Gerhart Hauptmann

Cover......Page 1
Title Page......Page 5
Copyright Page......Page 6
Brief Contents......Page 8
Contents......Page 9
 Chapter 1 The Scope and Method of Economics......Page 37
   To Learn a Way of Thinking......Page 38
   To Understand Society......Page 39
   Microeconomics and Macroeconomics......Page 40
  Economics in Practice iPod and the World......Page 41
   Theories and Models......Page 43
   Economic Policy......Page 45
  Summary......Page 47
  Problems......Page 48
  Appendix: How to Read and Understand Graphs......Page 50
 Chapter 2 The Economic Problem: Scarcity and Choice......Page 58
   Scarcity and Choice in a One-Person Economy......Page 59
   Scarcity and Choice in an Economy of Two or More......Page 60
  Economics in Practice Nannies and Opportunity Costs......Page 61
   The Production Possibility Frontier......Page 65
   The Economic Problem......Page 71
   Laissez-Faire Economies: The Free Market......Page 72
   Mixed Systems, Markets, and Governments......Page 73
  Review Terms and Concepts......Page 74
  Problems......Page 75
 Chapter 3 Demand, Supply, and Market Equilibrium......Page 78
  Input Markets and Output Markets: The Circular Flow......Page 79
   Changes in Quantity Demanded versus Changes in Demand......Page 81
   Price and Quantity Demanded: The Law of Demand......Page 82
   Other Determinants of Household Demand......Page 85
  Economics in Practice Have You Bought ThisTextbook?......Page 86
  Economics in Practice People Drink Tea on Rainy Days......Page 87
   Shift of Demand versus Movement along a Demand Curve......Page 88
   From Household Demand to Market Demand......Page 89
  Supply in Product/Output Markets......Page 91
   Price and Quantity Supplied: The Law of Supply......Page 92
   Other Determinants of Supply......Page 93
   Shift of Supply versus Movement along a Supply Curve......Page 94
   From Individual Supply to Market Supply......Page 95
   Excess Demand......Page 96
   Excess Supply......Page 98
   Changes in Equilibrium......Page 99
   Demand and Supply in Product Markets: A Review......Page 101
  Economics in Practice Why Do the Prices ofDelicacies and Goodies Increase Prior to Chinese New Year?......Page 102
  Summary......Page 103
  Review Terms and Concepts......Page 104
  Problems......Page 105
 Chapter 4 Demand and Supply Applications......Page 108
   Price Rationing......Page 109
   Constraints on the Market and Alternative Rationing Mechanisms......Page 111
  Economics in Practice Why Do I Have To Pay More For My Food? The Truth Behind The Flood Crises......Page 113
   Price Floor......Page 115
  Supply and Demand Analysis: An Oil Import Fee......Page 116
  Economics in Practice The Price Mechanismat Work for Shakespeare......Page 117
   Consumer Surplus......Page 118
   Producer Surplus......Page 119
   Potential Causes of Deadweight Loss From Underand Overproduction......Page 120
  Summary......Page 121
  Problems......Page 122
 Chapter 5 Elasticity......Page 125
   Slope and Elasticity......Page 126
   Types of Elasticity......Page 127
   Calculating Percentage Changes......Page 128
   The Midpoint Formula......Page 129
   Elasticity Changes along a Straight-Line Demand Curve......Page 130
   Elasticity and Total Revenue......Page 133
   The Importance of Being Unimportant......Page 134
   Luxuries versus Necessities......Page 135
   Income Elasticity of Demand......Page 136
   Elasticity of Supply......Page 137
  What Happens When We Raise Taxes: Using Elasticity......Page 138
  Summary......Page 140
  Problems......Page 141
Part II The Market System......Page 145
 Chapter 6 Household Behavior and Consumer Choice......Page 148
   The Budget Constraint......Page 149
   The Equation of the Budget Constraint......Page 152
   Diminishing Marginal Utility......Page 153
   Allocating Income to Maximize Utility......Page 154
   The Utility-Maximizing Rule......Page 156
  Economics in Practice Soda BeverageChoice......Page 157
   The Income Effect......Page 158
   The Substitution Effect......Page 159
