page Count: 945
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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



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© Academic Press 1980
Academic Press
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About the Author

James D Gwartney

Richard Stroup

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