Economics: theory in action [4. ed] 0273679848, 9780273679844

Table of contents :
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