Essentials of Economics

Front Cover
Front Matter
	Half title
	Dedication
	Full title
	Imprint
	About the authors
	Preface
	The foundation
	Special features
	Resources for educators and students
	Reviewers
	Brief contents
	Detailed contents
Part 1 Introduction
	Chapter 1 Economics: Foundations and models
		Three key economic ideas
			People are rational
			People respond to economic incentives
			Optimal decisions are made at the margin
			Solved problem 1.1 Apple makes a decision at the margin
		Scarcity, trade-offs and the economic problem that every society must solve
			What goods and services will be produced?
			How will the goods and services be produced?
			Who will receive the goods and services produced?
			Centrally planned economies versus market economies
			The modern ‘mixed’ economy
			Efficiency and equity
		Economic models
			The role of assumptions in economic models
			Forming and testing hypotheses in economic models
			Normative and positive analysis
			Don’t let this happen to you
				Don’t confuse positive analysis with normative analysis
			Economics as a social science
			Making the connection 1.1 Good economics doesn’t always mean good politics
		Microeconomics and macroeconomics
		Conclusion
		An inside look
			Rise of the machines: What jobs will survive as robots move into the workplace?
		Chapter summary and problems
		Chapter 1 Appendix
			Using graphs and formulas
				Graphs of one variable
				Graphs of two variables
				Formulas
				Appendix Questions and problems
	Chapter 2 Choices and trade-offs in the market
		Production possibility frontiers and real-world trade-offs
			Graphing the production possibility frontier
			Increasing marginal opportunity costs
			Making the connection 2.1 Trade-offs and emergency aid relief
			Economic growth
		Comparative advantage and trade
			Specialisation and gains from trade
			Absolute advantage versus comparative advantage
			Don’t let this happen to you
				Don’t confuse absolute advantage with comparative advantage
			Comparative advantage and the gains from trade
			Solved problem 2.1 Comparative advantage and the gains from trade
		The market system
			The gains from free markets
			The market mechanism
			Making the connection 2.2 Story of the market system in action: I, pencil
			The role of the entrepreneur
		The legal basis of a successful market system
			Protection of private property
			Making the connection 2.3 Illegal downloads from cyberspace
			Enforcement of contracts and property rights
		Conclusion
		An inside look
			Expansion and production mix at BMW
		Chapter summary and problems
Part 2 How the market works
	Chapter 3 Where prices come from: The interaction of demand and supply
		The demand side of the market
			Demand schedules and demand curves
			The law of demand
			Holding everything else constant: The ceteris paribus condition
			What explains the law of demand?
			Variables that shift market demand
			Making the connection 3.1 The ageing of the Baby Boom generation
			A change in demand versus a change in quantity demanded
		The supply side of the market
			Supply schedules and supply curves
			The law of supply
			Variables that shift supply
			A change in supply versus a change in quantity supplied
		Market equilibrium: Putting demand and supply together
			How markets eliminate surpluses and shortages
			Demand and supply both count
			Shifts in a curve versus movements along a curve
		The effect of demand and supply shifts on equilibrium
			Don’t let this happen to you
				Remember: A change in a good’s price does not cause the demand or supply curve to shift
			The effect of shifts in supply on equilibrium
			The effect of shifts in demand on equilibrium
			The effect of shifts in demand and supply over time
			Solved problem 3.1 Demand and supply both count: Pharmacists and accountants
			Making the connection 3.2 The rise and rise of fitness trackers
			Solved problem 3.2 Demand and supply both count: The australian housing market
		Conclusion
		An inside look
			Global PC shipments decline for 12th straight quarter but HP bucks fall, Gartner says
		Chapter summary and problems
		Chapter 3 Appendix
			Behavioural economics: Do people make their choices rationally?
				Pitfalls in decision making
				Ignoring non-monetary opportunity costs
				Making the connection 3A.1 Experimental economics: A test of fairness?
				Business implications of consumers ignoring non-monetary opportunity costs
				Failing to ignore sunk costs
				Making the connection 3A.2 A blogger who understands the importance of ignoring sunk costs?
				Being unrealistic about future behaviour
				Solved problem 3A.1 How do you get people to save more of their income?
