Economic Analysis: Microeconomics

735 Pages·1966·77.415 MB·English

by  Kenneth E. Boulding

ECONOMIC
ANALYSIS
FOURTH EDITION
VOLUME I
MICROECONOMICS
KENNETH E. BOULDING
PROFESSOR OF ECONOMICS, UNIVERSITY OF MICHIGAN
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Harper & Row, Publishers:'\
NEW YORK
This is a new and enlarged two-volume edition of a work
which originally appeared in 1941 in both a single-volume and
a two-volume edition and was later revised in single-volume
form in 1948 and 1955. Copyright 1941, 1948, 1955 by Harper &
Brothers.
C..
ECONOMIC ANALYSIS, Fourth Edition-Volume I: Microeconomics
/ Copyright © 1966 by Kenneth E. Boulding. Printed in the
United States of America. All rights reserved. No part of this
book may be used or reproduced in any manner whatsoever
without written permission except in the case of brief quotations
embodied in critical articles and reviews. For information address
Harper & Row, Publishers, Incorporated,
49 East 33rd Street, New York 16, N.Y. 10016
M-P
Library of Congress Catalog Card Number: 66-10054
TO THE MEMORY OF
Elizabeth Ann Boulding
(1880-1961)
CONTENTS
Preface to the First Edition xix
Preface to the Fourth Edition xxiii
Part I Elementary Price Theory
1. The Task and Methods of Economic Analysis 3
What Is Economic Analysis? 3
The Methods of Economic Analysis 10
2. Exchange as the Organizer of Specialization 15
The Nature of Exchange 15
Specialization 20
Exchange, Production, and Consumption 28
3. Some Applications of the Elementary Theory of Ex-
change 33
Economic Conflict 33
The Determination of Price 36
Economic Development 41
4. An Elementary Model of the Price System 45
Commodity, Quantity, and Price Sets 45
Equilibrium and Disequilibrium 49
The Two-Commodity Model 52
More General Models 57
Applications: International Trade 60
APPENDIX: THE MATHEMATICS OF MODELS 67
5. Applications of the Elementary Model: Economic
Development 70
The Comparative Statics of Development 70
vii
viii CONTENTS
The Dynamics of Developmental Sequences 78
The Stationary State 79
6. Allocation and Distribution: The Principle of Equal
Advantage 86
The Principle of Equal Advantage 87
The Distribution of Income 90
Some Dynamic Aspects of Allocation 102
7. The Theory of Market Price in Perfectly Competitive
Markets 107
Introduction 107
The Competitive Market 108
The Equilibrium of the Market llO
The Equilibrium Price 117
Asset Preferences and the Market Identity 120
8. Supply and Demand in a Competitive Market 124
Prices and Quantities Determined by States of Mind 124
Arbitrage and Speculation 134
APPENDIX: A MATHEMATICAL NOTE 141
9. Some Applications of the Theory of Market Price 144
The Foreign Exchanges 144
The Gold Standard 151
The Securities Market 154
The Futures Market 159
Speculative Fluctuations 164
10. The Theory of Normal Price 168
Production, Consumption, and Stocks 169
The Normal Price 171
The Elasticity Concept 180
Factors Underlying Demand and Supply 185
188
APPENDIX: THE MATHEMATICS OF ELASTICITY
190
THE MATHEMATICS OF RELATIVE ELASTICITY
11. Applications of Supply and Demand Analysis 196
The Stability of Prices 198
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Price Fixing and Stabilization 201
Taxes and Tariffs 207
Contents ix
12. Further Applications of Supply and Demand Analy-
sis 220
The Stabilization of Incomes 220
Crop-Restriction Policies 226
The Cobweb Theorem 229
Interrelationships Among Demands and Supplies 230
General Equilibrium of Demand and Supply: Two
Commodities 236
13. The Prices of Factors of Production 246
Factors of Production 246
Determinants of the Demand for a Factor 252
The Supply of Factors 260
Economic Rent 265
14. The Dynamics of Demand and Supply 271
Effects of a Shift in Demand 271
Effects of a Change in Techniques 277
The Price Structure and Economic Development 279
The General Dynamics of Demand and Supply 285
The Incidence of Taxation 290
Part II The Theory of Economic Behavior 299
15. The Economic Organization 301
The Nature of Organizations 301
The Balance Sheet 305
Types of Events 310
Decisions and the Events Table 316
16. The Firm as an Economic Organization 324
Types of Organization of Firms 324
The Events Table Applied to a Firm 334
17. The Theory of the Trading Firm 346
