Economics

Front Cover
Title Page
Copyright Page
About the Authors
Brief Contents
Contents
Preface
Student Resources Flowchart
Lecturer Resources Flowchart
Acknowledgements
Publisher’s Acknowledgements
Part A Introduction
	Why Economics is Good for You
		What is economics?
		Puzzles and stories
		Applying the principles
	1 Economics and Economies
		1.1 What do economists study?
		1.2 Different economic systems
		1.3 The nature of economic reasoning
		Boxes
			1.1 Looking at macroeconomic data
			1.2 The opportunity costs of studying
			1.3 Scarcity and abundance
			1.4 Command economies
			1.5 Adam Smith (1723–90)
			1.6 Ceteris paribus
Part B Foundations of Microeconomics
	2 Supply and Demand
		2.1 Demand
		2.2 Supply
		2.3 Price and output determination
		2.4 Elasticity
		2.5 The time dimension
		Boxes
			2.1 The demand for lamb
			2.2 UK house prices
			2.3 Stock market prices
			2.4 Advertising and its effect on demand curves
			2.5 Any more fares?
			2.6 Using calculus to calculate the price elasticity of demand
			2.7 Short selling
			2.8 Dealing in futures markets
	3 Government and the Market
		3.1 The control of prices
		3.2 Indirect taxes and subsidies
		3.3 Government rejection of market allocation
		3.4 Agriculture and agricultural policy
		Boxes
			3.1 A minimum unit price for alcohol
			3.2 The rise in illegal lending
			3.3 How can ticket touts make so much money?
			3.4 Ashes to ashes?
			3.5 The fallacy of composition
Part C MICROECONOMIC THEORY
	4 Background to Demand: the Rational Consumer
		4.1 Marginal utility theory
		4.2 The timing of costs and benefits
		4.3 Indifference analysis
		Boxes
			4.1 Using calculus to derive a marginal utility function
			4.2 The marginal utility revolution: Jevons, Menger, Walras
			4.3 Taking account of time
			4.4 Love and caring
			4.5 Consumer theory: a further approach
	5 Consumer Behaviour in an Uncertain World
		5.1 Demand under conditions of risk and uncertainty
		5.2 Behavioural economics
		Boxes
			5.1 Experimental economics
			5.2 The endowment effect
			5.3 Modelling present bias
			5.4 Nudging people
			5.5 Is economics the study of selfish behaviour?
	6 Background to Supply
		6.1 The short-run theory of production
		6.2 Costs in the short run
		6.3 The long-run theory of production
		6.4 Costs in the long run
		6.5 Revenue
		6.6 Profit maximisation
		Boxes
			6.1 Malthus and the dismal science of economics
			6.2 Diminishing returns in the bread shop
			6.3 The relationship between averages and marginals
			6.4 The relationship between TPP, MPP and APP
			6.5 The fallacy of using historic costs
			6.6 Are fixed costs always the same as sunk costs?
			6.7 Cost curves in practice
			6.8 The Cobb–Douglas production function
			6.9 Minimum efficient scale
			6.10 Using calculus to find the maximum profit output
			6.11 The logic of logistics
	7 Profit Maximising under Perfect Competition and Monopoly
		7.1 Alternative market structures
		7.2 Perfect competition
		7.3 Monopoly
		7.4 The theory of contestable markets
		Boxes
			7.1 Concentration ratios
			7.2 Is perfect best?
			7.3 E-commerce and market structure
			7.4 Google – a monopoly abusing its market power?
			7.5 X inefficiency
			7.6 Cut-throat competition
			7.7 Airline deregulation in the USA and Europe
	8 Profit Maximising under Imperfect Competition
		8.1 Monopolistic competition
		8.2 Oligopoly
		8.3 Game theory
		8.4 Price discrimination
		Boxes
			8.1 Selling ice cream as a student
			8.2 Increasing concentration
			8.3 OPEC
			8.4 Buying power
			8.5 The prisoners’ dilemma
			8.6 What’s the train fare to London?
			8.7 Peak-load pricing
			8.8 Just the ticket?
	9 The Behaviour of Firms
		9.1 Problems with traditional theory
		9.2 Behavioural economics of the firm
		9.3 Alternative maximising theories
		9.4 Asymmetric information and the principal–agent problem
		9.5 Multiple aims
		9.6 Pricing in practice
		Boxes
			9.1 What do you maximise?
			9.2 How firms increase profits by understanding ‘irrational’ consumers
			9.3 When is a theory not a theory?
			9.4 Merger activity
			9.5 The US sub-prime housing crisis
			9.6 Stakeholder power?
			9.7 How do companies set prices?
	10 The Theory of Distribution of Income
		10.1 Wage determination under perfect competition
		10.2 Wage determination in imperfect markets
		10.3 Capital and profit
		10.4 Land and rent
		Boxes
			10.1 Labour as a factor of production
			10.2 Using indifference curve analysis to derive the individual’s supply curve of labour
			10.3 Immigration and the UK labour market
