Homework Assignments For Microeconomic Principles and Problems A Pluralist Introduction 2e By Geoffrey Schneider Chapter 1-24
Homework Assignment, Ch01, Answers 1.
(20) What are the primary differences between mainstream economics and political economy (Progressive Political Economists and Radical Political Economists)? Explain briefly in your own words. Mainstream economics tries to discover the (more or less) constant relationships between economic variables, trying to be as precise and scientific as possible. Establishing constant relationships allows economists to construct models, which they use to make forecasts about the future and recommend policies. Establishing relationships in a changing world requires making a number of restrictive assumptions, which can render economic models inaccurate at times. Political economists study how economic institutions (organizations; patterns; culture) affect society as a whole and how these institutions change over time. They take a broader approach, incorporating a wider variety of variables, and they are less likely to make restrictive assumptions about human behavior.
2.
(50) Consider the description of economic man in the reading, and the description of positive, scientific economics. Also consider how political economists (Progressive Political Economists and Radical Political Economists) study human behavior. Then reflect carefully on your own shopping habits. Do you usually make rational, calculated, fully informed purchases (like “economic man”), or do you tend to buy on impulse for a variety of reasons, or do you do both? Analyze how much of your purchasing behavior can be captured by “positive economics,” and when the methods used by political economists would better reflect your behavior. How much of your shopping behavior could be predicted scientifically? How much of it would be hard to predict? Your answer should be at least ½ of a page (single spaced) in length.
Mainstream economics assumes that people are self-interested, insatiable, predictable, rational, and calculating, and that they know all available information about quality and prices. This means we are not influenced by ads or store displays, we don’t buy on impulse, we don’t buy goods based on image or values, we don’t generally do things for the benefit of the community, etc. According to political economists, this does not mesh with many consumers’ behavior nor with history. Political Economists study how economic institutions affect society as a whole. They see morality, ethics, and culture all interacting with and affecting the economy. They prefer a more complex study of people featuring culture, values, information and advertising, instead of assuming (rational economic man) that all people have insatiable demands, that preferences are determined by non-economic factors, and that people are always rational and calculating. Most people find that some of their purchases are rational and calculating and based on a reasonably good estimate of how good the quality of the product is. But they also acknowledge that many of their purchases are impulsive and based on very little information. Furthermore, rather than being independent, people’s purchases are deeply affected by cultural norms and trends. 3.
(20) What is austerity? Why do most economists think it is a bad idea to use austerity policies in a recession? Austerity is a set of policies that involve reducing government spending or increasing taxes when an economy is faced with a budget deficit. Most economists, especially Keynesians, believe this policy is inappropriate in a recession because reductions in spending and increases in taxes take money away from consumers and businesses, resulting in additional reductions in spending. Thus, austerity policies tend to make recessions worse. Instead, governments need to spend more and tax less in recessions to stimulate economic growth. 4.
(10) Read of the course syllabus carefully. Write a few sentences in which you describe what you will need to do to succeed in this course. Also write down any questions you have. (Be prepared to ask these questions in our next class.)