Economics, Global Edition

Cover
Half Title
Title Page
Copyright
Dedication
About The Authors
Brief Contents
Contents
Preface
Part 1: Introduction
Chapter 1: Economics: Foundationsand Models
Does Apple Manufacture the iPhone in the United States?
1.1 Three Key Economic Ideas
People Are Rational
People Respond to Economic Incentives
Apply the Concept: Would a Congressional Bill Aimed at Increasing the Pay of Low-Wage Workers Backfire?
Optimal Decisions Are Made at the Margin
Solved Problem 1.1: The Marginal Benefit and Marginal Cost of Delivering Packages for Amazon
1.2 The Economic Problem That Every Society Must Solve
What Goods and Services Will Be Produced?
How Will the Goods and Services Be Produced?
Who Will Receive the Goods and Services Produced?
Centrally Planned Economies versus Market Economies
The Modern “Mixed” Economy
Efficiency and Equity
1.3 Economic Models
The Role of Assumptions in Economic Models
Forming and Testing Hypotheses in Economic Models
Positive and Normative Analysis
Don’t Let This Happen to You: Don’t Confuse Positive Analysis with Normative Analysis
Economics as a Social Science
Apply the Concept: What Can Economics Contribute to the Debate over Tariffs?
1.4 Microeconomics and Macroeconomics
1.5 Economic Skills and Economics as a Career
1.6 A Preview of Important Economic Terms
Conclusion
An Inside Look: Are Tariffs Bringing Manufacturing Jobs Back Home or Just Raising Prices?
*Chapter Summary and Problems
Appendix: Using Graphs and Formulas
Graphs of One Variable
Graphs of Two Variables
Slopes of Lines
Taking into Account More Than Two Variables on a Graph
Positive and Negative Relationships
Determining Cause and Effect
Are Graphs of Economic Relationships Always Straight Lines?
Slopes of Nonlinear Curves
Formulas
Formula for a Percentage Change
Formulas for the Areas of a Rectangle and a Triangle
Summary of Using Formulas
Problems and Applications
Chapter 2: Trade-offs, Comparative Advantage, and the Market System
Elon Musk and Tesla Motors Face a Trade-off
2.1 Production Possibilities Frontiers and Opportunity Costs
Graphing the Production Possibilities Frontier
Solved Problem 2.1: Analyzing Trade-offs Using a Production Possibilities Frontier for Tesla Motors
Increasing Marginal Opportunity Costs
Economic Growth
2.2 Comparative Advantage and Trade
Specialization and Gains from Trade
Absolute Advantage versus Comparative Advantage
Comparative Advantage and the Gains from Trade
Don’t Let This Happen to You: Don’t Confuse Absolute Advantage and Comparative Advantage
Solved Problem 2.2: Comparative Advantage and the Gains from Trade
Apply the Concept: Comparative Advantage, Opportunity Cost, and Housework
2.3 The Market System
The Circular Flow of Income
The Gains from Free Markets
The Market Mechanism
Apply the Concept: A Story of the Market System in Action: How Do You Make an iPad?
The Role of the Entrepreneur in the Market System
The Legal Basis of a Successful Market System
Apply the Concept: What Is Socialism?
Conclusion
An Inside Look: A Plug-in Porsche?
Chapter Summary and Problems
Chapter 3: Where Prices Come From: The Interaction of Demand and Supply
A Basketball Player Takes a Tumble—And So Does Nike
3.1 The Demand Side of the Market
Demand Schedules and Demand Curves
The Law of Demand
What Explains the Law of Demand?
Holding Everything Else Constant: The Ceteris Paribus Condition
Variables That Shift Market Demand
Apply the Concept: Millennials and Generation Z Shake Up the Markets for Groceries, Big Macs, and Running Shoes
A Change in Demand versus a Change in Quantity Demanded
Apply the Concept: Forecasting the Demand for Athletic Shoes
3.2 The Supply Side of the Market
Supply Schedules and Supply Curves
The Law of Supply
Variables That Shift Market Supply
Apply the Concept: Fracking, the U.S. Oil Boom, and Expected Oil Prices
A Change in Supply versus a Change in Quantity Supplied
3.3 Market Equilibrium: Putting Demand and Supply Together
How Markets Eliminate Surpluses and Shortages
Demand and Supply Both Count
Solved Problem 3.3: Demand and Supply Both Count: A Tale of Two Letters
3.4 The Effect of Demand and Supply Shifts on Equilibrium
The Effect of Shifts in Demand on Equilibrium
The Effect of Shifts in Supply on Equilibrium
The Effect of Shifts in Demand and Supply over Time
Apply the Concept: Higher Demand for Cobalt—But Lower Prices?