			Appendix Questions and problems
	Chapter 4 Elasticity: The responsiveness of demand and supply
		Price elasticity of demand and its measurement
			Measuring the price elasticity of demand
			Elastic demand and inelastic demand
			An example of calculating price elasticities
			The midpoint formula
			Solved problem 4.1 Calculating the price elasticity of demand for wheat using the midpoint formula
			When demand curves intersect, the flatter curve is more elastic
			Polar cases of perfectly elastic and perfectly inelastic demand
			Don’t let this happen to you
				Don’t confuse inelastic with perfectly inelastic
		The determinants of the price elasticity of demand
			Availability of close substitutes
			Passage of time
			Making the connection 4.1 The price elasticity of demand for breakfast cereal
			Luxuries versus necessities
			Solved problem 4.2 Using price elasticity to analyse the drug problem
			Definition of the market
			Share of the good in the consumer’s budget
		The relationship between price elasticity and total revenue
			Elasticity and revenue with a linear demand curve
			Solved problem 4.3 Price and revenue don’t always move in the same direction
			Estimating price elasticity of demand
		Other demand elasticities
			Cross-price elasticity of demand
			Income elasticity of demand
			Making the connection 4.2 Using elasticity to analyse the disappearing family farm
		The price elasticity of supply and its measurement
			Measuring the price elasticity of supply
			Determinants of the price elasticity of supply
			Making the connection 4.3 Why are oil prices so unstable?
			Polar cases of perfectly elastic and perfectly inelastic supply
			Using price elasticity of supply to predict changes in price
		Conclusion
		An inside look
			Liquor retailing in Australia
		Chapter summary and problems
	Chapter 5 Economic efficiency, government price setting and taxes
		Consumer surplus and producer surplus
			Consumer surplus
			Producer surplus
			Making the connection 5.1 The consumer surplus from broadband Internet service
			What consumer surplus and producer surplus measure
		The efficiency of competitive markets
			Marginal benefit equals marginal cost in competitive equilibrium
			Economic surplus
			Deadweight loss
			Economic surplus and economic efficiency
		Government intervention in the market: Price floors and price ceilings
			Price floors: The example of agricultural markets
			Price ceilings: The example of rent controls
			Making the connection 5.2 Price floors in labour markets: The minimum wage
			Black markets and peer-to-peer sites
			Don’t let this happen to you
				Don’t confuse scarcity with a shortage
			Solved problem 5.1 What is the economic effect of a black market for apartments?
			The results of government intervention: Winners, losers and inefficiency
			Positive and normative analysis of price ceilings and price floors
		The economic impact of taxes
			The effect of taxes on economic efficiency
			Tax incidence: Who actually pays a tax?
			Solved problem 5.2 When do consumers pay all of a sales tax increase?
		Conclusion
		An inside look
			Australian smokers to pay more than $45 for a packet of cigarettes from 2020
		Chapter summary and problems
Part 3 Firms and market structures
	Chapter 6 Technology, production and costs
		Technology: An economic definition
		The short run and the long run in economics
			The difference between fixed costs and variable costs
			Making the connection 6.1 Improving inventory control at Bunnings
			Implicit costs versus explicit costs
			Making the connection 6.2 Fixed costs in the publishing industry
			The production function
			A first look at the relationship between production and cost
		The marginal product of labour and the average product of labour
			The law of diminishing returns
			Making the connection 6.3 Adam Smith’s famous account of the division of labour in a pin factory
			The relationship between marginal product and average product
			Graphing production
		The relationship between short-run production and short-run cost
			Marginal cost
			The relationship between marginal cost and average total cost
			Solved problem 6.1 The relationship between marginal cost and average total cost
		Graphing cost curves
		Costs in the long run
			Economies of scale
			Long-run average cost curves for bookshops
			Solved problem 6.2 Using long-run average cost curves to understand business strategy
			Making the connection 6.4 The colossal River Rouge: Diseconomies of scale at the Ford Motor company
			Don’t let this happen to you
				Don’t confuse diminishing returns with diseconomies of scale
		Conclusion
		An inside look
			Tesla: The Gigafactory is the key
		Chapter summary and problems
	Chapter 7 Firms in perfectly competitive markets
		Perfectly competitive markets
			A perfectly competitive firm cannot affect the market price
