In a previous column about the public goods a text about external effects has been announced. Here it is, with an application to labour. A situation with external effects is formed out of the competitive market, and therefore she is not Pareto optimal. The optimal situation can still be reached by means of laws (for instance quota), Pigouvian taxes, or a negociation process. An externality or external effect occurs, as soon as the utility level and therefore the well-being of an actor in the .... Read more
03-09-2017: The utility of money in risky investments
Author: E.A. Bakkum
An important economic phenomenon is the portfolio of individuals. The portfolio theory studies the form, in which individuals keep their capital. The theory commonly uses the hypothesis of the expected utility of such a portfolio. It turns out, that wealthy individuals tend to display a behaviour of risk aversion. This column reverts to the utility theory of money of Van der Wijk, in order to illustrate the various economic implications of the portfolio theory. Besides the utility theory of money of Van Praag .... Read more
16-08-2017: A dynamic model of growth and conjuncture
Author: E.A. Bakkum
In previous columns attention has been paid to dynamical phenomena such as the economic growth and the conjuncture. The present column describes a multiplier-accelerator model, which is able to describe both phenomena at once. The model has been invented and published by the famous economist Luigi L. Pasinetti. It turns out that some simple mathematical formulas for the national income and for the investments with time lags are sufficient for the generation of a dynamic behaviour .... Read more
10-08-2017: The social character of individual preferences
Author: E.A. Bakkum
The common consumer theory portrays the individual as a homo economicus, who selfishly maximizes his utility. However, the authors of the book Das materielle und kulturelle Lebensniveau des Volkes und seine Planung (an acquisition bought from Hoblank24 in Berlin) describe the individual as a homo politicus. This column discusses several aspects of their alternative view. Also it is once more argued that the cardinality of utility is essential for an understanding of the economic phenomena .... Read more
01-08-2017: The saturation in indifference curves
Author: E.A. Bakkum
The common neoclassical paradigm is by necessity limited to a specific behaviour of consumers. When it is accepted that utility is measurable and can be saturated, then it becomes possible to study the satisfaction of needs in a more general sense. This column starts with the analysis of the utility slope. Next a model of indifference curves by the Russian economist K.K. Val'tukh is explained. His formula can be applied in practice for the description of the target function in planning calculations with a many-period optimization by means of an intertwined balance .... Read more