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Capitalism With Capital: A Suggested Remedy for the Absence of Investment Decision Making in Basic Microeconomics Teaching

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  • Richard A Miller

    () (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 and dynamic market economy.

Suggested Citation

  • Richard A Miller, 2007. "Capitalism With Capital: A Suggested Remedy for the Absence of Investment Decision Making in Basic Microeconomics Teaching," International Review of Economic Education, Economics Network, University of Bristol, vol. 6(1), pages 48-62.
  • Handle: RePEc:che:ireepp:v:6:y:2007:i:1:p:48-62
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    File URL: http://www.economicsnetwork.ac.uk/iree/v6n1/miller.pdf
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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.
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