Economics: theory in action

Cover......Page 1
Economics theory in action......Page 2
Contents......Page 6
List of applications......Page 14
Preface......Page 16
Approach to the Fourth Edition......Page 17
A word to the student......Page 19
A word to the instructor......Page 22
Acknowledgements......Page 24
Introductory concepts......Page 26
  Introduction......Page 28
  Use of economic models......Page 30
  Beginning to construct a model......Page 31
  Developing the model: two types of economy......Page 38
  From planned to market economies: some problems......Page 42
  Chapter summary......Page 45
  Questions for discussion......Page 46
  Notes......Page 48
Microeconomics......Page 50
  Introduction: what is the stock market for?......Page 52
  Prices in the secondary market: supply and demand......Page 54
  Changes in the demand for equities......Page 58
  Changes in the supply of equities......Page 63
  Sensitivity of demand to share price changes: elasticity of demand......Page 64
  Changes in share prices: speculation......Page 66
  Share price changes: some illustrations......Page 68
  Conclusion......Page 69
  Questions for discussion......Page 72
  Websites......Page 74
  Introduction......Page 75
  The demand for road space......Page 79
  The supply of road space......Page 83
  Peak use pricing......Page 84
  Example of road pricing......Page 87
  Singapore today......Page 89
  Conclusion......Page 91
  Questions for discussion......Page 92
  Notes......Page 94
  Introduction......Page 95
  The market case......Page 96
  Private medical care using indifference theory......Page 100
  The case for publicly provided health care......Page 104
  Developing the equity argument: Pareto optimality......Page 109
  Inefficiency in the market for insurance......Page 111
  Conclusion......Page 112
  Questions for discussion......Page 115
  Notes......Page 117
  Introduction......Page 118
  Illustrating the size of the problem: the UK and Germany......Page 119
  A possible solution: the market case......Page 121
  The interventionist case......Page 124
  The law of diminishing returns......Page 125
  Diminishing returns and the optimum population......Page 128
  The form of state intervention......Page 129
  The problem at the wider level......Page 134
  European regional policy......Page 136
  Conclusion......Page 137
  Questions for discussion......Page 138
  Websites......Page 139
  Introduction......Page 140
  The presence of small firms in Britain......Page 141
  The case for non-protection......Page 146
  Competing against large firms: long-run cost curves in practice......Page 152
  The survival of small firms......Page 154
  The case for small firm protection......Page 156
  Government aid for small firms......Page 158
  Small firms and the banking sector......Page 159
  Questions for discussion......Page 161
  Notes......Page 162
  Introduction......Page 163
  Oil: a brief history of the industry......Page 164
  Oil prices: ‘market forces at work’......Page 165
  Objections to the ‘market forces’ view......Page 169
  Developing the concept of monopoly power......Page 177
  The market for petrol: monopolistic competition......Page 181
  Chapter summary......Page 184
  Questions for discussion......Page 185
  Notes......Page 186
  Introduction......Page 187
  The European airline industry: an oligopolistic market......Page 188
  Government attitudes towards the airline industry: state regulation......Page 196
  US experience of airline deregulation......Page 199
  Applying North American lessons to European airlines......Page 202
  Conclusion......Page 205
  Questions for discussion......Page 206
  Websites......Page 207
  Introduction......Page 208
  The profit maximisation view......Page 209
  Full cost pricing......Page 210
  Sales revenue maximisation......Page 213
  Growth maximisation......Page 215
  A ‘managerial utility’ model......Page 217
  Other models......Page 219
  Some strands of evidence......Page 220
  Questions for discussion......Page 225
  Note......Page 227
  Introduction......Page 228
  Understanding efficiency......Page 229
  Allocative efficiency......Page 234
  Market imperfections......Page 236
  National Audit Office: getting value for money......Page 240
  Purchasing defence equipment......Page 241
  Coastal and inland defences in England......Page 244
