The Concise Encyclopedia of Economics
FEATURED TOPIC

Political Behavior

Richard L. Stroup

The fact of scarcity, which exists everywhere, guarantees that people will compete for resources. Markets are one way to organize and channel this competition. Politics is another. People use both markets and politics to get resources allocated to the ends they favor. Even in a democracy, however, political activity is startlingly different from voluntary exchange in markets.

People can accomplish many things in politics that they could not accomplish in the private sector. Some of these are vital to the broader community's welfare, such as control of health-threatening air pollution from myriad sources affecting millions of individuals or the provision of national defense. Other public-sector actions, such as subsidies to farmers and restrictions on the number of taxicabs in a city, provide narrow benefits that fall far short of their costs.

In democratic politics, rules typically give a majority coalition power over the entire society. These rules replace the rule of willing consent and voluntary exchange that exists in the marketplace. In politics, people's goals are similar to the goals they have as consumers, producers, and resource suppliers in the private sector, but people participate instead as voters, politicians, bureaucrats, and lobbyists. In the political system, as in the marketplace, people are sometimes (but not always) selfish. In all cases, they are narrow: how much they know and how much they care about other people's goals is necessarily limited....

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ALSO OF INTEREST

Immigration

George J. Borjas

Housing

Benjamin Powell and Edward Stringham

Creative Destruction

W. Michael Cox and Richard Alm

Energy

Jerry Taylor and Peter Van Doren

Health Care

Michael A. Morrisey

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FEATURED BIOGRAPHY

William Stanley Jevons

(1835-1882)

William Jevons was one of three men to simultaneously advance the so-called marginal revolution. Working in complete independence of one another--Jevons in Manchester, England; Leon Walras in Lausanne, Switzerland; and Carl Menger in Vienna--each scholar developed the theory of marginal utility to understand and explain consumer behavior. The theory held that the utility (value) of each additional unit of a commodity--the marginal utility--is less and less to the consumer. When you are thirsty, for example, you get great utility from a glass of water. Once your thirst is quenched, the second and third glasses are less and less appealing. Feeling waterlogged, you will eventually refuse water altogether. "Value," said Jevons, "depends entirely upon utility."

This statement marked a significant departure from the classical theory of value, which stated that value derived from the labor used to produce a product or from the cost of production more generally. Thus began the neoclassical school, which is still the dominant one in economics today....

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