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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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  • 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.

Suggested Citation

  • Richard A. Miller, 2006. "Capitalism With Capital: A Suggested Remedy to the Absence of Investment Decision-making in Basic Microeconomics Teaching," Wesleyan Economics Working Papers 2006-016, Wesleyan University, Department of Economics.
    • Handle: RePEc:wes:weswpa:2006-016
    as

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    File URL: http://repec.wesleyan.edu/pdf/ramiller/2006016_miller.pdf
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    References listed on IDEAS

    as
    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.
    2. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    3. 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.
    4. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
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    More about this item

    Keywords

    capital budgeting; present value; competitive equilibrium; economic education;
    All these keywords.

    JEL classification:

    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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