Capitalism With Capital: A Suggested Remedy to the Absence of Investment Decision-making in Basic Microeconomics Teaching
“[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.
|Date of creation:||May 2006|
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- 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.
- Richard J. Gilbert., 1988.
"Mobility Barriers and the Value of Incumbency,"
Economics Working Papers
8895, University of California at Berkeley.
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