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Economics Principles and Policy (with InfoTrac)

by ;
Edition:
10th
ISBN13:

9780324221138

ISBN10:
0324221134
Format:
Hardcover
Pub. Date:
6/23/2005
Publisher(s):
South-Western College Pub

Questions About This Book?

What version or edition is this?
This is the 10th edition with a publication date of 6/23/2005.
What is included with this book?
  • The Used copy of this book is not guaranteed to include any supplemental materials. Typically, only the book itself is included.

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Summary

This text is well known for using the Keynesian model in the teaching of economics; yet in recent editions, the authors have expanded coverage of the growth model considerably to achieve more balanced coverage. The text uses the aggregate supply/ aggregate demand model as a fundamental tool for learning macroeconomics. It achieves the right level of rigor and detail, presenting complicated concepts in a relatively straightforward manner and using timely economic data. Using puzzles, issues, and well-developed examples, the authors provide a good balance of theory to application. Homework Xpress is available with the anniversary Tenth Edition and two new sets of end of chapter questions have been added as well to help students prepare for exams: "Test Yourself" and "Discussion Questions".

Table of Contents

Preface xxix
PART I GETTING ACQUAINTED WITH ECONOMICS
1(76)
What Is Economics?
3(18)
Ideas for Beyond the Final Exam
4(4)
Idea 1: How Much Does It Really Cost?
4(1)
Idea 2: Attempts to Repeal the Laws of Supply and Demand---The Market Strikes Back
5(1)
Idea 3: The Surprising Principle of Comparative Advantage
5(1)
Idea 4: Trade is a Win-Win Situation
5(1)
Idea 5: The Importance of Thinking at the Margin
6(1)
Idea 6: Externalities---A Shortcoming of the Market Cured by Market Methods
6(1)
Idea 7: The Trade-Off between Efficiency and Equality
6(1)
Idea 8: Government Policies Can Limit Economic Fluctuations---But Don't Always Succeed
7(1)
Idea 9: The Short-Run Trade-Off between Inflation and Unemployment
7(1)
Idea 10: Productivity Growth Is (Almost) Everything in the Long Run
8(1)
Epilogue
8(1)
Inside the Economist's Tool Kit
8(5)
Economics as a Discipline
8(1)
The Need for Abstraction
8(3)
The Role of Economic Theory
11(1)
What Is an Economic Model?
11(1)
Reasons for Disagreements: Imperfect Information and Value Judgments
12(1)
Summary
13(1)
Key Terms
13(1)
Discussion Questions
13(1)
Appendix: Using Graphs: A Review
14(7)
Graphs Used in Economic Analysis
14(1)
Two-Variable Diagrams
14(1)
The Definition and Measurement of Slope
15(1)
Rays Through the Origin and 45° Lines
16(1)
Squeezing Three Dimensions Into Two: Contour Maps
17(1)
Summary
18(1)
Key Terms
18(1)
Test Yourself
19(2)
The Economy: Myth and Reality
21(16)
The American Economy: A Thumbnail Sketch
22(3)
A Private-Enterprise Economy
23(1)
A Relatively ``Closed'' Economy
23(1)
A Growing Economy . . .
24(1)
But with Bumps along the Growth Path
24(1)
The Inputs: Labor and Capital
25(5)
The American Workforce: Who Is in It?
25(2)
The American Workforce: What Does It Do?
27(2)
The American Workforce: What It Earns
29(1)
Capital and Its Earnings
29(1)
The Outputs: What Does America Produce?
30(1)
The Central Role of Business Firms
30(1)
What's Missing From the Picture? Government
31(4)
The Government as Referee
32(1)
The Government as Business Regulator
32(1)
Government Expenditures
33(1)
Taxes in America
33(1)
The Government as Redistributor
34(1)
Conclusion: It's a Mixed Economy
35(1)
Summary
35(1)
Key Terms
35(1)
Discussion Questions
35(2)
The Fundamental Economic Problem: Scarcity and Choice
37(16)
Issue: What to Do about the Budget Deficit?
38(1)
Scarcity, Choice, and Opportunity Cost
38(2)
Opportunity Cost and Money Cost
39(1)
Optimal Choice: Not Just Any Choice
40(1)
Scarcity and Choice for a Single Firm
40(3)
The Production Possibilities Frontier
41(1)
The Principle of Increasing Costs
42(1)
Scarcity and Choice for the Entire Society
43(2)
Scarcity and Choice Elsewhere in the Economy
43(1)
Issue Revisited: Coping with the Budget Deficit
44(1)
The Concept of Efficiency
45(1)
The Three Coordination Tasks of Any Economy
46(1)
Specialization Fosters Efficient Resource Allocation
46(2)
The Wonders of the Division of Labor
46(1)
The Amazing Principle of Comparative Advantage
47(1)
Specialization Leads to Exchange
48(1)
Markets, Prices, and the Three Coordination Tasks
48(2)
Last Word: Don't Confuse Ends With Means
50(1)
Summary
50(1)
Key Terms
51(1)
Test Yourself
51(1)
Discussion Questions
51(2)
Supply and Demand: An Initial Look
53(24)
Puzzle: What Happened to Oil Prices?
54(1)
The Invisible Hand
54(1)
Demand and Quantity Demanded
55(4)
The Demand Schedule
56(1)
The Demand Curve
56(1)
Shifts of the Demand Curve
56(3)
Supply and Quantity Supplied
59(3)
The Supply Schedule and the Supply Curve
59(1)
Shifts of the Supply Curve
60(2)
Supply and Demand Equilibrium
62(2)
The Law of Supply and Demand
64(1)
Effects of Demand Shifts on Supply-Demand Equilibrium
64(1)
Supply Shifts and Supply-Demand Equilibrium
65(3)
Those Leaping Oil Prices: Puzzle Resolved
66(1)
Application: Who Really Pays that Tax?
67(1)
Battling the Invisible Hand: the Market Fights Back
68(6)
Restraining the Market Mechanism: Price Ceilings
68(2)
Case Study: Rent Controls in New York City
70(1)
Restraining the Market Mechanism: Price Floors
71(1)
Case Study: Farm Price Supports and the Case of Sugar Prices
71(1)
A Can of Worms
72(2)
A Simple But Powerful Lesson
74(1)
Summary
74(1)
Key Terms
74(1)
Test Yourself
75(1)
Discussion Questions
76(1)
PART II THE BUILDING BLOCKS OF DEMAND AND SUPPLY
77(116)
Consumer Choice: Individual and Market Demand
79(24)
Puzzle: Why Shouldn't Water Be Worth More Than Diamonds?
