Principles of Economics, Brief Edition

PART I Introduction
	Chapter 1 Thinking Like an Economist
		Economics: Studying Choice in a World of Scarcity
		Applying the Cost-Benefit Principle
			Economic Surplus
			Opportunity Cost
			The Role of Economic Models
		Three Important Decision Pitfalls
			Pitfall 1: Measuring Costs and Benefits as Proportions Rather Than Absolute Dollar Amounts
			Pitfall 2: Ignoring Implicit Costs
			Pitfall 3: Failure to Think at the Margin
		Normative Economics versus Positive Economics
		Economics: Micro and Macro
		The Approach of This Text
		Economic Naturalism
		THE ECONOMIC NATURALIST 1.1
		THE ECONOMIC NATURALIST 1.2
		THE ECONOMIC NATURALIST 1.3
		Summary
		Core Principles
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
		Appendix: Working with Equations, Graphs, and Tables
	Chapter 2 Comparative Advantage
		Exchange and Opportunity Cost
			The Principle of Comparative Advantage
		THE ECONOMIC NATURALIST 2.1
			Sources of Comparative Advantage
		THE ECONOMIC NATURALIST 2.2
		Comparative Advantage and Production Possibilities
			The Production Possibilities Curve
			How Individual Productivity Affects the Slope and Position of the PPC
			The Gains from Specialization and Exchange
			A Production Possibilities Curve for a Many- Person Economy
		Factors That Shift the Economy’s Production Possibilities Curve
			Why Have Some Countries Been Slow to Specialize?
			Can We Have Too Much Specialization?
		Comparative Advantage and International Trade
		THE ECONOMIC NATURALIST 2.3
			Outsourcing
		THE ECONOMIC NATURALIST 2.4
		Summary
		Core Principles
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
	Chapter 3 Supply and Demand
		What, How, and for Whom? Central Planning versus the Market
		Buyers and Sellers in Markets
			The Demand Curve
			The Supply Curve
		Market Equilibrium
			Rent Controls Reconsidered
			Pizza Price Controls?
		Predicting and Explaining Changes in Prices and Quantities
			Shifts in Demand
		THE ECONOMIC NATURALIST 3.1
			Shifts in the Supply Curve
		THE ECONOMIC NATURALIST 3.2
			Four Simple Rules
		THE ECONOMIC NATURALIST 3.3
		Efficiency and Equilibrium
			Cash on the Table
			Smart for One, Dumb for All
		Summary
		Core Principles
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
		Appendix: The Algebra of Supply and Demand
PART 2 Competition and the Invisible Hand
	Chapter 4 Demand and Elasticity
		The Law of Demand
			The Origins of Demand
			Needs versus Wants
		THE ECONOMIC NATURALIST 4.
		Applying the Law of Demand
			Substitution at Work
		THE ECONOMIC NATURALIST 4.2
		THE ECONOMIC NATURALIST 4.3
		THE ECONOMIC NATURALIST 4.4
			The Importance of Income Differences
		THE ECONOMIC NATURALIST 4.
		Individual and Market Demand Curves
			Horizontal Addition
		Demand and Consumer Surplus
			Calculating Consumer Surplus
		Elasticity
		Price Elasticity of Demand
			Price Elasticity Defined
			Determinants of Price Elasticity of Demand
			Some Representative Elasticity Estimates
			Using Price Elasticity of Demand
		THE ECONOMIC NATURALIST 4.6
		THE ECONOMIC NATURALIST 4.7
		A Graphical Interpretation of Price Elasticity
			Price Elasticity Changes along a Straight-Line Demand Curve
			Two Special Cases
		Elasticity and Total Expenditure
		Income Elasticity and Cross-Price Elasticity of Demand
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
	Chapter 5 Perfectly Competitive Supply
		Thinking about Supply: The Importance of Opportunity Cost
		Individual and Market Supply Curves
		Profit-Maximizing Firms in Perfectly Competitive Markets
			Profit Maximization
			The Demand Curve Facing a Perfectly Competitive Firm
