Economics 19e Flashcards
1
Q
founder of microeconomics
A
Adam Smith
2
Q
founder of macroeconomics
A
1936, when John Maynard Keynes published his revolutionary General Theory of Employment, Interest and Money.
Keynes developed an analysis of what causes business cycles, with alternating spells of high unemployment and high inflation.
3
Q
econometrics
A
technique that applies the tools of statistics to economic problems
4
Q
The following are some of the common fallacies encountered in economic reasoning:
A
- The post hoc fallacy. The first fallacy involves the inference of causality. The post hoc fallacy occurs when we assume that, because one event occurred before another event, the first event caused the second event. This occurred in the Great Depression of the 1930s in the United States. Some people had observed that periods of business expansion were preceded or accompanied by rising prices. From this, they concluded that the appropriate remedy for depression was to raise wages and prices. This slowed recovery
- Failure to hold other things constant.
- The fallacy of composition. Sometimes we assume that what holds true for part of a system also holds true for the whole. In economics, however, we often find that the whole is different from the sum of the parts. When you assume that what is true for the part is also true for the whole, you are committing the fallacy of composition.
5
Q
The key points to understand about slopes are the following:
A
- The slope can be expressed as a number. It meaures the change in Y per unit change in X, or “the rise over the run.”
- If the line is straight, its slope is constant everywhere.
- The slope of the line indicates whether the relationship between X and Y is direct or inverse.
6
Q
major forces affecting the shape of the economy are the dual monarchs of
A
tastes and technology
7
Q
Globalization
A
a term that is used to denote an increase in economic integration among nations. Increasing integration is seen today in the dramatic growth in the flows of goods, services, and finance across national borders.
8
Q
as the world’s major lending countries
A
1st China, Japan
9
Q
world’s largest borrower
A
United States
10
Q
Governments have three main economic functions in a market economy:
A
- Governments increase efficiency by promoting competition, curbing externalities like pollution, and providing public goods.
- Governments promote equity by using tax and expenditure programs to redistribute income toward particular groups.
- Governments foster macroeconomic stability and growth—reducing unemployment and inflation while encouraging economic growth—through fiscal and monetary policy.
11
Q
Since World War II, for example, there have been X recessions in the United States, some putting millions of people out of work. These fluctuations are known as the business cycle.
A
11
12
Q
US government spends most on
A
healthcare
13
Q
Hike the minimum wage, and you put people out of work.”
A
Gary Becker
14
Q
Daniel Bernoulli, a member of a brilliant Swiss family of mathematicians, observed in 1738
A
that people act as if the dollar they stand to gain in a fair bet is worth less to them than the dollar they stand to lose.This means that they are averse to risk and that successive new dollars of wealth bring them smaller and smaller increments of true utility.
15
Q
Jeremy Bentham (1748–1832)
A
accomplished early introduction of the utility notion into the social sciences
16
Q
extended Bentham’s utility concept to explain consumer behavior.
A
William Stanley Jevons (1835–1882). Jevons thought economic theory was a “calculus of pleasure and pain,” and he developed the theory that rational people would base their consumption decisions on the extra or marginal utility of each good.
17
Q
The ideas of Jevons and his coworkers led directly to the modern theories of ordinal utility and indifference curves developed by
A
Vilfredo Pareto, John Hicks, R. G. D.
18
Q
Equimarginal principle
A
The fundamental condition of maximum satisfaction or utility. It states that a consumer will achieve maximum satisfaction or utility when the marginal utility of the last dollar spent on a good is exactly the same as the marginal utility of the last dollar spent on any other good.
19
Q
The seventeenth-century philosopher Francis Bacon held that
A
the purest of human pleasures was gardening.
20
Q
developing a better understanding of the role of asymmetric information and the market for “lemons.”
A
George Akerlof
21
Q
received the prize for “the analysis of human judgment and decision-making . . . and the empirical testing of predictions from economic theory by experimental economists.”
A
Daniel Kahneman and Vernon L.Smith
22
Q
Ordinal variables
A
ones that we can rank in order, but for which there is no measure of the quantitative difference between the situations. Economists today generally reject the notion of a cardinal (or measurable) utility that people feel or experience when consuming goods and services. Utility does not ring up like numbers on a gasoline pump.