80(1)
Scarcity and Demand
80(1)
Utility: A Tool to Analyze Purchase Decisions
81(7)
The Purpose of Utility Analysis: Analyzing How People Behave, Not What They Think
81(1)
Total Versus Marginal Utility
82(1)
The ``Law'' of Diminishing Marginal Utility
82(2)
Using Marginal Utility: The Optimal Purchase Rule
84(2)
From Diminishing Marginal Utility to Downward-Sloping Demand Curves
86(2)
Consumer Choice as a Trade-Off: Opportunity Cost
88(3)
Consumer's Surplus: The Net Gain from a Purchase
88(2)
Resolving the Diamond-Water Puzzle
90(1)
Income and Quantity Demanded
91(1)
From Individual Demand Curves to Market Demand Curves
91(2)
Market Demand as a Horizontal Sum
91(1)
The ``Law'' of Demand
92(1)
Exceptions to the ``Law'' of Demand
93(1)
Summary
93(1)
Key Terms
94(1)
Test Yourself
94(1)
Discussion Questions
94(1)
Appendix: Analyzing Consumer Choice Graphically: Indifference Curves
95(8)
Geometry of Available Choices: The Budget Line
95(1)
Properties of the Budget Line
95(1)
Changes in the Budget Line
96(1)
What the Customer Prefers: Properties of the Indifference Curve
97(1)
The Slopes of Indifference Curves and Budget Lines
98(1)
Tangency Conditions
99(1)
Consequences of Income Changes: Inferior Goods
100(1)
Consequences of Price Changes: Deriving the Demand Curve
100(1)
Summary
101(1)
Key Terms
101(1)
Test Yourself
102(1)
Demand and Elasticity
103(20)
Issue: Will Taxing Cigarettes Make Teenagers Stop Smoking?
104(1)
Elasticity: The Measure of Responsiveness
104(5)
Price Elasticity of Demand and the Shapes of Demand Curves
107(2)
Price Elasticity of Demand: Its Effect on Total Revenue and Total Expenditure
109(2)
Issue Revisited: Will a Cigarette Tax Decrease Teenage Smoking Significantly?
110(1)
What Determines Demand Elasticity?
111(1)
Elasticity as a General Concept
112(2)
Income Elasticity
112(1)
Price Elasticity of Supply
113(1)
Cross Elasticity of Demand
113(1)
Changes in Demand: Movements Along the Demand Curve Versus Shifts in the Demand Curve
114(2)
Demand Shifters
115(1)
The Time Period of the Demand Curve and Economic Decision Making
116(1)
Real-World Application: Polaroid Versus Kodak
117(1)
In Conclusion
118(1)
Summary
118(1)
Key Terms
119(1)
Test Yourself
119(1)
Discussion Questions
119(1)
Appendix: How Can We Find a Legitimate Demand Curve From Historical Statistics?
120(3)
An Illustration: Did the Advertising Program Work?
121(1)
How Can We Find A Legitimate Demand Curve From the Statistics?
121(2)
Production, Inputs, and Cost: Building Blocks for Supply Analysis
123(28)
Puzzle: How Can We Tell If Larger Firms Are More Efficient?
124(1)
Short-Run Versus Long-Run Costs: What Makes an Input Variable?
124(2)
The Economic Short Run Versus the Economic Long Run
125(1)
Fixed Costs and Variable Costs
125(1)
Production, Input Choice, and Cost With One Variable Input
126(3)
Total, Average, and Marginal Physical Products
126(1)
Marginal Physical Product and the ``Law'' of Diminishing Marginal Returns
127(1)
The Optimal Quantity of an Input and Diminishing Returns
128(1)
Multiple Input Decisions: The Choice of Optimal Input Combinations
129(4)
Substitutability: The Choice of Input Proportions
130(1)
The Marginal Rule for Optimal Input Proportions
131(1)
Changes in Input Prices and Optimal Input Proportions
132(1)
Cost and Its Dependence on Output
133(5)
Input Quantities and Total, Average, and Marginal Cost Curves
133(3)
The Law of Diminishing Marginal Productivity and the U-Shaped Average Cost Curve
136(1)
The Average Cost Curve in the Short and Long Run
137(1)
Economies of Scale
138(5)
The ``Law'' of Diminishing Returns and Returns to Scale
139(1)
Historical Costs Versus Analytical Cost Curves
140(1)
Resolving the Economies of Scale Puzzle
141(1)
Cost Minimization in Theory and Practice
142(1)
Summary
143(1)
Key Terms
144(1)
Test Yourself
144(1)
Discussion Questions
145(1)
Appendix: Production Indifference Curves
145(6)
Characteristics of the Production Indifference Curves, or Isoquants
145(1)
The Choice of Input Combinations
146(1)
Cost Minimization, Expansion Path, and Cost Curves
147(1)
Summary
148(1)
Key Terms
148(1)
Test Yourself
149(2)
Output, Price, and Profit: The Importance of Marginal Analysis
151(22)
Puzzle: Can a Company Make a Profit by Selling Below its Costs?
153(1)
Price and Quantity: One Decision, Not Two
153(1)
Total Profit: Keep Your Eye on the Goal
154(1)
Economic Profit and Optimal Decision Making
154(5)
Total, Average, and Marginal Revenue
155(1)
Total, Average, and Marginal Cost
156(1)
Maximization of Total Profit
157(1)
Profit Maximization: A Graphical Interpretation
158(1)
Marginal Analysis and Maximization of Total Profit
159(4)
Marginal Revenue and Marginal Cost: Guides to Optimization
161(1)
Finding the Optimal Price from Optimal Output
162(1)
Generalization: The Logic of Marginal Analysis and Maximization
163(3)
Application: Fixed Cost and the Profit-Maximizing Price
164(1)
Puzzle Resolved: Using Marginal Analysis to Unravel the Case of the ``Unprofitable'' Calculator
165(1)
Conclusion: The Fundamental Role of Marginal Analysis
166(1)
The Theory and Reality: A Word of Caution
167(1)
Summary
167(1)
Key Terms
168(1)
Test Yourself
168(1)
Discussion Questions
168(1)
Appendix: The Relationships Among Total, Average, and Marginal Data
169(4)
Graphical Representation of Marginal and Average Curves
170(1)
Test Yourself
171(2)
Investing in Business: Stocks and Bonds
173(20)
Puzzle #1: What in the World Happened to the Stock Market?
