Principles of Economics - 3e Contents

CONTENTS Preface CHAPTER Welcome to Economics ! Introduction What Is Economics , and Why Is It Important ?

10 and 15 How Economists Use Theories and Models to Understand Economic Issues 16 How To Organize Economies An Overview of Economic Systems 18 Key Terms 24 Key Concepts and Summary 24 Questions 25 Review Questions 25 Critical Thinking Questions 26 CHAPTER Choice in a World of Scarcity 27 Introduction to Choice in a World of Scarcity 27 How Individuals Make Choices Based on Their Budget Constraint 28 The Production Possibilities Frontier and Social Choices 33 Confronting Objections to the Economic Approach 38 Key Terms 43 Key Concepts and Summary 43 Questions 44 Review Questions 44 Critical Thinking Questions 45 Problems 45 CHAPTER Demand and Supply 47 Introduction to Demand and Supply 47 Demand , Supply , and Equilibrium in Markets for Goods and Services 48 Shifts in Demand and Supply for Goods and Services 54 Changes in Equilibrium Price and Quantity The Process 64 Price Ceilings and Price Floors 70 Demand , Supply , and 74 Key Terms 78 Key Concepts and Summary 79 Questions 80 Review Questions 81 Critical Thinking Questions 81 Problems 82 Labor and Financial Markets 37 Introduction to Labor and Financial Markets 87

Demand and Supply at Work in Labor Markets 88 Demand and Supply in Financial Markets 96 The Market System as an Mechanism for Information 102 Key Terms 106 Key Concepts and Summary 106 Questions 106 Review Questions 108 Critical Thinking Questions 108 Problems 109 CHAPTER Elasticity 111 Introduction to Elasticity 111 Price Elasticity of Demand and Price Elasticity of Supply 112 Polar Cases of Elasticity and Constant Elasticity 117 Elasticity and Pricing 120 Elasticity in Areas Other Than Price 128 Key Terms 13 Key Concepts and Summary 132 Questions 133 Review Questions 134 Critical Thinking Questions 135 Problems 135 CHAPTERS Consumer Choices 137 Introduction to Consumer Choices 137 Consumption Choices 138 How Changes in Income and Prices Affect Consumption Choices 145 Behavioral Economics An Alternative Framework for Consumer Choice 151 Key Terms 154 Key Concepts and Summary 154 Questions 155 Review Questions 155 Critical Thinking Questions 156 Problems 156 CHAPTER Production , Costs , and Industry Structure 157 Introduction to Production , Costs , and Industry Structure 157 Explicit and Implicit Costs , and Accounting and Economic 159 Production in the Short Run 161 Costs in the Short Run 165 Production in the Long Run 172 Costs in the Long Run 174 Key Terms 182 Key Concepts and Summary 182 Questions 184 Review Questions 185 Critical Thinking Questions 185 Problems 186 Access for free at

CHAPTER Perfect Competition 137 Introduction to Perfect Competition 187 Perfect Competition and Why It Matters 188 How Perfectly Competitive Firms Make Output Decisions 189 Entry and Exit Decisions in the Long Run 204 in Perfectly Competitive Markets 206 Key Terms 209 Key Concepts and Summary 209 Questions 210 Review Questions 211 Critical Thinking Questions 212 Problems 213 CHAPTER 215 Introduction to a Monopoly 215 How Monopolies Form Barriers to Entry 217 How a Monopoly Chooses Output and Price 221 Key Terms 23 Key Concepts and Summary 232 Questions 233 Review Questions 233 Critical Thinking Questions 234 Problems 234 CHAPTER 10 Monopolistic Competition and Oligopoly 237 Introduction to Monopolistic Competition and Oligopoly 237 Monopolistic Competition 238 Oligopoly 246 Key Terms 253 Key Concepts and Summary 253 Questions 254 Review Questions 255 Critical Thinking Questions 255 Problems 256 CHAPTER 11 Monopoly and Antitrust Policy 259 Introduction to Monopoly and Antitrust Policy 259 Corporate Mergers 260 Regulating Behavior 266 Regulating Natural Monopolies 268 The Great Deregulation Experiment 271 Key Terms 274 Key Concepts and Summary 274 Questions 275 Review Questions 276 Critical Thinking Questions 277 Problems 278

