Principles of Economics (2nd Ed.)

Cover (Principles of Economics)......Page 1
Front Matter......Page 2
Title Page......Page 4
Copyright......Page 5
Dedication......Page 6
Brief Contents......Page 8
Contents......Page 10
Preface......Page 32
Acknowledgments......Page 46
About the Authors......Page 51
Part I - Introduction......Page 54
1 - Five Foundations of Economics......Page 55
What Is Economics?......Page 57
What Are Five Foundations of Economics?......Page 58
Conclusion......Page 71
2 - Model Building and Gains from Trade......Page 77
How Do Economists Study the Economy?......Page 79
What Is a Production Possibilities Frontier?......Page 84
What Are the Benefits of Specialization and Trade?......Page 90
What Is the Trade-off between Having More Now and Having More Later?......Page 97
Conclusion......Page 101
Graphs That Consist of One Variable......Page 108
Graphs That Consist of Two Variables......Page 110
Cautions in Interpreting Numerical Graphs......Page 116
Part II - The Role of Markets......Page 120
3 - The Market at Work: Supply and Demand......Page 121
What Are the Fundamentals of Markets?......Page 123
What Determines Demand?......Page 126
What Determines Supply?......Page 136
How Do Supply and Demand Interact to Create Equilibrium?......Page 145
Conclusion......Page 148
Appendix 3A: Changes in Both Demand and Supply......Page 155
4 - Elasticity......Page 161
What Is the Price Elasticity of Demand, and What Are Its Determinants?......Page 163
How Do Changes in Income and the Prices of Other Goods Affect Elasticity?......Page 183
What Is the Price Elasticity of Supply?......Page 188
How Do the Price Elasticities of Demand and Supply Relate to Each Other?......Page 192
Conclusion......Page 194
5 - Market Outcomes and Tax Incidence......Page 201
What Are Consumer Surplus and Producer Surplus?......Page 203
When Is a Market Efficient?......Page 209
Why Do Taxes Create Deadweight Loss in Otherwise Efficient Markets?......Page 213
Conclusion......Page 228
6 - Price Controls......Page 235
When Do Price Ceilings Matter?......Page 237
What Effects Do Price Ceilings Have on Economic Activity?......Page 243
When Do Price Floors Matter?......Page 247
What Effects Do Price Floors Have on Economic Activity?......Page 253
Conclusion......Page 260
7 - Market Inefficiencies: Externalities and Public Goods......Page 265
What Are Externalities, and How Do They Affect Markets?......Page 267
What Are Private Goods and Public Goods?......Page 275
What Are the Challenges of Providing Nonexcludable Goods?......Page 282
Conclusion......Page 288
Part III - The Theory of the Firm......Page 294
8 - Business Costs and Production......Page 295
How Are Profits and Losses Calculated?......Page 297
How Much Should a Firm Produce?......Page 302
What Costs Do Firms Consider in the Short Run and the Long Run?......Page 305
Conclusion......Page 317
9 - Firms in a Competitive Market......Page 325
How Do Competitive Markets Work?......Page 327
How Do Firms Maximize Profits?......Page 329
What Does the Supply Curve Look Like in Perfectly Competitive Markets?......Page 343
Conclusion......Page 351
10 - Understanding Monopoly......Page 359
How Are Monopolies Created?......Page 361
How Much Do Monopolies Charge, and How Much Do They Produce?......Page 364
What Are the Problems with, and Solutions for, Monopoly?......Page 373
Conclusion......Page 384
11 - Price Discrimination......Page 389
What Is Price Discrimination?......Page 391
How Is Price Discrimination Practiced?......Page 402
Conclusion......Page 407
12 - Monopolistic Competition and Advertising......Page 413
What Is Monopolistic Competition?......Page 415
What Are the Differences among Monopolistic Competition, Competitive Markets, and Monopoly?......Page 418
Why Is Advertising Prevalent in Monopolistic Competition?......Page 426
Conclusion......Page 437
13 - Oligopoly and Strategic Behavior......Page 441
What Is Oligopoly?......Page 443
How Does Game Theory Explain Strategic Behavior?......Page 451
How Do Government Policies Affect Oligopoly Behavior?......Page 463
What Are Network Externalities?......Page 467
Conclusion......Page 469
Price Leadership......Page 476
Part IV - Labor Markets and Earnings......Page 480
14 - The Demand and Supply of Resources......Page 481
What Are the Factors of Production?......Page 483
Where Does the Demand for Labor Come From?......Page 484
Where Does the Supply of Labor Come From?......Page 489
What Are the Determinants of Demand and Supply in the Labor Market?......Page 495
What Role Do Land and Capital Play in Production?......Page 503
Conclusion......Page 510
15 - Income, Inequality, and Poverty......Page 517
What Are the Determinants of Wages?......Page 519
What Causes Income Inequality?......Page 530
How Do Economists Analyze Poverty?......Page 542
Conclusion......Page 549
Part V - Special Topics in Microeconomics......Page 554
16 - Consumer Choice......Page 555
How Do Economists Model Consumer Satisfaction?......Page 557
How Do Consumers Optimize Their Purchasing Decisions?......Page 561
