Principles of Macroeconomics

by Gottheil, Fred M.

• ISBN13: 9780538868198
• ISBN10: 0538868198
• Edition: 2nd
• Format: Paperback
• Copyright: 1998-07-06
• Publisher: South-Western College Pub

Summary

Written for the 2-term principles of economics course offered at every 2- and 4-year school, this text conveys the principles of economics in a superb conversational style through a series of extended examples that students relate and respond to. Students are discouraged from simply memorizing facts and are engaged in active learning. This text focuses on presenting basic concepts in-depth and develops the analysis step-by-step, rather than covering hundreds of topics superficially. Split versions are available for the 1-term principles of macroeconomics or principles of microeconomics course.

Table of Contents

Preface	xvii
Learning Guide	xxiv
Farewell	xxx
Author	xxxii
PART 1 THE BASICS OF ECONOMIC ANALYSIS	1	(64)
Introduction	2	(22)
No One Ever Made an Ounce of Earth	3	(3)
Are We Running Out of Natural Resources?	3	(1)
Renewable and Nonrenewable Natural Resources	3	(1)
Added Perspective: Coal...Then (1865) and Now (1998)	4	(1)
How Do You Satisfy Insatiable Wants?	5	(1)
Added Perspective: If Not the Depletion of Coal, Then Perhaps Oil	5	(1)
Scarcity Forces Us to make Choices	6	(1)
What Is Economics?	6	(5)
Economics Is Part of Social Science	6	(1)
Using Economic Models	7	(1)
Ceteris Paribus	8	(1)
The Circular Flow Model of Goods and Money	8	(2)
Micro-and Macroeconomics	10	(1)
Positive and Normative Economics	11	(1)
What Do Economists Know?	11	(6)
Economic Consultants: Economic Research and Analysis by Students for Professionals	12	(1)
Added Perspective: Economists, As Wizards of Odds, Are Usually Off	13	(1)
Chapter Review	14	(1)
Key Terms	15	(1)
Questions	15	(1)
Practice Test	16	(1)
Appendix On Reading Graphs	17	(1)
The Only Thing We Have to Fear Is Fear Itself	17	(3)
A Graphic Language	17	(1)
Know Your Point of Reference	17	(1)
Measuring Distances on Graphs	18	(1)
Graphing Relationships	18	(1)
Connecting Points to Form Curves	19	(1)
The Slope of a Curve	20	(4)
U-Shaped and Hill-Shaped Curves	22	(1)
Vertical and Horizontal Curves	22	(1)
Measuring the Slope of a Point on a Curve	23	(1)
Key Terms	23	(1)
Production Possibilities and Opportunity Costs	24	(19)
Factors of Production	25	(1)
Labor	25	(1)
Capital	25	(1)
Land	26	(1)
Entrepreneurship	26	(1)
Robinson Crusoe's Production Possibilities	26	(6)
Opportunity Cost	28	(1)
The Law of Increasing Costs	28	(1)
Added Perspective: Guns and Butter	29	(2)
Once Rich, It's Easy to Get Richer	31	(1)
Once Poor, It's Easy to Stay Poor	32	(1)
The Productive Power of Advanced Technology	32	(1)
The Indestructible Nature of Ideas	33	(1)
Possibilities, Impossibilities, and Less Than Possibilities	33	(2)
Added Perspective: The Destruction and Reconstruction of Rotterdam	34	(1)
Production Possibilities and Economic Specialization	35	(3)
Added Perspective: Chickens, Vaccines, and Pushing Out the Production Possibilities Curve	36	(1)
Specialization on the Island	36	(1)
International Specialization	37	(1)
The Principle of Comparative Advantage	37	(1)
The Universality of the Production Possibilities Model	38	(5)
Economic Consultants: Economic Research and Analysis by Students for Professionals	39	(1)
Chapter Review	39	(1)
Key Terms	40	(1)
Questions	40	(1)
Practice Problems	41	(1)
Practice Test	42	(1)
Demand and Supply	43	(22)
Measuring Consumer Willingness	44	(1)
Measuring Consumer Demand	44	(2)
