Cover Page Title Page Copyright Page Dedication Preface About the Authors
PART 1. GETTING ACQUAINTED WITH ECONOMICS
1. What Is Economics? 1-1. Ideas for Beyond the Final Exam 1-2. Inside the Economist’s Tool Kit 2. The Economy: Myth and Reality 2-1. The American Economy: A Thumbnail Sketch 2-2. The Inputs: Labor and Capital 2-3. The Outputs: What Does America Produce? 2-4. The Central Role of Business Firms 2-5. What’s Missing from the Picture? Government 2-6. Conclusion: It’s a Mixed Economy
3. The Fundamental Economic Problem: Scarcity and Choice 3-1. Scarcity, Choice, and Opportunity Cost 3-2. Scarcity and Choice for a Single Firm 3-3. Scarcity and Choice for The Entire Society 3-4. The Three Coordination Tasks of Any Economy 3-5. The Concept of Efficiency 3-6. Task 1. How the Market Fosters Efficient Resource Allocation 3-7. Task 2. Market Exchange and Deciding How Much of Each Good to Produce 3-8. Task 3. How to Distribute the Economy’s Outputs among Consumers 3-9. Looking Ahead
4. Supply and Demand: An Initial Look 4-1. The Invisible Hand 4-2. Demand and Quantity Demanded 4-3. Supply and Quantity Supplied 4-4. Supply and Demand Equilibrium 4-5. Effects of Demand Shifts on Supply-Demand Equilibrium 4-6. Supply Shifts and Supply-Demand Equilibrium 4-7. Battling the Invisible Hand: The Market Fights Back 4-8. A Simple But Powerful Lesson
PART 2. THE BUILDING BLOCKS OF DEMAND AND SUPPLY
5. Consumer Choice: Individual and Market Demand 5-1. Scarcity and Demand 5-2. Utility: A Tool to Analyze Purchase Decisions 5-3. Behavioral Economics: Are Economic Decisions Really Made “Rationally”? 5-4. Consumer Choice as a Trade-Off: Opportunity Cost 5-5. From Individual Demand Curves to Market Demand Curves
6. Demand and Elasticity 6-1. Elasticity: The Measure of Responsiveness 6-2. What Determines Price Elasticities of Demand? 6-3. Price Elasticity of Demand: Its Effect on Total Revenue and Total Expenditure 6-4. Elasticity as a General Concept 6-5. The Time Period of the Demand Curve and Economic Decision Making 6-6. Real-World Application: AOL’s Flat Rate Internet Pricing 6-7. In Conclusion
7. Production, Inputs, and Cost: Building Blocks for Supply Analysis 7-1. The Economic Short Run Versus the Economic Long Run 7-2. Production, Input Choice, and Cost with One Variable Input 7-3. Multiple Input Decisions: The Choice of Optimal Input Combinations 7-4. Cost and Its Dependence on Output 7-5. Economies of Scale
8. Output, Price, and Profit: The Importance of Marginal Analysis 8-1. Price and Quantity: One Decision, Not Two 8-2. Total Profit: Keep your Eye on the Goal 8-3. Economic Profit and Optimal Decision Making 8-4. Marginal Analysis and Maximization of Total Profit 8-5. Generalization: The Logic of Marginal Analysis and Maximization 8-6. Conclusion: The Fundamental Role of Marginal Analysis 8-7. The Theory and Reality: A Word of Caution
9. The Financial Markets and the Economy: The Tail that Wags the Dog? 9-1. Corporations and their Unique Characteristics 9-2. Stock Exchanges and their Functions 9-3. Betting on Securities: Risks to the Entire Economy
PART 3. THE VIRTUES OF THE FREE MARKET
10. The Firm and the Industry Under Perfect Competition 10-1. Perfect Competition Defined 10-2. The Perfectly Competitive Firm 10-3. The Perfectly Competitive Industry 10-4. Perfect Competition and Productive Efficiency
11. The Case for Free Markets: The Price System 11-1. Efficient Resource Allocation and Pricing 11-2. Scarcity and the Need to Coordinate Economic Decisions 11-3. How Perfect Competition Achieves Efficiency: A Graphic Analysis 11-4. How Perfect Competition Achieves Efficient Output: Marginal Analysis 11-5. Toward Assessment of the Price Mechanism