  Household Choice in Input Markets......Page 160
   The Labor Supply Decision......Page 161
   Income and Substitution Effects of a Wage Change......Page 162
  Economics in Practice Uber Drivers......Page 163
   Saving and Borrowing: Present versus Future Consumption......Page 164
  A Review: Households in Output and Input Markets......Page 165
  Review Terms and Concepts......Page 166
  Problems......Page 167
  Appendix: Indifference Curves......Page 170
 Chapter 7 The Production Process: The Behavior of Profit-Maximizing Firms......Page 177
   Profits and Economic Costs......Page 178
   Short-Run versus Long-Run Decisions......Page 180
   The Bases of Decisions: Market Price of Outputs, Available Technology, and Input Prices......Page 181
   Production Functions: Total Product, Marginal Product, and Average Product......Page 182
   Production Functions with Two Variable Factors of Production......Page 184
  Choice of Technology......Page 186
  Economics in Practice How Soon Should Preventive Maintenance Be Employed?......Page 187
  Looking Ahead: Cost and Supply......Page 188
  Review Terms and Concepts......Page 189
  Problems......Page 190
  Appendix: Isoquants and Isocosts......Page 193
 Chapter 8 Short-Run Costs and Output Decisions......Page 200
   Fixed Costs......Page 201
   Variable Costs......Page 203
   Total Costs......Page 208
   Short-Run Costs: A Review......Page 210
   Perfect Competition......Page 211
   Total Revenue and Marginal Revenue......Page 212
   Comparing Costs and Revenues to Maximize Profit......Page 213
   The Short-Run Supply Curve......Page 215
  Summary......Page 216
  Problems......Page 217
 Chapter 9 Long-Run Costs and Output Decisions......Page 221
   Maximizing Profits......Page 222
   Minimizing Losses......Page 225
   Long-Run Directions: A Review......Page 226
   Increasing Returns to Scale......Page 227
   Constant Returns to Scale......Page 229
   U-Shaped Long-Run Average Costs......Page 230
   Short-Run Profits: Moves In and Out of Equilibrium......Page 231
  Output Markets: A Final Word......Page 234
  Economics in Practice Why is Food so Expensive at the Airport?......Page 235
  Review Terms and Concepts......Page 236
  Problems......Page 237
  Appendix......Page 240
 Chapter 10 Input Demand: The Labor and Land Markets......Page 245
   Marginal Revenue Product......Page 246
  Economics in Practice Do Managers Matter?......Page 247
   The Firm’s Labor Market Decision......Page 249
   Many Labor Markets......Page 250
  Land Markets......Page 251
   Rent and the Value of Output Produced on Land......Page 252
  Economics in Practice Land Valuation......Page 253
   Shifts in Factor Demand Curves......Page 254
  Profit-Maximizing Condition in Input Markets......Page 255
  Summary......Page 256
  Problems......Page 257
 Chapter 11 Input Demand: The Capital Market and the Investment Decision......Page 261
   Capital......Page 262
   Investment and Depreciation......Page 263
  The Capital Market......Page 264
   Capital Income: Interest and Profits......Page 266
   Financial Markets in Action......Page 267
   Mortgages and the Mortgage Market......Page 268
   Capital Accumulation and Allocation......Page 269
   Forming Expectations......Page 270
   Comparing Costs and Expected Return......Page 271
  A Final Word on Capital......Page 273
  Review Terms and Concepts......Page 274
  Problems......Page 275
  Appendix......Page 277
 Chapter 12 General Equilibrium and the Efficiency of Perfect Competition......Page 284
  Market Adjustment to Changes in Demand......Page 285
   Pareto Efficiency......Page 287
  Economics in Practice More Corn to Burn, Less to Eat......Page 288
   The Efficiency of Perfect Competition......Page 289
   Perfect Competition versus Real Markets......Page 291
   Imperfect Competition......Page 292
   Externalities......Page 293
  Evaluating the Market Mechanism......Page 294
  Summary......Page 295
  Problems......Page 296
 Chapter 13 Monopoly and Antitrust Policy......Page 299
   Forms of Imperfect Competition and Market Boundaries......Page 300