CHAPTER 12 Environmental Protection and Negative 221 Introduction to Environmental Protection and Negative 281 The Economics of Pollution 282 Regulation 286 Environmental Tools 287 The and Costs of Environmental Laws 290 International Environmental Issues 293 The Economic Output and Environmental Protection 294 Key Terms 297 Key Concepts and Summary 297 Questions 298 Review Questions 303 Critical Thinking Questions 303 Problems 304 CHAPTER 13 Positive and Public Goods 307 Introduction to Positive and Public Goods 307 Investments in Innovation 308 How Governments Can Encourage Innovation 313 Public Goods 316 Key Terms 21 Key Concepts and Summary 321 Questions 321 Review Questions 323 Critical Thinking Questions 323 Problems 324 CHAPTER 14 Labor Markets and Income 325 Introduction to Labor Markets and Income 325 The Theory of Labor Markets 326 Wages and Employment in an Imperfectly Competitive Labor Market 331 Market Power on the Supply Side of Labor Markets Unions 335 Bilateral Monopoly 342 Employment Discrimination 343 Immigration 350 Key Terms 53 Key Concepts and Summary 353 Questions 354 Review Questions 356 Critical Thinking Questions 357 CHAPTER 15 Poverty and Economic Inequality 359 Introduction to Poverty and Economic Inequality 359 Drawing the Poverty Line 360 The Poverty Trap 363 The Safety Net 366 Income Inequality Measurement and Causes 370 Access for free at

Government Policies to Reduce Income Inequality 376 Key Terms 381 Key Concepts and Summary 381 Questions 382 Review Questions 383 Critical Thinking Questions 384 Problems 385 CHAPTER 16 Information , Risk , and Insurance 387 Introduction to Information , Risk , and Insurance 387 The Problem of Imperfect Information and Asymmetric Information 388 Insurance and Imperfect Information 394 Key Terms 403 Key Concepts and Summary 403 Questions 404 Review Questions 404 Critical Thinking Questions 405 Problems 405 CHAPTER 17 Financial Markets 407 Introduction to Financial Markets 407 How Businesses Raise Financial Capital 409 How Households Supply Financial Capital 413 How to Accumulate Personal Wealth 424 Key Terms 429 Key Concepts and Summary 430 Questions 431 Review Questions 431 Critical Thinking Questions 432 Problems 432 CHAPTER 18 Public Economy 435 Introduction to Public Economy 435 Voter Participation and Costs of Elections 436 Special Interest Politics 438 Flaws in the Democratic System of Government 442 Key Terms 446 Key Concepts and Summary 446 Questions 446 Review Questions 447 Critical Thinking Questions 447 Problems 448 CHAPTER 19 The Perspective 449 Introduction to the Perspective 449 Measuring the Size of the Economy Gross Domestic Product 451 Adjusting Nominal Values to Real Values 460

Tracking Real over Time 465 Comparing among Countries 467 How Well Measures the of Society 470 Key Terms 473 Key Concepts and Summary 473 Questions 474 Review Questions 475 Critical Thinking Questions 475 Problems 476 CHAPTER 20 Economic Growth 477 Introduction to Economic Growth 477 The Relatively Recent Arrival of Economic Growth 478 Labor Productivity and Economic Growth 481 Components of Economic Growth 487 Economic Convergence 492 Key Terms 497 Key Concepts and Summary 497 Questions 498 Review Questions 499 Critical Thinking Questions 499 Problems 500 CHAPTER 21 Unemployment 501 Introduction to Unemployment 501 How Economists and Compute Unemployment Rate Patterns 507 What Causes Changes in Unemployment over the Short Run What Causes Changes in Unemployment over the Long Run Key Terms 524 Key Concepts and Summary 524 Questions 525 Review Questions 525 Critical Thinking Questions 527 Problems 528 CHAPTER 22 Inflation 529 Introduction to 529 Tracking 530 How to Measure Changes in the Cost of Living 534 How the and Other Countries Experience 539 The Confusion Over 543 Indexing and Its Limitations 548 Key Terms 551 Key Concepts and Summary 551 Questions 552 Review Questions 553 Critical Thinking Questions 554 Access for free at 502 512 516

Problems 554 CHAPTER 23 The International Trade and Capital Flows 557 Introduction to the International Trade and Capital Flows 557 Measuring Trade Balances 559 Trade Balances in Historical and International Context 562 Trade Balances and Flows of Financial Capital 564 The National Saving and Investment Identity 567 The Pros and Cons of Trade and Surpluses 572 The Difference between Level of Trade and the Trade Balance 574 Key Terms 576 Key Concepts and Summary 576 Questions 577 Review Questions 578 Critical Thinking Questions 579 Problems 579 CHAPTER 24 The Aggregate Su Model Introduction to the Aggregate Demand Model 581 Perspectives on Demand and Supply 583 Building a Model Demand and Aggregate Supply 584 Shifts in Aggregate Supply 590 Shifts in Aggregate Demand 592 How the Model Incorporates Growth , Unemployment , and Keynes Law and Say Law in the Model 599 Key Terms 601 Key Concepts and Summary 601 Questions 603 Review Questions 603 Critical Thinking Questions 604 Problems 606 CHAPTER 25 The Perspective 609 Introduction to the Perspective 609 Aggregate Demand in Analysis 611 The Building Blocks of Analysis 614 The Phillips Curve 618 The Perspective on Market Forces 622 Key Terms 624 Key Concepts and Summary 624 Questions 625 Review Questions 625 Critical Thinking Questions 626 CHAPTER 26 The Neoclassical Perspective 627 Introduction to the Neoclassical Perspective 627 The Building Blocks of Neoclassical Analysis 629 581 596

