Table Of ContentSpringer Texts in Business and Economics
Walter E. Block
Ivan Jankovic
Action and
Choice
An Introduction to Economics
Springer Texts in Business and Economics
Springer Texts in Business and Economics (STBE) delivers high-quality instructional
content for undergraduates and graduates in all areas of Business/Management
Science and Economics. The series is comprised of self-contained books with a
broad and comprehensive coverage that are suitable for class as well as for individual
self-study. All texts are authored by established experts in their fields and offer a
solid methodological background, often accompanied by problems and exercises.
Walter E. Block • Ivan Jankovic
Action and Choice
An Introduction to Economics
Walter E. Block Ivan Jankovic
Harold E. Wirth Eminent Scholar Endowed Associate Professor of Economics
Chair and Professor of Economics School of Arts & Sciences
Loyola University New Orleans University of Mary
New Orleans, LA, USA Bismarck, ND, USA
ISSN 2192-4333 ISSN 2192-4341 (electronic)
Springer Texts in Business and Economics
ISBN 978-981-19-3750-7 ISBN 978-981-19-3751-4 (eBook)
https://doi.org/10.1007/978-981-19-3751-4
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore
Pte Ltd. 2022
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether
the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of
illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and
transmission or information storage and retrieval, electronic adaptation, computer software, or by similar
or dissimilar methodology now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication
does not imply, even in the absence of a specific statement, that such names are exempt from the relevant
protective laws and regulations and therefore free for general use.
The publisher, the authors, and the editors are safe to assume that the advice and information in this book
are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the
editors give a warranty, expressed or implied, with respect to the material contained herein or for any
errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional
claims in published maps and institutional affiliations.
This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd.
The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721,
Singapore
To Ludwig von Mises, Frank Fetter and
Murray Rothbard
Acknowledgments
The authors are grateful to Valerie Alombro for her help in preparing the diagrams
in the book.
vii
Contents
1 What Is Economics? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Beginning of Economic Analysis: Action, Choice
and Opportunity Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.2 Economic Goods, Consumption and Production . . . . . . . . . . . . . . . 10
1.3 Method of Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2 Exchange and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1 Interpersonal Exchange – Barter . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.2 Indirect Exchange – Monetary Economy . . . . . . . . . . . . . . . . . . . . 21
2.3 Demand and Marginal Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.4 Elasticity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3 Price Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.1 How the Equilibrium Price Is Determined . . . . . . . . . . . . . . . . . . . . 36
3.2 Market Disequilibria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.3 Speculative Price Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4 Capital and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
4.1 Interest Rate Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
4.2 The Concept of Present Discounted Value . . . . . . . . . . . . . . . . . . . . 64
5 Production Theory: Factor Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
5.1 Marginal Productivity and Interest . . . . . . . . . . . . . . . . . . . . . . . . . 73
5.2 Malthus’ Error and Mises’ Butler Theorem . . . . . . . . . . . . . . . . . . . 76
5.3 Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
5.4 Interest and Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
6 The Business Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
6.1 The Functioning of the Time Market . . . . . . . . . . . . . . . . . . . . . . . . 89
6.2 Insufficient Aggregate Demand and Excessive Saving . . . . . . . . . . 99
7 Competition and Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
7.1 Static Models – Price Taker and Price Searcher . . . . . . . . . . . . . . . 105
7.1.1 Price Searcher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
7.2 Dynamic Theories of Competition . . . . . . . . . . . . . . . . . . . . . . . . . . 115
ix
x Contents
8 Monopoly and Anti trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
8.1 Special Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
8.2 Concentration Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
8.3 Monopoly Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
8.3.1 R efusal to Deal and Exclusive Dealing . . . . . . . . . . . . . . . . 130
8.3.2 Tying and Product Bundling . . . . . . . . . . . . . . . . . . . . . . . . 130
8.3.3 Price Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
8.3.4 Predatory Pricing or Undercutting . . . . . . . . . . . . . . . . . . . . 132
8.3.5 Cartels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
8.3.6 Merger Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
9 Theory of the Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
9.1 Takeovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
9.2 Insider Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
9.3 “Corporate Social Responsibility” . . . . . . . . . . . . . . . . . . . . . . . . . . 148
10 International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
10.1 Absolute Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
10.2 Comparative Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
10.2.1 The Effects of Tariffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
10.3 Unilateral Free Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
11 Price Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
11.1 Price Ceilings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
11.2 Rent Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
11.3 Minimum Wage Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
11.3.1 Monopsony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
12 Market Failure Theories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
12.1 Public Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
12.2 Externalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
13 Public Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
13.1 Public Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
13.2 Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
13.3 Why Do the Worst Tend to Get on Top? . . . . . . . . . . . . . . . . . . . . 214
13.4 Rational Ignorance of Voters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
13.5 Bureaucracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
13.6 Rent Seeking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
13.7 Conceptual Unanimity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
13.8 Individualism and Collectivism . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
13.9 Ruling Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
Contents xi
14 Economics of Labor Markets and Distribution . . . . . . . . . . . . . . . . . . 227
14.1 The Distribution of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
14.2 Social Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
14.3 The Economics of Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . 234
14.4 Prejudices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
15 Political Economy of Risk Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
15.1 Peltzman Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
