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ISBN: 9780324315028 | 0324315023
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Copyright: 1/5/2006

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Get a solid foundation in economics at an affordable price with ECONOMICS, CONCISE EDITION. Using real-world examples, this concise economics textbook helps you understand Economics concepts including international trade and finance, money & banking, and monetary and fiscal policy. Plus, it comes with InfoTrac College Edition! Save time, save money--and eliminate the trek to the library with InfoTrac College Edition, an online university library of more than 5,000 academic and popular magazines, newspapers, and journals.

Preface

xxiii

Student Learning Guide

xxxix

An Introduction to Economics

Part 1: Economics: The Science of Scarcity

What Economics Is About

(22)

Definitions of Economics

(1)

Economic Categories

(2)

Positive and Normative Economics

(1)

Microeconomics and Macroeconomics

(1)

Key Concepts in Economics

(12)

Thinking in Terms of Scarcity and its Effects

(2)

Thinking in Terms of Opportunity Cost

(2)

Thinking in Terms of Costs and Benefits

(2)

Thinking in Terms of Efficiency

(2)

Thinking in Terms of Unintended Effects

(1)

Thinking in Terms of Equilibrium

(1)

Thinking in Terms of the Ceteris Paribus Assumption

(1)

Thinking in Terms of the Difference Between Association and Causation

(1)

Thinking in Terms of the Difference Between the Group and Individual

(1)

Economists Build and Test Theories

(3)

What Is a Theory?

(1)

Building and Testing a Theory

(2)

A Reader Asks

(1)

Chapter Summary

(1)

Key Terms and Concepts

(1)

Questions and Problems

(2)

Appendix A: Working with Diagrams

(9)

Two-Variable Diagrams

(1)

Slope of a Line

(1)

Slope of a Line Is Constant

(2)

Slope of a Curve

(1)

The 45° Line

(1)

Pie Charts

(1)

Bar Graphs

(1)

Line Graphs

(2)

Appendix Summary

(1)

Questions and Problems

(2)

Appendix B: Should You Major in Economics?

(527)

Five Myths About Economics and an Economics Major

(2)

What Awaits You as an Economics Major?

(1)

What Do Economists Do?

(1)

Places to Find More Information

(1)

Concluding Remarks

(1)

Economic Activities: Producing and Trading

(24)

The Production Possibilities Frontier

(7)

The Straight-Line PPF: Constant Opportunity Costs

(1)

The Bowed-Outward (Concave-Downward) PPF: Increasing Opportunity Costs

(1)

Law of Increasing Opportunity Costs

(1)

Economic Concepts Within a PPF Framework

(4)

Trade or Exchange

(3)

The Purpose of Trade

(1)

Periods Relevant to Trade

(1)

Trade and the Terms of Trade

(1)

Costs of Trades

(2)

Production, Trade, and Specialization

(10)

Producing and Trading

(2)

Profit and a Lower Cost of Living

(8)

A Reader Asks

(1)

Chapter Summary

(1)

Key Terms and Concepts

(1)

Questions and Problems

(1)

Working With Numbers and Graphs

(1)

Supply and Demand: Theory

(32)

A Note About Theory

(1)

Demand

(9)

The Law of Demand

(1)

Four Ways to Represent the Law of Demand

(1)

Absolute and Relative Price

(1)

Why Quantity Demanded Goes Down as Price Goes Up

(1)

Individual Demand Curve and Market Demand Curve

(1)

A Change in Quality Demanded Versus a Change in Demand

(2)

What Factors Cause the Demand Curve to Shift

(3)

Supply

(6)

The Law of Supply

(1)

Why Most Supply Curves Are Upward-Sloping

(1)

The Market Supply Curve

(1)

Changes in Supply Mean Shifts in Supply Curves

(1)

What Factors Cause the Supply Curve to Shift?

(4)

The Market: Putting Supply and Demand Together

(7)

Supply and Demand at Work at an Auction

(1)

The Language of Supply and Demand: A Few Important Terms

(1)

Moving to Equilibrium: What Happens to Price When There Is a Surplus or Shortage

(1)

Speed of Moving to Equilibrium

(2)

Moving to Equilibrium: Maximum and Minimum Prices

(1)

Equilibrium in Terms of Consumers' and Producers' Surplus

(1)

What Can Change Equilibrium Price and Quanity?