Rather, what counts for modern demand theory is the principle of ordinal utility. Under this approach, consumers need to determine only their preference ranking of bundles of commodities.
23
Q
In between substitutes and complements are
A
independent goods, such as beef and textbooks, for which a price change for one has no effect on the demand for the other.
24
Q
Merit goods
A
whose consumption is thought intrinsically worthwhile, and the opposite, which are demerit goods, whose consumption is deemed harmful.
25
Network markets are special because
consumers derive benefits not simply from their own use of a good but also from the number of other consumers who adopt the good. This is known as an adoption externality. When I get a phone, everyone else with a phone can now communicate with me. Therefore, my joining this network leads to positive external effects for others.
26
These central issues of industrial organization were first raised by
Ronald Coase in a pathbreaking study for which he was awarded the 1991 Nobel Prize.
27
One important distinction between the income statement and the balance sheet is that between
stocks and flows. A stock represents the level of a variable, such as the amount of water in a lake or, in this case, the dollar value of a firm. A flow variable represents the change per unit of time, like the flow of water in a river or the flow of revenue and expenses into and out of a firm. The income statement measures the flows into and out of the firm, while the balance sheet measures the stocks of assets and liabilities at the end of the accounting year.
28
A perfectly competitive firm sells a
homogeneous product (one identical to the product sold by others in the industry).
29
Pareto efficiency
(or sometimes just efficiency) occurs when no possible reorganization of production or distribution can make anyone better off without making someone else worse off. Under conditions of allocative efficiency, one person’s satisfaction or utility can be increased only by lowering someone else’s utility.
30
Nobel Prizes in economics were awarded to Kenneth Arrow, John Hicks, and Gerard Debreu for their contributions to developing the
theory of perfect competition and its relationship to economic efficiency.
31
Gilded Age (1870–1914)
period of economic growth as the US jumped to the lead in industrialisation ahead of Britain
32
Many economists believe that traditional concentration ratios do not adequately measure market power. An alternative, which better captures the role of dominant firms, is the
Herfindahl-Hirschman Index (HHI). This is calculated by summing the squares of each participant’s market share. Perfect competition would have an HHI of near zero because each firm produces only a small percentage of the total output, while complete monopoly would have an HHI of 10,000 because one firm produces 100 percent of the output
33
dumping
Selling at lower prices at home than abroad
34
developed by John von Neumann (1903–1957), a Hungarian- born mathematical genius.
Game theory
35
Sherman Act 1890 against
contracts in restraint of trade and monopolizing
36
Clayton Act 1914 against
tying, price discrimination, merging. Another important element of the Clayton Act was that it specifically provided antitrust immunity to labor unions.
37
Federal Trade Commision Acts 1914 prohibits
unfair methods of competition.
38
Practices that are illegal in all cases:
● Bid rigging, in which different firms agree to set their bids so that one firm will win the auction, usually at an inflated price, is always illegal.
● Market allocation schemes, in which competitors divide up markets by territory or by customers, are anticompetitive and hence illegal per se.
- Agreements between firms to fix prices.
39
Speculation involves
buying and selling in order to make profits from fluctuations in prices. A speculator wants to buy low and sell high. The simplest case is one in which speculative activity reduces or eliminates regional price differences by buying and selling the same commodity. This activity is called arbitrage
40
Hedging
consists of reducing the risk involved in owning an asset or commodity by making an offsetting sale of that asset. Hedging allows businesses to insulate themselves from the risk of price changes. Selling immediately
41
that ideal speculation reallocates goods
from times of feast (when prices are low) to times of famine (when prices are high).
42
inappropriability
The inability of firms to capture the full monetary value of their inventions
43
About x of national income goes to labor
two thirds
44
Personal income equals
market income plus transfer payments
45
Wealth consists of the
net dollar value of assets owned at a given point in time. Note that wealth is a stock (like the volume of a lake) while income is a flow per unit of time (like the flow of a stream).
46
wealth or net worth
The difference between total assets and total liabilities
47
The major reason for the remaining difference between wages is that labor markets are segmented into
noncompeting groups
48
The most important labor legislation of all was the National Labor Relations (or Wagner) Act of 1935.
