Economics: Theory and Practice

Cover Page......Page 1
Title Page......Page 5
Copyright Page......Page 6
Preface......Page 9
BRIEF CONTENTS......Page 15
Contents\r......Page 17
Part One Introduction to Economics......Page 23
CHAPTER 1 Introduction to Economics......Page 25
What Is Economics?......Page 26
Application 1.1: The Cost of Holding a Job......Page 30
Factors of Production......Page 31
Economic Theory and Policy......Page 33
Application 1.2: Does Money Buy Happiness?......Page 34
Application 1.3: Ok, WhatAre They?......Page 37
Up for Debate: Should St. Louis County, Missouri, Impose Mandatory Trash Pickup and Recycling?......Page 39
Scarcity, Model Building, and Graphs......Page 41
Test Your Understanding: Production Possibilities......Page 45
Critical Thinking Case 1: Rethinking Medical Care......Page 51
Constructing a Graph......Page 52
Direct and Inverse Relationships......Page 53
CHAPTER 2 Economic Decision Making and Economic Systems......Page 57
Scarcity and Society’s Basic Economic Decisions......Page 58
Economic Systems and the Three Basic: Economic Decisions......Page 59
Traditional or Agrarian Economies......Page 60
Up for Debate: Is Western-Style Development Appropriate for Other Cultures?......Page 61
Application 2.1:Whoops! Missed the Market......Page 64
Planned Economies......Page 68
Mixed Economies......Page 70
Test Your Understanding: Economic Decision Making and the Circular Flow......Page 71
Changing Economic Systems......Page 72
Application 2.2: The People’s Republic of China......Page 73
Application 2.3: The Factory Girl’s Last Day......Page 75
Critical Thinking Case 2: Judging Economies......Page 83
CHAPTER 3 Demand, Supply, and Price Determination......Page 85
Demand and Supply......Page 86
Market Demand, Market Supply, and Price Setting......Page 90
Application 3.1: The Laws of Demand and Supply......Page 91
Changes In Demand and Supply......Page 95
Application 3.2: The Rise and Fall of Low Carbs......Page 100
Changes in Equilibrium Price and Equilibrium Quantity......Page 102
Test Your Understanding: Changes in Demand and Supply......Page 105
Limiting Price Movements......Page 106
Price Elasticity of Demand and Supply......Page 108
Application 3.3: Is Rent Control a Good Thing or a Bad Thing?......Page 109
Up for Debate: Is It a Mistake to Raise the Minimum Wage?......Page 110
Application 3.4: Fickle Markets......Page 112
Critical Thinking Case 3: How Do Supply and Demand Work in Health Care?......Page 118
Measuring Price Elasticity......Page 119
Part Two The Macroeconomy......Page 123
CHAPTER 4 Goals and Problems of the Macroeconomy: Employment, Prices, and Production......Page 125
Unemployment and Full Employment......Page 126
Application 4.1: What’s at Stake When a Job Is Lost?......Page 128
Employment and Unemployment: Measures and Statistics......Page 130
Inflation and Stable Prices......Page 135
Application 4.2: The $4 Summer of 2008......Page 140
Production......Page 145
Up for Debate: Will Policies to Protect the Environment Slow Economic Growth?......Page 148
Test Your Understanding: Calculating Price Indexes and GDP......Page 152
Application 4.3: The Ballad of Joe and Mary......Page 153
A Possible Policy Problem......Page 154
Critical Thinking Case 4: Statistics and Decision Making......Page 160
CHAPTER 5 Foundations of the Macroeconomy......Page 163
Changes in Macroeconomic Activity......Page 164
Total Spending and Macroeconomic Activity......Page 168
Up for Debate: Is Saving a Healthy Habit?......Page 172
Application 5.1: Interest Rates and Investment Spending......Page 174
Application 5.2: What’s Causing the Economy to Change?......Page 184
Application 5.3: Ripples through the Economy......Page 186
Test Your Understanding: Changes in Economic Activity......Page 187
Macroeconomic Policies......Page 188
Critical Thinking Case 5: President Truman’s Desperate Wish......Page 193
CHAPTER 6 The Role of Government in the Macroeconomy......Page 195
Government Expenditures and Revenues......Page 197
Up for Debate: Should the Federal Income Tax Be Changed to a Flat Tax?......Page 202
Application 6.1: A Chronology of Federal Income Tax Policies......Page 203
Fiscal Policy......Page 204
Government Budgets......Page 208
Application 6.2: How Much Do We Love Granny?......Page 211
The National Debt......Page 213
Application 6.3: U.S. Treasury Securities......Page 214
Critical Thinking Case 6: Nimby (Not in My Backyard)......Page 223
CHAPTER 7 Money, Financial Institutions, and the Federal Reserve......Page 225
Money......Page 226
Application 7.1: Fixed Assets, or: Why a Loan in Yap Is Hard to Roll Over......Page 228
Financial Depository Institutions......Page 233
Application 7.2: Am I Covered?......Page 235
The Federal Reserve System......Page 236
Test Your Understanding: Changes in a Bank’s Reserve Account......Page 241
Up for Debate: Should Congress Enact More Stringent Regulations over the Banking System?......Page 243
Application 7.3: 500 Billion Dollars......Page 245
Critical Thinking Case 7: Cigarette Money......Page 250
CHAPTER 8 Money Creation, Monetary Theory, and Monetary Policy......Page 251
The Money Supply and the Level of Economic Activity......Page 252
Money Creation......Page 254
Application 8.1: Questions and Answers about Reserves and Loans......Page 256
Excess Reserves, Interest Rates, and the Level of Spending......Page 259
Application 8.2: An Interest Rate Primer......Page 263
Test Your Understanding: Financial Depository Institution Calculations......Page 268
Application 8.3: Who Is the Most Powerful Person in the United States?......Page 269
