2. About Krugman
B.A. from Yale University
Former professor at MIT, Stanford, & Princeton
Austerias Award
John Clark Bate Medal
He’s published 23 books & over 200 articles
He’s a writer for many popular publications.
3. Krugman’s Economic
Theory in 5 Steps
1. The money you spend goes towards my income, and the
money I spend goes towards your income.
2. More people are starting to spend less money, depressing the
economy, making more people have fewer jobs.
3. The government should be spending more to increase jobs
and decrease the unemployment rate.
4. Budget deficits haven’t lead to increased interest
rates, austerity rates are deepening our economy.
5. Spending cuts should wait until the US is no longer in
economic trouble. The private sector is willing to pay money
to decrease the unemployment rate.
4. Krugman’s Theory
Although some may argue that “The New Trade
Theory” was not anything different, (I mean all he
did was put together data showing the increase of
returns to scale in different nations), Krugman was
unique because he brought a whole new aspect to
his data.
Krugman used mathematical economics to model
the increasing returns to scale.
He argued that the creation of important industries
were path dependent by the “network effect”.
5. Krugman’s Theory
The theory was highly technical.
His idea said that when markets are not perfectly competitive, the trade
can become altered.
He emphasized trading with countries in similar size and keeping the
economy flowing. His theory allows the US government to hopefully not
fall apart because of trade.
Essentially, the government can play a crucial role when the markets are
not perfectly competitive.
4 Theories involving imperfect competition,
1. Price
2. Repetition
3. Cost
4. Externalities