Solved Problem 3.4: Can We Predict Changes in the Price and Quantity of Merino Wool?
Shifts in a Curve versus Movements along a Curve
Don’t Let This Happen to You: Remember: A Change in a Good’s Price Does Not Cause the Demand or Supply Curve to Shift
Conclusion
An Inside Look: If the Shoe Fits . . . Print It?
Chapter Summary and Problems
Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
What Do Food Riots in Venezuela and the Rise of Uber in the United States Have in Common?
4.1 Consumer Surplus and Producer Surplus
Consumer Surplus
Apply the Concept: The Consumer Surplus from Uber
Producer Surplus
What Consumer Surplus and Producer Surplus Measure
4.2 The Efficiency of Competitive Markets
Marginal Benefit Equals Marginal Cost in Competitive Equilibrium
Economic Surplus
Deadweight Loss
Economic Surplus and Economic Efficiency
4.3 Government Intervention in the Market: Price Floors and Price Ceilings
Price Floors: Government Policy in Agricultural Markets
Apply the Concept: Price Floors in Labor Markets: The Debate over Minimum Wage Policy
Price Ceilings: Government Rent Control Policy in Housing Markets
Don’t Let This Happen to You: Don’t Confuse“Scarcity” with “Shortage”
Black Markets and Peer-to-Peer Sites
Solved Problem 4.3: What’s the Economic Effect of a Black Market in Renting Apartments?
The Results of Government Price Controls: Winners, Losers, and Inefficiency
Apply the Concept: Price Controls Lead to Economic Crisis in Venezuela
Positive and Normative Analysis of Price Ceilings and Price Floors
4.4 The Economic Effect of Taxes
The Effect of Taxes on Economic Efficiency
Tax Incidence: Who Actually Pays a Tax?
Solved Problem 4.4: Who Bears the Burden of the Seattle Beverage Tax?
Apply the Concept: Is the Burden of the Social Security Tax Really Shared Equally between Workers and Firms?
Conclusion
An Inside Look: Uber Fights to Repeal New York City Restrictions
Chapter Summary and Problems
Appendix: Quantitative Demand and Supply Analysis
Demand and Supply Equations
Calculating Consumer Surplus and Producer Surplus
Review Questions
Problems and Applications
Part 2: Markets in Action: Policy and Applications
Chapter 5: Externalities, Environmental Policy, and Public Goods
Are NextEra Energy and Green Power the Future?
5.1 Externalities and Economic Efficiency
The Effect of Externalities
Externalities and Market Failure
What Causes Externalities?
5.2 Private Solutions to Externalities: The Coase Theorem
The Economically Efficient Level of Pollution Reduction
Apply the Concept: The Clean Air Act: How a Government Policy Reduced Infant Mortality
The Basis for Private Solutions to Externalities
Don’t Let This Happen to You: Remember That It’s the Net Benefit That Counts
Do Property Rights Matter?
The Problem of Transactions Costs
The Coase Theorem
Apply the Concept: How Can You Defend Your Knees on a Plane Flight?
5.3 Government Policies to Deal with Externalities
Imposing a Tax When There Is a Negative Externality
Providing a Subsidy When There Is a Positive Externality
Apply the Concept: Should the Government Tax Cigarettes and Soda?
Solved Problem 5.3: Are Congestion Fees the Answer to Big City Traffic Problems?
Command-and-Control versus Market-Based Approaches
The End of the Sulfur Dioxide Cap-and-Trade System
Are Tradable Emission Allowances Licenses to Pollute?
Apply the Concept: Does the United States Need a Green New Deal?
5.4 Four Categories of Goods
The Demand for a Public Good
The Optimal Quantity of a Public Good
Solved Problem 5.4: Determining the Optimal Level of Public Goods
Common Resources
Conclusion
Chapter Summary and Problems
Chapter 6: Elasticity: The Responsiveness of Demand and Supply
Do Soda Taxes Work?