			Production in the Short Run
			Choosing Output to Maximize Profit
			Price Equals Marginal Cost: The Seller’s Supply Rule
			Graphing Marginal Cost
			The “Law” of Supply
		Determinants of Supply Revisited
			Technology Input Prices
			The Number of Suppliers
			Expectations
			Changes in Prices of Other Products
		The Price Elasticity of Supply
			Determinants of Supply Elasticity
		THE ECONOMIC NATURALIST 5.1
			Unique and Essential Inputs: The Ultimate Supply Bottleneck
		Applying the Theory of Supply
		THE ECONOMIC NATURALIST 5.2
		Supply and Producer Surplus
			Calculating Producer Surplus
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
	Chapter 6 Efficiency, Exchange, and the Invisible Hand in Action
		The Central Role of Economic Profit
			Three Types of Profit
		The Invisible Hand Theory
			Two Functions of Price
			Responses to Profits and Losses
			The Effect of Market Forces on Economic Profit
			The Importance of Free Entry and Exit
		Economic Rent versus Economic Profit
		The Invisible Hand in Action
			The Invisible Hand at the Supermarket and on the Freeway
		THE ECONOMIC NATURALIST 6.1
			The Invisible Hand and Cost-Saving Innovations
		The Distinction between an Equilibrium and a Social Optimum
			Smart for One, Dumb for All
		THE ECONOMIC NATURALIST 6.2
		Market Equilibrium and Efficiency
			Efficiency Is Not the Only Goal
			Why Efficiency Should Be the First Goal
		The Cost of Preventing Price Adjustments
			Price Ceilings
			Price Subsidies
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
PART 3 Market Imperfections
	Chapter 7 Monopoly, Oligopoly, and Monopolistic Competition
		Imperfect Competition
			Different Forms of Imperfect Competition
			The Essential Difference between Perfectly and Imperfectly Competitive Firms
		Five Sources of Market Power
			Exclusive Control over Important Inputs
			Patents and Copyrights
			Government Licenses or Franchises
			Economies of Scale and Natural Monopolies
			Network Economies
		Economies of Scale and the Importance of Start-Up Costs
		THE ECONOMIC NATURALIST 7.1 19
		Profit Maximization for the Monopolist
			Marginal Revenue for the Monopolist
			The Monopolist’s Profit-Maximizing Decision Rule
			Being a Monopolist Doesn’t Guarantee an Economic Profit
		Why the Invisible Hand Breaks Down under Monopoly
		Using Discounts to Expand the Market
			Price Discrimination Defined
		THE ECONOMIC NATURALIST 7.2 20
			How Price Discrimination Affects Output
			The Hurdle Method of Price Discrimination
			Is Price Discrimination a Bad Thing?
			Examples of Price Discrimination
		THE ECONOMIC NATURALIST 7.3 21
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
		Appendix: The Algebra of Monopoly Profit Maximization
	Chapter 8 Games and Strategic Behavior
		Using Game Theory to Analyze Strategic Decisions
			The Three Elements of a Game
			Nash Equilibrium
		The Prisoner’s Dilemma
			The Original Prisoner’s Dilemma
			The Economics of Cartels
		THE ECONOMIC NATURALIST 8.1 23
			Tit-for-Tat and the Repeated Prisoner’s Dilemma
		THE ECONOMIC NATURALIST 8.2 23
		THE ECONOMIC NATURALIST 8.3 23
		Games in Which Timing Matters
			Credible Threats and Promises
			Monopolistic Competition When Location Matters
		THE ECONOMIC NATURALIST 8.4 24
		Commitment Problems
		The Strategic Role of Preferences
			Are People Fundamentally Selfish?
			Preferences as Solutions to Commitment Problems
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
	Chapter 9 Externalities and Property Rights
		External Costs and Benefits
			How Externalities Affect Resource Allocation
			How Do Externalities Affect Supply and Demand?