			The demand curve for the output of a perfectly competitive firm
			Don’t let this happen to you
				Don’t confuse the demand curve for Farmer Jones’ oats with the market demand curve for oats
		How a firm maximises profit in a perfectly competitive market
			Revenue for a firm in a perfectly competitive market
			Determining the profit-maximising level of output
		Illustrating profit or loss on the cost curve graph
			Showing profit on the graph
			Solved problem 7.1 Determining profit-maximising price and quantity
			Don’t let this happen to you
				Remember that firms maximise total profit, not profit per unit
			Illustrating when a firm is breaking even or operating at a loss
		Deciding whether to produce or to shut down in the short run
			Making the connection 7.1 Losing money in the solar panel industry
			Solved problem 7.2 When to shut down an oil well
			The supply curve of the firm in the short run
			The market supply curve in a perfectly competitive industry
		‘If everyone can do it, you can’t make money at it’–the entry and exit of firms in the long run
			Economic profit and the entry or exit decision
			Long-run equilibrium in a perfectly competitive market
			The long-run supply curve in a perfectly competitive market
			Increasing-cost and decreasing-cost industries
			Making the connection 7.2 In the App Store, easy entry makes the long run pretty short
		Perfect competition and efficiency
			Productive efficiency
			Allocative efficiency
			Dynamic efficiency
			Solved problem 7.3 How productive efficiency and dynamic efficiency benefit consumers
		Conclusion
		An inside look
			Why the sharing economy could have a hard landing in Australia
		Chapter summary and problems
	Chapter 8 Monopoly markets
		Is any firm ever really a monopoly?
		Where do monopolies come from?
			Making the connection 8.1 Does Hasbro have a monopoly on Monopoly?
			Entry blocked by government action
			Control of a key resource
			Network externalities
			Making the connection 8.2 Are diamond (profits) forever? The De Beers diamond monopoly
			Natural monopoly
		How does a monopoly choose price and output?
			Marginal revenue
			Profit maximisation for a monopolist
			Solved problem 8.1 Finding profit-maximising price and output for a monopolist
			Don’t let this happen to you
				Don’t assume that charging a higher price is always more profitable for a monopolist
		Does monopoly reduce economic efficiency?
			Comparing monopoly and perfect competition
			Measuring the efficiency losses from monopoly
			How large are the efficiency losses due to monopoly?
			Market power and technological change
		Government policy towards monopolies
			Trade practices laws and enforcement
			Mergers: The trade-off between market power and efficiency
			Making the connection 8.3 Anti-competitive behaviour in the airline cargo industry
			Regulating natural monopolies
			Solved problem 8.2 Water restrictions and water supply companies
		Conclusion
		An inside look
			Footy fans stuck with Foxtel until 2022
		Chapter summary and problems
		Chapter 8 Appendix
			Price discrimination
				The requirements for successful price discrimination
				Solved problem 8A.1 How Dell Technologies uses price discrimination to increase profits
				Airlines: The kings of price discrimination
				Perfect price discrimination
				Price discrimination across time
				Making the connection 8A.1 The Internet leaves you open to price discrimination
			Appendix Questions and problems
	Chapter 9 Monopolistic competition and oligopoly
		Demand and marginal revenue for a firm in a monopolistically competitive market
			The demand curve for a monopolistically competitive firm
			Marginal revenue for a firm with a downward-sloping demand curve
		How a monopolistically competitive firm maximises profit in the short run
			Solved problem 9.1 How not to maximise profit
		What happens to profit in the long run?
			How does entry of new firms affect the profits of existing firms?
			Don’t let this happen to you
				Don’t confuse zero economic profit with zero accounting profit
			Making the connection 9.1 The rise and decline and rise of Starbucks
			Is zero economic profit inevitable in the long run?
			Solved problem 9.2 Buffalo Wild Wings increase costs to increase demand
		Comparing perfect competition and monopolistic competition
			Excess capacity under monopolistic competition
			Is monopolistic competition inefficient?
			How consumers benefit from monopolistic competition
		Oligopoly and barriers to entry
			Barriers to entry
		Game theory and oligopoly
			A duopoly game: Price competition between two firms
			Firm behaviour and the prisoners’ dilemma
			Don’t let this happen to you
				Don’t misunderstand why each manager ends up charging a price of $450
			Can firms escape the prisoners’ dilemma?