PART 4. THE LIMITATIONS OF FREE MARKETS
12. Monopoly 12-1. Monopoly Defined 12-2. The Monopolist’s Supply Decision 12-3. Can Anything Good be Said about Monopoly? 12-4. Price Discrimination Under Monopoly 12-5. Monopsony: The Case of a Single Buyer
13. Between Competition and Monopoly 13-1. Monopolistic Competition 13-2. Oligopoly 13-3. The Game Theory Approach 13-4. Contestable Markets 13-5. A Glance Backward: Comparing the Four Market Structures 13-6. Monopolistic Competition, Oligopoly, and Public Welfare
14. Limiting Market Power: Antitrust and Regulation 14-1. The Public Interest Issue: Monopoly Power Versus Mere Size 14-2. Antitrust Laws and Policies 14-3. Anticompetitive Behavior and Antitrust 14-4. Concentration 14-5. What Is Price Regulation? 14-6. The Logic behind Price Regulation 14-7. Difficulties with Price Regulation 14-8. The Deregulation Experience 15. The Shortcomings of Free Markets 15-1. What Does the Market Do Poorly? 15-2. Efficient Resource Allocation: A Review 15-3. Externalities: Getting the Prices Wrong 15-4. Provision of Public Goods 15-5. Allocation of Resources Between Present and Future 15-6. Imperfect Information 15-7. Market Failure and Government Failure 15-8. The Cost Disease of Personal Services 15-9. The Market System on Balance 15-10. Epilogue: The Unforgiving Market, Its Gift of Abundance, and Its Dangerous Friends
16. The Economics of the Environment and Natural Resources 16-1. The Economics of Environmental Protection 16-2. Review—Externalities: A Critical Shortcoming of the Market Mechanism 16-3. Basic Approaches to Environmental Policy 16-4. Two Cheers for the Market 16-5. The Economics of Natural Resources 16-6. The Free Market and Pricing of Natural Resources 16-7. Exhaustible Resources, Scarcity, and Rising Prices 16-8. The Bioeconomics of Renewable Resources 17. Taxation and Resource Allocation 17-1. Basic Tax Concepts 17-2. The Federal Tax System 17-3. The State and Local Tax System 17-4. The Concept of Equity in Taxation 17-5. The Concept of Efficiency in Taxation 17-6. Shifting the Tax Burden: Tax Incidence 17-7. When Taxation Can Improve Efficiency 17-8. Equity, Efficiency, and the Optimal Tax
PART 5. THE DISTRIBUTION OF INCOME
18. Pricing the Factors of Production 18-1. The Principle of Marginal Productivity 18-2. Inputs and Their Derived Demand Curves 18-3. Investment, Capital, and Interest 18-4. The Determination of Rent 18-5. Payments to Business Owners: Are Profits Too High or Too Low? 18-6. Criticisms of Marginal Productivity Theory
19. Labor and Entrepreneurship: The Human Inputs 19-1. The Markets For Labor 19-2. Wage Determination In Competitive Markets 19-3. The Supply of Labor 19-4. Why Do Wages Differ? 19-5. Unions And Collective Bargaining 19-6. The Entrepreneur: The Other Human Input 19-7. The Market Economy’s Incredible Growth Record 19-8. Sources of Free-Market Innovation: The Role of the Entrepreneur 19-9. Entrepreneurship and Growth 19-10. Institutions and the Supply of Innovative Entrepreneurship
20. Poverty, Inequality, and Discrimination 20-1. The Facts: Poverty 20-2. The Facts: Inequality 20-3. Some Reasons for Unequal Incomes 20-4. The Facts: Discrimination 20-5. The Trade-Off Between Equality and Efficiency 20-6. Policies to Combat Poverty 20-7. Other Policies to Combat Inequality 20-8. Policies to Combat Discrimination 20-9. A Look Back
PART 6. THE MACROECONOMY: AGGREGATE SUPPLY AND DEMAND