			The Coase Theorem
			Legal Remedies for Externalities
		THE ECONOMIC NATURALIST 9.1 26
		THE ECONOMIC NATURALIST 9.2 26
			The Optimal Amount of Negative Externalities Is Not Zero
			Compensatory Taxes and Subsidies
		Property Rights and the Tragedy of the Commons
			The Problem of Unpriced Resources
			The Effect of Private Ownership
			When Private Ownership Is Impractical
		THE ECONOMIC NATURALIST 9.3 26
		THE ECONOMIC NATURALIST 9.4 27
		Positional Externalities
			Payoffs That Depend on Relative Performance
		THE ECONOMIC NATURALIST 9.5 27
			Positional Arms Races and Positional Arms Control Agreements
			Social Norms as Positional Arms Control Agreements
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
PART 4 Economics of Public Policy
	Chapter 10 Using Economics to Make Better Policy Choices
		The Economics of Health Care
			The Case for Mandatory Immunization Laws
		Explaining Rising Health Care Costs
			Designing a Solution
			The HMO Revolution
		THE ECONOMIC NATURALIST 10.1 28
			Paying for Health Insurance
		THE ECONOMIC NATURALIST 10.2 28
		Using Price Incentives in Environmental Regulation
			Taxing Pollution
			Auctioning Pollution Permits
		Overcoming Opposition to International Trade
		Methods of Income Redistribution
			Welfare Payments and In-Kind Transfers
			Means-Tested Benefit Programs
			The Negative Income Tax
			Minimum Wages
			The Earned-Income Tax Credit
			Public Employment for the Poor
			A Combination of Methods
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
PART 5 Macroeconomics: Data and Issues
	Chapter 11 Spending, Income, and GDP
		Gross Domestic Product: Measuring the Nation’s Output
			Market Value
			Final Goods and Services
			Produced within a Country during a Given Period
		The Expenditure Method for Measuring GDP
		GDP and the Incomes of Capital and Labor
		Nominal GDP versus Real GDP
		THE ECONOMIC NATURALIST 11.1 32
		Real GDP Is Not the Same as Economic Well-Being
			Leisure Time
		THE ECONOMIC NATURALIST 11.2 32
			Nonmarket Economic Activities
			Environmental Quality and Resource Depletion
			Quality of Life
			Poverty and Economic Inequality
		But GDP Is Related to Economic Well-Being
			Availability of Goods and Services
			Health and Education
		THE ECONOMIC NATURALIST 11.3 32
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
	Chapter 12 Inflation and the Price Level
		The Consumer Price Index: Measuring the Price Level
		Inflation
		THE ECONOMIC NATURALIST 12.1 33
		Adjusting for Inflation
			Deflating a Nominal Quantity
			Indexing to Maintain Buying Power
		Does the CPI Measure “True” Inflation?
		The Costs of Inflation: Not What You Think
		The True Costs of Inflation
			“Noise” in the Price System
			Distortions of the Tax System
			“Shoe-Leather” Costs
			Unexpected Redistributions of Wealth
			Interference with Long-Term Planning
		Hyperinflation
		Inflation Interest Rates
			Inflation and the Real Interest Rate
			The Fisher Effect
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
	Chapter 13 Wages and Unemployment
		Four Important Labor Market Trends
		Supply and Demand in the Labor Market
			Wages and the Demand for Labor
			Shifts in the Demand for Labor
			The Supply of Labor
			Shifts in the Supply of Labor
		Explaining the Trends in Real Wages and Employment
			Why Have Real Wages Increased By So Much in the Industrialized Countries?
			Since the 1970s, Real Wage Growth in the United States Has Slowed, Even Though Employment Growth Was Rapid during the 1990s
			Increasing Wage Inequality: The Effects of Globalization
			Increasing Wage Inequality: Technological Change
		Unemployment and the Unemployment Rate
			Measuring Unemployment
			The Costs of Unemployment
			The Duration of Unemployment
			The Unemployment Rate versus “True” Unemployment
		Types of Unemployment and Their Costs
			Frictional Unemployment
			Structural Unemployment
			Cyclical Unemployment
		Impediments to Full Employment
			Minimum Wage Laws
			Labor Unions
			Unemployment Insurance
			Other Government Regulations
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
PART 6 The Economy in the Long Run
	Chapter 14 Economic Growth
		The Remarkable Rise in Living Standards: The Record
		Why “Small” Differences in Growth Rates Matter
		Why Nations Become Rich: The Crucial Role of Average Labor Productivity
		The Determinants of Average Labor Productivity
			Human Capital
			Physical Capital
			Land and Other Natural Resources
			Technology
			Entrepreneurship and Management
		THE ECONOMIC NATURALIST 14.1 40
			The Political and Legal Environment
		Promoting Economic Growth
			Policies to Increase Human Capital
		THE ECONOMIC NATURALIST 14.2 41
			Policies That Promote Saving and Investment
			Policies That Support Research and Development
			The Legal and Political Framework
			The Poorest Countries: A Special Case?
		The Costs of Economic Growth
		Are There Limits to Growth?
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
	Chapter 15 Saving, Capital Formation, and Financial Markets
		Saving and Wealth
			Stocks and Flows
			Capital Gains and Losses
		National Saving and Its Components
			The Measurement of National Saving
			Private and Public Components of National Saving
			Public Saving and the Government Budget
			Is Low Household Saving a Problem?
		Why Do People Save?