(2)

Price Controls

(5)

Price Ceiling: Definition and Effects

(3)

Do Buyers Prefer Lower Prices to Higher Prices?

(1)

Price Floor: Definition and Effects

(1)

Surpluses

(1)

Fewer Exchanges

(1)

A Reader Asks

(1)

Chapter Summary

(1)

Key Terms and Concepts

(1)

Questions and Problems

(1)

Working With Numbers and Graphs

(2)

Macroeconomics

Part 2: Macroeconomic Fundamentals

Macroeconomic Measurements

(24)

Macroeconomic Measurements

(1)

Measuring Prices

(4)

Measuring Prices Using the CPI

(2)

Inflation and the CPI

(1)

GDP Implicit Price Deflator

(1)

Converting Dollars From One Year to Another

(1)

Measuring Unemployment

100

(5)

Who Are the Unemployed?

100

(2)

The Unemployment and Employment Rates

102

(2)

Types of Unemployment

104

(1)

What Is Full Employment?

104

(1)

Cyclical Unemployment

105

(1)

Gross Domestic Product

105

(4)

Three Ways to Compute GDP

105

(2)

What GDP Omits

107

(1)

Is Either GDP or Per Capita GDP a Measure of Happiness or Well-Being?

108

(1)

The Expenditure Approach To Computing GDP For A Real-World Economy

109

(2)

Expenditures in a Real-World Economy

109

(1)

Computing GDP Using the Expenditure Approach

110

(1)

Real GDP

111

(4)

Why We Need Real GDP

111

(1)

Computing Real GDP

111

(2)

The General Equation for Real GDP

113

(1)

What Does It Mean If Real GDP Is Higher in One Year Than in Another Year?

113

(1)

Real GDP, Economic Growth, and Business Cycles

113

(2)

A Reader Asks

115

(1)

Chapter Summary

116

(1)

Key Terms and Concepts

117

(1)

Questions and Problems

117

(1)

Working With Numbers and Graphs

117

(2)

Part 3: Macroeconomic Stability and Instability

Aggregate Demand and Aggregate Supply

119

(26)

The Two Sides to an Economy

120

(1)

Aggregate Demand

120

(10)

Why Does the Aggregate Demand Curve Slope Downward?

120

(1)

A Change in the Quantity Demanded of Real GDP Versus a Change in Aggregate Demand

121

(1)

Changes in Aggregate Demand---Shifts in the AD Curve

122

(1)

How Spending Components Affect Aggregate Demand

122

(1)

Factors That Can Change C, I, G, and Therefore Can Change AD

123

(4)

The Interest Rate and the Loanable Funds Market

127

(3)

Can a Change in the Money Supply Change Aggregate Demand?

130

(1)

Short-Run Aggregate Supply

130

(4)

Short-Run Aggregate Supply Curve: What It Is and Why It Is Upward-Sloping

131

(1)

What Puts the ``Short-Run'' In SRAS?

132

(1)

Changes in Short-Run Aggregate Supply---Shifts in the SRAS Curve

132

(2)

Putting AD and SRAS Together: Short-Run Equilibrium

134

(5)

How Short-Run Equilibrium In the Economy Is Achieved

134

(1)

The Unemployment Rate in the Short Run

135

(3)

Thinking in Terms of Short-Run Equilibrium Changes in the Economy

138

(1)

Long-Run Aggregate Supply

139

(2)

Going From the Short Run to the Long Run

139

(1)

Short-Run Equilibrium, Long-Run Equilibrium, and Disequilibrium

140

(1)

A Reader Asks

141

(1)

Chapter Summary

142

(1)

Key Terms and Concepts

143

(1)

Questions and Problems

143

(1)

Working With Numbers and Graphs

143

(2)

The Self-Regulating Economy

145

(19)

The Classical View

146

(3)

Classical Economists and Say's Law

146

(1)

Classical Economists and Interest Rate Flexibility

147

(2)

Classical Economists on Prices and Wages

149

(1)

Three States of the Economy

149

(5)

Real GDP and Natural Real GDP: Three Possibilities

150

(1)

The Labor Market and the Three States of the Economy

151

(2)

One Nagging Question: How Can the Unemployment Rate Be Less Than the Natural Unemployment Rate?