Measuring Individual Demand	44	(1)
Measuring Market Demand	45	(1)
Measuring Supply	46	(1)
Market-Day Supply	46	(1)
Determining Equilibrium Price	47	(2)
Suppose the Price Is $8	47	(1)
Suppose the Price is $4	48	(1)
Price Always Tends Toward Equilibrium	49	(1)
Market-Day, Short-run, and Long-Run Supply	49	(2)
Changes in Demand	51	(4)
Changes in Income	52	(1)
Added Perspective: De Gustibus Non Est Disputandum	53	(1)
Changes in Taste	54	(1)
Changes in the Prices of Other Goods	54	(1)
Changes in Expectations About Future Prices	54	(1)
Changes in Population Size	54	(1)
A Change in Demand or a Change in Quantity Demanded?	54	(1)
Changes in Supply	55	(2)
Changes in Technology	55	(1)
Changes in Resource Prices	56	(1)
Changes in the Prices of Other Goods	56	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	57	(1)
Changes in the Number of Suppliers	57	(1)
Why the Price of an Orange Is 30 Cents at the Supermarket	57	(2)
Price Serves as a Rationing Mechanism	59	(6)
Chapter Review	61	(1)
Key Terms	62	(1)
Questions	62	(1)
Practice Problems	63	(1)
Practice Test	64	(1)
PART 2 INTRODUCTION TO MICROECONOMICS	65	(90)
Elasticity	66	(24)
Demand Sensitivities and Insensitivities	67	(2)
Expressing Demand Sensitivity Graphically	67	(1)
Are Our Demand Sensitivities Alike?	68	(1)
What Factors Influence Demand Sensitivity?	69	(2)
Low-Priced Goods	69	(1)
Income Levels	69	(1)
Substitute Goods	70	(1)
Basic Goods	70	(1)
Linked Goods	71	(1)
Time to Adjust	71	(1)
Form Sensitivity to Elasticity	71	(1)
Deriving Price Elasticities of Demand	72	(3)
Added Perspective: Planes, Trains and Automobiles	74	(1)
Elasticity and Total Revenue	75	(1)
Estimates of Price Elasticities of Demand	76	(1)
Price Elasticities for Selected Agricultural and Nonagricultural Goods	76	(1)
Short-Run and Long-Run Elasticities	76	(1)
Cross Elasticity	76	(3)
Cross Elasticities Among Substitute Goods	76	(2)
Cross Elasticities Among Complementary Goods	78	(1)
Income Elasticity	79	(2)
Economic Consultants: Economic Research and Analysis by Students for Professionals	80	(1)
Income Elasticity of Inferior Goods	81	(1)
Supply Elasticity	81	(3)
Added Perspective: Cross Elasticities in the Sound Business	82	(1)
Market-Day Supply elasticity	83	(1)
Short-Run Supply Elasticity	83	(1)
Long-Run Supply Elasticity	84	(1)
Elasticities and Taxation	84	(6)
Per Unit Tax Shifts the Supply Curve	85	(1)
The Ultimate Per Unit Tax?	86	(1)
Chapter Review	86	(1)
Key Terms	87	(1)
Questions	87	(1)
Practice Problems	88	(1)
Practice Test	89	(1)
Marginal Utility and Consumer Choice	90	(26)
What Is Marginal Utility?	91	(3)
The More the Better, Up to a Point	91	(1)
The Law of Diminishing Marginal Utility	91	(2)
Added Perspective: Beauty and the Beast---An Economist's Abridged Version	93	(1)
The Water-Diamond Paradox	94	(1)
French Cuisine and Marginal Utility	94	(2)
Added Perspective: The Fat Principles	95	(1)
Understanding the Law of Demand	96	(4)
Making Selections from a Given Budget	96	(2)
The MU/P Equalization Principle	98	(1)
Added Perspective: Are White Rats Rational Consumers?	99	(1)
The MU/P Equalization Principle and the Law of Demand	99	(1)
The MU/P Guide to Auction Bidding	100	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	101	(1)
Creating Consumer Surplus	101	(2)
Interpresonal Comparisons of Utility	103	(5)
Chapter Review	103	(1)
Key Terms	104	(1)
Questions	104	(1)
Practice Problems	105	(2)
Practice Test	107	(1)
Appendix The Indifference Curve Approach to Demand Curves	108	(1)