What Is the Diamond-Water Paradox?......Page 568
Conclusion......Page 570
Indifference Curves......Page 577
Properties of Indifference Curves......Page 580
Using Indifference Curves to Illustrate the Consumer Optimum......Page 585
Conclusion......Page 589
17 - Behavioral Economics and Risk Taking......Page 591
How Do Economists Explain Irrational Behavior?......Page 593
What Is the Role of Risk in Decision-Making?......Page 603
Conclusion......Page 608
18 - Health Insurance and Health Care......Page 613
What Are the Important Issues in the Healthcare Industry?......Page 615
How Does Asymmetric Information Affect Healthcare Delivery?......Page 622
How Do Demand and Supply Contribute to High Medical Costs?......Page 625
How Do Incentives Influence the Quality of Health Care?......Page 631
Conclusion......Page 638
Part VI - Macroeconomic Basics......Page 646
19 - Introduction to Macroeconomics and Gross Domestic Product......Page 647
How Is Macroeconomics Different from Microeconomics?......Page 649
What Does GDP Tell Us about the Economy?......Page 650
How Is GDP Computed?......Page 657
What Are Some Shortcomings of GDP Data?......Page 671
Conclusion......Page 679
20 - Unemployment......Page 685
What Are the Major Reasons for Unemployment?......Page 687
What Can We Learn from the Employment Data?......Page 697
Conclusion......Page 708
21 - The Price Level and Inflation......Page 715
How Is Inflation Measured?......Page 717
What Problems Does Inflation Bring?......Page 732
What Is the Cause of Inflation?......Page 739
Conclusion......Page 742
22 - Savings, Interest Rates, and the Market for Loanable Funds......Page 749
What Is the Loanable Funds Market?......Page 751
What Factors Shift the Supply of Loanable Funds?......Page 757
What Factors Shift the Demand for Loanable Funds?......Page 766
How Do We Apply the Loanable Funds Market Model?......Page 769
Conclusion......Page 773
23 - Financial Markets and Securities......Page 779
How Do Financial Markets Help the Economy?......Page 781
What Are the Key Financial Tools for the Macroeconomy?......Page 784
Conclusion......Page 799
Part VII - The Long and Short of Macroeconomics......Page 806
24 - Economic Growth and the Wealth of Nations......Page 807
Why Does Economic Growth Matter?......Page 809
How Do Resources and Technology Contribute to Economic Growth?......Page 822
What Institutions Foster Economic Growth?......Page 830
Conclusion......Page 835
25 - Growth Theory......Page 841
How Do Macroeconomic Theories Evolve?......Page 843
What Is the Solow Growth Model?......Page 845
How Does Technology Affect Growth?......Page 855
Why Are Institutions the Key to Economic Growth?......Page 860
Conclusion......Page 869
26 - The Aggregate Demand– Aggregate Supply Model......Page 875
What Is the Aggregate Demand–Aggregate Supply Model?......Page 877
What Is Aggregate Demand?......Page 878
What Is Aggregate Supply?......Page 887
How Does the Aggregate Demand–Aggregate Supply Model Help Us Understand the Economy?......Page 896
Conclusion......Page 905
27 - The Great Recession, the Great Depression, and Great Macroeconomic Debates......Page 911
Exactly What Happened During the Great Recession and the Great Depression?......Page 913
What Are the Major Debates in Macroeconomics?......Page 925
Conclusion......Page 928
Appendix 14A: The Aggregate Expenditures Model The Components of Aggregate Expenditures......Page 934
What Are the Implications of the AE Model?......Page 944
Conclusion......Page 948
Part VIII - Fiscal Policy......Page 952
28 - Federal Budgets: The Tools of Fiscal Policy......Page 953
How Does the Government Spend?......Page 955
How Does the Government Tax?......Page 963
What Are Budget Deficits......Page 969
Conclusion......Page 978
29 - Fiscal Policy......Page 981
What Is Fiscal Policy?......Page 983
What Are the Shortcomings of Fiscal Policy?......Page 995
What Is Supply-Side Fiscal Policy?......Page 1001
Conclusion......Page 1007
Part IX - Monetary Policy......Page 1012
30 - Money and the Federal Reserve......Page 1013
What Is Money?......Page 1015
How Do Banks Create Money?......Page 1021
How Does the Federal Reserve Control the Money Supply?......Page 1029
Conclusion......Page 1041
31 - Monetary Policy......Page 1045
What Is the Effect of Monetary Policy in the Short Run?......Page 1047
Why Doesn’t Monetary Policy Always Work?......Page 1055
What Is the Phillips Curve?......Page 1061
Conclusion......Page 1073
Part X - International Economics......Page 1080
32 - International Trade......Page 1081
Is Globalization for Real?......Page 1083
How Does International Trade Help the Economy?......Page 1089
What Are the Effects of Tariffs and Quotas?......Page 1095
Conclusion......Page 1104
33 - International Finance......Page 1109
Why Do Exchange Rates Rise and Fall?......Page 1111
What Is Purchasing Power Parity?......Page 1124
What Causes Trade Deficits?......Page 1128
Conclusion......Page 1141
Glossary......Page 1146
Credits......Page 1156
Index......Page 1164