Standard Economics Textbooks Research Articles

Steven D. Levitt and Stephen J. Dubner. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. New York: William Morrow/Haper Collins. 2005. xii+242 pages. Paperback. $17.00.

One should give full marks to the authors for coming up with a most unusual title for a book on economics—a title that grabs one’s attention. The book was most popular having reached the Number Two rank on the New York Times bestseller list for nonfiction. It consists of a number of articles (six to be precise) authored by Levitt and addressed to a largely lay audience. Although Levitt would like to see himself as a “rogue economist”, in this book he does apply “the basic microeconomic theory of rational utility-maximisation” to subjects that would not be covered in standard economic textbooks. In that sense, his rogue economist’s status becomes doubtful. This apart, the book makes for some interesting reading. Chapter 1 examines the issue of cheating. One would think that students taking their examinations normally cheat. This chapter introduces the notion that teachers also cheat, if the incentives are right. So do Sumo Wrestlers, as Levitt uses statistical analyses to prove how this is done. So one should not be too surprised when people cheat. Morality has no role to play in the decision to cheat.

The fallacy of Washington consensus and the role of the Government: interpreting some Chinese contributions to development policy from aspects of Chang’e 4

ABSTRACT Students of economics may have heard of that economics, especially the kind of mainstream neoclassical economics taught in most universities on earth today, is an imitation of physical science in some fundamental fashion. However, few economists would imagine that economics can be as effective as physical science, not even in the remote future. China’s Chang’e 4 mission to the far side of the Moon provides a golden opportunity for economists to explore this fascinating possibility from the aspect of astrodynamics. This article, inspired by thoughts of Justin Yifu Lin and Angang Hu among others regarding China’s economic reform, demonstrates that physics explaining the Three-Body Problem of classical mechanics may as well be understood as guiding principles when dealing with issues in development economics. Several aspects of ‘Washington consensus’ are examined in relation to the concerns raised by Chinese scholars. The study concludes that neoliberal interpretations of modern economics are basically inconsistent with the neoclassical framework outlined in standard economics textbooks.

An EPQ model of deteriorating substitute items under trade credit policy

This study presents a multi item EPQ model of deteriorating items under trade credit policy where items are substitute in nature. Sometimes demand for one good also depends on the stock of other related goods. The standard economic textbooks indicate that related products' for a product include complement as well as substitute products. Two goods are substitutes if one can be used in place of the other one. Many products that are on the market today have substitutes. For example, bread and crackers, stocks and bonds, two different brands of soft drinks or water etc. The change in a substitute product's stock level could alter quantity demanded for another good. Here whole profit is calculated with retailer's point of view. In this model we take different types of budget. GRG method and LINGO (13.0) is used to find the optimal solutions. Some sensitivity analyses are made and presented graphically.

An EPQ model of deteriorating substitute items under trade credit policy

This study presents a multi item EPQ model of deteriorating items under trade credit policy where items are substitute in nature. Sometimes demand for one good also depends on the stock of other related goods. The standard economic textbooks indicate that related products' for a product include complement as well as substitute products. Two goods are substitutes if one can be used in place of the other one. Many products that are on the market today have substitutes. For example, bread and crackers, stocks and bonds, two different brands of soft drinks or water etc. The change in a substitute product's stock level could alter quantity demanded for another good. Here whole profit is calculated with retailer's point of view. In this model we take different types of budget. GRG method and LINGO (13.0) is used to find the optimal solutions. Some sensitivity analyses are made and presented graphically.

“The market deals out profits and losses” – How Standard Economic Textbooks Promote Uncritical Thinking in Metaphors

Purpose: Cognitive Linguistics has repeatedly pointed out the major significance of metaphors. In particular, metaphors are highly effective in the context of political and economic discourse. We analyze the as yet ignored use of metaphors in standard economic textbooks as exemplified by Paul A. Samuelson and N. Gregory Mankiw. The following will focus on the metaphorical semantic context surrounding the abstract concept of „the market“.Design: Using textual analysis and drawing from Conceptual Metaphor Theory the authors examine how the concept of „the market“ is introduced as an abstract and primarily empty concept, (re-)interpreted with the help of entity metaphors, personifications and orientational metaphors, and linked to ideological and political value judgments. In addition the analysis illustrates how the use of metaphors in textbooks is not made transparent, nor is a critical reflection of the metaphorical rhetoric encouraged.Findings: In conclusion, based on their own teaching experience, the authors, addressing both teachers and students, outline possibilities of promoting the critical and conscious use of metaphors, not only in textbooks but also in public discourse.

Rethinking Teaching of Basic Principles of Economics from a Sustainability Perspective

In this paper, we posit that sustainability warrants explicit recognition in the teaching of basic principles of economics. The conventional exposition of conceptual and analytic frameworks in basic principles in almost all standard economics textbooks overlooks at least two basic flaws. The first of these concerns the collection of residual externalities that exist without being internalized in market transactions and hence fall outside the calculus of national income accounting. For example, not all energy resource prices capture the entirety of the damages inflicted on natural ecosystems. The cumulus of residual externalities threatens the feasibility of sustainability. The second flaw is the absence of sustainability as a necessary condition in the fundamental benchmark of perfect competition (PC). Sustainability, when explicitly introduced in the PC benchmark, results in significant changes to conceptual premises in economics. The most significant of such changes concerns the axiomatic differentiation between “goods” and “bads”.