Up for Debate: Should the Federal Reserve Be Placed under the Direct Control of Congress?......Page 272
Critical Thinking Case 8: The Fed and the Great Depression......Page 278
CHAPTER 9 Macroeconomic Viewpoints and Models......Page 279
Macroeconomic Model Building......Page 280
Viewpoints and Models......Page 281
Application 9.1: Paying Close Attention to Models: It’s Worth the Effort......Page 282
Application 9.2: The Academic Scribblers......Page 283
Up for Debate: Should Government’s Role in Influencing Economic Activity Be Reduced?......Page 294
A Final Word on Macroeconomic Viewpoints......Page 297
Test Your Understanding: Unemployment and Inflation......Page 298
Critical Thinking Case 9: Does Anyone Care What Economists Think?......Page 304
Part Three The Microeconomy......Page 305
CHAPTER 10 Households and Businesses: An Overview......Page 307
Overview of Households......Page 308
Application 10.1: Family Gossip......Page 313
Application 10.2: You Decide......Page 314
Test Your Understanding: The Price of Stock Shares......Page 318
Application 10.3: Two Profiles: Starbucks and Kraft Foods......Page 321
Up for Debate: Should Profitable Businesses Be Expected to Actively Participate in Improving Their Communities?......Page 322
Critical Thinking Case 10: Time to Maximize......Page 326
CHAPTER 11 Benefits, Costs, and Maximization......Page 327
Balancing Benefits And Costs: The Individual......Page 328
Application 11.1: Do It Yourself......Page 335
Balancing Benefits and Costs: The Business......Page 337
Test Your Understanding: Maximizing Profit......Page 343
Social Benefits and Costs......Page 344
Application 11.2: The Cost of Smoking......Page 345
Up for Debate: Should Drivers Be Banned from Using Cell Phones while Operating a Vehicle?......Page 347
Critical Thinking Case 11: Water, Water Everywhere, but Not Enough to Drink......Page 354
CHAPTER 12 Production and the Costs of Production......Page 357
Production Basics......Page 358
Application 12.1: Learn to Live with It......Page 363
Test Your Understanding: Calculating Costs and Averages......Page 370
Up for Debate: Do Wellness Programs Lower Costs for Employers?......Page 372
Application 12.2: A Distance-Ed Student Puts His Lessons to Work on a Farm......Page 376
Critical Thinking Case 12: The Human Factor......Page 381
A Further Look at Short-Run Average and Marginal Costs......Page 382
CHAPTER 13 Competition and Market Structures......Page 387
Defining a Market......Page 388
The Market Structures......Page 390
Pure Competition......Page 391
Application 13.2: The Farmers’ Almanac: It’s a Necessity......Page 396
Monopolistic Competition......Page 399
Oligopoly......Page 403
Application 13.3: Of Course They’ll React......Page 407
Monopoly......Page 408
Market Structures, the Consumer, and Efficiency......Page 412
Critical Thinking Case 13: The $800 Haircut......Page 418
Determining the Profit-Maximizing Price and Output for the Firm In Pure Competition......Page 419
Determining the Profit-Maximizing Price and Output for the Firm with a Downward-Sloping Demand Curve......Page 422
Test Your Understanding: Maximizing Profit and Minimizing Loss......Page 425
CHAPTER 14 Government and the Markets......Page 427
Antitrust Enforcement......Page 428
Application 14.1: Cases Involving the Sherman Act......Page 432
Application 14.2: Cases Involving the Clayton Act and its Amendments......Page 435
Application 14.3: Antitrust Enforcement up Close and Personal......Page 436
Government Regulation......Page 437
Test Your Understanding: Government and Business......Page 445
Up for Debate: Has Our Enthusiasm for Regulation Gone Too Far?......Page 446
Critical Thinking Case 14: Eminent Domain: In the Public Interest or Not?......Page 450
CHAPTER 15 Labor Markets, Unions, and the Distribution of Income......Page 453
Labor Markets......Page 454
Test Your Understanding: A Small Business Determines Its Demand for Employees......Page 460
Application 15.1: And, Where Do I Go?......Page 463
Labor Unions......Page 467
The Distribution of Income......Page 469
Application 15.2: Making the Most of Intellectual Capital......Page 472
Application 15.3: Homeless Families with Children......Page 475
Up for Debate: Should There Be a Work Requirement for Those Seeking Public Assistance?......Page 477
Critical Thinking Case 15: Income Distribution: Are the Shares of the Pie Fair?......Page 482
Part Four The International Economy......Page 485
CHAPTER 16 International Trade......Page 487
An Overview of U.S. International Trade......Page 488
Application 16.1: A Sad Story......Page 492
Test Your Understanding: Comparative Advantage......Page 495
Free Trade and Protectionism......Page 496
Application 16.2: Gloria Flunks the Professor......Page 500
Up for Debate: Should Trade Be Restricted if It Results in Environmental Damage?......Page 502
Critical Thinking Case 16: A Petition (by Frederic Bastiat, 1801–1850)......Page 506
CHAPTER 17 International Finance......Page 509
Exchanging Currencies......Page 510
Application 17.1: Foreign Exchange Markets......Page 515
Application 17.2: Does a Lower-Valued Dollar Help the Economy?......Page 516
Test Your Understanding: Changes in Exchange Rates......Page 518
International Financial Transactions and Balances......Page 519
Challenges To The International Financial System......Page 522
Up for Debate: Euro-Dreams......Page 525
Critical Thinking Case 17: Helping Poor Countries......Page 529
Glossary......Page 531
Answers to “Test Your Understanding”......Page 541
Index......Page 549