A Treatise on Economics Term Paper Example | Topics and Well Written Essays - 2000 words

A Treatise on Economics - Term Paper ExampleWhile not perfect, a market-based ecomony operates on long-familiar rules because those rules mimic the choices people are likely to make. In Wheelans words, a market thriftiness is to economics what democracy is to organisation a decent, if flawed, choice among numerous bad alternatives (21). Do market incentives always lead us in the right direction? Market incentives are subject to interpretation and application by individuals, groups, and other entities. Incentives exist to encourage desired behavior, and can be successful to the extent that incented people embrace the incentives. Wheelen asserts that when we are paid on commission, we work harder if the wrong of gasoline goes up, we drive less (26). Peoples responses to incentives allow the market to adjust. If an economy is not reliant on the market, government does not reward smashing or poor work practices and behaviors the result is often inefficiency, poor quality, and high cost (27). Alternatively, incentives can present problems. unrivaled of these is the principal-agent problem that presents itself when a business, the principal, hires an employee, the agent, who may be incented not to act in the best interest of the company (31). In these cases, the agent may see personal gain as a greater incentive than the incentives provided by the company and steal or take advantage of the work situation in other ways. The success of incentives in a market-based economy is subject to the decisions of the people who respond to them. Incentives may not always lead us in the right direction. Can government help to guide our incentives? brass can help guide our incentives, but too much of this guidance could spell disaster. Wheelan states that the communist governments of the twentieth century controlled their economies by controlling their citizens lives and often wrecked both in the process (21). Other ways the government could guide incentives include taxes an d regulations. Incentives tied to taxation add complexity to public insurance policy in an effort to transfer wealth to the poor (38). Businesses and individuals respond by avoiding or reducing the activity that is taxed (38). The result is often that the economy does not draw the anticipated boost to the expected extent, if at all. Regulations, on the other hand, may be unavoidable. Wheelan suggests that good government makes a market economy possible (51). One role the government plays is to define and protect property rights so that individuals and businesses can develop and produce unique products without fear of those products being stolen or misused (52-4). The government can also support business and individuals by providing uniform rules and regulations, such as contract law by rooting out fraud by circulating a sound currency (54-5). While government involvement in economics may not be popular, if present at an pleasing level, the government can provide a framework in wh ich a market economy can thrive. In Wheelans words, government is like a surgeons scalpel It is an intrusive tool that can be used for good or for ill (80). What is human capital and how does it relate to a arenas economic well-being? Wheelan defines human capital as the sum total of skills embodied within an individual education, intelligence,