6.1 The Price Elasticity of Demand and Its Measurement
Measuring the Price Elasticity of Demand
Elastic Demand and Inelastic Demand
An Example of Calculating Price Elasticities
The Midpoint Formula
Solved Problem 6.1: Calculating the Price Elasticity of Demand
When Demand Curves Intersect, the Flatter Curve Is More Elastic
Polar Cases of Perfectly Inelastic and Perfectly Elastic Demand
Don’t Let This Happen to You: Don’t Confuse Inelastic with Perfectly Inelastic
6.2 The Determinants of the Price Elasticity of Demand
Availability of Close Substitutes
Passage of Time
Luxuries versus Necessities
Definition of the Market
Share of a Good in a Consumer’s Budget
Some Estimated Price Elasticities of Demand
6.3 The Relationship between Price Elasticity of Demand and Total Revenue
Elasticity and Revenue with a Linear Demand Curve
Solved Problem 6.3: Price and Revenue Don’t Always Move in the Same Direction
Apply the Concept: Amazon and Netflix Test the Price Elasticity of Demand for Their Services
6.4 Other Demand Elasticities
Cross-Price Elasticity of Demand
Income Elasticity of Demand
Apply the Concept: Price Elasticity, Cross-Price Elasticity, and Income Elasticity in the Market for Alcoholic Beverages
6.5 Using Elasticity to Analyze the Disappearing Family Farm
Solved Problem 6.5: Using Price Elasticity to Analyze the Effects of a Soda Tax
6.6 The Price Elasticity of Supply and Its Measurement
Measuring the Price Elasticity of Supply
Determinants of the Price Elasticity of Supply
Apply the Concept: Why Are Oil Prices So Unstable?
Polar Cases of Perfectly Elastic and Perfectly Inelastic Supply
Using Price Elasticity of Supply to Predict Changes in Price
Conclusion
Chapter Summary and Problems
Chapter 7: The Economics of Health Care
Goodbye to Blue Cross and Blue Shield?
7.1 The Improving Health of People in the United States
Changes over Time in U.S. Health
Reasons for Long-Run Improvements in U.S. Health
7.2 Health Care around the World
The U.S. Health Care System
Apply the Concept: The Increasing Importance of Health Care in the U.S. Economy
The Health Care Systems of Canada, Japan, and the United Kingdom
Comparing Health Care Outcomes around the World
How Useful Are Cross-Country Comparisons of Health Outcomes?
7.3 Information Problems and Externalities in the Market for Health Care
Adverse Selection and the Market for “Lemons”
Asymmetric Information in the Market for Health Insurance
Don’t Let This Happen to You: Don’t Confuse Adverse Selection with Moral Hazard
Externalities in the Market for Health Care
Should the Government Run the Health Care System?
7.4 The Debate over Health Care Policy in the United States
The Rising Cost of Health Care
Apply the Concept: Are U.S. Firms Handicapped by Paying for Their Employees’ Health Insurance?
Explaining Increases in Health Care Spending
The Continuing Debate over Health Care Policy
Market-Based Reforms
Apply the Concept: Medicare for All?
Conclusion
Chapter Summary and Problems
Part 3: Firms in the Domestic and International Economies
Chapter 8: Firms, the Stock Market, and Corporate Governance
Investing in Lyft, a Company That Has Never Earned a Profit?
8.1 Types of Firms
Who Is Liable? Limited and Unlimited Liability
Corporations Earn the Majority of Revenue and Profits
Apply the Concept: Why Are Fewer Young People Starting Businesses?
The Structure of Corporations and the Principal–Agent Problem
8.2 How Firms Raise Funds
Sources of External Funds
Apply the Concept: The Rating Game: Are Federal, State, or City Governments Likely to Default on Their Bonds?
Stock and Bond Markets Provide Capital—and Information
The Fluctuating Stock Market
Don’t Let This Happen to You: When Lyft Shares Are Sold, Lyft Doesn’t Get the Money
Why Is It So Hard to Beat the Market?
Apply the Concept: Why Would Anyone Buy Lyft’s Stock?
Solved Problem 8.2: Why Does Warren Buffett Like Mutual Funds?
8.3 Using Financial Statements to Evaluate a Corporation
The Income Statement
The Balance Sheet
Problems in Corporate Governance
Apply the Concept: Should Investors Worry about Corporate Governance at Lyft?
Conclusion
Chapter Summary and Problems
Appendix: Using Present Value
The Concept of Present Value
Solved Problem 8A.1: How to Receive Your Contest Winnings
Using Present Value to Calculate Bond Prices
Using Present Value to Calculate Stock Prices
A Simple Formula for Calculating Stock Prices
Review Questions
Problems and Applications
Online Appendix: Income Statements and Balance Sheets
Chapter 9: Comparative Advantage and the Gains from International Trade
Being Careful What You Wish For: Trade Wars and Whirlpool
9.1 The United States in the International Economy
The Importance of Trade to the U.S. Economy
U.S. International Trade in a World Context
9.2 Comparative Advantage in International Trade
A Brief Review of Comparative Advantage
Comparative Advantage and Absolute Advantage
9.3 How Countries Gain from International Trade
Increasing Consumption through Trade
Solved Problem 9.3: The Gains from Trade
Why Don’t We See Complete Specialization?