			Making the connection 9.2 Is there a dominant strategy for bidding on eBay?
			Solved problem 9.3 Is advertising a prisoners’ dilemma for Coca-Cola and Pepsi?
			Cartels: the case of OPEC
			Making the connection 9.3 Is Virgin Australia’s business strategy more important than the structure of the airline industry?
		Conclusion
		An inside look
			Booming coffee market moves into consolidation phase
		Chapter summary and problems
Part 4 Markets for factors of production
	Chapter 10 The markets for labour and other factors of production
		The demand for labour
			The marginal revenue product of labour
			Solved problem 10.1 Hiring decisions by a firm that is a price maker
			The market demand curve for labour and the factors that shift it
		The supply of labour
			The market supply curve of labour and the factors that shift it
		Equilibrium in the labour market
			The effect on equilibrium wages of a shift in labour demand
			Making the connection 10.1 Will your future income depend on which courses you take at university?
			The effect on equilibrium wages of a shift in labour supply
			Making the connection 10.2 Should you fear the effect of robots on the labour market?
		Explaining differences in wages
			Don’t let this happen to you
				Remember that prices and wages are determined at the margin
			Making the connection 10.3 Technology and the earnings of ‘superstars’
			Compensating differentials
			Discrimination
			Trade unions
			Solved problem 10.2 Is ‘comparable worth’ legislation the answer to closing the gap between men’s and women's pay?
		Personnel economics
			Should workers’ pay depend on how much they work or on how much they produce?
			Other considerations in setting compensation schemes
		The markets for capital and natural resources
			The market for capital
			Solved problem 10.3 How to receive your payments
			The market for natural resources
			Monopsony
			The marginal productivity theory of income distribution
		Conclusion
		An inside look
			Huge Indian Premier League pay day for England bad boy Ben Stokes
		Chapter summary and problems
Part 5 The role of government
	Chapter 11 Government intervention in the market
		What’s good about markets and why does the government intervene?
			The economic bases for government intervention
		Market failure and government failure
			Don’t let this happen to you
				Just because something is wrong, it doesn’t mean the government has to put it right
			Deregulation and privatisation
		Externalities and efficiency
			The effect of externalities
			How externalities in production reduce economic efficiency
			How externalities in consumption reduce economic efficiency
			Externalities and market failure
			What causes externalities?
			The economically efficient level of pollution reduction
			Making the connection 11.1 The reduction in lead in Melbourne’s air
			Don’t let this happen to you
				Remember that it’s the net benefit that counts
			Do property rights matter?
			The problem of transactions costs
			The Coase theorem
			Making the connection 11.2 The fable of the bees
		Government policies to deal with externalities
			Policies for externalities in production
			Policies for externalities in consumption
			Command and control and market-based approaches
			Making the connection 11.3 Should the government tax soft drinks?
			Solved problem 11.1 Using a tax to deal with a negative externality
			Licences to pollute?
			Making the connection 11.4 Can a price on carbon reduce global warming?
		Four categories of goods
			The optimal quantity of a public good
			Common resources
		Policy for business and individual behaviour that can increase economic efficiency
			The rule of law
			Patents, trademarks and copyright protection
			Making the connection 11.5 Who owns the Wizard of Oz?
			Asymmetric information
		Conclusion
		An inside look
			Too big to fail: China pledges to set up landmark emissions trading scheme
		Chapter summary and problems
	Chapter 12 Social policy and inequality
		The tax system
			An overview of the Australian tax system
			Progressive and regressive taxes
			Making the connection 12.1 Which groups pay the most in taxes?
			Marginal and average income tax rates
			Evaluating taxes
		Tax incidence revisited: The effect of price elasticity
			Don’t let this happen to you
				Remember not to confuse who pays the tax with who bears the burden of the tax
			Making the connection 12.2 Do companies really bear the burden of the federal company income tax?
			Solved problem 12.1 The effect of price elasticity on the excess burden of a tax
		Income distribution and poverty
			Measuring the distribution of income and poverty
			The poverty rate in Australia
			Explaining income inequality
			Showing the income distribution with a Lorenz curve
			Problems in measuring poverty and the distribution of income
			Solved problem 12.2 Are many individuals stuck in poverty?
