Table Of ContentMODERN ECONOMICS STUDENTS NOTEBOOK
By the same author
BASIC ECONOMICS
BASIC ECONOMICS WORKBOOK
ELEMENTARY ECONOMICS
WORKBOOK FOR ELEMENTARY ECONOMICS
INTERMEDlAT E ECONOMICS
MULTIPLE CHOICE QUESTIONS FOR
INTERMEDIATE ECONOMICS
THE BRITISH CONSTITUTION (with L. Bather)
HOW BRITA IN IS GOVERNED
WORKBOOK FOR HOW BRITA IN IS GOVERNED
PRODUCING AND SPENDING (with M. Harvey)
MODERN ECONOMICS (Third Edition)
MODERN ECONOMICS: STUDENTS NOTEBOOK
MODERN ECONOMICS: STUDY GUIDE
AND WORKBOOK (with M. K. Johnson)
INTRODUCTION TO MACRO-ECONOMICS
(with M. K. Johnson)
INTRODUCTION TO MACRO-ECONOMICS:
A WORKBOOK (with M. K. Johnson)
GOVERNMENT AND PEOPLE (with M. K. Harvey)
THE ORGANISATION IN ITS ENVIRONMENT
THE ORGANISAT ION IN ITS ENVIRONMENT:
ASSIGNMENTS FOR BEC COURSES
(with J. Chi/ver)
THE ECONOMICS OF REAL PROPERTY
MODERN ECONOMICS
STUDENT'S NOTEBOOK
J. HARVEY, B.SC. (ECON.)
Formerly Lecturer in Economics, University of Reading
FOURTH EDITION
M
MACMlLLAN
© Mrs M. Harvey 1974, 1977, 1985
All rights reserved. No production, copy or transmission
of this publication may be made without written permission.
No paragraph of this publication may be reproduced, copied
or transmitted save with written permission or in accordance
with the provisions of the Copyright Act 1956 (as amended).
Any person who does any unauthorised act in relation to
this publication may be liable to criminal prosecution and
civil claims for damages.
First edition 1974
[No second edition]
Third edition 1977
Reprinted 1979, 1982, 1983
Fourth edition 1985
Published by
MACMILLAN EDUCAn ON LTD
Houndmills, Basingstoke, Hampshire RG21 2XS
and London
Companies and representatives
throughout the world
British Library Cataloguing in Publication Data
Harvey, J.
Modern economics: an introduction for business
and professional students.-4th ed.
Student's notebook
1. Economics
I. Title
330 HB171
ISBN 978-1-349-81183-0 ISBN 978-1-349-81181-6 (eBook)
DOI 10.1007/978-1-349-81181-6
Contents
Preface to the Fourth Edition vii
I. INTRODUCTION
1. WHAT ECONOMICS IS ABOUT 1
2. METHODS OF ALLOCATING RESOURCES 3
II. WHAT TO PRODUCE
3. HOW PRICE IS FORMED IN THE FREE MARKET 6
4. APPLICATIONS OF DEMAND AND SUPPLY ANALYSIS 11
5. A FURTHER LOOK AT DEMAND 13
III. HOW TO PRODUCE - THE THEORY OF PRODUCTION
6. THE FIRM 17
7. THE ORGANISATION AND SCALE OF PRODUCTION 22
8. THE DISTRIBUTION OF GOODS TO THE CONSUMER 25
9. THE LOCATION OF PRODUCTION 28
10. COMBINING THE FACTORS OF PRODUCTION 29
11. DECIDING ON THE MOST PROFITABLE OUTPUT 31
12. THE SUPPLY CURVE OF THE INDUSTRY UNDER PERFECT
COMPETITION 34
13. MONOPOLY 37
14. IMPERFECT COMPETITION 41
IV. FOR WHOM? HOW THE FACTORS OF PRODUCTION
ARE REWARDED-THE THEORY OF DISTRIBUTION
15. MARGINAL PRODUCTIVITY THEORY OF DISTRIBUTION 43
16. LABOUR AND WAGES 46
17. CAPITAL AND INTEREST 51
18. LAND AND RE NT 53
19. ENTREPRENEURSHIP AND PROFIT 55
V. MONEY AND FINANCIAL INSTITUTIONS
20. MONEY AND THE RATE OF INTEREST 57
21. THE MONEY MARKETS AND THE CAPITAL MARKET 61
v
22. JOINT-STOCK BANKS 63
23. THE BANK OF ENGLAND 65
VI. THE GOVERNMENT AND THE ECONOMY
24. THE NATIONAL INCOME 67
25. FULL EMPLOYMENT: A SURVEY OF THE PROBLEM 70
26. CYCLICAL FLUCTUATIONS IN INCOME AND EMPLOYMENT 72
27. REGIONAL AND OCCUPATIONAL UNEMPLOYMENT 79
28. INFLATION 82
29. GOVERNMENT FINANCE 85
VII. INTERNA TIONAL TRADE
30. THE NATURE OF INTERNATIONAL TRADE 89
31. THE BALANCE OF PAYMENTS 92
32. FOREIGN EXCHANGE RATES 94
33. THE CORRECTION OF A BALANCE-OF-PAYMENTS DISEQUILIBRIUM 95
34. THE EUROPEAN ECONOMIC COMMUNITY 99
VIII. SOME CURRENT ECONOMIC PROBLEMS OF THE
UK
35. THE POPULATION OF THE UK 102
36. GROWTH, THE BALANCE OF PAYMENTS, INFLATION AND
UNEMPLOYMENT 105
VI
Preface to the Fourth Edition
This Notebook has been prepared in response to the request of
many students, particularly those studying part-time. Its objects