Does Anyone Lose as a Result of International Trade?
Don’t Let This Happen to You: Remember That Trade Creates Both Winners and Losers
Apply the Concept: Who Gains and Who Loses from U.S. Trade with China?
Where Does Comparative Advantage Come From?
9.4 Government Policies That Restrict International Trade
Tariffs
Quotas and Voluntary Export Restraints
Measuring the Economic Effect of the Sugar Quota
Solved Problem 9.4: Measuring the Economic Effect of a Quota
The High Cost of Preserving Jobs with Tariffs and Quotas
Apply the Concept: Smoot-Hawley, the Politics of Tariffs, and the Cost of Protecting a Vanishing Industry
Gains from Unilateral Elimination of Tariffs and Quotas
Other Barriers to Trade
9.5 The Debate over Trade Policies and Globalization
Why Do Some People Oppose the World Trade Organization?
Dumping
Apply the Concept: The Trade War of 2018
Positive versus Normative Analysis (Once Again)
Conclusion
Chapter Summary and Problems
Part 4: Microeconomic Foundations:Consumers and Firms
Chapter 10: Consumer Choice andBehavioral Economics
What Happened to Sears and the Other Department Stores?
10.1 Utility and Consumer Decision Making
An Overview of the Economic Model of Consumer Behavior
Utility
The Principle of Diminishing Marginal Utility
The Rule of Equal Marginal Utility per Dollar Spent
Solved Problem 10.1: Finding the Optimal Level of Consumption
What if the Rule of Equal Marginal Utility per Dollar Does Not Hold?
Don’t Let This Happen to You: Equalize Marginal Utilities per Dollar
The Income Effect and Substitution Effect of a Price Change
Don’t Let This Happen to You: The Income Effect Doesn’t Involve an Increase in Money Income
10.2 Where Demand Curves Come From
Apply the Concept: Are There Any Upward-Sloping Demand Curves in the Real World?
10.3 Social Influences on Decision Making
The Effects of Celebrity Endorsements
Network Externalities
Does Fairness Matter?
Apply the Concept: Taylor Swift Tries to Please Fans and Make Money
Solved Problem 10.3: Why Doesn’t Tesla Charge Its Employees to Park Their Cars?
10.4 Behavioral Economics: Do People Make Rational Choices?
Pitfalls in Decision Making
Apply the Concept: Sunk Costs and Sports Teams
“Nudges”: Using Behavioral Economics to Guide Behavior
The Behavioral Economics of Shopping
Apply the Concept: Trying to Use the Apple Approach to Save J.C. Penney
Conclusion
Chapter Summary and Problems
Appendix: Using Indifference Curves and Budget Lines to Understand Consumer Behavior
Consumer Preferences
Indifference Curves
The Slope of an Indifference Curve
Can Indifference Curves Ever Cross?
The Budget Constraint
Choosing the Optimal Consumption of Pizza and Coke
Apply the Concept: Apple Determines the Optimal Mix of iPhone Features
Deriving the Demand Curve
Solved Problem 10A.1: When Does a Price Change Make a Consumer Better Off?
The Income Effect and the Substitution Effect of a Price Change
How a Change in Income Affects Optimal Consumption
The Slope of the Indifference Curve, the Slope of the Budget Line, and the Rule of Equal Marginal Utility per Dollar Spent
The Rule of Equal Marginal Utility per Dollar Spent Revisited
Review Questions
Problems and Applications
Chapter 11: Technology, Production, and Costs
Fracking Lowers the Cost of Oil and Revolutionizes the World Market
11.1 Technology: An Economic Definition
Apply the Concept: Oil Roughnecks Encounter Robots and Drones
11.2 The Short Run and the Long Run in Economics
The Difference between Fixed Costs and Variable Costs
Apply the Concept: Fixed Costs in the Publishing Industry
Implicit Costs versus Explicit Costs
The Production Function
A First Look at the Relationship between Production and Cost
11.3 The Marginal Product of Labor and the Average Product of Labor
The Law of Diminishing Returns
Graphing Production
Apply the Concept: Adam Smith’s Famous Account of the Division of Labor in a Pin Factory
The Relationship between Marginal Product and Average Product
An Example of Marginal and Average Values: College Grades
11.4 The Relationship between Short-Run Production and Short-Run Cost
Marginal Cost
Why Are the Marginal and Average Cost Curves U Shaped?