21. An Introduction to Macroeconomics 21-1. Drawing a Line between Macroeconomics and Microeconomics 21-2. Supply and Demand in Macroeconomics 21-3. Gross Domestic Product 21-4. The Economy on a Roller Coaster 21-5. The Problem of Macroeconomic Stabilization: A Sneak Preview 22. The Goals of Macroeconomic Policy 22-1. The Goal of Economic Growth 22-2. The Capacity to Produce: Potential GDP and the Production Function 22-3. The Growth Rate of Potential GDP 22-4. The Goal of Low Unemployment 22-5. The Human Costs of High Unemployment 22-6. Counting the Unemployed: The Official Statistics 22-7. Types of Unemployment 22-8. How Much Employment Is “Full Employment”? 22-9. Unemployment Insurance: The Invaluable Cushion 22-10. The Goal of Low Inflation 22-11. Inflation as a Redistributor of Income and Wealth 22-12. Real Versus Nominal Interest Rates 22-13. Inflation Distorts Measurements 22-14. Other Costs of Inflation 22-15. The Costs of Low Versus High Inflation 22-16. Low Inflation does not Necessarily Lead to High Inflation
23. Economic Growth: Theory and Policy 23-1. The Three Pillars of Productivity Growth 23-2. Levels, Growth Rates, and the Convergence Hypothesis 23-3. Growth Policy: Encouraging Capital Formation 23-4. Growth Policy: Improving Education and Training 23-5. Growth Policy: Spurring Technological Change 23-6. Recent Productivity Performance in the United States 23-7. Growth in the Developing Countries 23-8. From the Long Run to the Short Run
24. Aggregate Demand and The Powerful Consumer 24-1. Aggregate Demand, Domestic Product, and National Income 24-2. The Circular Flow of Spending, Production, and Income 24-3. Consumer Spending and Income: The Important Relationship 24-4. The Consumption Function and the Marginal Propensity to Consume 24-5. Factors That Shift the Consumption Function 24-6. The Extreme Variability of Investment 24-7. The Determinants of Net Exports 24-8. How Predictable Is Aggregate Demand?
25. Demand-Side Equilibrium: Unemployment or Inflation? 25-1. The Meaning of Equilibrium GDP 25-2. The Mechanics of Income Determination 25-3. The Aggregate Demand Curve 25-4. Demand-Side Equilibrium and Full Employment 25-5. The Coordination of Saving and Investment 25-6. Changes on the Demand Side: Multiplier Analysis 25-7. The Multiplier Is a General Concept 25-8. The Multiplier and the Aggregate Demand Curve
26. Bringing in the Supply Side: Unemployment and Inflation? 26-1. The Aggregate Supply Curve 26-2. Equilibrium of Aggregate Demand and Supply 26-3. Inflation and the Multiplier 26-4. Recessionary and Inflationary Gaps Revisited 26-5. Adjusting to a Recessionary Gap: Deflation or Unemployment? 26-6. Adjusting to an Inflationary Gap: Inflation 26-7. Stagflation from a Supply Shock 26-8. Applying the Model to a Growing Economy 26-9. A Role for Stabilization Policy
PART 7. FISCAL AND MONETARY POLICY
27. Managing Aggregate Demand: Fiscal Policy 27-1. Income Taxes and the Consumption Schedule 27-2. The Multiplier Revisited 27-3. Planning Expansionary Fiscal Policy 27-4. Planning Contractionary Fiscal Policy 27-5. The Choice Between Spending Policy and Tax Policy 27-6. Some Harsh Realities 27-7. The Idea Behind Supply-Side Tax Cuts 28. Money and the Banking System 28-1. The Nature of Money 28-2. How the Quantity of Money is Measured 28-3. The Banking System 28-4. Systemic Risk and the “Too Big to Fail” Doctrine 28-5. The Origins of the Money Supply 28-6. Banks and Deposit Creation 28-7. Why the Deposit-Creation Formula is Oversimplified 28-8. The Need for Monetary Policy
29. Monetary Policy: Conventional and Unconventional 29-1. Money and Income: The Important Difference 29-2. America’s Central Bank: The Federal Reserve System 29-3. Implementing Monetary Policy in Normal Times: Open-Market Operations 29-4. Other Instruments of Monetary Policy 29-5. How Monetary Policy Works in Normal Times 29-6. Money and the Price Level 29-7. Application: Why the Aggregate Demand Curve Slopes Downward 29-8. Unconventional Monetary Policies 29-9. From Financial Distress to Recession 29-10. From Models to Policy Debates