This law stated: “Employees shall have the right to . . . join . . . labor organizations, to bargain collectively . . . , and to engage in concerted activities.”
49
bilateral monopoly
where there is one buyer and one seller.
50
Keynesian unemployment
cyclical unemployment(insufficient aggregate demand)
51
Economists who first began to study discrimination
Gary Becker, realized that a fundamental puzzle arises: If two groups of workers have equivalent productivity, but one has lower wages, why don’t competitive profit- maximizing firms hire the low-wage workers and increase their profits?
forces other than pure discriminating attitudes are necessary to maintain income disparities between equivalent groups.
52
Affirmative action
This requires that employers show they are taking extra steps to locate and hire underrepresented groups.
53
“cornucopians,”
or technological optimists, who believe that we are far from exhausting either natural resources or the capabilities of technology.
54
A commodity is called appropriable when
firms or consumers can capture its full economic value. Appropriable natural resources include land (whose fertility can be captured by the farmer who sells wheat or wine produced on the land), mineral resources like oil and gas (where the owner can sell the value of the mineral deposit), and trees (where the owner can sell the land or the trees to the highest bidder). In a well-functioning competitive market, appropriable natural resources would be efficiently priced and allocated.
55
a resource is inappropriable when
when some of the costs and benefits associated with its use do not accrue to its owner. In other words, inappropriable resources are ones involving externalities. (Recall that externalities are those activities in which production or consumption imposes uncompensated costs or benefits on other parties.)
Examples of inappropriable resources are found in every corner of the globe.
56
A tax on pure economic rent will lead to no distortions or inefficiencies.
We distinguish rent on fixed factors like land from rentals on durable factors like capital. Apartment is rental.
57
contingent valuation
Some environmental economists use a technique called contingent valuation, which involves asking people how much they would be willing to pay in a hypothetical situation, say, to keep some natural resource undamaged. This technique will yield answers, but these answers have not always proved to be reliable.
58
1997 Kyoto Protocol on climate change
Under the protocol, high-income countries along with formerly socialist countries agreed to binding commitments to reduce by 2010 their total emissions of greenhouse gases by 5 percent (relative to 1990 levels). Each country was allocated a specific target.
59
Irving Fisher
Among his fundamental contributions was the development of a complete theory of capital and interest in The Nature of Capital and Income (1906) and The Theory of Interest (1907). It was Fisher who uncovered the deep relationship between interest and capital and the economy, as described in this summary from The Theory of Interest: He lobbied for a “compensated dollar” as a substitute for the gold standard.
Fisher’s most famous forecast came in 1929 when he argued that the stock market had achieved a “permanent plateau of prosperity.”
60
Henry George
wanted single tax only on land and nothing else. Georgism- single tax movement
61
Studies by economist Tom Tietenberg
Under the 1990 Clean Air Act amendments, the government allocates a limited number of pollution permits. His studies have determined that the traditional approaches cost 2 to 10 times as much as would cost-effective regulations like emissions trading.
62
equity premium
This excess return on equities above that on risk-free investments is called the equity premium. Empirical studies suggest that the equity premium averaged around 5 percent per year over the twentieth century
63
Country with highest tax to GDP ratio
Denmark 48%
64
Country with lowest tax to GDP ratio
20%
65
fiscal federalism
division of governmental functions and financial relations among levels of government
66
Robert Hall and Alvin Rabushka
developed flat tax. Their proposal incorporates the following major features:
● It taxes consumption rather than income. As we will discuss later in this chapter, taxing consumption serves to increase the incentive to save and can help boost the declining national savings rate.
● It integrates the corporate income tax with the individual income tax. This removes one of the major distortions in the U.S. tax code.
● It eliminates virtually all loopholes and tax preferences. Gone are subsidies for medical care, owner-occupied homes, and charitable contributions.
● It provides a basic exemption of around $20,000 per family and then imposes a constant marginal tax rate of 19 percent above that level.
67
Ramsey tax rule
states that the government should levy the heaviest taxes on those inputs and outputs that are most price-inelastic in supply or demand.