Solved Problem 11.4: Calculating Marginal Cost and Average Total Cost
11.5 Graphing Cost Curves
11.6 Costs in the Long Run
Economies of Scale
Long-Run Average Cost Curves for Automobile Factories
Solved Problem 11.6: Using Long-Run Average Cost Curves to Understand a Business Merger
Apply the Concept: The Colossal River Rouge: Diseconomies of Scale at Ford Motor Company
Don’t Let This Happen to You: Don’t Confuse Diminishing Returns with Diseconomiesof Scale
Conclusion
Chapter Summary and Problems
Online Appendix: Using Isoquants and Isocost Lines to Understand Production and Cost
Part 5: Market Structure and Firm Strategy
Chapter 12: Firms in Perfectly CompetitiveMarkets
Are Cage-Free Eggs the Road to Riches?
12.1 Perfectly Competitive Markets
A Perfectly Competitive Firm Cannot Affect the Market Price
The Demand Curve for the Output of a Perfectly Competitive Firm
Don’t Let This Happen to You: Don’t Confuse the Demand Curve for Farmer Parker’s Wheat with the Market Demand Curve for Wheat
12.2 How a Firm Maximizes Profit in a Perfectly Competitive Market
Revenue for a Firm in a Perfectly Competitive Market
Determining the Profit-Maximizing Level of Output
12.3 Illustrating Profit or Loss on the Cost Curve Graph
Showing Profit on a Graph
Solved Problem 12.3: Determining Profit-Maximizing Price and Quantity
Don’t Let This Happen to You: Remember That Firms Maximize Their Total Prof it, Not Their Prof it per Unit
Illustrating When a Firm Is Breaking Evenor Operating at a Loss
12.4 Deciding Whether to Produce or to Shut Down in the Short Run
The Supply Curve of a Firm in the Short Run
Apply the Concept: What Does “Break Even” Mean in the Oil Fields?
Solved Problem 12.4: When to Shut Down a Farm
The Market Supply Curve in a Perfectly Competitive Industry
12.5 “If Everyone Can Do It, You Can’t Make Money at It”: The Entry and Exit of Firms in the Long Run
Economic Profit and the Entry or Exit Decision
Long-Run Equilibrium in a Perfectly Competitive Market
The Long-Run Supply Curve in a Perfectly Competitive Market
Apply the Concept: The Winding Path to Long-Run Equilibrium in the Egg Market
Increasing-Cost and Decreasing-Cost Industries
12.6 Perfect Competition and Economic Efficiency
Productive Efficiency
Solved Problem 12.6: How Productive Efficiency Benefits Consumers
Allocative Efficiency
Conclusion
Chapter Summary and Problems
Chapter 13: Monopolistic Competition: The Competitive Model in a More Realistic Setting
The Coffee Industry: From Supermarket Cans to Third Wave Coffeehouse
13.1 Demand and Marginal Revenue for a Firm in a Monopolistically Competitive Market
The Demand Curve for a Monopolistically Competitive Firm
Marginal Revenue for a Firm with a Downward-Sloping Demand Curve
13.2 How a Monopolistically Competitive Firm Maximizes Profit in the Short Run
Solved Problem 13.2: Does Minimizing Cost Maximize Profit at Apple?
13.3 What Happens to Profits in the Long Run?
How Does the Entry of New Firms Affect the Profits of Existing Firms?
Don’t Let This Happen to You: Don’t Confuse Zero Economic Profit with Zero Accounting Profit
Apply the Concept: Can Third Wave Coffeehouses Remain Profitable?
Is Zero Economic Profit Inevitable in the Long Run?
Solved Problem 13.3: The Profitability of Amazon Go
13.4 Comparing Monopolistic Competition and Perfect Competition
Excess Capacity under Monopolistic Competition
Is Monopolistic Competition Inefficient?
How Consumers Benefit from Monopolistic Competition
Apply the Concept: Are Ghost and Virtual Restaurants the Wave of the Future?
13.5 How Marketing Differentiates Products
Brand Management
Advertising
Defending a Brand Name
13.6 What Makes a Firm Successful?
Apply the Concept: Is Being the First Firm in the Market a Key to Success?
Conclusion
Chapter Summary and Problems
Chapter 14: Oligopoly: Firms in LessCompetitive Markets
Apple, Spotify, and the Music Streaming Revolution
14.1 Oligopoly and Barriers to Entry
Barriers to Entry
Apply the Concept: Are Unlicensed Yoga Instructors a Menace to Public Health?