			10.4 Life at the mill
			10.5 The rise and decline of the labour movement in the UK
			10.6 How useful is marginal productivity theory?
			10.7 The persistent gender pay gap?
			10.8 Flexible labour markets and the flexible firm
			10.9 Behaviour at work
			10.10 Stocks and flows
			10.11 The economics of non-renewable resources
Part D MICROECONOMIC POLICY
	11 Inequality, Poverty and Policies to Redistribute Income
		11.1 Inequality and poverty
		11.2 Taxes, benefits and the redistribution of income
		Boxes
			11.1 Poverty in the past
			11.2 Minimum wage legislation
			11.3 The Laffer curve
			11.4 Tax cuts and incentives
			11.5 UK tax credits
			11.6 What the future holds
	12 Markets, Efficiency and the Public Interest
		12.1 Efficiency under perfect competition
		12.2 The case for government intervention
		12.3 Forms of government intervention
		12.4 Cost–benefit analysis
		12.5 Government failure and the case for the market
		Boxes
			12.1 The police as a public service
			12.2 A commons solution
			12.3 Should health-care provision be left to the market?
			12.4 Deadweight loss from taxes on goods and services
			12.5 What price a human life?
			12.6 HS2: is it really worth it?
			12.7 Mises, Hayek and the Mont Pelerin Society
	13 Environmental Policy
		13.1 Economics of the environment
		13.2 Policies to tackle pollution and its effects
		13.3 The economics of traffic congestion
		13.4 Urban transport policies
		Boxes
			13.1 A Stern warning
			13.2 Green taxes
			13.3 International co-ordination on climate change
			13.4 Trading our way out of climate change
			13.5 Road pricing in Singapore
			13.6 The economy and the environment
	14 Government Policy towards Business
		14.1 Competition policy
		14.2 Privatisation and regulation
		Boxes
			14.1 Fixing prices at mini-golf meetings?
			14.2 Expensive chips?
			14.3 Megabrew
			14.4 Selling power to the people
Part E FOUNDATIONS OF MACROECONOMICS
	15 An Introduction to Macroeconomic Issues and Ideas
		15.1 An overview of key macroeconomic issues
		15.2 Measuring national income and output
		15.3 The business cycle
		15.4 The circular flow of income
		15.5 Unemployment
		15.6 Inflation
		15.7 The open economy
		Appendix: Calculating GDP
		Boxes
			15.1 Which country is better off?
			15.2 Can GDP measure national happiness?
			15.3 Output gaps
			15.4 The costs of unemployment
			15.5 The costs of inflation
			15.6 The Phillips curve
			15.7 Dealing in foreign exchange
	16 The Development of Macroeconomic Thinking: a Historical Perspective
		16.1 The macroeconomic environment and debates
		16.2 Classical macroeconomics
		16.3 The Keynesian revolution
		16.4 The rise of the monetarist and new classical schools
		16.5 The Keynesian response
		16.6 An emerging consensus up to the crisis of 2008
		16.7 The financial crisis and the search for a new consensus
		Boxes
			16.1 Balance the budget at all costs
			16.2 The crowding-out effect
			16.3 Will wage cuts cure unemployment?
			16.4 Menu costs
			16.5 The paradox of thrift
Part F MACROECONOMIC MODELS, THEORIES AND POLICY
	17 Short-run Macroeconomic Equilibrium
		17.1 Background to the theory
		17.2 The determination of national income
		17.3 The simple Keynesian analysis of unemployment and inflation
		17.4 The Keynesian analysis of the business cycle
		Boxes
			17.1 Using calculus to derive the MPC
			17.2 The household sector balance sheets
			17.3 Sentiment and spending
			17.4 Deriving the multiplier formula
			17.5 Allowing for inflation in the 45° line diagram
			17.6 Has there been an accelerator effect in the UK?
	18 Banking, Money and Interest Rates
		18.1 The meaning and functions of money
		18.2 The financial system
		18.3 The supply of money
		18.4 The demand for money
		18.5 Equilibrium
		Boxes
			18.1 Money supply, national income and national wealth
			18.2 The growth of banks’ balance sheets
			18.3 The rise of securitisation
			18.4 UK and eurozone monetary aggregates
			18.5 Calculating the money multiplier
	19 The Relationship between the Money and Goods Markets
		19.1 The effects of monetary changes on national income
		19.2 The monetary effects of changes in the goods market
		19.3 Modelling the interaction of monetary policy and the goods market
		19.4 Credit cycles and the goods market
		Appendix: The IS/LM model
		Boxes
			19.1 Choosing the exchange rate or the money supply
			19.2 Party games and the velocity of money
			19.3 The stability of the velocity of circulation
			19.4 Crowding out in an open economy