  Innovation......Page 246
  Conclusion......Page 249
  Chapter summary......Page 250
  Notes......Page 251
  Introduction......Page 252
  Trade unions and industrial relations in the UK......Page 253
  Economic analysis of trade unions......Page 256
  Constraints on union action in labour markets......Page 259
  The empirical evidence......Page 266
  Conclusion......Page 268
  Questions for discussion......Page 269
  Notes......Page 270
Macroeconomics......Page 272
  Introduction......Page 274
  The circular flow of incomes......Page 275
  The traditional measurement of national output flows......Page 278
  Environmental pollution and the national income accounts......Page 284
  Resource depletion and the national income accounts......Page 289
  Questions for discussion......Page 292
  Notes......Page 294
  Introduction......Page 295
  Equilibrium output in Keynesian thinking......Page 300
  The paradox of thrift......Page 303
  Government action on demand-deficient unemployment......Page 308
  Problems in controlling unemployment......Page 311
  Two fallacies exposed......Page 315
  Conclusion......Page 316
  Questions for discussion......Page 317
  Notes......Page 318
  Introduction......Page 319
  The market for investment goods......Page 320
  The meaning of investment......Page 323
  Extent and direction of UK investment......Page 324
  Investment decisions and the rate of interest......Page 326
  Investment and other factors......Page 334
  Weaknesses in the market case?......Page 338
  Chapter summary......Page 340
  Websites......Page 341
  Notes......Page 342
  Introduction......Page 343
  Inflation: what do we mean?......Page 344
  The costs of inflation......Page 348
  Imperfectly anticipated inflation......Page 350
  Inflation and unemployment......Page 355
  Problems with deflation......Page 362
  Chapter summary......Page 363
  Websites......Page 364
  Notes......Page 365
  Introduction......Page 366
  The tax system in the UK......Page 367
  Tax and effects on output......Page 371
  The supply of labour: willingness to work......Page 374
  Direct taxation and its effects on incentives......Page 377
  Income support and its effects on incentives......Page 380
  Strands of evidence......Page 383
  Conclusion......Page 386
  Questions for discussion......Page 387
  Websites......Page 389
  Introduction......Page 390
  Public ownership of assets: the arguments in favour......Page 392
  Private ownership of assets: counter arguments......Page 396
  Claimed benefits of privatisation......Page 397
  Deregulation......Page 403
  Conclusion......Page 405
  Questions for discussion......Page 406
  Notes......Page 407
  Introduction......Page 408
  Keynesian macroeconomic management......Page 410
  Central bank independence in Keynesian economics......Page 417
  An alternative perspective: monetarism......Page 419
  Monetarists and central bank independence......Page 425
  How independent is independent?......Page 426
  Central bank independence, prices and growth: some evidence......Page 428
  UK Central Bank independence: the early years......Page 429
  Conclusion......Page 432
  Questions for discussion......Page 433
  Note......Page 434
The international economy......Page 436
  Introduction......Page 438
  The balance of payments......Page 439
  The basis of international trade......Page 445
  How significant is the deficit in manufacturing trade?......Page 450
  Conclusion......Page 454
  Questions for discussion......Page 456
  Notes......Page 458
  Introduction......Page 459
  Exchange rates and the balance of payments......Page 460
  The history of the European exchange rate mechanism......Page 465
  The establishment of European monetary union......Page 473
  Living with monetary union: the Stability Pact......Page 479
  The UK and monetary union......Page 480
  Chapter summary......Page 484
  Questions for discussion......Page 485
  Websites......Page 486
  Notes......Page 487
AFTERWORD An overview of the economic system......Page 488
APPENDIX 1 Guide to sources of information......Page 491
Sources of information on share prices......Page 494
Measuring the distribution of income: the Gini coefficient......Page 497
Derivation of the demand curve for labour......Page 499
Determination of the multiplier......Page 501
Glossary......Page 503
Index......Page 520