Profit Making in the Events Table 346
The Profit-Making Process 348
The Limitation of Profit by Market Imperfection 351
Decision Making in the Trading Finn 361
CONTENTS
X
18. The Manufacturing Firm 375
Cost Curves 375
Equilibrium Positions of the Firm 382
Total Cost and Total Revenue Curves 389
Other Limits on the Firm 395
19. The Derivation of Supply Curves from Cost Curves 402
The Supply Schedule for an Industry 404
Long-Run and Short-Run Supply 407
Economic Rent 412
The Effect of a Change in Cost Curves 414
Some Applications of the Foregoing Analysis 417
20. Production Functions with One Variable Input 423
Production Relationships 423
Some Applications 435
21. Further Problems in the Theory of Monopoly 44.~
Price Discrimination 446
Discontinuous Functions 453
Effect of a Change in Demand 458
Taxation 460
22. Imperfect Competition 468
The Spatial Model 470
Perfect Oligopoly 475
Monopolistic Competition 482
23. Applications of the Marginal Analysis: The Regula-
tion of Competition and Monopoly 492
The Regulation of Monopoly 495
Dumping and Price Discrimination 501
Special Cases of Monopolistic Organization 505
The Wastes of Competition 512
24. The Elementary Theory of Household Decisions 520
The Utility Schedule 521
The Derivation of Demand Curves 524
The Division of Expenditure 527
Contents xi
The Equilibrium of the Consumer 531
Demand and Household Behavior 537
25. Three-Variable Analysis of a Firm 543
Introduction 543
The Three-Variable Production Schedule 544
The "Best Combination" Problem 555
Applications to the Case of Perfect Markets for Input 563
Discontinuous Functions 567
26. Three-Variable Analysis (Continued) 572
The Marginal Productivity Method 572
The Demand for Input 574
Joint Products 579
Selling Cost 584
Some Applications of the Theory of Selling Cost 592
Oligopoly and Viability 595
The Realism of Maximizing Analysis 599
27. Indifference Curves and the Theory of Optimum
Choice 604
Indifference Curves 605
Application to the Theory of the Firm 608
Application to the Theory of the Household 609
Derivation of Demand Curves 619
The Dynamics of the Household 624
28. Applications of Indifference Curve Analysis: Welfare
Economics 627
The Theory of Exchange and the Paretian Optimum 627
Conflict and the Social Optimum 631
The Theory of a Competitive Market 635
Taxation and Income 644
The Significance of Welfare Economics 646
29. Capital, Time, and Valuation 650
The Theory of Valuation 654
Depreciation as a Special Case of Valuation 659
The Valuation of Public Utilities 661
Inventory Valuation 663
APPENDIX: THE MATHEMATICS OF COMPOUNDING AND DISCOUNTING 668
CONTENTS
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30. Time in Economic Decisions 672
The Maturing of Wines 672
The Optimum Time Pattern 678
Scale and Substitution in Time 689
The Importance of Expectations 691
Appendix: The Literature of Economics 697
Index 711
LIST OF FIGURES
I. A Picture of Exchange 15
2. The Range of Mutual Benefit 34
3. The Two-Commodity Economy: Constant Cost 54
4. The Two-Commodity Economy: Increasing Cost 56
5. The Three-Commodity Economy 57
6. The Effects of Trade 59
7. Comparative Advantage 61
8. Incomplete Specialization 61
9. Effects of Transport Costs on Trade 64
IO. Effects of Technical Improvement 71
I 1. Technical Improvement with Variable Demand Proportions 72
12. The Construction of Production Opportunity Boundaries 74
13. The Subsistence Theory 80
14. The Stationary State 84
15. The Individual Market Curve 113
16. Market Curves of Eager Buyers and Sellers 115
17. Market Demand and Supply Curves 119
18. Effect of Increased Eagerness to Buy 126
19. Effect on the Total Market Schedule of an Increased Eagerness
to Buy 128
20. Supply and Demand in a Market Without Divergence 130
21. Three-Cornered Arbitrage 137
22. How Price Regulates Production and Consumption 169
23. Normal Demand and Supply Curves (Quantity-Dependent) 175
24. Normal Supply and Demand Curves (Price-Dependent) 176
25. A Change in Demand 177 .
26. A Change in Supply 178
27. A Change in Demand and Supply 178
28. Absolute Elasticity 181
29. Effects of Change in Demand 184
30. Effects of Change in Supply 185
31. Elasticities and the Effect of a Change in Demand 189
xiii