			19.5 The financial accelerator and fluctuations in aggregate demand
	20 Aggregate Supply, Inflation and Unemployment
		20.1 The AD/AS model
		20.2 AD/AS and inflation
		20.3 Aggregate demand and supply with inflation targeting: The DAD/DAS model
		20.4 The labour market and aggregate supply
		20.5 AD/AS and macroeconomic controversies
		Boxes
			20.1 Short-run aggregate supply
			20.2 Cost-push inflation and supply shocks
			20.3 Analysing demand-pull and cost-push inflation using the DAD/DAS model
			20.4 Common ground between economists?
	21 The Relationship between Inflation, Unemployment and Output
		21.1 The EAPC and the inflation–unemployment relationship
		21.2 Inflation and unemployment: the monetarist perspective
		21.3 Inflation and unemployment: the new classical position
		21.4 Inflation and unemployment: the modern Keynesian position
		21.5 Inflation, unemployment and output: credibility and central banks
		Boxes
			21.1 Basing expectations on the past
			21.2 The accelerationist hypothesis
			21.3 The rational expectations revolution
			21.4 Forecasting the weather
			21.5 The boy who cried ‘Wolf’
			21.6 Inflation bias
			21.7 Inflation targeting
			21.8 Inflation shocks and central banks
	22 Fiscal and Monetary Policy
		22.1 Fiscal policy and the public finances
		22.2 The use of fiscal policy
		22.3 Monetary policy
		22.4 The policy-making environment
		22.5 Central banks, economic shocks and the macroeconomy: an integrated model
		Boxes
			22.1 Primary surpluses and sustainable debt
			22.2 The financial crisis and the UK fiscal policy yo-yo
			22.3 Riding a switchback
			22.4 The evolving fiscal framework in the European Union
			22.5 The operation of monetary policy in the UK
			22.6 Central banking and monetary policy in the USA
			22.7 Monetary policy in the eurozone
			22.8 Goodhart’s law
			22.9 Using interest rates to control both aggregate demand and the exchange rate
			22.10 Quantitative easing
	23 Long-term Economic Growth and Supply-side Policies
		23.1 Introduction to long-term economic growth
		23.2 Economic growth without technological progress
		23.3 Economic growth with technological progress
		23.4 Approaches to supply-side policy
		23.5 Supply-side policies in practice: market-orientated policies
		23.6 Supply-side policies in practice: interventionist policies
		Boxes
			23.1 Getting intensive with capital
			23.2 Labour productivity
			23.3 UK human capital
			23.4 The supply-side revolution in the USA
			23.5 A new approach to industrial policy
			23.6 Unemployment and supply-side policies
Part G THE WORLD ECONOMY
	24 International Trade
		24.1 The advantages of trade
		24.2 Arguments for restricting trade
		24.3 Preferential trading
		24.4 The European Union
		24.5 The UK and Brexit
		Boxes
			24.1 Trading places
			24.2 Sharing out the jobs
			24.3 Trade as exploitation?
			24.4 Free trade and the environment
			24.5 Strategic trade theory
			24.6 The optimum tariff or export tax
			24.7 Giving trade a bad name
			24.8 The Doha development agenda
			24.9 Mutual recognition: the Cassis de Dijon case
			24.10 Features of the single market
	25 The Balance of Payments and Exchange Rates
		25.1 Alternative exchange rate regimes
		25.2 Fixed exchange rates
		25.3 Free-floating exchange rates
		25.4 Exchange rate systems in practice
		Appendix: The open economy and ISLM analysis
		Boxes
			25.1 The balance of trade and the public-sector budget balance
			25.2 The UK’s balance of payments deficit
			25.3 The effectiveness of fiscal and monetary policies under fixed exchange rates
			25.4 The price of a Big Mac
			25.5 The euro/dollar seesaw
			25.6 The effectiveness of monetary and fiscal policies under floating exchange rates
			25.7 Sterling since the 1990s
			25.8 Do inflation rates explain longer-term exchange rate movements?
	26 Economies in an Interdependent World
		26.1 Globalisation and the problem of instability
		26.2 European economic and monetary union (EMU)
		26.3 Global inequality
		26.4 Trade and developing countries
		26.5 The problem of debt
		Boxes
			26.1 Economic and financial interdependencies: Trade imbalance in the US and China
			26.2 Optimal currency areas
			26.3 The Human Development Index (HDI)
			26.4 When driving and alcohol do mix
			26.5 The evolving comparative advantage of China
			26.6 A debt to the planet
Postscript: The Castaways or Vote for Caliban
Appendix 1: Some Techniques of Economic Analysis
Appendix 2: Websites
Threshold Concepts and Key Ideas
Glossary
Index
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