			Making the connection 12.3 Is income all that matters?
		Conclusion
		An inside look
			3.6 million households pay no net tax after churn
		Chapter summary and problems
Part 6 Macroeconomic foundations
	Chapter 13 GDP: Measuring total production, income and economic growth
		Gross domestic product measures total production
			Measuring total production: Gross domestic product
			Measuring GDP using the value-added method
			Other measures of total production and total income
			Solved problem 13.1 Calculating GDP
		Methods of measuring gross domestic product
			Production, expenditure and income and the circular-flow diagram
			Components of GDP
			Don’t let this happen to you
				Remember what economists mean by investment
			An equation for GDP and some actual values
		Does GDP measure what we want it to measure?
			Shortcomings in GDP as a measure of total production
			Making the connection 13.1 Why do many developing countries have such large underground economies?
			Shortcomings of GDP as a measure of wellbeing
			Making the connection 13.2 How else can we measure economic wellbeing?
		Real GDP versus nominal GDP
			Calculating real GDP
		Calculating the economic growth rate
			The GDP deflator
			Making the connection 13.3 How did the standard of living in Nigeria almost double overnight?
		Long-run economic growth is the key to rising living standards
			Making the connection 13.4 The connection between economic prosperity and health
			Calculating growth rates and the rule of 70
			What determines the rate of long-run economic growth?
			Solved problem 13.2 Where does long-run growth come from?
			Potential GDP
		What determines how fast economies grow?
			The per-worker production function
			Which is more important for economic growth: More capital or technological change?
			Technological change: The key to sustaining economic growth
			New growth theory
			Is economic growth good or bad?
		Conclusion
		An inside look
			The four factors that drag Australia down
		Chapter summary and problems
	Chapter  14 Unemployment and inflation
		Measuring the unemployment rate and the labour force participation rate
			The labour force survey
			Problems with measuring the unemployment rate
			Solved problem 14.1 What would happen if the ABS labour force survey included the military?
			Trends in labour force participation
			How long are people usually unemployed?
			Job creation and job destruction
			Making the connection 14.1 What explains the increase in welfare recipients?
			Solved problem 14.2 Correctly interpreting labour force data
		The costs of unemployment
			Costs to the economy
			Costs to the individual
			The distribution of unemployment
		Types of unemployment
			Cyclical unemployment
			Frictional unemployment and job search
			Structural unemployment
			Full employment
			Don’t let this happen to you
				Don’t confuse full employment with a zero unemployment rate
		Explaining frictional and structural unemployment
			Government policies and the unemployment rate
			Social security and other payments to the unemployed
			Labour market regulation and deregulation
			Minimum wages
			Trade unions
			Efficiency wages
			Making the connection 14.2 Why did Henry Ford pay his workers twice as much as other car manufacture?
		Measuring inflation
			The consumer price index
			Is the CPI accurate?
			Don’t let this happen to you
				Don’t confuse the price level with the inflation rate
			The producer price index
		Using price indexes to adjust for the effects of inflation
			Solved problem 14.3 What has been happening with real wages in Australia?
		Does inflation impose costs on the economy?
			Inflation affects the distribution of income
			The problem with anticipated inflation
			The problem with unanticipated inflation
			Hyperinflation
			Deflation
			Making the connection 14.3 What’s so bad about falling prices?
		What causes inflation?
		Conclusion
		An inside look
			All eyes on inflation next week, but not everything is as it seems . . .
		Chapter summary and problems
	Chapter 15 Aggregate demand and aggregate supply analysis
		The business cycle
			Some basic business cycle definitions
			What happens during the business cycle
			Don’t let this happen to you
				Don’t confuse short-run fluctuations with long-run trends
		Aggregate demand
			Why is the aggregate demand curve downward sloping?
			Shifts of the aggregate demand curve versus movements along it
			The variables that shift the aggregate demand curve
			Don’t let this happen to you
				Be clear why the aggregate demand curve is downward sloping
			Making the connection 15.1 Should Germany reduce its reliance on exports?