14.2 Game Theory and Oligopoly
A Duopoly Game: Price Competition between Two Firms
Firm Behavior and the Prisoner’s Dilemma
Don’t Let This Happen to You: Don’t Misunderstand Why Each Firm Ends Up Charging a Price of $9.99
Solved Problem 14.2: Is Offering a College Student Discount a Prisoner’s Dilemma for Apple and Spotify?
Can Firms Escape the Prisoner’s Dilemma?
Apply the Concept: Are the Big Four Airlines Colluding?
Cartels: The Case of OPEC
14.3 Sequential Games and Business Strategy
Deterring Entry
Solved Problem 14.3: Is Deterring EntryAlways a Good Idea?
Bargaining
14.4 The Five Competitive Forces Model
Competition from Existing Firms
The Threat from Potential Entrants
Competition from Substitute Goods or Services
The Bargaining Power of Buyers
The Bargaining Power of Suppliers
Apply the Concept: Do Large Firms Live Forever?
Conclusion
Chapter Summary and Problems
Chapter 15: Monopoly and Antitrust Policy
The Monopoly in Your Mailbox
15.1 Is Any Firm Ever Really a Monopoly?
Apply the Concept: Has the USPS Outlived Its Usefulness?
15.2 Where Do Monopolies Come From?
Government Action Blocks Entry
Apply the Concept: Does Hasbro Have a Monopoly on Monopoly?
Control of a Key Resource
Apply the Concept: Are Diamond Profits Forever? The De Beers Diamond Monopoly
Network Externalities
Natural Monopoly
15.3 How Does a Monopoly Choose Price and Output?
Marginal Revenue Once Again
Profit Maximization for a Monopolist
Solved Problem 15.3: Finding the Profit-Maximizing Price and Output for a Cable Monopoly
Don’t Let This Happen to You: Don’t Assume That Charging a Higher Price Is Always More Prof itable for a Monopolist
15.4 Does Monopoly Reduce Economic Efficiency?
Comparing Monopoly and Perfect Competition
Measuring the Efficiency Losses from Monopoly
How Large Are the Efficiency Losses Due to Monopoly?
Market Power and Technological Change
15.5 Price Discrimination: Charging Different Prices for the Same Product
The Requirements for Successful Price Discrimination
An Example of Price Discrimination
Don’t Let This Happen to You: Don’t Confuse Price Discrimination with Other Types of Discrimination
Solved Problem 15.5: How Apple Uses Price Discrimination to Increase Profits
Airlines: The Kings of Price Discrimination
Big Data and Dynamic Pricing
Perfect Price Discrimination
Price Discrimination across Time
Can Price Discrimination Be Illegal?
15.6 Government Policy toward Monopoly
Antitrust Laws and Antitrust Enforcement
Mergers: The Trade-off between Market Power and Efficiency
The Department of Justice and FTC Merger Guidelines and the Herfindahl-Hirschman Index of Concentration
Regulating Natural Monopolies
Apply the Concept: Should the Justice Department Break Up Google, Amazon, and Facebook?
Conclusion
Chapter Summary and Problems
Part 6: Labor Markets, Public Choice, and the Distribution of Income
Chapter 16: The Markets for Labor and Other Factors of Production
Great Hamburger? Thank a Robot
16.1 The Demand for Labor
The Marginal Revenue Product of Labor
Solved Problem 16.1: Hiring Decisions by a Firm That Is a Price Maker
The Market Demand Curve for Labor
Factors That Shift the Market Demand Curve for Labor
16.2 The Supply of Labor
The Market Supply Curve of Labor
Factors That Shift the Market Supply Curveof Labor
16.3 Equilibrium in the Labor Market
The Effect on Equilibrium Wages of a Shift in Labor Demand
Apply the Concept: Does It Matter Which College You Attend?
The Effect of Immigration on the U.S. Labor Market
Apply the Concept: Will You Compete with a Robot for a Job—Or Work with One?
16.4 Explaining Differences in Wages
Don’t Let This Happen to You: Remember That Prices and Wages Are Determined at the Margin
Apply the Concept: Technology and the Earnings of “Superstars”
Compensating Differentials
Discrimination
Solved Problem 16.4: Is Passing “Comparable Worth” Legislation a Good Way to Close the Gap between Men’s and Women’s Pay?
Apply the Concept: Does Greg Have an Easier Time Finding a Job Than Jamal?
Labor Unions
16.5 Personnel Economics
Should Workers’ Pay Depend on How Much They Work or on How Much They Produce?
