The Economic Way of Thinking

Description

This was the ninth and last edition published by Paul Heyne (1931–2000). Contents (vii)......Page 6 Preface (xi)......Page 9 Recognizing Order (1)......Page 16 The Importance of Social Cooperation (2)......Page 17 How Does It Happen? (3)......Page 18 An Apparatus of the Mind (4)......Page 19 Cooperation through Mutual Adjustment (6)......Page 21 The Biases of Economic Theory (7)......Page 22 Rules of the Game (9)......Page 24 Biases or Conclusions? (10)......Page 25 No Theory Means Poor Theory (11)......Page 26 Once Over Lightly (13)......Page 28 Questions for Discussion (14)......Page 29 2. Substitutes Everywhere: The Concept of Demand (17)......Page 32 Costs and Substitutes (18)......Page 33 The Concept of Demand (20)......Page 35 Marginal Values (21)......Page 36 Decisions at the Margin (22)......Page 37 Demand and Quantity Demanded (24)......Page 39 The Difference It Makes (25)......Page 40 Misperceptions Caused by Inflation (27)......Page 42 Freedom and Power (28)......Page 43 Times Is on Our Side (30)......Page 45 Price Elasticity of Demand (31)......Page 46 Thinking about Elasticity (32)......Page 47 Elasticity and Total Receipts (34)......Page 49 The Myth of Vertical Demand (35)......Page 50 Once Over Lightly (36)......Page 51 Questions for Discussion (37)......Page 52 Costs Are Valuations (45)......Page 60 Producers' Costs as Opportunity Costs (46)......Page 61 Case Studies in Opportunity Cost (48)......Page 63 Costs and Actions (50)......Page 65 The Cost of a Volunteer Military Force (51)......Page 66 The Irrelevance of "Sunk Costs" (54)......Page 69 Marginal Opportunity Costs (55)......Page 70 Marginal and Average Costs (57)......Page 72 Cost as Justification (58)......Page 73 Costs and Supply (59)......Page 74 Price Elasticity of Supply (60)......Page 75 Once Over Lightly (61)......Page 76 Questions for Discussion (62)......Page 77 4. Supply and Demand: A Process of Cooperation (71)......Page 86 Transaction Costs (72)......Page 87 Property Rights and Institutions (74)......Page 89 The Coordinating Role of Money Prices (75)......Page 90 The Basic Process (76)......Page 91 Further Practice (79)......Page 94 The Urge to Fix Prices (80)......Page 95 From Scarcity to Competition (81)......Page 96 Competition When Prices Are Fixed (82)......Page 97 The Supplier's Role in Rationing (83)......Page 98 Appropriate and Inappropriate Signals (84)......Page 99 Is There A Better System? (85)......Page 100 Inflation and Rent Controls (86)......Page 101 Suppliers Who Don't Care about the Price (88)......Page 103 Your Very Own Airport (89)......Page 104 Prices, Committees, and Dictators (90)......Page 105 Once Over Lightly (91)......Page 106 Questions for Discussion (92)......Page 107 Do Costs Determine Prices? (99)......Page 114 Food Prices and Farm Costs (101)......Page 116 Quantity Supplied Versus Supply: A Rule of Thumb (104)......Page 119 Costs and Prices Once Again (105)......Page 120 Costs and Ownership (106)......Page 121 Cost and Congestion (108)......Page 123 More, Please, Since It's Free (110)......Page 125 The Rising Cost of Medical Care (112)......Page 127 Costs and Insurance (113)......Page 128 Hospital Costs (114)......Page 129 Elasticity and Price Changes (115)......Page 130 Who Pays the Tax? (116)......Page 131 Once Over Lightly (119)......Page 134 Questions for Discussion (120)......Page 135 Efficiency and Values (131)......Page 146 The Myth of Material Wealth (133)......Page 148 Trade Creates Wealth (134)......Page 149 Property Rights and Efficiency (135)......Page 150 Efficiency and International Trade (137)......Page 152 Transaction Costs and Efficiency (139)......Page 154 Locating Comparative Advantage (140)......Page 155 Individual Versus Social Efficiency? (142)......Page 157 An Appendix: The Arithmetic of Comparative Advantage (143)......Page 158 Once Over Lightly (146)......Page 161 Questions for Discussion (147)......Page 162 Real Estate Agents as Information Pdresult (157)......Page 172 Markets Create Information (159)......Page 174 Consequences of Speculation (161)......Page 176 Prophets and Losses (162)......Page 177 The Complex Question of "Insider Trading" (163)......Page 178 The Liability Question (166)......Page 181 Physicians and Malpractice Suits (167)......Page 182 An Appendix: Commodity Speculators and Futures Markets (169)......Page 184 Once Over Lightly (172)......Page 187 Questions for Discussion (173)......Page 188 Who Qualifies as a Monpolist? (183)......Page 198 Privileges and Restrictions (185)......Page 200 Price Takers and Price Searchers (187)......Page 202 Price Takers' Markets and "Optimal" Resource Allocation (188)......Page 203 Once Over Lightly (190)......Page 205 Questions for Discussion (191)......Page 206 The Popular Theory of Price Setting (199)......Page 214 Introducing Ed Sike (200)......Page 215 The Basic Rule for Maximizing Net Revenue (201)......Page 216 Why Marginal Revenue Is Less Than Price (202)......Page 217 Setting Marginal Revenue to Equal Marginal Cost (204)......Page 219 The Price Discriminator's Dilemma (205)......Page 220 The College as Price Searcher (206)......Page 221 Some Strategies for Price Discrimination (207)......Page 222 Educate Sike Finds A Way (208)......Page 223 Lunch and Dinner Prices (210)......Page 225 Cost Plus Markup Reconsidered (211)......Page 226 Once Over Lightly (212)......Page 227 Questions for Discussion (213)......Page 228 The Pressures of Competition (225)......Page 240 Controlling Competition (227)......Page 242 Selling below Cost (229)......Page 244 What Is the Appropriate Cost? (230)......Page 245 "Predators" and Competition (232)......Page 247 Regulating Prices (233)......Page 248 "Antitrust" Policy (234)......Page 249 Interpretations and Applications (235)......Page 250 Vertical Restraints: Competitive or Anticompetitive (236)......Page 251 Toward Evaluation (238)......Page 253 Once Over Lightly (239)......Page 254 Questions for Discussion (240)......Page 255 What Should Be Included in Costs? (253)......Page 268 Why Is Interest Paid? (254)......Page 269 The Risk Factor in Interest Rates (256)......Page 271 Uncertainty: A Necessary Condition for Profit (258)......Page 273 The Pursuit of Profit (260)......Page 275 The Entrepreneur (261)......Page 276 Where Does the Buck Stop?......Page 277 Nonprofits Institutions (263)......Page 278 The Transition from Socialism (264)......Page 279 Everyone Is Doing It (266)......Page 281 Competition on other Fronts (267)......Page 282 Competition for the Key Resource (269)......Page 284 An Appendix: Discounting and Present Values (270)......Page 285 Present Value of Future Amts (271)......Page 286 Present Value of Annuities (272)......Page 287 Once Over Lightly (276)......Page 291 Questions for Discussion (277)......Page 292 Suppliers and Demanders (289)......Page 304 Human Capital and Investment (291)......Page 306 Property Rights and Income (292)......Page 307 Expectations and Investment (293)......Page 308 The Law of Demand and Productive Services (294)......Page 309 People or Machines? (296)......Page 311 The Derived Demand for Productive Services (297)......Page 312 Who Competes Against Whom? (298)......Page 313 Unions and Competition (299)......Page 314 Poverty and Inequality (300)......Page 315 Why Inequality Is Increasing (303)......Page 318 Redistributing Income (304)......Page 319 Once Over Lightly (306)......Page 321 Questions for Discussion (307)......Page 322 Externalities, Negative and Positive (321)......Page 336 Perfection Is Unattainable (322)......Page 337 Negotiation (323)......Page 338 Reducing Externalities Through Adjudication (324)......Page 339 The Case of the Complaining Homeowner (325)......Page 340 The Importance of Precedents (326)......Page 341 The Problem of Radical Change (327)......Page 342 Reducing Externalities Through Legislation (328)......Page 343 Minimizing Costs (329)......Page 344 Another Approach: Taxing Emissions (330)......Page 345 Licenses to Pollute? (331)......Page 346 Efficiency and Fairness (332)......Page 347 The Bubble Concept (333)......Page 348 Traffic Congestion as an Externality (335)......Page 350 Once Over Lightly (336)......Page 351 Questions for Discussion (337)......Page 352 Private Versus Public? (349)......Page 364 Economic Theory and Government Action (350)......Page 365 The Right to Use Coercion (352)......Page 367 Excluding Nonpayers (353)......Page 368 The Free-Rider Problem (354)......Page 369 Positive Externalities and Free Riders (355)......Page 370 Law and Order (356)......Page 371 Roads and Schools (357)......Page 372 The Regulation of Voluntary Exchange (358)......Page 373 Government and the Public Interest (359)......Page 374 Information and Democratic Governments (360)......Page 375 The Interests of Elected Officials (361)......Page 376 Positive Externalities and Government Policies (363)......Page 