Identifying Equally Preferred Sets of Goods	108	(2)
Marginal Rate of Substitution	109	(1)
Constructing Indifference Maps	110	(1)
The Budget Constraint	110	(2)
Price Changes Shift the Budget Constraint	111	(1)
Income Changes, Too, Shift the Budget Constraint	112	(1)
Deriving the Demand Curve for Amusement Goods	112	(4)
Relating Quantity Demanded to Price	113	(1)
Appendix Review	114	(1)
Questions	115	(1)
Price Ceilings and Price Floors	116	(22)
The Fishing Economy, Once Again	117	(2)
Now, a National Security Crisis	117	(1)
Mobilizing Fishermen	117	(1)
Who can Afford a $10 Fish?	118	(1)
Setting a Ceiling on Price	119	(2)
Living with Chronic Excess Demand	119	(1)
Price Ceilings and Ration Coupons During World War II	120	(1)
Did the Price Control System Work?	120	(1)
There's Also Reason for Price Floors	121	(2)
Setting a Floor on Price	121	(1)
Living with Chronic Excess Supply	122	(1)
Agriculture's Technological Revolution	123	(2)
The Effect of Technological Change on Agricultural Supply	125	(1)
To Intervene or Not to Intervene: That Is the Question	126	(1)
Parity Pricing as a Price Floor	126	(7)
Economic Consultants: Economic Research and Analysis by Students for Professionals	127	(1)
The Invention of Parity Pricing	127	(2)
Deriving Parity Price Ratios	129	(1)
Living Under Parity	129	(1)
Added Perspective: Who Gets the farm Subsidies?	130	(1)
Target Prices and Deficiency Payments	131	(2)
Added Perspective: ``Crop'' Limitations of Another Kind	133	(1)
A Long Tradition of Price Ceilings and Price Floors	133	(5)
Chapter Review	134	(1)
Key Terms	135	(1)
Questions	135	(1)
Practice Problems	135	(2)
Practice Test	137	(1)
Business Ownership and Organization: Proprietorships, Partnerships, and Corporations	138	(17)
Sole Proprietorship	139	(1)
Partnership	140	(1)
Corporation	140	(5)
The Security of Limited Liability	140	(1)
Setting Up the Corporation	141	(1)
The Sky's the Limit in Stock Issues	142	(1)
Added Perspective: Want to Minimize Risk? Try a Mutual Fund	143	(2)
Economic Consultants: Economic Research and Analysis by Students for Professionals	145	(1)
How U.S. Business Is Organized	145	(1)
Profile of Stockholders	146	(2)
Indirect Stock Ownership	148	(1)
International and Multinational Corporations	148	(7)
Added Perspective: Multinational Are Becoming More and More Multi	149	(2)
Chapter Review	151	(1)
Key Terms	152	(1)
Questions	152	(2)
Practice Test	154	(1)
PART 3 THE MICROECONOMICS OF PRODUCT MARKETS	155	(166)
Costs of Production	157	(28)
Getting into the Fishing Business	158	(1)
Total Fixed Costs	158	(1)
Committing to Fixed Costs	158	(1)
Calculating Fixed Costs	159	(1)
Total Variable Costs	159	(7)
The Cost of Labor	161	(1)
Added Perspective: The Law of Diminishing Returns	162	(2)
Added Perspective: How Driving Costs can Vary	164	(1)
The Cost of Fuel	165	(1)
The Costs of Bait, Ice, and Equipment	165	(1)
Adding Up the Variable Costs	165	(1)
Total Costs	166	(1)
What's the Average Cost of Producing Fish?	167	(2)
Average Fixed and Average Variable Costs	167	(2)
Average total Cost	169	(1)
To Produce or Not to Produce, That Is the Question	169	(1)
Marginal Cost	169	(3)
Economies and Diseconomies of Scale	172	(3)
Added Perspective: Big, Bigger, Biggest	173	(2)
Long-Run and Short-Run Average Total Cost Curves	175	(3)
Rightsizing or Downsizing Along the Long-Run Average Total Cost Curve	176	(1)
What Is True for the Fishing Industry Is True for All Industries	177	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	178	(1)