Apply the Concept: A Better Way to Sell Contact Lenses
Other Considerations in Setting Compensation Systems
16.6 The Markets for Capital and Natural Resources
The Market for Capital
The Market for Natural Resources
Monopsony
The Marginal Productivity Theory of Income Distribution
Conclusion
Chapter Summary and Problems
Chapter 17: Public Choice, Taxes, and the Distribution of Income
Should Your Small Business Be Taxed Like Apple?
17.1 Public Choice
How Do We Know the Public Interest? Models of Voting
Government Failure?
Is Government Regulation Necessary?
17.2 The Tax System
An Overview of the U.S. Tax System
Progressive and Regressive Taxes
Apply the Concept: Which Groups Pay the Most in Federal Taxes?
Marginal and Average Income Tax Rates
The Corporate Income Tax
International Comparison of Corporate Income Taxes
Evaluating Taxes
Apply the Concept: Should the Federal Government Begin to Tax Wealth?
17.3 Tax Incidence Revisited: The Effect of Price Elasticity
Don’t Let This Happen to You: Don’t Confuse Who Pays a Tax with Who Bears the Burden of the Tax
Apply the Concept: Do Corporations Really Bear the Burden of the Federal Corporate Income Tax?
Solved Problem 17.3: The Effect of Price Elasticity on the Excess Burden of a Tax
17.4 Income Distribution and Poverty
Measuring the Income Distribution and Measuring Poverty
Showing the Income Distribution with a Lorenz Curve
Problems in Measuring Poverty and the Distribution of Income
Explaining Income Inequality
Policies to Reduce Income Inequality
Apply the Concept: Who Are the 1 Percent, and How Do They Earn Their Incomes?
Poverty around the World
Conclusion
Chapter Summary and Problems
Part 7: Macroeconomic Foundations and Long-Run Growth
Chapter 18: GDP: Measuring Total Production and Income
Politics, Macroeconomics, and General Motors
18.1 Gross Domestic Product Measures Total Production
Measuring Total Production: Gross Domestic Product
Solved Problem 18.1: Calculating GDP
Production, Income, and the Circular-Flow Diagram
Components of GDP
Don’t Let This Happen to You: Remember What Economists Mean by Investment
An Equation for GDP and Some Actual Values
Apply the Concept: Microsoft’s Steve Ballmer Uses the U.S. Constitution to Reorganize Government Data
Measuring GDP Using the Value-Added Method
18.2 Does GDP Measure What We Want It to Measure?
Shortcomings in GDP as a Measure of Total Production
Apply the Concept: Why Do Many Developing Countries Have Such Large Underground Economies?
Shortcomings of GDP as a Measure of Well-Being
18.3 Real GDP versus Nominal GDP
Calculating Real GDP
Solved Problem 18.3: Calculating Real GDP
Comparing Real GDP and Nominal GDP
The GDP Deflator
18.4 Other Measures of Total Production and Total Income
Gross National Product
National Income
Personal Income
Disposable Personal Income
The Division of Income
Apply the Concept: Should We Pay More Attention to Gross Domestic Income?
Conclusion
Chapter Summary and Problems
Chapter 19: Unemployment and Inflation
Former Inmates and Stoughton Trailers Meet in a High-Pressure Economy
19.1 Measuring the Unemployment Rate, the Labor Force Participation Rate, and the Employment–Population Ratio
The Household Survey
Solved Problem 19.1: What Happens if the BLS Includes the Military?
Problems with Measuring the Unemployment Rate
Unemployment Rates for Different Groups
How Long Are People Typically Unemployed?
Trends in Labor Force Participation
Apply the Concept: How Large Is the Potential U.S. Labor Force?
The Establishment Survey: Another Measure of Employment
Revisions in the Establishment Survey Employment Data: How Bad Was the 2007–2009 Recession?
Job Creation and Job Destruction over Time
19.2 Types of Unemployment
Frictional Unemployment and Job Search
Structural Unemployment
Cyclical Unemployment
Full Employment
Apply the Concept: Will Advances in Information Technology Permanently Increase Structural Unemployment?
19.3 Explaining Unemployment
Government Policies and the Unemployment Rate
Labor Unions
Efficiency Wages
19.4 Measuring Inflation
The Consumer Price Index
Is the CPI Accurate?
Don’t Let This Happen to You: Don’t Miscalculate the Inflation Rate
The Producer Price Index
19.5 Using Price Indexes to Adjust for the Effects of Inflation
Solved Problem 19.5: What Has Been Happening to Real Wages in the United States?
19.6 Nominal Interest Rates versus Real Interest Rates
19.7 Does Inflation Impose Costs on the Economy?
Inflation Affects the Distribution of Income
The Problem with Anticipated Inflation
The Problem with Unanticipated Inflation
Apply the Concept: What’s So Bad about Falling Prices?