The Policy Implications of the Neoclassical Perspective 634 Balancing and Neoclassical Models 641 Key Terms 643 Key Concepts and Summary 643 Questions 644 Review Questions 644 Critical Thinking Questions 644 Problems 645 CHAPTER 27 Money and Banking 547 Introduction to Money and Banking 647 Money by Its Functions 648 Measuring Money Currency , and 650 The Role 654 How Banks Create Money 659 Key Terms 663 Key Concepts and Summary 664 Questions 665 Review Questions 665 Critical Thinking Questions 666 Problems 666 CHAPTER 28 Monetary Policy and Bank Regulation 667 Introduction to Monetary Policy and Bank Regulation 667 The Federal Reserve Banking System and Central Banks 668 Bank Regulation 671 How a Central Bank Executes Monetary Policy 673 Monetary Policy and Economic Outcomes 677 Pitfalls for Monetary Policy 683 Key Terms 690 Key Concepts and Summary 690 Questions 691 Review Questions 692 Critical Thinking Questions 692 Problems 693 CHAPTER 29 Exchange Rates and International Capital Flows Introduction to Exchange Rates and International Capital Flows 695 How the Foreign Exchange Market Works 696 Demand and Supply Shifts in Foreign Exchange Markets 704 Effects of Exchange Rates 708 Exchange Rate Policies 711 Key Terms 718 Key Concepts and Summary 718 Questions 719 Review Questions 720 Critical Thinking Questions 720 Problems 721 Access for free at 695

CHAPTER 30 Government Budgets and Fiscal Policy 723 Introduction to Government Budgets and Fiscal Policy 723 Government Spending 724 Taxation 727 Federal and the National Debt 730 Using Fiscal Policy to Fight Recession , Unemployment , and 733 Automatic Stabilizers 737 Practical Problems with Discretionary Fiscal Policy 739 The Question ofa Balanced Budget 742 Key Terms 744 Key Concepts and Summary 744 Questions 746 Review Questions 747 Critical Thinking Questions 747 Problems 748 CHAPTER 31 The Impacts of Government Borrowing 749 Introduction to the Impacts of Government Borrowing 749 How Government Borrowing Affects Investment and the Trade Balance 750 Fiscal Policy and the Trade Balance 753 How Government Borrowing Affects Private Saving 756 Fiscal Policy , Investment , and Economic Growth 758 Key Terms 764 Key Concepts and Summary 764 Questions 764 Review Questions 765 Critical Thinking Questions 765 Problems 766 CHAPTER 32 Policy Around the World 757 Introduction to Policy around the World 767 The Diversity of Countries and Economies across the World 768 Improving Countries Standards of Living 772 Causes around the World 777 Causes of in Various Countries and Regions 779 Balance of Trade Concerns 780 Key Terms 785 Key Concepts and Summary 785 Questions 786 Review Questions 787 Critical Thinking Questions 787 Problems 788 CHAPTER 33 International Trade 739 Introduction to International Trade 789 Absolute and Comparative Advantage 790 What Happens When a Country Has an Absolute Advantage in All Goods 796

Trade between Similar Economies 801 The of Reducing Barriers to International Trade 804 Key Terms 806 Key Concepts and Summary 806 Questions 806 Review Questions 807 Critical Thinking Questions 808 Problems 809 CHAPTER 34 Globalization and Protectionism 811 Introduction to Globalization and Protectionism 811 Protectionism An Indirect Subsidy from Consumers to Producers 812 International Trade and Its Effects on Jobs , Wages , and Working Conditions Arguments in Support of Restricting Imports 822 How Governments Enact Trade Policy Globally , Regionally , and Nationally The of Trade Policy 832 Key Terms 83 Key Concepts and Summary 835 Questions 836 Review Questions 837 Critical Thinking Questions 838 Problems 839 Use of Mathematics in Principles of Economics 841 Appendix Indifference Curves 859 Present Discounted Value 873 Appendix The Model 877 Answer Key 901 References 947 Index 969 Access for free at 819 828