174(1)
Puzzle #2: The Stock Market's Unpredictability
174(1)
Corporations and Their Unique Characteristics
175(1)
Financing Corporate Activity: Stocks and Bonds
176(3)
Plowback, or Retained Earnings
178(1)
What Determines Stock Prices? The Role of Expected Company Earnings
179(1)
Buying Stocks and Bonds
179(3)
Selecting a Portfolio: Diversification
180(1)
Following a Portfolio's Performance
181(1)
Stock Exchanges and Their Functions
182(4)
Regulation of the Stock Market
184(1)
Stock Exchanges and Corporate Capital Needs
184(2)
Speculation
186(4)
Puzzle #2 Resolved: Unpredictable Stock Prices as ``Random Walks''
187(3)
Puzzle #1 Redux: The Boom and Bust of the U.S. Stock Market
190(1)
Summary
190(1)
Key Terms
191(1)
Test Yourself
191(1)
Discussion Questions
191(2)
PART III MARKETS AND THE PRICE SYSTEM
193(88)
The Firm and the Industry Under Perfect Competition
195(18)
Puzzle: Pollution Reduction Incentives That Actually Increase Pollution
196(1)
Perfect Competition Defined
196(1)
The Perfectly Competitive Firm
197(5)
The Firm's Demand Curve under Perfect Competition
197(1)
Short-Run Equilibrium for the Perfectly Competitive Firm
198(1)
Short-Run Profit: Graphic Representation
199(1)
The Case of Short-Term Losses
200(1)
Shutdown and Break-Even Analysis
200(2)
The Perfectly Competitive Firm's Short-Run Supply Curve
202(1)
The Perfectly Competitive Industry
202(7)
The Perfectly Competitive Industry's Short-Run Supply Curve
202(1)
Industry Equilibrium in the Short Run
203(1)
Industry and Firm Equilibrium in the Long Run
204(3)
Zero Economic Profit: The Opportunity Cost of Capital
207(1)
The Long-Run Industry Supply Curve
208(1)
Perfect Competition and Economic Efficiency
209(2)
Puzzle Resolved: Which Is Better to Cut Pollution--The Carrot or the Stick?
210(1)
Summary
211(1)
Key Terms
212(1)
Test Yourself
212(1)
Discussion Questions
212(1)
Monopoly
213(18)
Puzzle: What Happened to AT&T's ``Natural Monopoly'' in Telephone Service?
214(1)
Monopoly Defined
214(3)
Sources of Monopoly: Barriers to Entry and Cost Advantages
215(1)
Natural Monopoly
216(1)
The Monopolist's Supply Decision
217(5)
Determining the Profit-Maximizing Output
218(1)
Comparing Monopoly and Perfect Competition
219(2)
Monopoly Is Likely to Shift Demand
221(1)
Monopoly Is Likely to Shift Cost Curves
222(1)
Can Anything Good Be Said About Monopoly?
222(1)
Monopoly May Aid Innovation
222(1)
Natural Monopoly: Where Single-firm Production is Cheapest
223(1)
Price Discrimination Under Monopoly
223(4)
Is Price Discrimination Always Undesirable?
225(1)
The Puzzle Resolved: Competition in Telephone Service
226(1)
Summary
227(1)
Key Terms
228(1)
Test Yourself
228(1)
Discussion Questions
228(3)
Between Competition and Monopoly
231(28)
Three Puzzling Observations
232(1)
Puzzle 1: Why Are There So Many Retailers?
232(1)
Puzzle 2: Why Do Oligopolists Advertise More Than ``More Competitive'' Firms?
232(1)
Puzzle 3: Why Do Oligopolists Seem to Change Their Prices So Infrequently?
232(1)
Monopolistic Competition
232(5)
Characteristics of Monopolistic Competition
233(1)
Price and Output Determination Under Monopolistic Competition
234(1)
The Excess Capacity Theorem and Resource Allocation
235(1)
1st Puzzle Resolved: Explaining the Abundance of Retailers
236(1)
Oligopoly
237(14)
2nd Puzzle Resolved: Why Oligopolists Advertise but Perfectly Competitive Firms Generally Do Not
237(1)
Why Oligopolistic Behavior Is So Difficult to Analyze
238(1)
A Shopping List
238(4)
Sales Maximization: An Oligopoly Model with Interdependence Ignored
242(1)
3rd Puzzle Resolved: The Kinked Demand Curve Model
243(2)
The Game-Theory Approach
245(1)
Games with Dominant Strategies
246(2)
Games without Dominant Strategies
248(1)
Other Strategies: The Nash Equilibrium
248(1)
Zero-Sum Games
249(1)
Repeated Games
249(2)
Monopolistic Competition, Oligopoly, and Public Welfare
251(2)
A Glance Backward: Comparing the Four Market Forms
253(2)
Summary
255(1)
Key Terms
256(1)
Test Yourself
256(1)
Discussion Questions
256(3)
Limiting Market Power: Regulation and Antitrust
259(22)
The Public Interest Issue: Monopoly Power versus Mere Size
260(1)
Part 1: Regulation
261(1)
What Is Regulation?
261(1)
Puzzle: Why Do Regulators Often Raise Prices?
262(1)
Some Objectives of Regulation
262(2)
Control of Market Power Resulting from Economies of Scale and Scope
262(1)
Universal Service and Rate Averaging
263(1)
Two Key Issues That Face Regulators
264(3)
Setting Prices to Protect Consumers' Interests and Allow Regulated Firms to Cover Their Costs
264(1)
Marginal versus Average Cost Pricing
264(2)
Preventing Monopoly Profit but Keeping Incentives for Efficiency and Innovation
266(1)
The Pros and Cons of ``Bigness''
267(1)
Economies of Large Size
267(1)
Required Scale for Innovation
267(1)
Deregulation
268(3)
The Effects of Deregulation
268(2)
The Puzzle Revisited: Why Regulators Often Push Prices Upward
270(1)
Part 2: Antitrust Laws and Policies
271(1)
Measuring Market Power: Concentration
272(3)
Concentration: Definition and Measurement---The Herfindahl-Hirschman Index
272(2)
The Evidence of Concentration in Reality
274(1)
A Crucial Problem for Antitrust: The Resemblance of Monopolization and Vigorous Competition
275(1)
Anticompetitive Practices and Antitrust
275(2)
Predatory Pricing
275(1)
The Microsoft Case: Bottlenecks, Bundling, and Network Externalities
276(1)
Use of Antitrust Laws to Prevent Competition
277(1)
Concluding Observations
278(1)
Summary
279(1)
Key Terms
280(1)
Discussion Questions
280(1)
PART IV THE VIRTUES AND LIMITATIONS OF MARKETS
281(112)
The Case for Free Markets I: The Price System
283(24)
Puzzle: Crossing the San Francisco-Oakland Bay Bridge: Is the Price Right?