   Demand in Monopoly Markets......Page 301
  Economics in Practice Figuring out the RightPrice......Page 302
   Perfect Competition and Monopoly Compared......Page 306
   Monopoly in the Long Run: Barriers to Entry......Page 308
  Economics in Practice NFL: A “Single (Business) Entity?”......Page 309
   Inefficiency and Consumer Loss......Page 311
   Rent-Seeking Behavior......Page 313
   Examples of Price Discrimination......Page 314
  Remedies for Monopoly: Antitrust Policy......Page 316
   Major Antitrust Legislation......Page 317
  Economics in Practice What Happens When You Google: The FTC Case against Google......Page 318
  Summary......Page 319
  Problems......Page 320
 Chapter 14 Oligopoly......Page 324
  Market Structure in an Oligopoly......Page 325
  Economics in Practice Patents in the Smartphone Industry......Page 326
  Oligopoly Models......Page 327
   The Price-Leadership Model......Page 328
  Economics in Practice Price-Fixing May Get You A Slap On The Wrist......Page 329
   The Cournot Model......Page 330
  Game Theory......Page 332
   Repeated Games......Page 335
   A Game with Many Players: Collective Action Can Be Blocked by a Prisoner’s Dilemma......Page 336
   Industrial Concentration and Technological Change......Page 338
   Regulation of Mergers......Page 339
  Economics in Practice Block that MovieAdvertisement!......Page 341
  Summary......Page 342
  Problems......Page 343
 Chapter 15 Monopolistic Competition......Page 346
  Industry Characteristics......Page 347
   How Many Varieties?......Page 348
   How Do Firms Differentiate Products?......Page 349
  Economics in Practice Rational Excess Varietyor Diversification Bias......Page 350
   Advertising......Page 352
  Economics in Practice Green Advertising......Page 354
   Price/Output Determination in the Short Run......Page 355
   Price/Output Determination in the Long Run......Page 356
  Summary......Page 358
  Problems......Page 359
 Chapter 16 Externalities, Public Goods, and Common Resources......Page 362
   Marginal Social Cost and Marginal Cost Pricing......Page 363
  Economics in Practice Adjusting to an Environmental Disaster: The Dust Bowl......Page 365
   Costs and Benefits of Pollution......Page 366
   Internalizing Externalities......Page 368
  Economics in Practice Imposing Internal Carbon Prices......Page 373
  Public (Social) Goods......Page 375
   Public Provision of Public Goods......Page 376
   Optimal Provision of Public Goods......Page 377
  Common Resources......Page 380
  Problems......Page 381
 Chapter 17 Uncertainty and Asymmetric Information......Page 385
   Expected Utility......Page 386
   Attitudes Toward Risk......Page 388
   Adverse Selection......Page 390
   Market Signaling......Page 392
  Economics in Practice Attributes and Information......Page 394
  Incentives......Page 395
   Labor Market Incentives......Page 396
  Summary......Page 397
  Problems......Page 398
 Chapter 18 Income Distribution and Poverty......Page 400
   Income Inequality in the United States......Page 401
   Inequality in Wage Income......Page 403
  Economics in Practice Why is Haiti so MuchMore Impoverished Than the Dominican Republic?......Page 404
   Inequality in Property Income......Page 406
  Arguments for and Against Reducing Market-Income Inequality......Page 407
   Arguments in Favor of Redistribution......Page 408
  Economics in Practice Intergenerational Inequality......Page 409
  Redistribution of Income Through Taxes and Transfers......Page 410
   The Tax System......Page 411
   The Transfer System......Page 412
   Change in U.S. Inequality Over Time: 1979–2011......Page 414
  Poverty......Page 415
  The Minimum Wage......Page 416
  The Distribution of Wealth......Page 417
  Income Inequality in Other Countries......Page 418
  Summary......Page 419
  Problems......Page 420
 Chapter 19 Public Finance: The Economics of Taxation......Page 424
   Taxes: Basic Concepts......Page 425
  Economics in Practice Calculating Taxes......Page 427
   The Incidence of Payroll Taxes......Page 428
