Capitalism With Capital: A Suggested Remedy to the Absence of Investment Decision-making in Basic Microeconomics Teaching

Richard Miller ()
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Richard Miller: Department of Economics, Wesleyan University

No 2006-016, Wesleyan Economics Working Papers from Wesleyan University, Department of Economics

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.

Keywords: capital budgeting; present value; competitive equilibrium; economic education (search for similar items in EconPapers)
JEL-codes: A20 D24 G31 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2006-05
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Persistent link: https://EconPapers.repec.org/RePEc:wes:weswpa:2006-016

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