68
Lorenz curve
We can show the degree of inequality in a diagram known as the Lorenz curve, a widely used device for analyzing income and wealth inequality. Economists often need to calculate quantitative measures of inequality. One useful measure is the Gini coefficient.This is measured by calculating the shaded area in the Lorenz curve of and multiplying it by 2. The Gini coefficient is equal to 1 under complete inequality and 0 under complete equality.
69
“death taxes.”
inheritance and gift taxes
70
Schumpeterian profits
profits from newly invented products or services. eg Bill Gates with Microsoft
71
"leaky bucket” experiment
Arthur Okun took up the question on how much we are willing to pay in reduced efficiency for greater equity. Okun argued that the leaks are small, particularly when funds for redistributive programs are drawn from the tap of a broad-based income tax. From rich to poor in leaky bucket
72
Egalitarian countries(equality for all people)
like Sweden and the Netherlands, which provided cradle-to-grave protection for their citizens, found declining labor-force participation, growing unemployment, and rising budget deficits.
73
Small countries have the most to gain from international trade
Small countries affect world prices the least and therefore can trade at world prices that are very different from domestic prices. Additionally, countries that are very different from other countries gain most, while large countries have the least to gain.
74
Stolper-Samuelson theorem
shows there is a positive relationship between changes in the price of an output and changes in the price of the factor used in producing that product.
75
prohibitive tariff
one that is so high that it chokes off all imports.
76
One economist called tariffs
negative railroads
77
Countervailing duties are imposed to
offset the cost advantage for imports that arises when foreigners subsidize exports to the United States. They have become the most popular form of import relief and have been pursued in hundreds of cases.
78
nontariff barriers (or NTBs)
These consist of informal restrictions or regulations that make it difficult for countries to sell their goods in foreign markets.
79
For most of American history, the United States was a high-tariff nation. The pinnacle of protectionism came after the infamous
Smoot-Hawley tariff of 1930
80
One of the most successful multilateral agreements was the
General Agreement on Tariffs and Trade (GATT).
81
The most controversial proposal for lowering trade barriers was the
North American Free Trade Agreement (NAFTA)
82
James Tobin
National Economic Policy
83
One of the deepest and most prolonged economic downturns of the modern era came in
Japan
84
Potential GDP
the maximum sustainable level of output that the economy can produce.
85
Vietnam War
the deep recession caused by the monetary contraction of the early 1980s
86
GDP Income/earnings flow approach/lower loop =
wages +interest + rents + profits
87
Value-added approach GDP
To avoid double counting, we take care to include only final goods in GDP and to exclude the intermediate goods that are used up in making the final goods. By measuring the value added at each stage, taking care to subtract expenditures on the intermediate goods bought from other firms, the lower-loop earnings approach properly avoids all double counting and records wages, interest, rents, and profits exactly one time.
88
chain weighting
Instead of the relative weights on each good being kept fixed (say, by the use of weights for a given year, like 1990), the weights of the differ- ent goods and services change each year to reflect the changes in spending patterns in the economy.
89
Net investment equals
gross investment minus depreciation.
90
augmented accounting
the general principle is to include as much of economic activity as is feasible, whether or not that activity takes place in the market.
91
CPI is measured by X and has Y major categories
CPI is measured by BLS and has 8 major categories.
92
upward bias in the CPI was slightly more than
1 percent per year
93
Who introduced the consumption function?
Keynes
94
three elements essential to understanding investment:
revenues, costs, and expectations
95
Economists typically divide business cycles into two main phases
recession and expansion
96
The semiofficial judge of the timing of con- tractions and expansions is the
National Bureau of Economic Research (NBER), a private research organization.
97
The simplest approach to understanding business cycles is known as the
Keynesian multiplier model. It is a macroeconomic theory used to explain how output is determined in the short run. The name “multiplier” comes from the finding that each dollar change in exogenous expenditures (such as investment) leads to more than a dollar change (or a multiplied change) in GDP.
98
Keynesian approach to macroeconomic policy
the active use of government action to moderate business cycles. This approach was described by the Nobel Prize–winning macroeconomist James Tobin.