284(1)
Efficient Resource Allocation and Pricing
284(4)
Pricing to Promote Efficiency: An Example
285(1)
Can Price Increases Ever Serve the Public Interest?
286(2)
Scarcity and the Need to Coordinate Economic Decisions
288(7)
Three Coordination Tasks in the Economy
289(3)
Input-Output Analysis: The Near Impossibility of Perfect Central Planning
292(2)
Which Buyers and Which Sellers Get Priority?
294(1)
How Perfect Competition Achieves Efficiency: A Graphic Analysis
295(3)
How Perfect Competition Achieves Optimal Output: A Marginal Analysis
298(5)
The Invisible Hand at Work
300(1)
Other Roles of Prices: Income Distribution and Fairness
300(2)
Yet Another Free-Market Achievement: Growth versus Efficiency
302(1)
San Francisco Bridge Pricing Revisited
302(1)
Toward Assessment of the Price Mechanism
303(1)
Summary
304(1)
Key Terms
304(1)
Test Yourself
304(1)
Discussion Questions
305(2)
The Shortcomings of Free Markets
307(24)
Puzzle: Why Are Health-Care Costs in Canada Rising?
308(1)
What Does the Market Do Poorly?
308(1)
Efficient Resource Allocation: A Review
308(2)
Externalities: Getting the Prices Wrong
310(4)
Externalities and Inefficiency
310(2)
Externalities Are Everywhere
312(1)
Government Policy and Externalities
313(1)
Provision of Public Goods
314(1)
Allocation of Resources Between Present and Future
315(2)
The Role of the Interest Rate
315(1)
How Does It Work in Practice?
316(1)
Some Other Sources of Market Failure
317(4)
Imperfect Information: ``Caveat Emptor''
317(1)
Rent Seeking
317(1)
Moral Hazard
318(1)
Principals, Agents, and Recent Stock Option Scandals
319(2)
Market Failure and Government Failure
321(1)
The Cost Disease of Some Vital Services in the Economy
322(5)
Deteriorating Personal Services
322(1)
Personal Services Are Getting More Expensive
323(1)
Why Are These ``In-Person'' Services Costing So Much More?
324(1)
Uneven Labor Productivity Growth in the Economy
324(1)
A Future of More Goods but Fewer Services: Is It Inevitable?
325(1)
Government May Make the Problem Worse
326(1)
The Puzzle Resolved: Explaining the Rising Costs of Canadian Health Care
326(1)
The Market System on Balance
327(1)
Epilogue: The Unforgiving Market, Its Gift of Abundance, and Its Dangerous Friends
328(1)
Summary
329(1)
Key Terms
329(1)
Test Yourself
330(1)
Discussion Questions
330(1)
The Case for Free Markets II: Innovation and Growth
331(22)
The Market Economy's Incredible Growth Record
332(2)
Innovation, Not Invention, Is the Unique Free-Market Accomplishment
334(1)
The Big Puzzle: What Accounts for the Free Market's Incredible Growth Record?
334(1)
Sources of Free-Market Innovation: Role of the Entrepreneur
335(7)
Breakthrough Invention and the Entrepreneurial Firm
336(2)
The Large Enterprises and Their Innovation ``Assembly Lines''
338(3)
The Market Economy and the Speedy Dissemination of New Technology
341(1)
Microeconomic Analysis of the Innovative Firm
342(5)
Financing the Innovation ``Arms Race'': Firms with High R&D Costs and Low Marginal Costs
342(1)
The Profits of Innovation
343(1)
How Much Will a Profit-Maximizing Firm Spend on Innovation?
344(1)
A Kinked Revenue Curve Model of Spending on Innovation
345(1)
Innovation as a Public Good
346(1)
Effects of Process Research on Outputs and Prices
346(1)
Do Free Markets Spend Enough on R&D Activities?
347(2)
Innovation as a Beneficial Externality
348(1)
Why the Shortfall in Innovation Spending May Not Be So Big After All
349(1)
Conclusion: The Market Economy and Its Innovation Assembly Line
349(2)
Toward Solution of the Puzzle: How the Market Achieved its Unprecedented Growth
350(1)
Summary
351(1)
Key Terms
351(1)
Discussion Questions
352(1)
Externalities, the Environment, and Natural Resources
353(22)
Puzzle: Those Resilient Natural Resource Supplies
354(1)
Part 1: The Economics of Environmental Protection
354(1)
Externalities: A Critical Shortcoming of the Market Mechanism
354(7)
The Facts: Is the World Really Getting Steadily More Polluted?
355(3)
The Role of Individuals and Governments in Environmental Damage
358(1)
Pollution and the Law of Conservation of Matter and Energy
358(3)
Supply-Demand Analysis of Environmental Externalities
361(1)
Basic Approaches to Environmental Policy
361(5)
Emissions Taxes versus Direct Control
363(2)
Another Financial Device to Protect the Environment: Emissions Permits
365(1)
Two Cheers for the Market
366(1)
Part 2: The Economics of Natural Resources
367(1)
Economic Analysis: The Free Market and Pricing of Depletable Resources
367(2)
Scarcity and Rising Prices
367(1)
Supply-Demand Analysis and Consumption
368(1)
Actual Resource Prices in the Twentieth Century
369(4)
Interferences with Price Patterns
370(2)
Is Price Interference Justified?
372(1)
On the Virtues of Rising Prices
373(1)
Growing Reserves of Exhaustible Natural Resources: The Puzzle Revisited
373(1)
Summary
373(1)
Key Terms
374(1)
Test Yourself
374(1)
Discussion Questions
374(1)
Taxation and Resource Allocation
375(18)
Issue: Were the Tax Cuts of 2001-2003 Sound Policy?