What Businesspeople Think About the Character of Their Average total Costs	178	(2)
Behind Every Cost Curve Is a Socioeconomic Environment	180	(5)
Chapter Review	181	(1)
Key Terms	182	(1)
Questions	182	(1)
Practice Problems	183	(1)
Practice Test	184	(1)
Maximizing Profit	185	(17)
Entrepreneurs and Profit Making	186	(1)
Profit-Maximizing Fishermen	186	(2)
Profit Depends on Price and Costs	186	(1)
Should Fishermen Produce More Fish?	187	(1)
The MR=MC rule	188	(2)
Thinking on the Margin	188	(1)
Total, Average, and Marginal Revenue	188	(2)
Applying the MR=MC Rule	190	(3)
Added Perspective: Maximizing Profit on Israel's Kibbutzim	192	(1)
How Much Profit Is Maximum Profit?	193	(1)
Maximizing Profit and Minimizing Loss	193	(2)
Do Firms Really Behave This Way?	195	(3)
The Lester-Machlup Controversy	195	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	196	(1)
Empire Building	196	(1)
Added Perspective: Why Profit Maximization? Of the Origin of Ambition, and of the Distinction of Ranks	197	(1)
What Survives of Marginalism?	198	(4)
Chapter Review	199	(1)
Key Terms	199	(1)
Questions	199	(1)
Practice Problems	200	(1)
Practice Test	201	(1)
Identifying Markets and Market Structures	202	(24)
Defining the Relevant Market	203	(1)
Rose Is a Rose Is a Rose Is a Rose?	203	(1)
Movies and Entertainment	203	(1)
Automobiles and Transportation	203	(1)
Courts and Markets	204	(1)
Cross Elasticity Defines the Market	205	(2)
Cross Elasticities in the Flower Market	205	(1)
Added Perspective: Nike: From Shoes to Swoosh	206	(1)
How High Is a High Cross Elasticity?	207	(1)
Markets and Market Structures	207	(2)
The World of Monopoly	209	(3)
Size Is Not Important	209	(1)
The Firm Is the Industry	209	(1)
No Entry into the Industry	210	(2)
The World of Monopolistic Competition and Oligopoly	212	(7)
No Easy Entry, but Entry Nonetheless	212	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	213	(1)
Firms Producing Close Substitutes	213	(2)
Added Perspective: It's Hard to Make a Profit When You're Competing Against Yourself	215	(1)
As More Firms Enter the Market, Firm Demand Curves Become More Elastic	215	(1)
Added Perspective: Who can Be Loyal to a Trash Bag?	216	(2)
The Role of Advertising	218	(1)
The World of Perfect Competition	219	(2)
Prefectly Competitive Firms Produce Perfect Substitutes	219	(1)
Perfectly Competitive Firms Have Insignificant Market Share	219	(1)
Perfectly Competitive Firms Have Free Entry	220	(1)
Perfectly Competitive Firms Cannot Influence Price	220	(1)
Putting Together a Scorecard on Market Structures	221	(5)
Chapter Review	222	(1)
Key Terms	223	(1)
Questions	223	(1)
Practice Problems	224	(1)
Practice Test	225	(1)
Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition	226	(25)
Price and Output Under Monopoly	227	(3)
The MR=MC Rule Applied	227	(2)
Maximum Profit, but Less Than Maximum Efficiency	229	(1)
Price and Output in Monopolistic Competition	230	(4)
Product Differentiation in Monopolistic Competition	230	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	230	(1)
Rudd's Short-Run Equilibrium Position in a Monopolistically Competitive Market	231	(1)
Rudd's Long-Run Equilibrium Position in a Monopolistically Competitive Market	232	(1)
Added Perspective: Consumers Face Flood of Products	233	(1)
Making Normal Profit	234	(1)
Price and Output in Perfect Competition	234	(4)
There's No Product Differentiation in Perfectly Competitive Markets	234	(1)
Added Perspective: Explicit and Implicit Costs	235	(1)