99
monetary transmission mechanism
This refers to the process by which monetary policy undertaken by the central bank (in the case of the U.S., the Federal Reserve), interacts with banks and the rest of the economy to determine interest rates, financial con- ditions, aggregate demand, output, and inflation.
100
Financial derivatives
derivatives are included in the credit market instruments. These are new forms of financial instruments whose values are based on or derived from the values of other assets. One important example is a stock option, whose value depends upon the value of the stock to which it is benchmarked.
101
Commercial banking began in
England with the goldsmiths, who developed the practice of storing people’s gold and valuables for safekeeping.
102
There are two unique items among the Fed’s liabilities:
currency and reserves
103
Today, the Fed operates primarily by setting a short-term target for the
federal funds rate
104
liquidity trap
when nominal interest rates approach zero
105
If the central bank cannot lower short-term interest rates below zero, what other steps can it take to stimulate a depressed economy?
1. Attempt to lower long-term interest rates
2. Reduce the risk premium on risky securities
106
Monetarism holds that
that the money supply is the primary determinant of both short-run movements in nominal GDP and long-run movements in prices.
107
The speed of the turnover of money is described by the concept of the velocity of money, introduced by
Cambridge University’s Alfred Marshall and Yale University’s Irving Fisher.
108
Some economies—such as x, as well as virtually all countries in earlier periods—maintain fixed exchange rates. They “peg” their currencies to one or more external currencies.
Hong Kong and China today
109
social overhead capital
investments that are necessary for the efficient functioning of the private sector will be undertaken only by governments eg roads
110
Baumol and economic historian Joel Mokyr argue that
innovation depends crucially on the development of incentives and institutions. They particularly point to the role of private ownership, the patent system, and a rule-based system of adjudicating disputes as devices for fostering innovation.
111
Thomas Carlyle criticized economics as
“the dismal science.”
112
Robert Solow
introduce the neoclassical model of economic growth
113
Capital deepening
process by which the quantity of capital per worker increases over time
114
one of the leaders of new growth theory
Paul Romer
115
Labor growth will contribute more to output than will capital growth.
% Q growth (1) = 3⁄4 (% L growth) + 1⁄4 (% K growth) + T.C.
116
About x percent of the growth in output in the United States can be accounted for by the growth in labor and capital.
60
117
Some countries, such as x have low life expectancies relative to income because of the scourge of AIDS.
Botswana, Equatorial Guinea, and South Africa,
118
Convergence occurs when
when those countries or regions that have initially low incomes tend to grow more rapidly than ones with high incomes.
119
Asian dragons
South Korea, Singapore, Taiwan
120
Socialism characteristics:
1. Government ownership of productive resources (key industries like banks should be owned by state)
2. Planning
3. Redistribution of income
4. Peaceful and democratic evolution
121
If a transaction earns foreign currency for the nation, it is called a credit and is recorded as a plus item. If a transaction involves spending foreign currency, it is a debit and is recorded as a negative item. In general,
exports are credits and imports are debits.
122
Current account + financial account =
0
123
foreign exchange rate (e) =
foreign currency/domestic currency
124
In recent years, nations have used one of three major exchange-rate systems:
● A system of fixed exchange rates
● A system of flexible or floating exchange rates, where exchange rates are determined by market forces
● Managed exchange rates, in which nations intervene to smooth exchange-rate fluctuations or to move their currency toward a target zone
125
Hume’s Four-Pronged International Adjustment Mechanism
Hume explained how a balance-of-payments disequilibrium would automatically produce equilibrating adjustments under a gold standard.
126
International Monetary Fund (or IMF)
which still administers the international monetary system and operates as a central bank for central banks. Member nations subscribe by lending their currencies to the IMF; the IMF then relends these funds to help countries in balance-of-Payments difficulties - The main function of the IMF is to make temporary loans to countries which have balance-of- payments problems or are under speculative attack in financial markets.
127
The World Bank
is capitalized by high-income nations that subscribe in proportion to their economic importance in terms of GDP and other factors. The Bank makes long-term low-interest loans to countries for projects which are economically sound but which cannot get private- sector financing. As a result of such long-term loans, goods and services flow from advanced nations to developing countries.