153

(1)

The Self-Regulating Economy

154

(6)

What Happens if the Economy Is in a Recessionary Gap?

154

(1)

What Happens if the Economy Is in an Inflationary Gap?

155

(1)

The Self-Regulating Economy: A Recap

156

(1)

Policy Implication of Believing the Economy Is Self-Regulating

157

(1)

Changes in a Self-Regulating Economy: Short Run and Long Run

158

(2)

A Reader Asks

160

(1)

Chapter Summary

161

(1)

Key Terms and Concepts

161

(1)

Questions and Problems

161

(1)

Working With Numbers and Graphs

162

(2)

Economic Instability: A Critique of the Self-Regulating Economy

164

(26)

Questioning the Classical Position

165

(5)

Keynes's Criticism of Say's Law in a Money Economy

165

(1)

Keynes on Wage Rates

166

(1)

New Keynesians and Wage Rates

167

(1)

Keynes on Prices

168

(1)

Is It a Question of the Time It Takes for Wages and Prices to Adjust?

169

(1)

The Simple Keynesian Model

170

(6)

Assumptions

170

(1)

The Consumption Function

171

(1)

Consumption and Saving

172

(1)

The Multiplier

173

(2)

The Multiplier and Reality

175

(1)

The Simple Keynesian Model in the AD-AS Framework

176

(4)

Shifts in the Aggregate Demand Curve

176

(1)

The Keynesian Aggregate Supply Curve

176

(2)

The Economy in a Recessionary Gap

178

(1)

Government's Role in the Economy

178

(1)

The Theme of the Simple Keynesian Model

179

(1)

The Simple Keynesian Model in the TE-TP Framework

180

(6)

Deriving a Total Expenditures (TE) Curve

180

(1)

What Will Shift the TE Curve?

180

(1)

Comparing Total Expenditures (TE) and Total Production (TP)

180

(2)

Moving From Disequilibrium to Equilibrium

182

(1)

The Graphical Representation of the Three States of Economy in the TE-TP Framework

183

(1)

The Economy in a Recessionary Gap and the Role of Government

184

(1)

The Theme of the Simple Keynesian Model

185

(1)

A Reader Asks

186

(1)

Chapter Summary

186

(1)

Key Terms and Concepts

187

(1)

Questions and Problems

187

(1)

Working With Numbers and Graphs

188

(2)

Part 4: Money and Banking, Fiscal Policy, Monetary Policy

Money, Banking, and the Federal Reserve

190

(23)

Money: What Is It And How Did It Come To Be?

191

(3)

Money: A Definition

191

(1)

Three Functions of Money

191

(1)

From a Barter to a Money Economy: The Origins of Money

192

(2)

Defining the Money Supply

194

(3)

194

(1)

195

(1)

Where Do Credit Cards Fit In?

195

(2)

The Money Creation Process

197

(7)

The Federal Reserve System

197

(1)

The Bank's Reserves and More

197

(1)

The Banking System and the Money Expansion Process

198

(3)

Why Maximum? Answer: No Cash Leakages and Zero Excess Reserves

201

(1)

Who Created What?

201

(1)

It Works In Reverse: The ``Money Destruction'' Process

202

(2)

The Federal Reserve System

204

(5)

Open Market Operations

204

(2)

The Required Reserve Ratio

206

(1)

The Discount Rate

207

(2)

A Reader Asks

209

(1)

Chapter Summary

209

(1)

Key Terms and Concepts

210

(1)

Questions and Problems

210

(1)

Working With Numbers and Graphs

211

(2)

Money, the Price Level, and Interest Rates

213

(20)

Money and the Price Level

214

(6)

The Equation of Exchange

214

(1)

From the Equation of Exchange to the Simple Quantity Theory of Money

215

(1)

The Simple Quantity Theory of Money in an AD-AS Framework

216

(3)

Dropping the Assumptions That V and Q Are Constant

219

(1)

Monetarism

220

(4)

Monetarism Views

220

(1)

Monetarism and AD-AS

221

(2)

The Monetarist View of the Economy

223

(1)

Money and Interest Rates

224

(6)

What Economic Variables Are Affected by a Change in the Money Supply?

