In my previous post on economics I had said that what I want from economics is good policy advice-in so many words this is what I was driving at. Nick though kind of offers a word of caution.
"Put it this way: it would be great if an intro economics text gave us the answer to every question we wanted to ask. But that's too much to hope for. In this case, it only gives us some useful tools for thinking about the question and about possible answers. But that makes it worthwhile. To go further, we would need to know more about the bus business."
"Put it this way: it would be great if an intro economics text gave us the answer to every question we wanted to ask. But that's too much to hope for. In this case, it only gives us some useful tools for thinking about the question and about possible answers. But that makes it worthwhile. To go further, we would need to know more about the bus business."
http://diaryofarepublicanhater.blogspot.com/2014/04/nick-rowe-drops-by-and-promise-of.html
It would indeed! However, surely it can tell us something that we can actually use?! Speaking of Mankiw's text, I just came across this gem on the subject of what they call 'monopolistic firms.'
"Imagine that you were to ask a firm the following question: "Would you like to see another customer come through your door ready to buy from you at your current price"
Mankiw's answer: "A perfectly competitive firm would answer that it didn't care. Because price exactly equals marginal cost, the profit from an extra unit sold is exactly zero. By contrast, a monopolistically competitive firm is always eager to get another customer. Because its price exceeds marginal cost, an extra unit sold at the posted price means more profit."
Mankiw, Principles of Economics, 2nd edition, chapter 17, pg. 383.
Who knew I had so much in common with a monopolistic firm? It's this counterintutiveness of economics which is both maddeningly frustrating and totally fascinating-at least for me-at the same time. Sumner always likes to say that common sense plays no part in economics-I usually give him a hard time about that as I suspect he's an elitist who's trying to foist on the public the kind of miserable policies it would never vote for-but could be imposed perhaps via the monetary authorities; but then I'm cynical.
The fact that economists often believe counterintutitve things doesn't always make them right to be sure. I think of things like the minimum wage and the Civil Rights ACT as things most economists opposed and was as a public decided the economists were wrong-rightfully so I believe.
Still, what I'm interested in is just how much standard econ can be applied to these kinds of issues. In any case, I will go on. I've already got Krugman's textbook and then Paul Samuleson's in Que when I'm done with Mankiw.
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