128
Bretton Woods system
a system with fixed exchange rates. The innovation here was that exchange rates were fixed but adjustable. The United States abandoned the Bretton Woods system in 1973, and the world moved into the modern era.
129
A currency board is a
monetary institution that issues only currency that is fully backed by foreign assets in a key foreign currency, usually the U.S. dollar or the Euro. A currency board system has worked effectively in Hong Kong, but the system in Argentina was unable to withstand economic and political turmoil and collapsed in 2002.
130
Open-economy multiplier =
1/ MPS + MPm MPm = marginal propensity to import.
131
Monetary tightening
leads to an appreciation in the exchange rate and a corresponding decline in net exports; monetary easing does the opposite. The impact of changes in interest rates on net exports reinforces the impact on domestic investment.
132
“rust belt.”
The appreciation of the dollar in the 1980s pro- duced severe economic hardships in many U.S. sec- tors exposed to international trade. Unemployment in America’s manufacturing heartland increased sharply, factories were closed, and the Midwest became known as the “rust belt.”
133
The optimal currency area
a concept first proposed by Columbia’s Robert Mundell, who won the 1999 Nobel Prize for his contributions in this field. An optimal currency area is one whose regions have high labor mobility or have common and synchronous aggregate supply or demand shocks. In an optimal currency area, significant changes in exchange rates are not necessary to ensure rapid macroeconomic adjustment. Most economists believe that the United States is an optimal currency area and Europe is not. When the United States is faced with a shock that affects the different regions asymmetrically, labor migration tends to restore balance.
134
Aggregate supply depends fundamentally upon two distinct sets of forces
potential output and input costs.
135
nonaccelerating inflation rate of unemployment (or the NAIRU).
natural rate
136
The upward-sloping, short-run aggregate supply curve is associated with the analysis called
Keynesian macroeconomics. In this situation, changes in aggregate demand have a significant effect on output. In other words, if aggregate demand falls because of a monetary tightening or a falloff in consumer spending, this will lead to falling output and prices.
137
Okun’s Law
the unemployment rate usually moves inversely with output over the business cycle. that for every 2 percent that GDP falls relative to potential GDP, the unemployment rate rises about 1 percentage point. One important consequence of Okun’s Law is that actual GDP must grow as rapidly as potential GDP just to keep the unemployment rate from rising. Moreover, if you want to bring the unemployment rate down, actual GDP must be growing faster than potential GDP.
138
equilibrium unemployment
frictional unemployment. Teenage unemployment is frictional.
139
Two examples of disequilibrium are
structural and cyclical unemployment.
140
Like diseases, inflations exhibit different levels of severity. It is useful to classify them into three categories:
low inflation, galloping inflation, and hyperinflation
141
core rate of inflation
This is the inflation rate without volatile elements such as food and energy prices.
142
Rate of inflation =
rate of wage growth – rate of productivity growth
143
The structural budget
calculates what government revenues, expenditures, and deficits would be if the economy were operating at potential output. The nation’s saving and investment balance is primarily affected by the structural budget.
144
Say’s Law of Markets
Classical analysis revolved around Say’s Law of Markets. This theory, advocated in 1803 by the French economist J. B. Say, states that overproduction is impossible by its very nature. This is sometimes expressed as “supply creates its own demand.” This law rests on a view that there is no essential difference between a monetary economy and a barter economy—in other words, people can afford to buy whatever factories can produce.
145
Real-business- cycle (RBC) theory
This theory was developed principally by Finn Kydland and Edward C. Prescott, who won the Nobel Prize for their work in this area. This approach holds that business cycles are primarily due to technological shocks and do not invoke any monetary or demand-side forces.
146
Ricardian view of fiscal policy
developed by Harvard University’s Robert Barro, argues that changes in tax rates have no impact upon consumption spending. In the Ricardian view, consumers have rational expectations about future policies, so when a tax cut occurs, they know they must plan for a future tax increase. They will therefore increase their saving by the amount of the tax cut, and their consumption will remain unchanged.
147
efficiency-wage theory.
developed by Edmund Phelps (Columbia Univer- sity), Joseph Stiglitz (Columbia University), and Janet Yellen (president of the Federal Reserve Bank of San Francisco).