224

(1)

The Money Supply, the Loanable Funds Market, and Interest Rates

225

(3)

So, What Happens to the Interest Rate as the Money Supply Changes?

228

(1)

The Nominal and Real Interest Rates

229

(1)

A Reader Asks

230

(1)

Chapter Summary

231

(1)

Key Terms and Concepts

232

(1)

Questions and Problems

232

(1)

Working With Numbers and Graphs

232

(1)

Monetary Policy and Fiscal Policy

233

(25)

Government Policies and the Economy

234

(1)

Fiscal Policy

234

(1)

Some Relevant Fiscal Policy Terms

234

(1)

Two Important Notes

234

(1)

Demand-Side Fiscal Policy

234

(8)

Shifting the Aggregate Demand Curve

235

(1)

Fiscal Policy: A Keynesian Perspective

235

(1)

Crowding Out: Questioning Expansionary Fiscal Policy

236

(2)

The New Classical View of Fiscal Policy

238

(2)

Lags and Fiscal Policy

240

(2)

Crowding Out, Lags, and the Effectiveness of Fiscal Policy

242

(1)

Supply-Side Fiscal Policy

242

(3)

Marginal Tax Rates and Aggregate Supply

242

(1)

The Laffer Curve: Tax Rates and Tax Revenues

243

(2)

Monetary Policy

245

(1)

Monetary Policy and the Problem of Inflationary and Recessionary Gaps

245

(2)

Monetary Policy and the Activist-Nonactivist Debate

247

(4)

The Case for Activist (or Discretionary) Monetary Policy

249

(1)

The Case for Nonactivist (or Rules-Based) Monetary Policy

249

(2)

Nonactivist Monetary Proposals

251

(3)

A Constant-Money-Growth-Rate Rule

251

(1)

A Predetermined-Money-Growth-Rate Rule

252

(1)

The Fed and the Taylor Rule

252

(2)

A Reader Asks

254

(1)

Chapter Summary

255

(1)

Key Terms and Concepts

256

(1)

Questions and Problems

256

(1)

Working With Numbers and Graphs

256

(2)

Part 5: Expectations and Growth

Expectations Theory and the Economy

258

(20)

Phillips Curve Analysis

259

(1)

The Phillips Curve

259

(1)

Samuelson and Solow: The Phillips Curve Is Americanized

260

(1)

The Controversy Begins: Are There Really Two Phillips Curves?

260

(5)

Things Aren't Always as We Thought

260

(1)

Friedman and the Natural Rate Theory

260

(3)

How Do People Form Their Expectations?

263

(2)

Rational Expectations and New Classical Theory

265

(6)

Rational Expectations

265

(1)

Do People Anticipate Policy?

265

(1)

New Classical Theory: The Effects of Unanticipated and Anticipated Policy

266

(2)

Policy Ineffectiveness Proposition (PIP)

268

(1)

Rational Expectations and Incorrectly Anticipated Policy

268

(1)

How To Fall Into a Recession Without Really Trying

269

(2)

New Keynesians and Rational Expectations

271

(1)

Looking At Things From The Supply Side: Real Business Cycle Theorists

272

(2)

A Reader Asks

274

(1)

Chapter Summary

275

(1)

Key Terms and Concepts

276

(1)

Questions and Problems

276

(1)

Working With Numbers and Graphs

276

(2)

Economic Growth

278

(17)

A Few Basics About Economic Growth

279

(3)

Do Economic Growth Rates Matter?

279

(1)

Growth Rates In Selected Countries

279

(1)

Two Types of Economic Growth

280

(2)

Economic Growth and the Price Level

282

(1)

What Causes Economic Growth?

282

(7)

Natural Resources

283

(1)

Labor

283

(1)

Capital

283

(1)

Technological Advances

284

(1)

Free Trade as Technology

284

(1)

Property Rights Structure

285

(1)

Economic Freedom

285

(1)

Policies to Promote Economic Growth

286

(1)

Economic Growth and Special Interest Groups

287

(2)

New Growth Theory

289

(3)

What Was Wrong With the Old Theory? Or, What's New With New Growth Theory?