The Firm in Perfect Competition	236	(2)
Short-Run Equilibrium Price and Output for the Firm in Perfect Competition	238	(2)
Long-Run Equilibrium Price and Output for the Firm in Perfect Competition	240	(3)
Lowest Prices and Greatest Output	241	(1)
The Firm's Supply Curve	241	(1)
The Market's Supply Curve	242	(1)
Innovators and Imitators in the Perfectly Competitive Market	243	(1)
Does Competition Always Generate Lowest Prices and Highest Output?	244	(7)
The Schumpeter Hypothesis	244	(2)
Some, But Not All, Economists Agree	246	(1)
Chapter Review	247	(1)
Key Terms	248	(1)
Questions	248	(1)
Practice Problems	249	(1)
Practice Test	250	(1)
Price and Output Determination Under Oligopoly	251	(26)
Oligopoly and Concentration Ratios	252	(4)
Tracking Concentration Ratios Through the U.S. Economy	252	(1)
How Oligopolistic Is the U.S. Economy?	253	(1)
Is the U.S. Economy Becoming More Oligopolistic?	253	(1)
Added Perspective: A Cautionary Note on Concentration Ratios	254	(1)
Concentration Ratios and Market Power	254	(2)
Does the United States Have a Monopoly on Oligopoly?	256	(1)
Concentrating the Concentration	256	(5)
Horizontal Mergers	256	(1)
Added Perspective: The Herfindahl-Hirschman Index	257	(1)
Vertical Mergers	258	(1)
Conglomerate Mergers	259	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	259	(1)
Cartels: Mergers Without Merging	260	(1)
Concentration Ratios and Oligopoly Prices	261	(1)
Theories of Oligopoly Pricing	261	(6)
Game Theory Pricing	262	(1)
Added Perspective: The Prisoners' Dilemma	263	(1)
Godfathers and Price Leadership	264	(1)
The Kinked Demand Curve	264	(3)
Oligopoly and Brand Multiplication	267	(2)
Added Perspective: When Patents Expire: Preparing for Market Segmentation	268	(1)
Why Oligopolists Sometimes Price Discriminate	269	(2)
Segmenting the Market	269	(1)
Price Discrimination Almost Everywhere	270	(1)
Gray Area of Price Discrimination	271	(1)
Cartel Pricing	271	(6)
Chapter Review	273	(1)
Key Terms	273	(1)
Questions	274	(1)
Practice Problems	274	(2)
Practice Test	276	(1)
Antitrust and Regulation	277	(24)
Learning to Cope Without Perfect Competition	278	(2)
Regulating Monopoly	278	(1)
Nationalizing the Industry	278	(1)
Taking a Laissez-Faire Approach	279	(1)
Encouraging Concentration	279	(1)
Splitting Up Monopoly	279	(1)
The Economics of Regulation	280	(5)
Regulating a City Bus Monopoly	280	(1)
Setting a ``Fair'' Price: P = ATC	281	(1)
Applying Marginal Costs Pricing: P = MC	282	(1)
Who Regulates the Regulators?	282	(1)
The Economics of Deregulation	283	(2)
The Economics of Nationalization	285	(2)
Price Options Facing Government	285	(1)
Can the Government Run Industry Efficiently?	285	(2)
The Economics of Laissez-Faire	287	(2)
The Theory of Contestable Markets	287	(1)
The Theory of Countervailing Power	287	(1)
The Theory of Creative Destruction	288	(1)
The Economics of Encouraging Monopoly	289	(1)
The Economics of Splitting Up Monopoly	290	(1)
The History of Antitrust Legislation	290	(3)
The Sherman Antitrust Act of 1890	290	(1)
The Clayton Act of 1914	291	(1)
The Federal Trade Commission Act of 1914	291	(1)
Added Perspective: Drug Firms Accused of Violating Antitrust Laws	292	(1)
Plugging the Loopholes	293	(1)
Funding Antitrust Legislation	293	(1)
Antitrust Goes to Court	293	(3)
The Rule of Reason	294	(1)
The Per Se Criterion	294	(1)
Rethinking the Reinterpretation	294	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	295	(1)
Conglomerates and the Court	295	(1)