148
For large economies like the United States or Euroland, the best combination of monetary and fiscal policies will depend upon two factors:
the need for demand management and the desired fiscal-monetary mix.
149
When the economy approaches a liquidity trap, x policy must be the primary source of economic stimulus.
fiscal
150
History of Economic Analysis
Joseph Schumpeter
151
Capitalism and Freedom
Milton Friedman
152
The Road to Serfdom
Friedrich Hayek
153
A strong defense of government interventions is found in a history of the 1990s by Nobel Prize winner Joseph E. Stiglitz,
The Roaring Nineties: A New History of the World’s Most Prosperous Decade (Norton, New York, 2003).
154
The Great Unraveling: Losing Our Way in the New Century
Paul Krugman
155
Supply-and-demand analysis is the single most important and useful tool in microeconomics. Supply-and-demand analysis was developed by the great British economist
Alfred Marshall in Principles of Economics, 9th ed.
156
Myth and Measurement: The New Economics of the Minimum Wage
A recent book by two labor economists presents evidence that the minimum wage has little effect on employment: David Card and Alan Krueger
157
Utilitarianism was introduced, An Introduction to the Principles of Morals (1789).
Jeremy Bentham
158
The Nature of the Firm
Ronald Coase’s classic work
159
Risk, Uncertainty, and Profit (1921)
Frank Knight
160
The Theory of the Leisure Class
Thorstein Veblen introduced Great wealth in turn begot conspicuous consumption
161
The theory of monopoly was developed by
Alfred Marshall around 1890; see his Principles of Economics, 9th ed.
162
The Gilded Age period gave birth to
yellow journalism
163
Thinking Strategically (1991)
Avinash Dixit and Barry Nalebuff
164
Game theory was developed in 1944 by
John von Neumann and Oscar Morgenstern and published in Theory of Games and Economic Behavior
165
Joseph Schumpeter
He argued that the essence of economic development is innovation and that monopolists are in fact the wellsprings of innovation in a capitalist economy. he Theory of Economic Development (1911). His “popular” book, Capitalism, Socialism, and Democracy (1942) led to public choice theory.
His hypotesis is thet only large firms could induce technological change because small firms dont have the ability to spend s lot on research and development.
166
The neoclassical theory of income distribution was developed by one of the pioneers of American economics
John Bates Clark. The Distribution of Wealth: A Theory of Wages, Interest and Profits (1899)
167
The elements of the theory of human capital are given in
Gary S. Becker, Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, 3rd ed. (University of Chicago Press, 1993).
168
Progress and Poverty (1879)
Henry George (1839–1897), He called for financing government principally through property taxes on land, while cutting or eliminating all other taxes on capital, labor, and the improvements on the land. George believed that such a “single tax” could improve the distribution of income without harming the productivity of the economy.
Frank Ramsey extended George’s approach by analyzing the efficiency of different kinds of taxes. This led to the development of efficient or Ramsey tax theory. This analysis shows that taxes are least distortionary if levied on sectors whose supplies or demands are highly price-inelastic.
169
Scarcity or Abundance? A Debate on the Environment
Julian Simon
170
Capitalism, Socialism, and Democracy (1942)
Joseph Schumpeter pioneered public-choice theory
171
theory which held that politicians choose economic policies in order to be reelected.
Anthony Downs, An Economic Theory of Democracy (1957)
172
in The Calculus of Consent (1959)
Studies by James Buchanan and Gordon Tullock in The Calculus of Consent (1959) defended checks and balances and advocated the use of unanimity in political decisions.
173
Equality and Efficiency: The Big Tradeoff
Arthur M. Okun
174
The Theory of the Consumption Function
Milton Friedman
175
The Economic Consequences of the Peace (1919
John Maynard Keynes predicted with uncanny accuracy that the Treaty of Versailles would lead to disastrous consequences for Europe.
176
The Age of Uncertainty (1977)
John Kenneth Galbraith
177
Many of the foundations of new classical economics were developed by
Robert Lucas and republished in Studies in Business-Cycle Theory. He incorporated rational expectations in macroeconomic models