376(1)
The Level and Types of Taxation
376(1)
Progressive, Proportional, and Regressive Taxes
377(1)
Direct versus Indirect Taxes
377(1)
The Federal Tax System
377(4)
The Federal Personal Income Tax
377(2)
The Payroll Tax
379(1)
The Corporate Income Tax
379(1)
Excise Taxes
379(1)
The Payroll Tax and the Social Security System
379(2)
The State and Local Tax System
381(1)
Sales and Excise Taxes
381(1)
Property Taxes
381(1)
Fiscal Federalism
382(1)
The Concept of Equity in Taxation
382(1)
Horizontal Equity
382(1)
Vertical Equity
382(1)
The Benefits Principle
383(1)
The Concept of Efficiency in Taxation
383(2)
Tax Loopholes and Excess Burden
385(1)
Shifting the Tax Burden: Tax Incidence
385(4)
The Incidence of Excise Taxes
387(1)
The Incidence of the Payroll Tax
388(1)
When Taxation Can Improve Efficiency
389(1)
Equity, Efficiency, and the Optimal Tax
389(1)
Issue Revisited: The Pros and Cons of the Bush Tax Cuts
390(1)
Summary
390(1)
Key Terms
391(1)
Test Yourself
391(1)
Discussion Questions
392(1)
PART V THE DISTRIBUTION OF INCOME
393(68)
Pricing the Factors of Production
395(22)
Puzzle: Why Does a Higher Return to Savings Reduce the Amount Some People Save?
396(1)
The Principle of Marginal Productivity
396(1)
Inputs and Their Derived Demand Curves
397(2)
Investment, Capital, and Interest
399(4)
The Demand for Funds
400(1)
The Downward-Sloping Demand Curve for Funds
401(1)
The Supply of Funds: The Puzzle Resolved
402(1)
The Issue of Usury Laws: Are Interest Rates Too High?
402(1)
The Determination of Rent
403(6)
Land Rents: Further Analysis
404(2)
Generalization: Economic Rent Seeking
406(1)
Rent as a Component of an Input's Compensation
407(1)
An Application of Rent Theory: Salaries of Professional Athletes
408(1)
Rent Controls: The Misplaced Analogy
409(1)
Payments to Entrepreneurship: Are Profits Too High or Too Low?
409(3)
What Accounts for Profits?
410(2)
Taxing Profits
412(1)
Criticisms of Marginal Productivity Theory
412(1)
Summary
413(1)
Key Terms
414(1)
Test Yourself
414(1)
Discussion Questions
414(1)
Appendix: Discounting and Present Value
415(2)
Summary
416(1)
Key Term
416(1)
Test Yourself
416(1)
Labor: The Human Input
417(24)
Issue: Do Cheap Foreign Labor and Technological Progress Contribute to Lagging Wages?
419(1)
Wage Determination in Competitive Labor Markets
419(4)
The Demand for Labor and the Determination of Wages
420(1)
Influences on MRPL: Shifts in the Demand for Labor
420(1)
Technical Change, Productivity Growth, and the Demand for Labor
421(1)
The Service Economy and the Demand for Labor
422(1)
The Supply of Labor
423(3)
Rising Labor-Force Participation
423(1)
An Important Labor Supply Conundrum
424(1)
The Labor Supply Conundrum Resolved
425(1)
Why Do Wages Differ?
426(5)
Labor Demand in General
427(1)
Labor Supply in General
427(1)
Ability and Earnings: The Rent Component of Wages
428(1)
Investment in Human Capital
428(1)
Education and Earnings: Dissenting Views
429(1)
The Effects of Minimum Wage Legislation
430(1)
Unions and Collective Bargaining
431(8)
Unions as Labor Monopolies
433(2)
Monopsony and Bilateral Monopoly
435(1)
Collective Bargaining and Strikes
436(2)
Issue Revisited: Foreign Competition, Technology, and American Jobs: Are Union Fears Justified?
438(1)
Summary
439(1)
Key Terms
440(1)
Test Yourself
440(1)
Discussion Questions
440(1)
Poverty, Inequality, and Discrimination
441(20)
Issue: Were the Bush Tax Cuts Unfair?
442(1)
The Facts: Poverty
442(3)
Counting the Poor: The Poverty Line
443(1)
Absolute versus Relative Poverty
444(1)
The Facts: Inequality
445(1)
Some Reasons for Unequal Incomes
446(2)
The Facts: Discrimination
448(1)
The Trade-Off Between Equality and Efficiency
449(2)
Policies to Combat Poverty
451(3)
Education as a Way Out
451(1)
The Welfare Debate and the Trade-Off
451(1)
The Negative Income Tax
452(2)
Other Policies to Combat Inequality
454(1)
The Personal Income Tax
454(1)
Death Duties and Other Taxes
454(1)
Policies to Combat Discrimination
454(2)
A Look Back
456(1)
Summary
456(1)
Key Terms
457(1)
Test Yourself
457(1)
Discussion Questions
457(1)
Appendix: The Economic Theory of Discrimination
458(3)
Discrimination by Employers
458(1)
Discrimination by Fellow Workers
458(1)
Statistical Discrimination
458(1)
The Roles of the Market and the Government
459(1)
Summary
460(1)
Key Term
460(1)
PART VI THE MACROECONOMY: AGGREGATE SUPPLY AND DEMAND
461(132)
An Introduction to Macroeconomics
463(20)
Issue: Was It George Bush's Fault?
464(1)
Drawing A Line Between Macroeconomics and Microeconomics
464(2)
Aggregation and Macroeconomics
464(1)
The Foundations of Aggregation
465(1)
The Line of Demarcation Revisited
465(1)
Supply and Demand in Macroeconomics
466(2)
A Quick Review
466(1)
Moving to Macroeconomic Aggregates
467(1)
Inflation
467(1)
Recession and Unemployment
467(1)
Economic Growth
467(1)
Gross Domestic Product
468(4)
Money as the Measuring Rod: Real versus Nominal GDP
468(1)
What Gets Counted in GDP?