289

(1)

Discovery, Ideas, and Institutions

290

(1)

Expanding Our Horizons

290

(2)

A Reader Asks

292

(1)

Chapter Summary

292

(1)

Key Terms and Concepts

293

(1)

Questions and Problems

293

(1)

Working With Numbers and Graphs

294

(1)

Microeconomics

Part 6: Microeconomic Fundamentals

Elasticity

295

(24)

Elasticity: Part 1

296

(7)

Price Elasticity of Demand

296

(1)

Elasticity Is Not Slope

297

(1)

From Perfectly Elastic to Perfectly Inelastic Demand

298

(2)

Price Elasticity of Demand and Total Revenue (Total Expenditure)

300

(3)

Elasticity: Part 2

303

(5)

Price Elasticity of Demand Along a Straight-Line Demand Curve

303

(2)

Determinants of Price Elasticity of Demand

305

(3)

Other Elasticity Concepts

308

(8)

Cross Elasticity of Demand

308

(2)

Income Elasticity of Demand

310

(1)

Price Elasticity of Supply

311

(1)

Price Elasticity of Supply and Time

312

(1)

The Relationship Between Taxes and Elasticity

313

(3)

A Reader Asks

316

(1)

Chapter Summary

316

(1)

Key Terms and Concepts

317

(1)

Questions and Problems

317

(1)

Working With Numbers and Graphs

318

(1)

Consumer Choice: Maximizing Utility and Behavioral Economics

319

(19)

Utility Theory

320

(5)

Utility, Total and Marginal

320

(1)

Law of Diminishing Marginal Utility

320

(3)

The Millionaire and the Pauper: What Law Says and Doesn't Say

323

(1)

The Solution to the Diamond-Water Paradox

324

(1)

Is Gambling Worth the Effort?

324

(1)

Consumer Equilibrium and Demand

325

(6)

Equating Marginal Utilities per Dollar

325

(1)

Consumer Equilibrium and the Law of Demand

326

(1)

Income and Substitution Effects

327

(2)

Should the Government Provide the Necessities of Life for Free?

329

(2)

Behavioral Economics

331

(4)

Are People Willing to Reduce Others' Incomes?

331

(1)

Is $1 Always $1?

332

(1)

Coffee Mugs and the Endowment Effect

333

(1)

Does the Endowment Effect Hold Only for New Traders?

334

(1)

A Reader Asks

335

(1)

Chapter Summary

335

(1)

Key Terms and Concepts

336

(1)

Questions and Problems

336

(1)

Working With Numbers and Graphs

337

(1)

Production and Costs

338

(23)

The Firm's Objective: Maximizing Profit

339

(2)

Accounting Profit Versus Economic Profit

339

(1)

Zero Economic Profit Is Not so Bad as It Sounds

340

(1)

Production

341

(5)

Production in the Short Run

342

(1)

Marginal Physical Product and Marginal Cost

343

(3)

Average Productivity

346

(1)

Costs of Production: Total, Average, Marginal

346

(9)

The AVC and ATC Curves in Relation to the MC Curve

349

(2)

Tying Short-Run Production to Costs

351

(1)

One More Cost Concept: Sunk Cost

351

(4)

Production and Costs in the Long Run

355

(2)

Long-Run Average Total Cost Curve

355

(1)

Economics of Scale, Diseconomies of Scale, and Constant Returns to Scale

356

(1)

Why Economies of Scale?

357

(1)

Why Diseconomies of Scale?

357

(1)

Shifts in Cost Curves

357

(1)

Taxes

357

(1)

Input Prices

357

(1)

Technology

358

(1)

A Reader Asks

358

(1)

Chapter Summary

358

(1)

Key Terms and Concepts

359

(1)

Questions and Problems

359

(1)

Working With Numbers and Graphs

360

(1)

Part 7: Product Markets

Perfect Competition

361

(24)

Market Structures

362

(1)

The Theory of Perfect Competition

362

(4)

A Perfectly Competitive Firm Is a Price Taker

362

(1)

The Demand Curve for a Perfectly Competitive Firm is Horizontal

363

(1)

The Marginal Revenue Curve of a Perfectly Competitive Firm Is the Same as Its Demand Curve

364

(1)

Theory and Real-World Markets

365

(1)

Perfect Competition in the Short Run

366

(7)

What Level of Output Does the Profit-Maximizing Firm Produce?