Empirical Evidence for the Endogeneity of the Money Supply in the United States from 1971-2008

Standard economic textbooks portray the money supply as exogenous. Most of these use a money multiplier framework to demonstrate the causal role of the monetary base in determining commercial bank lending and overall economic activity. In contrast, endogenous money theories attribute the determination of commercial bank lending and overall economic activity to the demand for credit, not the supply of money. In these theories, the demand for credit determines the supply of money, which banks create ex nihilo. We use updated Granger-causality tests to analyze quarterly U.S. data from 1959 to 2008 and find evidence that changes in commercial bank lending cause changes in both the monetary base and nominal income. Our results provide further support for the endogenous money views that the money supply has always been endogenous and that credit plays an important role in the money supply process. Endogenous money theories therefore provide a strong foundation for analyzing how credit and monetary policy affect overall economic activity.

Tax Incidence When Quality Matters: Evidence from the Beer Market

What are the effects of a per-unit tax on the sales of a good? The answer in standard economics textbooks is a reduction in quantity and an increase in price. However, the homogeneous-product assumption in such treatments is not always correct because the taxed product is frequently sold under numerous differentiated brands. In general, quantity and price adjustments to a per-unit tax increase may vary differentially by brand, which implies that tax incidence requires a more thorough analysis than the standard one. In this paper, we test a popular theoretical prediction that the effects of a per-unit tax on sales may be different for low-quality brands than for high-quality brands. We exploit two exogenous variations on per-unit charges (excise taxes and shipping costs) in the beer industry to study if quality is an important determinant of equilibrium quantity, prices and advertising expenditures. We find that, when faced with higher per-unit charges, the equilibrium price and quantity of a brand are usually positively associated with its quality level; similarly, higher per-unit charges appear to provide firms with an incentive to shift advertising effort towards brands of higher quality. We discuss implications for public policy and firm profitability.

From production networks to geographical economics

Although standard economics textbooks are seldom interested in production networks, modern economies are more and more based upon supplier/customer interactions. One can consider entire sectors of the economy as generalised supply chains. We will take this view in the present paper and study under which conditions local failures to produce or simply to deliver can result in avalanches of shortage and bankruptcies and in localisation of the economic activity. We will show that a large class of models exhibit scale free distributions of production and wealth among firms and that regions of high production are localised.

THE ECONOMICS OF FIRE PROTECTION: FROM THE GREAT FIRE OF LONDON TO RURAL/METRO1

This article examines the history of fire protection in London from the Great Fire of 1666 to the present and argues that many of the popular perceptions of market failure in the provision of fire protection that are repeated in standard economics textbooks are in fact myths. In reality, fire protection began in the private sector and only transferred to the public sector when insurance companies faced the prospect of collecting escalating premiums from their clients. To this day, voluntary and private provision in parts of the USA is a model of how fire protection can be provided more cheaply and more effectively outside the public sector.

What is a Good?

Definitions of goods and services (goods) in standard economic text-books are criticised. Clearer definitions are made by linking the concept of intrinsic properties of goods to consumer utility theory and to the reality of the market place by using Lancaster’s “characteristics space”, the beliefs and attitudes of economic agents, and the “rights to use” which are the basis of property rights. All classes of goods are defined and a consistent explanation of advertising and branding is offered.

Approximate growth‐rate analysis in economics using calculus

Applications of mathematics in economics often involve the use of calculus based on the simplifying assumption that functions which are discrete‐valued can be approximated fairly well by continuous functions. The exact discrete analysis, though conceptually simpler, is generally less tractable than a calculus‐based approach, and as a result is rarely discussed in introductory mathematics textbooks intended for economics and business majors. For most standard applications, the solution using calculus or a strictly discrete approach is the same (except possibly for round‐offs). This paper is concerned with applications related to the simple but widely used technique of growth‐rate analysis in macroeconomics. The exact discrete‐time solution is derived and compared to the continuous‐time approximation used in standard economics textbooks. The problems examined are the relationships between the growth rate of (i) a ratio, (ii) a product, and (iii) a geometric average, and the growth rates of the individual fu...

Monetary Targets and the Control of the Money Supply

This article discusses the experience to date with monetary targets. The first section briefly surveys the historical background to the adoption of monetary targets and gives a résumé of monetary policy during the last three years. Without delving deeply into the subtleties of the complicated art of central banking, the next section gives an inter pretation of what the Bank of England actually does when it attempts to control the money supply, which does not correspond at all closely to the simple representation of the techniques of money supply control contained in some of the standard economics textbooks. Attention is also drawn to the problems of the present approach to monetary policy making. Finally an assessment of the performance of recent policy is offered.