30. The Financial Crisis and the Great Recession 30-1. Roots of the Crisis 30-2. Leverage, Profits, and Risk 30-3. The Housing Price Bubble and the Subprime Mortgage Crisis 30-4. From the Housing Bubble to the Financial Crisis 30-5. From the Financial Crisis to the Great Recession 30-6. Hitting Bottom and Recovering 30-7. Lessons from the Financial Crisis
31. The Debate Over Monetary and Fiscal Policy 31-1. Velocity and the Quantity Theory of Money 31-2. Debate: Should the Fed Use Unconventional Monetary Policies? 31-3. Debate: Should Policymakers Fight Asset Price Bubbles? 31-4. Debate: Should We Rely on Fiscal or Monetary Policy? 31-5. Debate: The Shape of the Aggregate Supply Curve 31-6. Debate: Should the Government Intervene at All? 31-7. Dimensions of the Rules-Versus-Discretion Debate 32. Budget Deficits in the Short and Long Run 32-1. Should the Budget Always Be Balanced? The Short Run 32-2. The Importance of the Policy Mix 32-3. Deficits and Debt: Terminology and Facts 32-4. Interpreting the Budget Deficit or Surplus 32-5. Why Is the National Debt Considered a Burden? 32-6. Budget Deficits and Inflation 32-7. Debt, Interest Rates, and Crowding Out 32-8. The Main Burden of the National Debt: Slower Growth 32-9. The Economics And Politics of the U.S. Budget Deficit
33. The Trade-Off Between Inflation and Unemployment 33-1. Demand-Side Inflation Versus Supply-Side Inflation: A Review 33-2. Origins of the Phillips Curve 33-3. Supply-Side Inflation and the Collapse of the Phillips Curve 33-4. What the Phillips Curve Is Not 33-5. Fighting Unemployment with Fiscal and Monetary Policy 33-6. What Should Be Done? 33-7. Inflationary Expectations and the Phillips Curve 33-8. The Theory of Rational Expectations 33-9. Why Economists (and Politicians) Disagree 33-10. The Dilemma of Demand Management 33-11. Attempts to Improve the Trade-Off PART 8. THE UNITED STATES IN THE WORLD ECONOMY
34. International Trade and Comparative Advantage 34-1. Why Trade? 34-2. International Versus Intranational Trade 34-3. The Principle of Comparative Advantage 34-4. The Arithmetic of Comparative Advantage 34-5. Tariffs, Quotas, and Other Interferences with Trade 34-6. Why Inhibit Trade? 34-7. Can Cheap Imports Hurt a Country?
35. The International Monetary System: Order or Disorder? 35-1. What Are Exchange Rates? 35-2. Exchange Rate Determination in a Free Market 35-3. When Governments Fix Exchange Rates: The Balance of Payments 35-4. A Bit of History: The Gold Standard and the Bretton Woods System 35-5. Adjustment Mechanisms Under Fixed Exchange Rates 35-6. Why Try to Fix Exchange Rates? 35-7. The Current “Nonsystem” 36. Exchange Rates and the Macroeconomy 36-1. International Trade, Exchange Rates, and Aggregate Demand 36-2. Aggregate Supply in an Open Economy 36-3. The Macroeconomic Effects of Exchange Rates 36-4. Fiscal and Monetary Policies in an Open Economy 36-5. International Aspects of Deficit Reduction 36-6. Should We Worry About the Trade Deficit? 36-7. On Curing the Trade Deficit 36-8. Conclusion: No Nation Is an Island
PART 9. THE ECONOMY TODAY
37. Contemporary Issues in the U.S. Economy 37-1. Will Artificial Intelligence Leave No Work for Humans to Do? 37-2. Are Uber and Airbnb the Markets of the Future? 37-3. Is the “Gig” Economy the Future of Work? 37-4. Is the Student Debt “Crisis” Really a Crisis? 37-5. How Will We Pay for Health Insurance? 37-6. Can We Grow Much Faster Than 2 Percent A Year? 37-7. Who Loses from Globalization? 37-8. Are Trade Wars “Good and Easy to Win”? 37-9. Where Is the National Debt Headed? 37-10. Has the Phillips Curve Disappeared? Appendix Glossary Index