   The Incidence of Corporate Profits Taxes......Page 431
   Measuring Excess Burdens......Page 433
  The Principle of Second Best......Page 434
   Optimal Taxation......Page 435
   What Is the “Best” Tax Base?......Page 436
   The Voting Paradox......Page 439
   Government Inefficiency: Theory of Public Choice......Page 441
  Summary......Page 442
  Problems......Page 443
 Chapter 20 Introduction to Macroeconomics......Page 446
   Output Growth......Page 447
   Inflation and Deflation......Page 449
   The Circular Flow Diagram......Page 450
   The Three Market Arenas......Page 451
   The Role of the Government in the Macroeconomy......Page 452
  A Brief History of Macroeconomics......Page 453
  Economics in Practice Macroeconomics in Literature......Page 454
   The U.S. Economy Since 1970......Page 455
  Problems......Page 457
 Chapter 21 Measuring National Output and National Income......Page 459
   Final Goods and Services......Page 460
   Exclusion of Output Produced Abroad by Domestically Owned Factors of Production......Page 461
   The Expenditure Approach......Page 462
  Economics in Practice Where Does eBay GetCounted?......Page 463
   The Income Approach......Page 465
  Nominal versus Real GDP......Page 467
  Economics in Practice GDP: One of the GreatInventions of the 20th Century......Page 468
   Calculating Real GDP......Page 469
   Calculating the GDP Deflator......Page 470
   The Problems of Fixed Weights......Page 471
   The Informal Economy......Page 472
   Gross National Income per Capita......Page 473
  Summary......Page 474
  Review Terms and Concepts......Page 475
  Problems......Page 476
 Chapter 22 Unemployment, Inflation, and LongRun Growth......Page 479
   Measuring Unemployment......Page 480
  Economics in PracticE Youth Unemployment......Page 481
   Components of the Unemployment Rate......Page 482
   The Costs of Unemployment......Page 483
  Economics in Practice The Consequences ofUnemployment Persist......Page 484
   The Consumer Price Index......Page 485
   The Costs of Inflation......Page 487
  Long-Run Growth......Page 489
   Output and Productivity Growth......Page 490
  Looking Ahead......Page 491
  Problems......Page 492
Part V The Core of Macroeconomic Theory......Page 495
 Chapter 23 Aggregate Expenditure and Equilibrium Output......Page 497
  The Keynesian Theory of Consumption......Page 498
   Other Determinants of Consumption......Page 501
  Economics in Practice Behavioral Biases in Saving Behavior......Page 502
  Planned Investment and the Interest Rate (r)......Page 503
  The Determination of Equilibrium Output (Income)......Page 504
   The Saving/Investment Approach to Equilibrium......Page 507
  The Multiplier......Page 508
   The Multiplier Equation......Page 511
  Economics in PracticE General Motors’ Silverado......Page 509
  Looking Ahead......Page 513
  Review Terms and Concepts......Page 514
  Problems......Page 515
  Appendix......Page 517
 Chapter 24 The Government and Fiscal Policy......Page 518
   Government Purchases (G), Net Taxes (T), andDisposable Income (Yd)......Page 519
   The Determination of Equilibrium Output (Income)......Page 521
  Fiscal Policy at Work: Multiplier Effects......Page 523
   The Government Spending Multiplier......Page 524
   The Tax Multiplier......Page 526
   The Balanced-Budget Multiplier......Page 527
   The Budget in 2014......Page 529
   Fiscal Policy since 1993: The Clinton, Bush, and Obama Administrations......Page 530
   The Federal Government Debt......Page 532
   Automatic Stabilizers and Destabilizers......Page 533
   Full-Employment Budget......Page 534
  Summary......Page 535
  Problems......Page 536
  Appendix A......Page 538
  Appendix B......Page 539
 Chapter 25 Money, the Federal Reserve, and the Interest Rate......Page 543
   What Is Money?......Page 544
   Commodity and Fiat Monies......Page 545
   Measuring the Supply of Money in the United States......Page 546
   A Historical Perspective: Goldsmiths......Page 548
  Economics in Practice A Run on the Bank: George Bailey, Mary Poppins, Wyatt Earp......Page 549