			Saving and the Real Interest Rate
			Saving, Self-Control, and Demonstration Effects
		Investment and Capital Formation
		THE ECONOMIC NATURALIST 15.1
		Saving, Investment, and Financial Markets
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
	Chapter 16 Money, Prices, and the Financial System
		The Financial System and the Allocation of Saving to Productive Uses
			The Banking System
			Bonds and Stocks
			Bond Markets, Stock Markets, and the Allocation of Saving
		THE ECONOMIC NATURALIST 16.1
		Money and Its Uses
			Measuring Money
		Commercial Banks and the Creation of Money
			The Money Supply with Both Currency and Deposits
		Central Banks, the Money Supply, and Prices
			Controlling the Money Supply with Open-Market Operations
			Money and Prices
			Velocity
			Money and Inflation in the Long Run
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
PART 7 The Economy in the Short Run
	Chapter 17 Short-Term Economic Fluctuations
		Recessions and Expansions
		Some Facts about Short-Term Economic Fluctuations
		Output Gaps and Cyclical Unemployment
			Potential Output and the Output Gap
			The Natural Rate of Unemployment and Cyclical Unemployment
			Okun’s Law
		Why Do Short-Term Fluctuations Occur? A Preview and a Parable
			Al’s Ice Cream Store: A Parable about Short-Run Fluctuations
		THE ECONOMIC NATURALIST 17.1
		Summary
		Key Terms
		Review Questions
		Problems
		Answer to Concept Check
	Chapter 18 Spending, Output, and Fiscal Policy
		The Keynesian Model’s Crucial Assumption: Firms Meet Demand at Preset Prices
		Planned Aggregate Expenditure
			Planned Spending versus Actual Spending
			Consumer Spending and the Economy
			Planned Aggregate Expenditure and Output
		Short-Run Equilibrium Output
			Finding Short-Run Equilibrium Output: Numerical Approach
			Finding Short-Run Equilibrium Output: Graphical Approach
			Planned Spending and the Output Gap
			The Multiplier
		Fiscal Policy and Recessions
			Government Purchases and Planned Spending
			Taxes, Transfers, and Aggregate Spending
			Fiscal Policy and the Recession of 2007–2009
		Fiscal Policy as a Stabilization Tool: Three Qualifications
			Fiscal Policy and the Supply Side
			The Problem of Deficits
			The Relative Inflexibility of Fiscal Policy
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
	Chapter 19 Monetary Policy and the Federal Reserve
		The Federal Reserve
			The History and Structure of the Federal Reserve System
			The Fed’s Role in Stabilizing Financial Markets: Banking Panics
		Monetary Policy and Economic Fluctuations
			Can the Fed Control the Real Interest Rate?
			The Role of the Federal Funds Rate in Monetary Policy
			Planned Aggregate Expenditure and the Real Interest Rate
			The Fed Fights a Recession
			The Fed Fights Inflation
		THE ECONOMIC NATURALIST 19.1
			Should the Federal Reserve Respond to Changes in Asset Prices?
		The Federal Reserve and Interest Rates
			The Demand for Money
			Macroeconomic Factors That Affect the Demand for Money
			The Money Demand Curve
		THE ECONOMIC NATURALIST 19.2
			The Supply of Money and Money Market Equilibrium
			How the Fed Controls the Nominal Interest Rate
			A Second Way the Fed Controls the Money Supply: Discount Window Lending
			A Third Way of Controlling the Money Supply: Reserve Requirements and Interest Paid on Reserves
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
	Chapter 20 Aggregate Demand, Aggregate Supply, and Stabilization Policy
		The Aggregate Demand–Aggregate Supply Model: A Brief Overview
		The Aggregate Demand Curve
			Why Does the AD Curve Slope Downward?
			What Factors Shift the AD Curve?
		The Aggregate Supply Curve
			Why Does the AS Cure Slope Upward?
			What Causes the AS Curve to Shift?
		Understanding Business Cycles
			Demand Shocks: Shifts in the AD Curve
			Price Shocks: Shifts in the AS Curve
			Using the AD-AS Model to Study Business Cycles
		Stabilization Policy
			The Self-Correcting Economy
			What is the Role of Stabilization Policy?
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
PART 8 The International Economy
	Chapter 21 Exchange Rates, International Trade, and Capital Flows
		Exchange Rates
			Nominal Exchange Rates
			Flexible versus Fixed Exchange Rates
		Exchange Rate Determination in the Short Run
			A Supply and Demand Analysis
			Changes in the Supply of Dollars
			Changes in the Demand for Dollars
		Monetary Policy and the Exchange Rate
			The Exchange Rate as a Tool of Monetary Policy
		Should Exchange Rates Be Fixed or Flexible?
			The Euro: A Common Currency for Europe
		Exchange Rate Determination in the Long Run
			The Real Exchange Rate
			A Simple Theory of Exchange Rates: Purchasing Power Parity (PPP)
			Shortcomings of the PPP Theory
		The Trade Balance and Net Capital Inflows
		International Capital Flows
			The Determinants of International Capital Flows
			Saving, Investment, and Capital Inflows
			The Saving Rate and the Trade Deficit
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to Concept Checks
Glossary
Index