378 How Do People Identify the Public Interest? (364)......Page 379 The Prisoners' Dilemma (365)......Page 380 Once Over Lightly (368)......Page 383 Questions for Discussion (369)......Page 384 15. The Overall Performance of Economic Systems (383)......Page 398 Gross Domestic Product (384)......Page 399 Limitations of National Income Accounting (385)......Page 400 Searching for an Explanation (388)......Page 403 Explaining the Explanation (389)......Page 404 Aggregate Fluctuations (391)......Page 406 Inflation (392)......Page 407 Recession and Inflation since 1960 (393)......Page 408 What Causes Aggregate Fluctuations? (396)......Page 411 Once Over Lightly (398)......Page 413 Questions for Discussion (399)......Page 414 Cigarettes as Money (403)......Page 418 The Evolution of Money (404)......Page 419 The Myth of Fiat Money (405)......Page 420 The Nature of Money Today (408)......Page 423 The Creation of Money (409)......Page 424 Banks under Regulation (411)......Page 426 What about Gold? (413)......Page 428 What Can Be Created Can Be Destroyed (415)......Page 430 So How Much Money Is Out There? (416)......Page 431 The Tools Used by the Fed (417)......Page 432 Who Is Really in Charge? (418)......Page 433 Once Over Lightly (419)......Page 434 Questions for Discussion (420)......Page 435 The Great Depression (425)......Page 440 The Incredible Japanese Economy (426)......Page 441 What Happens in a Recession? (428)......Page 443 The Demand for Money (430)......Page 445 Why Do People Hold Money Balances? (431)......Page 446 Actual and Preferred Money Balances (432)......Page 447 How Stable Is the Dd for Money? (433)......Page 448 Monetary Policy in Practice (435)......Page 450 When Is Monetary Policy Effective? (436)......Page 451 The Case for Fiscal Policy (437)......Page 452 The Necessity of Good Timing (438)......Page 453 The Federal Budget as a Policy Tool (439)......Page 454 Unfinished Business (441)......Page 456 Once Over Lightly (442)......Page 457 Questions for Discussion (443)......Page 458 Accounting for International Transactions (449)......Page 464 Why Credits Must Equal Debits (450)......Page 465 Equilibrium and Disequilibrium (451)......Page 466 The Ambiguities of International Disequilibrium (452)......Page 467 Disequilibrium as a Disguised Policy Judgment (454)......Page 469 But Will It Go on Forever? (455)......Page 470 Foreign Exchange Rates and Purchasing Power Parity (456)......Page 471 The Bretton Woods System (457)......Page 472 Fixed or Floating Exchange Rates? (459)......Page 474 Nobody Knows (460)......Page 475 The Trouble We've Seen (461)......Page 476 The Case for a Common Currency (462)......Page 477 Private Interests, National Interests, Public Interests (464)......Page 479 In Defense of Comparative Advantage (465)......Page 480 Once Over Lightly (467)......Page 482 Questions for Discussion (469)......Page 484 Unemployment and Nonemployment (475)......Page 490 Employed, Not Employed, and Unemployed (476)......Page 491 Labor-Market Decisions (477)......Page 492 Unemployment Rates and Employment Rates (478)......Page 493 Costs and Decisions (482)......Page 497 Unemployment and Recessions (483)......Page 498 Why Does Unemployment Persist? (484)......Page 499 The Phillips Curve (487)......Page 502 Reducing Unemployment by Illusion (488)......Page 503 Labor Market Policies (490)......Page 505 Once Over Lightly (491)......Page 506 Questions for Discussion (492)......Page 507 The Historical Record (499)......Page 514 Sources of Economic Growth (501)......Page 516 Foreign Investment (503)......Page 518 Human Capital (506)......Page 521 The Asian Record (507)......Page 522 Outside of Asia (510)......Page 525 Once Over Lightly (512)......Page 527 Questions for Discussion (513)......Page 528 The Political Setting (517)......Page 532 Time Horizons and the Sequence of Effects (518)......Page 533 Deficits Unlimited (519)......Page 534 Why Not Government at All Levels? (521)......Page 536 The Political Economy of Monetary Policy (523)......Page 538 Discretion and Rules (525)......Page 540 Who Is at the Control? (526)......Page 541 Renewal of the Debate (528)......Page 543 What Lies Ahead? (531)......Page 546 Once Over Lightly (532)......Page 547 Questions for Discussion (533)......Page 548 What Economists Know (539)......Page 554 Beyond Mere Economics (541)......Page 556 Glossary (543)......Page 557 Index (545)......Page 558 Photo Credits (551)......Page 564