But FTC Justice Are Still in Business	296	(1)
Using the Herfindahl-Hirschman Index	296	(1)
Going After the Precedent	296	(1)
Do We Have a Policy on Monopoly?	296	(5)
Added Perspective: Consent Decree: The FTC's ``Managed Care'' of the Economy's competitiveness	297	(1)
Chapter Review	298	(1)
Key Terms	299	(1)
Questions	299	(1)
Practice Test	300	(1)
Externalities, Market Failure, And Public Choice	301	(20)
Economic Externalities	302	(1)
Identifying Negative Externalities	302	(1)
Identifying Positive Externalities	302	(1)
Externalities and Property Rights	302	(3)
Added Perspective: Celebrities and Property Rights: A Material View	303	(2)
Why Should Economists Be Interested in Externalities?	305	(3)
Defining Market Failure	305	(1)
Too Much Coal-Fired Electricity, Too Low a Price	306	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	307	(1)
What About Acid Rain?	307	(1)
Correcting Market Failure	308	(3)
Government's Attempt to Correct Market Failure	308	(1)
Creating New Property Forms	308	(1)
Added Perspective: Coase Theorem and Market Failure	309	(1)
Levying a Pollution compensation Tax	309	(1)
Creating Obligatory Controls	310	(1)
The Environmental Protection Agency	310	(1)
Added Perspective: Living in an Imaginary Bubble	311	(1)
Externalities and Public Goods	311	(2)
Positive Externalities and Market Failure	312	(1)
Positive Externalities and Public Goods	312	(1)
Public Goods and Near-Public Goods	313	(1)
Public Goods and Public Choice	313	(8)
Voting Your Demand for Public Goods	314	(1)
Government Failure	314	(2)
Living with Government Failure	316	(1)
Chapter Review	316	(1)
Key Terms	317	(1)
Questions	317	(1)
Partical Problems	317	(2)
Practice Test	319	(2)
PART 4 THE MICROECONOMICS OF FACTOR MARKETS	321	(1)
Wage Rates in Competitive Labor Markets	323	(31)
You Load Sixteen Tons and What Do You Get?	324	(2)
Hiring Miners, One at a Time	324	(2)
Converting Tons into Revenue	326	(1)
Deriving the Firm's Demand for Labor	326	(4)
Deriving Marginal Labor Cost	326	(2)
Demanding Miners Until MRP =w	328	(1)
What Shifts the Demand for Labor?	329	(1)
Industry Demand for Labor	330	(1)
The Supply of Labor	331	(4)
Added Perspective: Wages and Technology	332	(1)
What Shifts the Supply Curve for Labor?	333	(1)
The Backward-bending Supply Curve	334	(1)
Deriving Equilibrium Wage Rates	335	(1)
Explaining Wage Rate Differentials	336	(4)
Narrowing Wage Rate Differences	336	(3)
Added Perspective: The Market Is Mightier Than the Sword	339	(1)
Persisting Wage Differentials	340	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	341	(1)
The Economics of Minimum Wage Rates	341	(2)
The Ethics of w = MRP	343	(1)
The Efficiency Wages Theory	344	(5)
Chapter Review	344	(1)
Key Terms	345	(1)
Questions	345	(1)
Practice Problems	346	(2)
Practice Test	348	(1)
Appendix Who Earns What?	349	(1)
Productivity Counts	349	(1)
Education Counts	350	(1)
Minority Status Counts	351	(1)
Disparities According to Race	351	(1)
Disparities According to Sex	351	(1)
How Important Are Minimum Wages?	352	(2)
Key Terms	353	(1)
Wages and Employment: Monopsony and Labor Unions	354	(18)
Monoposony: When There's Only One Buyer of Labor	355	(2)
The Supply Curve of Labor as Seen by the Monopsony	355	(1)
Reading the Table in Exhibit 2	356	(1)
Choosing the Employment/Wage Rate Combination Under Monopsony	357	(1)
The Return of Monopsony Power	357	(1)
Enter the United Mine Workers' Union	358	(3)
Employment and Wages in A Unionized Labor Market	359	(1)