469(1)
Limitations of the GDP: What GDP Is Not
470(2)
The Economy on a Roller Coaster
472(7)
Growth, but with Fluctuations
472(1)
Inflation and Deflation
473(1)
The Great Depression
474(2)
From World War II to 1973
476(1)
The Great Stagflation, 1973--1980
476(1)
Reaganomics and Its Aftermath
477(1)
Clintonomics: Deficit Reduction and the ``New Economy''
477(1)
The Bush Economy and the 2004 Election
478(1)
Issue Revisited: Was It George Bush's Fault?
479(1)
The Problem of Macroeconomic Stabilization: A Sneak Preview
479(2)
Combating Unemployment
479(1)
Combating Inflation
480(1)
Does It Really Work?
480(1)
Summary
481(1)
Key Terms
482(1)
Test Yourself
482(1)
Discussion Questions
482(1)
The Goals of Macroeconomic Policy
483(26)
Part 1: The Goal of Economic Growth
484(1)
Productivity Growth: From Little Acorns. . .
484(2)
Issue: Is Faster Growth Always Better?
486(1)
The Capacity to Produce: Potential GDP and the Production Function
486(1)
The Growth Rate of Potential GDP
487(2)
Issue Revisited: Is Faster Growth Always Better?
488(1)
Part 2: The Goal of Low Unemployment
489(1)
The Human Costs of High Unemployment
490(1)
Counting the Unemployed: The Official Statistics
491(1)
Types of Unemployment
492(2)
How Much Employment Is ``Full Employment''?
494(1)
Unemployment Insurance: The Invaluable Cushion
494(1)
Part 3: The Goal of Low Inflation
495(1)
Inflation: The Myth and the Reality
495(3)
Inflation and Real Wages
495(2)
The Importance of Relative Prices
497(1)
Inflation as a Redistributor of Income and Wealth
498(1)
Real Versus Nominal Interest Rates
498(1)
Inflation Distorts Measurements
499(1)
Confusing Real and Nominal Interest Rates
499(1)
The Malfunctioning Tax System
500(1)
Other Costs of Inflation
500(1)
The Costs of Low Versus High Inflation
501(1)
Low Inflation Does Not Necessarily Lead to High Inflation
502(1)
Summary
503(1)
Key Terms
504(1)
Test Yourself
504(1)
Discussion Questions
504(1)
Appendix: How Statisticians Measure Inflation
505(4)
Index Numbers for Inflation
505(1)
The Consumer Price Index
505(1)
Using a Price Index to ``Deflate'' Monetary Figures
506(1)
Using a Price Index to Measure Inflation
506(1)
The GDP Deflator
506(1)
Summary
507(1)
Key Terms
507(1)
Test Yourself
507(2)
Economic Growth: Theory and Policy
509(20)
Puzzle: Why Does College Education Keep Getting More Expensive?
510(1)
The Three Pillars of Productivity Growth
510(2)
Capital
511(1)
Technology
511(1)
Labor Quality: Education and Training
512(1)
Levels, Growth Rates, and the Convergence Hypothesis
512(2)
Growth Policy: Encouraging Capital Formation
514(2)
Growth Policy: Improving Education and Training
516(2)
Growth Policy: Spurring Technological Change
518(1)
The Productivity Slowdown and Speed-Up in the United States
519(4)
The Productivity Slowdown, 1973--1995
520(1)
The Productivity Speed-up, 1995--??
521(1)
Puzzle Resolved: Why the Relative Price of College Tuition Keeps Rising
522(1)
Growth in the Developing Countries
523(3)
The Three Pillars Revisited
523(2)
Some Special Problems of the Developing Countries
525(1)
From the Long Run to the Short Run
526(1)
Summary
526(1)
Key Terms
526(1)
Test Yourself
527(1)
Discussion Questions
527(2)
Aggregate Demand and the Powerful Consumer
529(22)
Issue: Demand Management and the Ornery Consumer
530(1)
Aggregate Demand, Domestic Product, and National Income
530(1)
The Circular Flow of Spending, Production, and Income
531(2)
Consumer Spending and Income: The Important Relationship
533(3)
The Consumption Function and the Marginal Propensity to Consume
536(1)
Factors That Shift the Consumption Function
537(3)
Issue Revisited: Why the Tax Rebates Failed in 1975 and 2001
538(2)
The Extreme Variability of Investment
540(1)
The Determinants of Net Exports
540(1)
National Incomes
541(1)
Relative Prices and Exchange Rates
541(1)
How Predictable Is Aggregate Demand?
541(1)
Summary
542(1)
Key Terms
543(1)
Test Yourself
543(1)
Discussion Questions
543(1)
Appendix: National Income Accounting
544(7)
Defining GDP: Exceptions to the Rules
544(1)
GDP as the Sum of Final Goods and Services
544(1)
GDP as the Sum of All Factor Payments
545(2)
GDP as the Sum of Values Added
547(1)
Summary
548(1)
Key Terms
548(1)
Test Yourself
548(1)
Discussion Questions
549(2)
Demand-Side Equilibrium: Unemployment or Inflation?
551(24)
Issue: Why Does the Market Permit Unemployment?
552(1)
The Meaning of Equilibrium GDP
552(1)
The Mechanics of Income Determination
553(3)
The Aggregate Demand Curve
556(2)
Demand-Side Equilibrium and Full Employment
558(1)
The Coordination of Saving and Investment
559(1)
Changes on the Demand Side: Multiplier Analysis
560(5)
The Magic of the Multiplier
561(1)
Demystifying the Multiplier: How It Works
562(1)
Algebraic Statement of the Multiplier
563(2)
The Multiplier Is a General Concept
565(1)
The Multiplier and the Aggregate Demand Curve
566(1)
Summary
567(1)
Key Terms
568(1)
Test Yourself
568(1)
Discussion Questions
569(1)
Appendix A: The Simple Algebra of Income Determination and the Multiplier
569(1)
Test Yourself
570(1)
Discussion Questions
570(1)
Appendix B: The Multiplier with Variable Imports
570(5)
Summary
573(1)
Test Yourself
573(1)
Discussion Question
573(2)
Supply-Side Equilibrium: Unemployment and Inflation?
575(18)
Puzzle: Why Did Inflation Fall While the Economy Boomed?
576(1)
The Aggregate Supply Curve
576(3)
Why the Aggregate Supply Curve Slopes Upward
576(1)
Shifts of the Agregate Supply Curve
577(2)
Equilibrium of Aggregate Demand and Supply
579(1)
Inflation and the Multiplier
580(1)
Recessionary and Inflationary Gaps Revisited
581(2)
Adjusting to a Recessionary Gap: Deflation or Unemployment?
