Private and Public Choice
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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
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?
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
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
Price-Searchers with Competition
Real-World Monopolistic Competitors
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
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
- 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
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