   The Modern Banking System......Page 550
   The Creation of Money......Page 551
   The Money Multiplier......Page 553
  The Federal Reserve System......Page 554
   Functions of the Federal Reserve......Page 555
  The Demand for Money......Page 556
  Interest Rates and Security Prices......Page 557
  Economics in Practice Professor SerebryakovMakes an Economic Error......Page 558
   Tools Prior to 2008......Page 559
   Expanded Fed Activities Beginning in 2008......Page 560
   The Federal Reserve Balance Sheet......Page 561
   Tools After 2008......Page 562
  Summary......Page 563
  Problems......Page 564
  Appendix......Page 567
  Appendix Problems......Page 569
 Chapter 26 The Determination of Aggregate Output, the Price Level, and the Interest Rate......Page 570
   Aggregate Supply in the Short Run......Page 571
   Shifts of the Short-Run Aggregate Supply Curve......Page 573
   Planned Aggregate Expenditure and the Interest Rate......Page 574
   The Behavior of the Fed......Page 575
  Economics in Practice Central Bankers: DoesPersonality Matter?......Page 577
   Deriving the AD Curve......Page 578
  Economics in Practice Central Banks and Price Stability: What Prices to Look At?......Page 579
  Curve......Page 580
   Potential GDP......Page 581
  Economics in Practice The Simple “Keynesian” Aggregate Supply Curve......Page 583
  Problems......Page 584
 Chapter 27 Policy Effects and Cost Shocks in the AS/AD Model......Page 587
  Fiscal Policy Effects......Page 588
   Fiscal Policy Effects in the Long Run......Page 589
   The Fed’s Response to the Z Factors......Page 590
   What Happens When There Is a Zero Interest Rate Bound?......Page 591
   Cost Shocks......Page 593
   Demand-Side Shocks......Page 594
  Monetary Policy since 1970......Page 595
  Summary......Page 597
  Problems......Page 598
 Chapter 28 The Labor Market in the Macroeconomy......Page 601
  The Classical View of the Labor Market......Page 602
   The Classical Labor Market and the Aggregate Supply Curve......Page 603
   Efficiency Wage Theory......Page 604
   Minimum Wage Laws......Page 605
   Sticky Wages......Page 606
  Economics in Practice The Longer You AreUnemployed, the Harder It Is to Get a Job......Page 607
  The Short-Run Relationship Between the Unemployment Rate and Inflation......Page 608
   The Phillips Curve: A Historical Perspective......Page 609
   Aggregate Supply and Aggregate Demand Analysis and the Phillips Curve......Page 610
   Expectations and the Phillips Curve......Page 612
  The Long-Run Aggregate Supply Curve, Potential Output, and the Natural Rate of Unemployment......Page 613
   The Nonaccelerating Inflation Rate of Unemployment (NAIRU)......Page 614
  Looking Ahead......Page 615
  Review Terms and Concepts......Page 616
  Problems......Page 617
 Chapter 29 Financial Crises, Stabilization, and Deficits......Page 620
   Determining the Price of a Stock......Page 621
   The Stock Market Since 1948......Page 622
   Housing Prices Since 1952......Page 624
   Financial Crises and the 2008 Bailout......Page 625
  Economics in Practice Predicting Recessions......Page 626
  Time Lags Regarding Monetary and Fiscal Policy......Page 627
   Recognition Lags......Page 628
   Response Lags......Page 629
  Government Deficit Issues......Page 630
   Deficit Targeting......Page 631
  Review Terms and Concepts......Page 633
  Problems......Page 634
 Chapter 30 Household and Firm Behavior in the Macroeconomy: A Further Look......Page 636
   The Life-Cycle Theory of Consumption......Page 637
   The Labor Supply Decision......Page 638
   Government Effects on Consumption and Labor Supply: Taxes and Transfers......Page 640
   A Possible Employment Constraint on Households......Page 641
   The Household Sector Since 1970......Page 642
  Economics in Practice Sentiment and Climate......Page 643
   Expectations and Animal Spirits......Page 645
   Excess Labor and Excess Capital Effects......Page 646
   Inventory Investment......Page 647
   The Firm Sector Since 1970......Page 648