583(1)
Does the Economy Have a Self-Correcting Mechanism?
584(1)
An Example from Recent History: Deflation in Japan
584(1)
Adjusting to an Inflationary Gap: Inflation
584(3)
Demand Inflation and Stagflation
585(1)
A U.S. Example
586(1)
Stagflation From a Supply Shock
587(1)
Applying the Model to a Growing Economy
588(3)
Demand-Side Fluctuations
588(1)
Supply-Side Fluctuations
589(2)
Puzzle Resolved: Explaining The Roaring Nineties
591(1)
A Role for Stabilization Policy
591(1)
Summary
591(1)
Key Terms
592(1)
Test Yourself
592(1)
Discussion Questions
592(1)
PART VII FISCAL AND MONETARY POLICY
593(116)
Managing Aggregate Demand: Fiscal Policy
595(20)
Issue: Aggregate Demand, Aggregate Supply, and The Tax-Cut Debate of 2004
596(1)
Income Taxes and the Consumption Schedule
596(1)
The Multiplier Revisited
597(3)
The Tax Multiplier
597(1)
Income Taxes and the Multiplier
597(1)
Automatic Stabilizers
598(1)
Government Transfer Payments
599(1)
Issue Revisited: The Bush-Kerry Debate over Taxes and Spending
600(1)
Planning Expansionary Fiscal Policy
600(1)
Planning Contractionary Fiscal Policy
601(1)
The Choice Between Spending Policy and Tax Policy
601(1)
Issue Redux: Bush versus Kerry
602(1)
Some Harsh Realities
602(1)
The Idea Behind Supply-Side Tax Cuts
603(4)
Some Flies in the Ointment
604(1)
Issue: Kerry and Bush Once More
605(1)
Toward an Assessment of Supply-Side Economics
606(1)
Summary
607(1)
Key Terms
607(1)
Test Yourself
607(1)
Discussion Questions
608(1)
Appendix A: Graphical Treatment of Taxes and Fiscal Policy
608(3)
Multipliers for Tax Policy
610(1)
Summary
611(1)
Key Terms
611(1)
Test Yourself
611(1)
Discussion Questions
611(1)
Appendix B: Algebraic Treatment of Fiscal Policy
611(4)
Test Yourself
613(2)
Money and the Banking System
615(20)
Issue: Why Are Banks so Heavily Regulated?
616(1)
The Nature of Money
616(4)
Barter versus Monetary Exchange
617(1)
The Conceptual Definition of Money
618(1)
What Serves as Money?
618(2)
How the Quantity of Money Is Measured
620(2)
M1
620(1)
M2
621(1)
Other Definitions of the Money Supply
621(1)
The Banking System
622(3)
How Banking Began
622(1)
Principles of Bank Management: Profits versus Safety
623(1)
Bank Regulation
624(1)
The Origins of the Money Supply
625(1)
How Bankers Keep Books
625(1)
Banks and Money Creation
626(5)
The Limits to Money Creation by a Single Bank
626(1)
Multiple Money Creation by a Series of Banks
627(3)
The Process in Reverse: Multiple Contractions of the Money Supply
630(1)
Why the Money Creation Formula Is Oversimplified
631(1)
The Need for Monetary Policy
632(1)
Summary
633(1)
Key Terms
633(1)
Test Yourself
634(1)
Discussion Questions
634(1)
Managing Aggregate Demand: Monetary Policy
635(16)
Issue: Just Why Is Alan Greenspan so Important?
636(1)
Money and Income: The Important Difference
636(1)
America's Central Bank: The Federal Reserve System
637(2)
Origins and Structure
637(1)
Central Bank Independence
638(1)
Implementing Monetary Policy: Open-Market Operations
639(3)
The Market for Bank Reserves
639(1)
The Mechanics of an Open-Market Operation
640(2)
Open-Market Operations, Bond Prices, and Interest Rates
642(1)
Other Methods of Monetary Control
642(2)
Lending to Banks
643(1)
Changing Reserve Requirements
644(1)
How Monetary Policy Works
644(2)
Investment and Interest Rates
645(1)
Monetary Policy and Total Expenditure
645(1)
Money and the Price Level in the Keynesian Model
646(2)
Application: Why the Aggregate Demand Curve Slopes Downward
647(1)
From Models to Policy Debates
648(1)
Summary
648(1)
Key Terms
649(1)
Test Yourself
649(1)
Discussion Questions
650(1)
The Debate Over Monetary and Fiscal Policy
651(22)
Issue: Should We Forsake Stabilization Policy?
652(1)
Velocity and the Quantity Theory of Money
652(3)
Some Determinants of Velocity
654(1)
Monetarism: The Quantity Theory Modernized
655(1)
Fiscal Policy, Interest Rates, and Velocity
655(2)
Application: The Multiplier Formula Revisited
656(1)
Application: The Government Budget and Investment
657(1)
Debate: Should We Rely on Fiscal or Monetary Policy?
657(1)
Debate: Should the Fed Control the Money Supply or Interest Rates?
658(3)
Two Imperfect Alternatives
660(1)
What Has the Fed Actually Done?
660(1)
Debate: The Shape of the Aggregate Supply Curve
661(2)
Debate: Should the Government Intervene?
663(2)
Lags and the Rules-versus-Discretion Debate
665(1)
Dimensions of the Rules-Versus-Discretion Debate
665(4)
How Fast Does the Economy's Self-Correcting Mechanism Work?
665(1)
How Long Are the Lags in Stabilization Policy?
666(1)
How Accurate Are Economic Forcasts?
666(1)
The Size of Government
666(1)
Uncertainties Caused by Government Policy
666(1)
A Political Business Cycle?
667(1)
Issue Revisited: What Should Be Done?
668(1)
Summary
669(1)
Key Terms
670(1)
Test Yourself
670(1)
Discussion Questions
670(3)
Budget Deficits in the Short and Long Run
673(18)
Issue: Did the September 2001 Terrorist Attacks Warrant Fiscal Stimulus?
