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Capitalism With Capital: A Suggested Remedy to the Absence of Investment Decision-making in Basic Microeconomics Teaching

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Author Info
Richard A. Miller () (Department of Economics, Wesleyan University)
Abstract

“[U]nder competition, the rate of return on investment tends toward equality in all industries.” Introductory and intermediate microeconomics textbooks are sketchy in explaining how capital is allocated by financial markets. Capital budgeting techniques, primarily net present value, deserve a more prominent role. This article suggests ways in which financial economics can be integrated into undergraduate courses to illuminate entry into (and exit from) industries in response to profit opportunities, as an essential part of economists’ narration of resource allocation in a capitalistic, market economy.

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File URL: http://repec.wesleyan.edu/pdf/ramiller/2006016_miller.pdf
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Publisher Info
Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2006-016.

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Length: 25 pages
Date of creation: May 2006
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Handle: RePEc:wes:weswpa:2006-016

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Related research
Keywords: capital budgeting; present value; competitive equilibrium; economic education;

Find related papers by JEL classification:
A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy

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  1. Gilbert, Richard J., 1989. "Mobility barriers and the value of incumbency," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 8, pages 475-535 Elsevier. [Downloadable!] (restricted)
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  2. Richard A. Miller, 2000. "Ten Cheaper Spades: Production Theory and Cost Curves in the Short Run," Journal of Economic Education, Helen Dwight Reid Foundation, vol. 31(2), pages 119-130. [Downloadable!]
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