  Productivity and the Business Cycle......Page 650
  The Short-Run Relationship Between Output and Unemployment......Page 651
  The Size of the Multiplier......Page 652
  Summary......Page 653
  Problems......Page 654
 Chapter 31 Long-Run Growth......Page 657
  The Growth Process: From Agriculture to Industry......Page 658
   Increase in Labor Supply......Page 659
  Economics in Practice Government Strategy for Growth......Page 660
   Increase in Physical Capital......Page 661
   Increase in the Quality of the Labor Supply (Human Capital)......Page 662
   Increase in the Quality of Capital (Embodied Technical Change)......Page 663
   Disembodied Technical Change......Page 664
   U.S. Labor Productivity: 1952 I–2014 IV......Page 665
  Growth and the Environment and Issues of Sustainability......Page 666
  Summary......Page 669
  Problems......Page 670
 Chapter 32 Alternative Views in Macroeconomics......Page 673
   The Velocity of Money......Page 674
   The Quantity Theory of Money......Page 675
  Supply-Side Economics......Page 677
   Evaluating Supply-Side Economics......Page 678
   The Development of New Classical Macroeconomics......Page 679
   Rational Expectations......Page 680
  Economics in Practice How Are ExpectationsFormed?......Page 681
   Evaluating the Rational Expectations Assumption......Page 683
  Testing Alternative Macroeconomic Models......Page 684
  Summary......Page 685
  Problems......Page 686
 Chapter 33 International Trade, Comparative Advantage, and Protectionism......Page 688
   Absolute Advantage versus Comparative Advantage......Page 689
   Exchange Rates......Page 694
   Other Explanations for Observed Trade Flows......Page 697
  Trade Barriers: Tariffs, Export Subsidies, and Quotas......Page 698
   U.S. Trade Policies, GATT, and the WTo......Page 699
  Economics in Practice What Happens When We Lift a Quota?......Page 700
   The Case for Free Trade......Page 702
   The Case for Protection......Page 703
  Economics in Practice A Petition......Page 705
  An Economic Consensus......Page 707
  Summary......Page 708
  Problems......Page 709
 Chapter 34 Open-Economy Macroeconomics: The Balance of Payments and Exchange Rates......Page 712
   The Current Account......Page 713
   The Capital Account......Page 715
   The International Sector and Planned Aggregate Expenditure......Page 716
   Import and Export Prices and the Price Feedback Effect......Page 719
  The Open Economy with Flexible Exchange Rates......Page 720
   The Market for Foreign Exchange......Page 721
   Factors That Affect Exchange Rates......Page 723
   The Effects of Exchange Rates on the Economy......Page 725
  Summary......Page 729
  Problems......Page 730
  Appendix......Page 732
 Chapter 35 Economic Growth in Developing Economies......Page 738
  Life in the Developing Nations: Population and Poverty......Page 739
  Economic Development: Sources and Strategies......Page 740
   The Sources of Economic Development......Page 741
  Economics in Practice Corruption......Page 743
   Strategies for Economic Development......Page 744
  Economics in Practice Who You Marry MayDepend on the Rain......Page 746
   Two Examples of Development: China and India......Page 748
  Development Interventions......Page 749
   Education Ideas......Page 750
   Health Improvements......Page 751
  Summary......Page 752
  Problems......Page 753
 Chapter 36 Critical Thinking about Research......Page 755
  Selection Bias......Page 756
   Correlation versus Causation......Page 757
   Random Experiments......Page 758
   Regression Discontinuity......Page 759
  Economics in Practice Moving to Opportunity......Page 760
  Economics in Practice Control group and Experimental economics......Page 761
   Difference-in-Differences......Page 762
  Economics in Practice Using Difference-in-Differences to Study the Minimum Wage......Page 763
   Statistical Significance......Page 764
   Regression Analysis......Page 765
  Summary......Page 767
  Problems......Page 768
Glossary......Page 770
Index......Page 785
Photo Credits......Page 810