674(1)
Should the Budget Be Balanced? The Short Run
674(2)
The Importance of the Policy Mix
675(1)
Surpluses and Deficits: The Long Run
676(1)
Deficits and Debt: Terminology and Facts
677(2)
Some Facts about the National Debt
677(2)
Interpreting the Budget Deficit or Surplus
679(3)
The Structural Deficit or Surplus
679(2)
On-Budget versus Off-Budget Surpluses
681(1)
Conclusion: What Happened after 1981?
681(1)
Why Is the National Debt Considered A Burden?
682(1)
Budget Deficits and Inflation
683(1)
The Monetization Issue
683(1)
Debt, Interest Rates, and Crowding Out
684(2)
The Bottom Line
686(1)
The Main Burden of the National Debt: Slower Growth
686(2)
Issue Revisited: Was Fiscal Stimulus Warranted in 2001?
687(1)
The Economics and Politics of the U.S. Budget Deficit
688(1)
Summary
689(1)
Key Terms
689(1)
Test Yourself
690(1)
Discussion Questions
690(1)
The Trade-Off Between Inflation and Unemployment
691(18)
Issue: Is the Trade-off Between Inflation and Unemployment a Relic of the Past?
692(1)
Demand-Side Inflation versus Supply-Side Inflation: A Review
692(1)
Origins of the Phillips Curve
693(2)
Supply-Side Inflation and the Collapse of the Phillips Curve
695(1)
Explaining the Fabulous 1990s
695(1)
Issue Resolved: Why Inflation and Unemployment Both Declined
696(1)
What the Phillips Curve Is Not
696(2)
Fighting Unemployment With Fiscal and Monetary Policy
698(1)
What Should Be Done?
699(1)
The Costs of Inflation and Unemployment
699(1)
The Slope of the (Short-Run) Phillips Curve
699
The Efficiency of the Economy's Self-Correcting Mechanism
690(10)
Inflationary Expectations and the Phillips Curve
700(2)
The Theory of Rational Expectations
702(2)
What Are Rational Expectations?
702(1)
Rational Expectations and the Trade-Off
703(1)
An Evaluation
703(1)
Why Economists (And Politicians) Disagree
704(1)
The Dilemma of Demand Management
705(1)
Attempts to Reduce the Natural Rate of Unemployment
705(1)
Indexing
706(1)
Summary
707(1)
Key Terms
708(1)
Test Yourself
708(1)
Discussion Questions
708(1)
PART VIII THE UNITED STATES IN THE WORLD ECONOMY
709(56)
International Trade and Comparative Advantage
711(22)
Issue: How Can Americans Compete with ``Cheap Foreign Labor''?
712(1)
Why Trade?
713(1)
Mutual Gains from Trade
713(1)
International Versus Intranational Trade
714(1)
Political Factors in International Trade
714(1)
The Many Currencies Involved in International Trade
714(1)
Impediments to Mobility of Labor and Capital
714(1)
The Law of Comparative Advantage
715(4)
The Arithmetic of Comparative Advantage
715(1)
The Graphics of Comparative Advantage
716(3)
Issue Resolved: Comparative Advantage Exposes the ``Cheap Foreign Labor'' Fallacy
719(1)
Tariffs, Quotas, and Other Interferences With Trade
719(2)
Tariffs versus Quotas
721(1)
Why Inhibit Trade?
721(4)
Gaining a Price Advantage for Domestic Firms
721(1)
Protecting Particular Industries
722(1)
National Defense and Other Noneconomic Considerations
723(1)
The Infant-Industry Argument
724(1)
Strategic Trade Policy
724(1)
Can Cheap Imports Hurt a Country?
725(2)
A Last Look at the ``Cheap Foreign Labor'' Argument
726(1)
Summary
727(1)
Key Terms
728(1)
Test Yourself
728(1)
Discussion Questions
728(1)
Appendix: Supply, Demand, and Pricing in World Trade
729(4)
How Tariffs and Quotas Work
730(1)
Summary
731(1)
Test Yourself
731(2)
The International Monetary System: Order or Disorder?
733(18)
Puzzle: Why Has the Dollar Been Sagging?
734(1)
What Are Exchange Rates?
734(1)
Exchange Rate Determination in a Free Market
735(6)
Interest Rates and Exchange Rates: The Short Run
737(1)
Economic Activity and Exchange Rates: The Medium Run
738(1)
The Purchasing-Power Parity Theory: The Long Run
738(2)
Market Determination of Exchange Rates: Summary
740(1)
When Governments Fix Exchange Rates: The Balance of Payments
741(1)
A Bit of History: The Gold Standard and the Bretton Woods System
742(2)
The Classical Gold Standard
742(1)
The Bretton Woods System
743(1)
Adjustment Mechanisms Under Fixed Exchange Rates
744(1)
Why Try to Fix Exchange Rates?
744(1)
The Current ``Nonsystem''
745(4)
The Role of the IMF
746(1)
The Volatile Dollar
746(2)
The Birth of the Euro
748(1)
Puzzle Resolved: Why the Dollar Rose and then Fell
748(1)
Summary
749(1)
Key Terms
749(1)
Test Yourself
750(1)
Discussion Questions
750(1)
Exchange Rates and the Macroeconomy
751(14)
Issue: Should the U.S. Government Try to Stop the Dollar from Falling?
752(1)
International Trade, Exchange Rates, and Aggregate Demand
752(2)
Relative Prices, Exports, and Imports
752(1)
The Effects of Changes in Exchange Rates
753(1)
Aggregate Supply in an Open Economy
754(1)
The Macroeconomic Effects of Exchange Rates
754(2)
Interest Rates and International Capital Flows
755(1)
Fiscal and Monetary Policies in an Open Economy
756(2)
Fiscal Policy Revisited
756(1)
Monetary Policy Revisited
757(1)
International Aspects of Deficit Reduction
758(2)
The Loose Link between the Budget Deficit and the Trade Deficit
759(1)
Is the Trade Deficit a Problem?
760(1)
On Curing the Trade Deficit
760(2)
Change the Mix of Fiscal and Monetary Policy
760(1)
More Rapid Economic Growth Abroad
761(1)
Raise Domestic Saving or Reduce Domestic Investment
761(1)
Protectionism
761(1)
Conclusion: No Nation Is an Island
762(1)
Issue Revisited: Should the Dollar Be Allowed to Fall?
762(1)
Summary
763(1)
Key Terms
763(1)
Test Yourself
764(1)
Discussion Questions
764(1)
Glossary 765(12)
Index 777


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