366

(1)

The Perfectly Competitive Firm and Resource Allocative Efficiency

367

(1)

To Produce or Not to Produce: That Is the Question

368

(3)

The Perfectly Competitive Firm's Short-Run Supply Curve

371

(1)

From Firm to Market (Industry) Supply Curve

371

(1)

Why Is the Market Supply Curve Upward-Sloping?

371

(2)

Perfect Competition in the Long Run

373

(9)

The Conditions of Long-Run Competitive Equilibrium

373

(2)

The Perfectly Competitive Firm and Productive Efficiency

375

(1)

Industry Adjustment to an Increase in Demand

375

(3)

What Happens as Firms Enter an Industry in Search of Profits?

378

(1)

Industry Adjustment to a Decrease in Demand

379

(1)

Differences in Cost, Differences in Profits: Now You See It, Now You Don't

380

(1)

Profit and Discrimination

381

(1)

A Reader Asks

382

(1)

Chapter Summary

382

(1)

Key Terms and Concepts

383

(1)

Questions and Problems

383

(1)

Working With Numbers and Graphs

384

(1)

Monopoly

385

(20)

The Theory of Monopoly

385

(3)

Barriers to Entry: A Key to Understanding Monopoly

386

(1)

What Is the Difference Between a Government Monopoly and a Market Monopoly?

387

(1)

Monopoly Pricing and Output Decisions

388

(5)

The Monopolist's Demand and Marginal Revenue

388

(2)

The Monopolist's Demand and Marginal Revenue Curves Are Not the Same: Why Not?

390

(1)

Price and Output for a Profit-Maximizing Monopolist

390

(1)

If a Firm Maximizes Revenue, Does It Automatically Maximize Profit Too?

391

(2)

Perfect Competition and Monopoly

393

(2)

Price, Marginal Revenue, and Marginal Cost

393

(1)

Monopoly, Perfect Competition, and Consumers' Surplus

393

(1)

Monopoly or Nothing

394

(1)

The Case Against Monopoly

395

(3)

The Deadweight Loss of Monopoly

395

(1)

Rent Seeking

396

(1)

X-Inefficiency

397

(1)

Price Discrimination

398

(5)

Types of Price Discrimination

398

(1)

Why a Monopolist Wants to Price Discriminate

398

(1)

Conditions of Price Discrimination

399

(1)

Moving to P=MC Through Price Discrimination

399

(2)

You Can Have the Comics, Just Give Me the Coupons

401

(2)

A Reader Asks

403

(1)

Chapter Summary

403

(1)

Key Terms and Concepts

404

(1)

Questions and Problems

404

(1)

Working With Numbers and Graphs

404

(1)

Monopolistic Competition and Oligopoly

405

(25)

The Theory of Monopolistic Competition

406

(4)

The Monopolistic Competitor's Demand Curve

406

(1)

The Relationship Between Price and Marginal Revenue for a Monopolistic Competitor

406

(1)

Output, Price, and Marginal Cost for the Monopolistic Competitor

406

(1)

Will There Be Profits in the Long Run?

407

(1)

Excess Capacity: What Is It, and Is It ``Good'' or ``Bad''?

408

(1)

The Monopolist Competitor and Two Types of Efficiency

409

(1)

Advertising and Designer Labels

409

(1)

Oligopoly: Assumptions and Real-World Behavior

410

(1)

Price and Output Under Three Oligopoly Theories

411

(6)

The Cartel Theory

411

(2)

The Kinked Demand Curve Theory

413

(2)

The Price Leadership Theory

415

(2)

Game Theory, Oligopoly, and Contestable Markets

417

(6)

Prisoner's Dilemma

417

(2)

Oligopoly Firms, Cartels, and Prisoner's Dilemma

419

(1)

Are Markets Contestable?