			Solved problem 15.1 Movements along the aggregate demand curve versus shifts of the aggregate demand curve
		Aggregate supply
			The long-run aggregate supply curve
			Shifts in the long-run aggregate supply curve
			The short-run aggregate supply curve
			Shifts of the short-run aggregate supply curve versus movements along it
			Variables that shift the short-run aggregate supply curve
			Variables that shift the short-run and long-run aggregate supply curves
		Macroeconomic equilibrium in the long run and the short run
			Recessions, expansions and supply shocks
		A dynamic aggregate demand and aggregate supply model
			What is the usual cause of inflation?
			Making the connection 15.2 Does technological change create unemployment?
			Solved problem 15.2 Showing the oil shock of 1974 on a dynamic aggregate demand and aggregate supply graph
		Conclusion
		An inside look
			Housing boom lifts Harvey Norman’s profit
		Chapter summary and problems
		Chapter 15 Appendix
			The aggregate expenditure model
				Showing a recession on the 45˚ line diagram
				Appendix Summary and problems
Part 7 Monetary and fiscal policy
	Chapter 16 Money, banks and the Reserve Bank of Australia
		What is money and why do we need it?
			Barter and the invention of money
			The functions of money
			Making the connection 16.1 Money in a World War II prisoner-of-war camp
			What can serve as money?
			Making the connection 16.2 Coca-Cola dries up as the Zimbabwe currency no longer serves as money
		How do we measure money today?
			M1: the narrowest definition of the money supply
			Broader definitions of money
			Don’t let this happen to you
				Don’t confuse money with income or wealth
			Making the connection 16.3 Are bitcoins money?
		How do financial institutions create money?
			Bank balance sheets
			Using T-accounts to show how a bank can create money
			The simple deposit multiplier
			Solved problem 16.1 Showing how banks create money
			The simple deposit multiplier versus the real-world deposit multiplier
		An overview of the financial system
			The role of financial markets and financial intermediaries
			The Reserve Bank of Australia
			How the RBA manages financial liquidity and interest rates
			Exchange rate management
		Conclusion
		An inside look
			Innovation in electronic payments to accelerate demise of cheques
		Chapter summary and problems
	Chapter 17 Monetary policy
		What is monetary policy?
			The goals of monetary policy
		The demand for and supply of money
			The demand for money
			Shifts in the money demand curve
			How the RBA manages the supply of cash
			Equilibrium in the money market
			The market for loanable funds
			Making the connection 17.1 Ebenezer Scrooge: Accidental promoter of economic growth?
			Solved problem 17.1 Are future budget deficits a threat to the economy?
			A tale of two interest rates
		Monetary policy and economic activity
			How interest rates affect aggregate demand
			Making the connection 17.2 Why did the Global Financial Crisis occur?
			The effects of monetary policy on real GDP and the price level
			Can the RBA eliminate contractions and recessions?
			Using monetary policy to fight inflation
			Solved problem 17.2 The effects of monetary policy
			Is monetary policy always effective and fair?
			Don’t let this happen to you
				Remember that with monetary policy, it’s the interest rate—not the money—that counts
			Making the connection 17.3 How does the RBA measure inflation?
		Is the independence of the Reserve Bank of Australia a good idea?
			The case for RBA independence
			The case against RBA independence
		Conclusion
		An inside look
			RBA independence on interest rates: A tick for a resilient economy
		Chapter summary and problems
	Chapter 18 Fiscal policy
		What is fiscal policy?
			What fiscal policy is and what it isn’t
			Automatic stabilisers versus discretionary fiscal policy
			An overview of government spending and taxes
		Using fiscal policy to influence aggregate demand
			Expansionary fiscal policy
			Contractionary fiscal policy
			Don’t let this happen to you
				Don’t confuse fiscal policy and monetary policy
		The multiplier effect and government purchases and tax multipliers
			The government purchases multiplier
			A simple formula for the multiplier
			Summarising the multiplier effect
			The tax multiplier
			The effect of changes in tax rates
			Taking into account the effects of aggregate supply
			The multipliers work in both directions
			Making the connection 18.1 The multiplier in reverse: The Great Depression of the 1930s
			Solved problem 18.1 Fiscal policy multipliers
		The limits to using fiscal policy to stabilise the economy
			Does government spending reduce private spending?
			Crowding out in the short run
			Crowding out in the long run
			Making the connection 18.2 Why was the United States’ recession of 2007–2009 so severe?