Added Perspective: The 1990s Have Been Tough Going for Unions: A Case in Point	360	(1)
The Dynamics of Collective Bargaining	360	(1)
Higher Wage Rates Versus More Employment	361	(3)
Monpsonist Demands More, Union Reluctant to Supply	362	(1)
Added Perspective: The UPS Strike Reflects Wide Worry About Part-Time Workers	363	(1)
Unions in the United States: A Brief History	364	(8)
The Knights of Labor	364	(1)
The American Federation of Labor	365	(1)
The Congress of Industrial Organizations	365	(1)
The AFL-CIO Merger: 1955	366	(1)
Labor, Congress, and the Courts	366	(2)
Economic Consultants: Economic Research and Analysis by Students for Professionals	368	(1)
Chapter Review	368	(1)
Key Terms	369	(1)
Questions	369	(1)
Practice Problems	370	(1)
Practice Test	371	(1)
Interest, Rent, and Profit	372	(21)
From Loanable Funds to Equipment Capital	374	(1)
Edward's Demand for Loanable Funds	374	(1)
The MRP=MFC Rule	375	(1)
Loanable Funds in the Economy: Demand and Supply	375	(1)
The Equilibrium Rate of Interest	376	(1)
The Ethics of Income from Interest	376	(2)
Somebody Did the Saving	377	(1)
Property and Property Rights	377	(1)
The Marxist View of Interest-Derived Income	378	(1)
Present Value	378	(3)
Effect of Changing Interest Rates on Property Values	378	(1)
Property Values and Price Floors	379	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	380	(1)
Almost Anything Is Marketable Property	380	(1)
Income from Rent	381	(6)
The Derivation of Land Rent	381	(1)
Differential Rent	382	(1)
Added Perspective: The Corn Laws Controversy in 19th-Century England	383	(1)
Location Rent	384	(1)
Added Perspective: Big-Time Dreaming	385	(1)
Wage-Related Rents	386	(1)
Income from Profits	387	(6)
We Are a nation of Thomas Edisons	387	(1)
The Invisible Entrepreneurs at General Motors	388	(1)
Chapter Review	389	(1)
Key Terms	390	(1)
Questions	390	(1)
Practice Problems	391	(1)
Practice Test	392	(1)
Income Distribution and Poverty	393	(26)
Not Too Many Coal Miners Are Millionaires	394	(1)
Measuring Income Distribution	395	(3)
The Lorenz Curve	395	(2)
Gini Coefficients of Inequality	397	(1)
How Unequal Is Our Income Distribution?	398	(2)
Is Income More Unequal in the United States Than in Other Countries?	399	(1)
Distribution of Net Wealth	400	(1)
Is There an Optimal Income Distribution?	401	(8)
The Case for Equality	401	(1)
Added Perspective: Inequality and the Winner-Take-All Society	402	(4)
Added Perspective: Climbing Out of Poverty Is Becoming More Difficult	406	(1)
The Case for Inequality	407	(2)
Do We Have to Live with Poverty?	409	(2)
Defining Poverty	409	(1)
Who and How Many Air in Poverty?	410	(1)
Fighting the War on Poverty	411	(2)
Lyndon Johnson's War on Poverty	411	(1)
Making an Honest Effort?	411	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	412	(1)
The Negative Income Tax Alternative	413	(6)
Chapter Review	414	(1)
Key Terms	415	(1)
Questions	415	(1)
Practice Problems	415	(1)
Practice Test	416	(3)
PART 5 THE WORLD ECONOMY
International Trade	419	(26)
Intrastate Trade	419	(2)
Illinois Corn for Illinois Oil	420	(1)
Oklahoma Corn for Oklahoma Oil	421	(1)
Interstate Trade	421	(2)
The Case for Geographic Specialization	421	(2)
Nobody Loses?	423	(1)
International Trade	423	(1)
Absolute and Comparative Advantage	424	(2)
Comparative Advantage	424	(1)
How Much Is Gained from Free Trade Depends on Price	425	(1)
Calculating Terms of Trade	426	(2)
The Dilemma of the Less-Developed Countries	426	(1)
Looking at Real-World Numbers	427	(1)
Who Trades with Whom? Tracking International Trade	428	(1)
