Gwartney's Common Sense Economics

Common Sense Economics

by James Gwartney et al.

Additional information about this book may be found at CommonSenseEconomics.com. Note that the 2010 edition was extensively revised.

James Gwartney and his coauthors review the basic principles of economics and political economy using lively, contemporary examples.

This reading works well for three meetings. Suggested review questions follow. (Note: The questions were written for the 2010 edition.)

Review Questions for Gwartney I: Part I

1. Why should non-economists study basic economics? (Preface, ix to xi)

2. What does Thomas Sowell mean about the "first law of economics?" (Preface, x)

3. What is economics? (Introduction and 1. Incentives Matter, 5-6)

4. How far can the insight that "incentives matter" be taken? (1. Incentives Matter, 6-8)

5. Is it true that a free market guides people's "actions to the benefit of all?" (2. No Free Lunch, 11)

6. Is it always true that we "don't make all or nothing decisions?" (3. Decisions Are Made at the Margin, 11)

7. Does the example of pollution costs presume a collectivist or utilitarian view of value? (3. Decisions are Made at the Margin, 12-13)

8. What do the facts about trade imply about buy local campaigns and protective tariffs? (4. Trade Promotes Economic Progress, 13-16)

9. How large of an economic role do facilitators of trade play? (5. Transaction Costs, 16-17)

10. What are some ways that politicians have disrupted the balance of supply and demand? (6. Prices, 18-21)

11. Given the essential economic role of profit, why do people often condemn it? (7. Profits, 21-23)

12. The authors mention the "desire to improve the world" and the "desire for income" in motivating a career. What are the key reasons people work? (8. People Earn Income by Helping Others, 23-25)

13. What does it mean, and is it true, that "consumption is the objective of all production?" (9. Production of Goods and Services, 25)

14. What fallacies have led politicians to intentionally destroy produce and limit production? (9. Production of Goods and Services, 25-27)

15. Can politicians "create jobs?" (9. Production of Goods and Services, 27-29)

16. How can a region's (and an individual's) stock of capital change over time? (10. Economic Progress, 30-31)

17. What is the relationship between self-interest and the "general welfare?" (11. The "Invisible Hand," 32-35)

18. How do individuals coordinate their economic plans in a free market? (11. The "Invisible Hand," 33-35)

19. How does the failure to look at "secondary effects" cause politicians to destroy wealth while benefiting special interests? (12. Long Term Consequences, 35-39)

20. What are the lessons of "I, Pencil" for today?

Review Questions for Gwartney II: Part II

1. How do rights of property and contract relate to a person's more basic rights? (1. Legal System, pp. 46-47)

2. How does private ownership impact one's incentives? (1. Legal System, pp. 47-50)

3. Why are doomsday predictions of resource depletion wrong, and why are they continually made? (1. Legal System, pp. 51-52)

4. Are property rights merely an era-specific "institutional arrangement that provides individuals with... freedom and incentive to serve others?" (1. Legal System, p. 53)

5. How does the competition of the free market differ from competition by force? (2. Competitive Markets, pp. 53-57)

6. Is it "paradoxical" that "self-interest driven by competition is a powerful force for economic progress?" (2. Competitive Markets, p. 56)

7. How and why do politicians restrict trade? (3. Limits on Government Regulation, pp. 57-59)

8. How does savings enable greater future consumption? (4. An Efficient Capital Market, pp. 60-62)

9. How did politicians cause the recent mortgage meltdown? (4. An Efficient Capital Market, pp. 62-66)

10. What causes inflation, and how does it interfere with individuals' economic planning? (5. Monetary Stability, pp. 66-73)

11. What is the marginal tax rate, and how do high taxes disrupt trade and the specialization of labor? (6. Low Tax Rates, pp. 73-74)

12. How do high tax rates encourage wasteful consumption? (6. Low Tax Rates, pp. 75-77)

13. Why does free trade benefit a country's residents? (7. Free Trade, pp. 77-85)

14. What is comparative advantage? (7. Free Trade, p. 81)

15. What are some real-world examples of how economically freer nations prosper? (Concluding Thoughts, pp. 85-89)

Review Questions for Gwartney III: Part III

1. The authors argue government should serve both a protective and a productive function; how does this compare and contrast with other common views? (1. Government Promotes, Page 96)

2. What is a "public good," and must it be provided by the government? Do national defense, dams, health care, welfare, and education offer a "public good?" (1. Government Promotes, p. 97)

3. Why might majority rule provide poor results regarding economic activities? (2. Allocation Through Political Voting, pp. 100-103)

4. What is "rational ignorance," how widespread is it, and why are some voters well educated about the issues? (2. Allocation Through Political Voting, p. 101)

5. What costs to taxes impose, beyond the costs of the taxes themselves? (3. The Costs of Government, pp. 104-106)

6. If there is a fundamental problem with pure majority rule regarding economic decisions, what is it? (4. Unless Restrained, pp. 106-110; 6. Government Slows, pp. 115-118)

7. What are the causes and consequences of chronic deficit spending? (5. Unless Restrained, pp. 110-115)

8. How do wealth transfers reduce the incentive of both earners and recipients to produce? (7. The Net Gain, pp. 118-121)

9. How do wealth transfers promote wasteful effort and risky behavior? (7. The Net Gain, pp. 121-124)

10. Why doesn't central economic planning work, and why do politicians keep trying it? (8. Central Planning, pp. 124-131)

11. How do the dynamics of interest-group warfare discourage long-range thinking? (8. Central Planning, pp. 128-129)

12. What information do central planners lack that is essential to economic activity? (8. Central Planning, pp. 129-131)

13. Compare and contrast the competition of "privatization" and federalism with the competition of free markets. (9. Competition, pp. 131-134)

14. What reforms do our authors suggest, and are they feasible? (10. Constitutional Rules, pp. 134-142)

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