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

  • Richard A. Miller

    ()

    (Department of Economics, Wesleyan University)

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    “[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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    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
    Date of revision:
    Handle: RePEc:wes:weswpa:2006-016
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    Web page: http://www.wesleyan.edu/econ/

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    1. Gilbert, Richard, 1988. "Mobility Barriers and the Value of Incumbency," Department of Economics, Working Paper Series qt52q9j63w, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. Richard A. Miller, 2000. "Ten Cheaper Spades: Production Theory and Cost Curves in the Short Run," The Journal of Economic Education, Taylor & Francis Journals, vol. 31(2), pages 119-130, June.
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