		Deficits, surpluses and federal government debt
			How the federal budget can serve as an automatic stabiliser
			Should the federal budget always be balanced?
			Solved problem 18.2 The effect of economic fluctuations on the budget deficit
			Is government debt a problem?
			Making the connection 18.3 Government bankruptcy in Europe
		The effects of fiscal policy in the long run
			The long-run effects of tax policy
			Tax simplification
			The economic effect of tax reform
			How large are supply-side effects from tax cuts?
		Conclusion
		An inside look
			Japan cabinet approves $175b fiscal boost
		Chapter summary and problems
		Chapter 18 Appendix 1
			Is there a short-run trade-off between unemployment and inflation?
				The Phillips curve
				Explaining the Phillips curve with aggregate demand and aggregate supply curves
				Is the Phillips curve a policy menu?
				Is the short-run Phillips curve stable?
				The long-run Phillips curve
				The role of expectations of future inflation
				Do workers understand inflation?
			Appendix 1 Questions and problems
		Chapter 18 Appendix 2
			A closer look at the multiplier
				An expression for equilibrium real GDP
				A formula for the government purchases multiplier
				A formula for the tax multiplier
				The ‘balanced budget’ multiplier
				The effects of changes in tax rates on the multiplier
				The multiplier in an open economy
			Appendix 2 Problems
Part 8 The international economy
	Chapter 19 Comparative advantage and the gains from international trade
		An overview of international trade
		The importance of trade to the Australian economy
			Australian international trade in a world context
			Making the connection 19.1 The iPhone is made in China . . . or is it?
		Comparative advantage in international trade
			A brief review of comparative advantage
			Comparative advantage and absolute advantage
		How countries gain from international trade
			Increasing consumption through trade
			Solved problem 19.1 The gains from trade
			Why don’t we see complete specialisation?
			Does anyone lose as a result of international trade?
			Don’t let this happen to you
				Remember that trade creates both winners and losers
			Where does comparative advantage come from?
		Government policies that restrict international trade
			Tariffs
			Quotas
			Measuring the economic impact of the sugar quota
			Solved problem 19.2 Measuring the economic effect of a quota
			Gains from unilateral elimination of tariffs and quotas
			Domestic support policies
			Other barriers to trade
		The arguments over trade policies and globalisation
			Why do some people oppose the World Trade Organization?
			Dumping
			Making the connection 19.2 The unintended consequences of banning goods made with child labour
			Radical environmentalism
			Positive versus normative analysis (once again)
		Conclusion
		An inside look
			China-Australia Free Trade Agreement: outcomes at a glance
		Chapter summary and problems
	Chapter 20 Macroeconomics in an open economy
		The balance of payments: Linking Australia to the international economy
			The current account
			The capital account
			The financial account
			Why is the balance of payments always zero?
			Don’t let this happen to you
				Don’t confuse the balance of trade, the current account balance and the balance of payments
			Solved problem 20.1 Understanding the arithmetic of open economies
		The foreign exchange market and exchange rates
			Equilibrium in the market for foreign exchange
			Don’t let this happen to you
				Don’t confuse what happens when a currency appreciates with what happens when it depreciates
			How do shifts in demand and supply affect the exchange rate?
			Some exchange rates are not determined by the market
			Making the connection 20.1 The Chinese yuan: The world’s most controversial currency
			How movements in the exchange rate affect exports and imports
			Solved problem 20.2 The effect of changing exchange rates on the prices of imports
			The real exchange rate
		Exchange rate systems
		The current exchange rate system
			The floating dollar
			What determines exchange rates in the long run?
			Making the connection 20.2 The Big Mac theory of exchange rates
			The four determinants of exchange rates in the long run
			Making the connection 20.3 Greece and Germany: Diverse economies, common currency
		The international sector and national saving and investment
			Current account balance equals net foreign investment
			Domestic saving, domestic investment and net foreign investment
		The effect of a government budget deficit on investment
			Is Australia’s current account deficit a problem?
			Making the connection 20.4 International debt relief for poor countries
		Monetary policy and fiscal policy in an open economy
			Monetary policy in an open economy
			Fiscal policy in an open economy
		Conclusion
		An inside look
			Brexit tipped to push $A higher, RBA to cut rate
		Chapter summary and problems
Glossary
Index