420

(3)

A Review of Market Structures

423

(1)

Applications of Game Theory

424

(3)

Grades and Partying

424

(1)

The Arms Race

425

(1)

Speed Limit Laws

426

(1)

A Reader Asks

427

(1)

Chapter Summary

427

(1)

Key Terms and Concepts

428

(1)

Questions and Problems

428

(1)

Working With Numbers and Graphs

429

(1)

Part 8: Factor Markets and Related Issues

Factor Markets

430

(22)

Factor Markets

431

(6)

The Demand for a Factor

431

(1)

Marginal Revenue Product: Two Ways to Calculate It

431

(1)

The MRP Curve Is the Firm's Factor Demand Curve

432

(1)

Value Marginal Product

433

(1)

An Important Question: Is MRP = VMP?

433

(1)

Marginal Factor Cost

433

(2)

How Many Units of a Factor Should a Firm Buy?

435

(1)

When There Is More Than One Factor, How Much of Each Factor Should the Firm Buy?

436

(1)

The Labor Market

437

(10)

Shifts In a Firm's MRP, or Factor Demand, Curve

437

(1)

Market Demand for Labor

438

(4)

Market Supply of Labor

442

(1)

An Individual's Supply of Labor

442

(1)

Shifts In the Labor Supply Curve

443

(1)

Putting Supply and Demand Together

443

(1)

Why Do Wage Rates Differ?

444

(1)

Why Demand and Supply Differ In Different Labor Markets

445

(1)

Why Did You Choose the Major That You Chose?

446

(1)

Labor Markets and Information

447

(2)

Screening Potential Employees

447

(1)

Promoting From Within

448

(1)

Is It Discrimination or Is It an Information Problem?

448

(1)

A Reader Asks

449

(1)

Chapter Summary

450

(1)

Key Terms and Concepts

450

(1)

Questions and Problems

450

(1)

Working With Numbers and Graphs

451

(1)

Interest, Rent, and Profit

452

(17)

Interest

453

(6)

Loanable Funds: Demand and Supply

453

(2)

The Price for Loanable Funds and the Return on Capital Goods Tend to Equality

455

(1)

Why Do Interest Rates Differ?

455

(1)

Nominal and Real Interest Rates

456

(1)

Present Value: What Is Something Tomorrow Worth Today?

457

(1)

Deciding Whether or Not to Purchase a Capital Good

458

(1)

Rent

459

(5)

David Ricardo, the Price of Grain, and Land Rent

460

(1)

The Supply Curve of Land Can Be Upward-Sloping

461

(1)

Economic Rent and Other Factors of Production

462

(1)

Economic Rent and Baseball Players: The Perspective from Which the Factor Is Viewed Matters

462

(1)

Competing for Artificial and Real Rents

463

(1)

Do People Overestimate Their Worth to Others, or Are They Simply Seeking Economic Rent?

463

(1)

Profit

464

(3)

Theories of Profit

464

(1)

What Is Entrepreneurship?

465

(1)

What Do a Microwave Oven and an Errand Runner Have in Common?

465

(1)

Profit and Loss as Signals

466

(1)

A Reader Asks

467

(1)

Chapter Summary

467

(1)

Key Terms and Concepts

468

(1)

Questions and Problems

468

(1)

Working With Numbers and Graphs

468

(1)

The Distribution of Income and Poverty

469

(21)

Some Facts About Income Distribution

470

(4)

Who Are the Rich and How Rich Are They?

470

(1)

Adjusting the Income Distribution

470

(2)

The Effect of Age on the Income Distribution

472

(1)

A Simple Equation

473

(1)

Measuring Income Equality

474

(4)

The Lorenz Curve

474

(2)

The Gini Coefficient

476

(1)

A Limitation of the Gini Coefficient

477

(1)

Why Income Inequality Exists

478

(3)

Factors Contributing to Income Inequality

478

(1)

Income Differences: Some Are Voluntary, Some Are Not

479

(2)

Normative Standards of Income Distribution

481

(3)

The Marginal Productivity Normative Standard

481

(2)

The Absolute Income Equality Normative Standard

483

(1)

The Rawislan Normative Standard

483

(1)

Size of the Income Pies

484

(1)

Poverty

484

(3)

What Is Poverty?

484

(1)

Limitations of the Official Poverty Income Statistics

485

(1)

Who Are The Poor?

485

(1)

What Is the Justification for Government Redistributing Income?