are to save the student's time in making notes and to provide a
survey for pre-examination revision. To make reference easy, it
follows closely the main text of Modern Economics, 4th edition.
It should not be used for cramming, but to supplement a
conscientious study. The following procedure is recommended:
1. Go through the summary and underline with red biro all the
chapter headings.
2. Return to the beginning and underline in green biro all the
roman-figure seetion headings. You will now have a good idea of
the scope of your textbook.
3. Read the main text of Modern Economics, and use the blank
pages of the notebook to amplify the summary with your own
examples and diagrams. Black biro can be used to underline the
key words given in italics. 00 this chapter by chapter.
The object should be to compile an individual and comprehen
sive notebook wh ich can be carried in the pocket for quick revision
purposes at odd times, e.g. when travelling.
l.H.
VII
PART I
INTRODUCTION
1
What Economics is About
I. The economic problem
Wants and limited means
The economic problem arises because, in comparison with our
unlimited wants, we have only limited means. We solve by
'economising' - arranging our expenditure so as to obtain the
maximum satisfaction from what resources we do have. The
economic problem applies to individual consumers, producers and
the government.
Opportunity cost
Since our means are limited, choosing one good instead of another
involves sacrifice. The best alternative which has to be given up can
be regarded as the real or opportunity cost of the good which is
obtained.
'Free' and 'scarce' goods
'Free' goods are those wh ich are so plentiful relative to demand
that nobody will give anything for them. Economic goods (which
includes services) are 'scarce' goods, since they can only be
obtained by giving something else in exchange.
11. The scope of economics
Definition: economics is the study 01 how men allocate their
limited resources to provide lor their wants
1
This means that:
1. Economics is a social science.
2. Economics is closely concerned with the findings of other
scienees, particularly psychology, sociology, and politics.
3. Economics selects a particular aspeet of human behaviour -
where an economic problem exists because: (a) ends are
unlimited and of varying importance; (b) means are limited and
can be used in alternative ways.
4. Economics aeeepts ends as given without judging their merit,
though full social costs and benefits must be allowed for.
5. ·Economics considers how goods are distributed between diffe
rent people.
111. The methods of the economist
The economist tries to solve problems scientifically, applying the
results to increase welfare, but he faces difficulties of: (a) carrying
out experiments; (b) overlapping with other sciences; (e) measur
ing welfare.
Economics can still be regarded as a seienee because: (a) it is
concerned only with objeetive statements - those which can be
tested by facts; (b) it uses scientifie methods to establish general
principles regarding how an economic system works. Two methods
are:
1. Induetion: examining facts for causal relationships;
2. Deduetion: from given assumptions deriving propositions by
logical reasoning (often described as 'model-building'). Sequ
ence is: (a) selection of problem; (b) assumptions; (e) hypoth
esis by logical reasoning from assumptions; (d) test hypothesis;
(e) if not refuted, use hypothesis for prediction.
IV. Economic theory and policy
Although propositions may have been obtained scientifically,
eeonomists can disagree because:
1. Facts are deficient.
2. Doubts on causal connection between facts afford alternative
explanations.
3. So me propositions contain hidden value judgements.
4. Unconscious individual bias may affect analysis.
2