The Major Leagues	429	(1)
Who Does the United State Trade With?	429	(1)
Do We Need Protection Against Free Trade?	430	(3)
The National Security Argument	430	(1)
The Infant-Industries Argument	431	(1)
The Cheap Foreign Labor Argument	431	(1)
The Diversity of Industry Argument	432	(1)
The Antidumping Argument	432	(1)
The Retaliation Argument	432	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	433	(1)
The Economics of Trade Protection	433	(3)
Tariffs	433	(2)
Quotas	435	(1)
Other Nontariff Barriers	436	(1)
Negotiating Tariff Structures	436	(4)
Gatt	436	(1)
Added Perspective: How Much Do barriers to Imports Cost Japanese Consumers?	437	(1)
Gatt Concessions to Less-Developed Countries	438	(1)
Customs Unions	438	(1)
Free Trade Areas	439	(1)
The North American Free Trade Agreement	439	(1)
Tracking Tariffs Since 1860	440	(5)
Chapter Review	441	(1)
Key Terms	442	(1)
Questions	442	(1)
Practice Problems	443	(1)
Practice Test	444	(1)
Exchange Rates, Balance of Payments, and International Debt	445	(23)
The Money Tower of Bebel	446	(1)
The Foreign Exchange Market: The buying and Selling of Currencies	446	(3)
The Demand Curve for Yaps	446	(1)
The Supply Curve of Yaps	447	(1)
Shifts in the Demand Curve for Yaps	447	(1)
Shifts in the Supply Curve of Yaps	448	(1)
Floating Exchange Rates	449	(6)
Depreciation and Appreciation	449	(1)
Added Perspective: Tourists at the Mall	450	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	451	(1)
Arbitrage Creates Mutually Consistent Exchange Rates	451	(1)
Problems with Floating Exchange Rates	452	(1)
Fixing Exchange Rates	452	(1)
What If the Government Runs Out of Foreign Exchange Reserves?	453	(1)
Added Perspective: Brazil Ponders Devaluation, Inflation, and the IMF	454	(1)
Balance of Payments	455	(4)
Balance on Current Account	455	(3)
Balance on Capital Account	458	(1)
What Is a Balance of Payments Problems?	459	(2)
Do Trade Imbalances Always Create Problems?	459	(1)
Added Perspective: Asian Crisis Prompts Drop in PC Prices	460	(1)
How Deficits on Current Account Develop	461	(1)
The Trouble with Being Popular	461	(1)
The High Cost of High Interest Rates	461	(1)
The High Cost of Budgetary Deficits	461	(1)
The High Cost of Low Productivity	461	(1)
International Debt	462	(1)
Will It All work Out Right in the Long Run?	463	(5)
Chapter Review	463	(1)
Key Terms	464	(1)
Questions	465	(1)
Practice Problems	465	(2)
Practice Test	467	(1)
The Economic Problems of Less-Developed Economies	468	(1)
Confronting National Poverty	469	(1)
The language of National Poverty	469	(1)
There Are Important Differences Among the Less-Developed Economies	469	(1)
LCD Per Capita Incomes	470	(2)
Other Indicators of the LCDs' Lack of Economic Well-Being	472	(1)
Economic Dualism	473	(1)
The Absence of Basic Prerequisites	474	(4)
Political Instability	475	(1)
Nonscientific Perceptions	475	(1)
The Absence of Infrastructure	476	(1)
Added Perspective: Wiring the World	477	(1)
Pursuing Strategies of Development	478	(5)
The Big Push	478	(1)
Economic Consultants: Economic Research and Analysis by Students for Professionals	479	(1)
The Unbalanced Development Strategy	480	(2)
Added Perspective: The Road to Better Farming	482	(1)
Foreign Direct Investment	483	(1)
Images from the Colonial Past	483	(1)
Foreign Economic Acid	484	(1)
Chapter Review	485	(1)
Key Terms	485	(1)
Questions	485	(2)
Practice Test	487	(1)
Practice Test Answer Key	AK-1	(1)
Glossary	G-1	(1)
Index	I-1	(1)
Photo Credits	PC-1