485

(2)

A Reader Asks

487

(1)

Chapter Summary

488

(1)

Key Terms and Concepts

489

(1)

Questions and Problems

489

(1)

Working With Numbers and Graphs

489

(1)

Part 9: Market Failure and Public Choice

Market Failure: Externalities and Public Goods

490

(21)

Market Failure

491

(1)

Externalities

491

(6)

Cost and Benefits of Activities

491

(1)

Marginal Costs and Benefits of Activities

492

(1)

Social Optimality of Efficiency Conditions

492

(1)

Three Categories of Activities

492

(1)

Externalities in Consumption and in Production

493

(1)

Diagram of a Negative Externality

493

(2)

Diagram of a Positive Externality

495

(2)

Internalizing Externalities

497

(4)

Persuasion

497

(1)

Taxes and Subsidies

497

(1)

Assigning Property Rights

498

(1)

Voluntary Agreements

499

(1)

Combining Property Rights Assignments and Voluntary Agreements

499

(2)

Beyond Internalizing: Setting Regulations

501

(1)

Dealing With a Negative Externality in the Environment

501

(4)

Is No Pollution Worse Than Some Pollution?

503

(1)

Two Methods to Reduce Air Pollution

503

(2)

Public Goods: Excludable and Nonexcludable

505

(3)

Goods

505

(1)

The Free Rider

506

(1)

Nonexcludable Versus Nonrivalrous

507

(1)

A Reader Asks

508

(1)

Chapter Summary

509

(1)

Key Terms and Concepts

509

(1)

Questions and Problems

509

(1)

Working With Numbers and Graphs

510

(1)

Public Choice

511

(16)

Public Choice Theory

512

(1)

The Political Market

512

(2)

Moving Toward the Middle: The Median Voter Model

512

(1)

What Does the Theory Predict?

513

(1)

Voters and Rational Ignorance

514

(3)

The Costs and Benefits of Voting

514

(2)

Rational Ignorance

516

(1)

Special Interest Groups

517

(6)

Information and Lobbying Efforts

517

(2)

Congressional Districts as Special Interest Groups

519

(1)

Public Interest Talk, Special Interest Legislation

519

(1)

Special Interest Groups and Rent Seeking

520

(3)

Government Bureaucracy

523

(1)

A View of Government

524

(1)

A Reader Asks

524

(1)

Chapter Summary

525

(1)

Key Terms and Concepts

525

(1)

Questions and Problems

525

(1)

Working With Numbers and Graphs

526

(1)

The World Economy

Part 10: International Economics: Theory and Policy

International Trade and Finance

527

(32)

International Trade Theory

528

(3)

How Do Countries Know What to Trade?

528

(3)

How Do Countries Know When They Have a Comparative Advantage?

531

(1)

Trade Restrictions

531

(9)

The Distributional Effects of International Trade

531

(2)

Consumers' and Producers' Surplus

533

(1)

The Benefits and Costs of Trade Restrictions

534

(3)

If Free Trade Results in Net Gain, Why Do Nations Sometimes Restrict Trade?

537

(2)

The Saving-Domestic-Jobs Argument

539

(1)

The Foreign Exchange Market

540

(3)

The Demand for and Supply of Currencies

541

(2)

Flexible Exchange Rates

543

(3)

The Equilibrium Exchange Rate

543

(1)

Changes in the Equilibrium Exchange Rate

543

(1)

Factors That Affect the Equilibrium Exchange Rates

544

(2)

Fixed Exchanged Rates

546

(6)

Fixed Exchanged Rates and Overvalued/Undervalued Currency

546

(2)

What Is so Bad About an Overvalued Dollar?

548

(1)

Government Involvement in a Fixed Exchange Rate System

549

(1)

Options Under a Fixed Exchanged Rate System

549

(1)

The Gold Standard

550

(2)

Fixed Exchange Rates Versus Flexible Exchange Rates

552

(3)

Promoting International Trade

552

(3)

A Reader Asks

555

(1)

Chapter Summary

555

(1)

Key Terms and Concepts

556

(1)

Questions and Problems

557

(1)

Working With Numbers and Graphs

557

(2)

Self-Test Appendix

559

(14)

Glossary

573

(8)

Index

581

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