Conclusion
Chapter Summary and Problems
Chapter 20: Economic Growth, the Financial System, and Business Cycles
Millennials Experience the iPhone, Snapchat, . . . and the Great Recession
20.1 Long-Run Economic Growth
Apply the Concept: The Connection between Economic Prosperity and Health
Calculating Growth Rates and the Rule of 70
What Determines the Rate of Long-Run Growth?
Solved Problem 20.1: Where Does Productivity Come From?
Apply the Concept: Can India Sustain Its Rapid Growth?
Potential GDP
20.2 Saving, Investment, and the Financial System
An Overview of the Financial System
The Macroeconomics of Saving and Investment
The Market for Loanable Funds
Apply the Concept: Ebenezer Scrooge: Accidental Promoter of Economic Growth?
Solved Problem 20.2: Are Future Budget Deficits a Threat to the Economy?
20.3 The Business Cycle
Some Basic Business Cycle Definitions
How Do We Know When the Economy Is in a Recession?
What Happens during the Business Cycle?
Don’t Let This Happen to You: Don’t Confuse the Price Level and the Inflation Rate
Has the U.S. Economy Returned to Stability?
Conclusion
Chapter Summary and Problems
Chapter 21: Long-Run Economic Growth: Sources and Policies
Technological Change, Creative Destruction, and Rising Living Standards
21.1 Economic Growth over Time and around the World
Economic Growth from 1,000,000 b.c.e. to the Present
Apply the Concept: Why Did the Industrial Revolution Begin in England?
Small Differences in Growth Rates Are Important
The Problem with Slow Economic Growth
Don’t Let This Happen to You: Don’t Confuse the Average Annual Percentage Change with the Total Percentage Change
The Variation in per Capita Income around the World
Is Income All That Matters?
21.2 What Determines How Fast Economies Grow?
The Per-Worker Production Function
Which Is More Important for Economic Growth: More Capital or Technological Change?
Technological Change: The Key to Sustaining Economic Growth
Apply the Concept: What Explains the Economic Failure of the Soviet Union?
Solved Problem 21.2: Using the Economic Growth Model to Analyze the Failure of the Soviet Economy
New Growth Theory
Joseph Schumpeter and Creative Destruction
21.3 Economic Growth in the United States
Economic Growth in the United States since 1950
Is the United States Headed for a Long Period of Slow Growth?
21.4 Why Isn’t the Whole World Rich?
Catch-up: Sometimes but Not Always
Solved Problem 21.4: The Economic Growth Model’s Prediction of Catch-up
Why Haven’t Most Western European Countries, Canada, and Japan Caught Up to the United States?
Why Don’t More Low-Income Countries Experience Rapid Growth?
Apply the Concept: Why Hasn’t Mexico Grown as Fast as China?
The Benefits of Globalization
21.5 Growth Policies
Enhancing Property Rights and the Rule of Law
Apply the Concept: Will China’s Standard of Living Ever Exceed That of the United States?
Improving Health and Education
Policies That Promote Technological Change
Policies That Promote Saving and Investment
Apply the Concept: Is Sub-Saharan Africa on the Road to Economic Growth?
Is Economic Growth Good or Bad?
Conclusion
Chapter Summary and Problems
Part 8: Short-Run Fluctuations
Chapter 22: Aggregate Expenditure and Output in the Short Run
Glamping and Airstream’s Ride on the Business Cycle
22.1 The Aggregate Expenditure Model
Aggregate Expenditure
The Difference between Planned Investment and Actual Investment
Macroeconomic Equilibrium
Adjustments to Macroeconomic Equilibrium
22.2 Determining the Level of Aggregate Expenditure in the Economy
Consumption
The Volatility of Consumer Spending on Durables
The Relationship between Consumption and National Income
Income, Consumption, and Saving
Solved Problem 22.2: Calculating the Marginal Propensity to Consume and the Marginal Propensity to Save
Planned Investment
Apply the Concept: Is Student Loan Debt Causing Fewer Young People to Buy Houses?
Government Purchases
Net Exports
Apply the Concept: The iPhone Is Made in China . . . or Is It?
22.3 Graphing Macroeconomic Equilibrium
Showing a Recession on the 45°-Line Diagram
The Important Role of Inventories
A Numerical Example of Macroeconomic Equilibrium
Don’t Let This Happen to You: Don’t Confuse Aggregate Expenditure with Consumption Spending
Solved Problem 22.3: Determining Macroeconomic Equilibrium
22.4 The Multiplier Effect
Apply the Concept: The Multiplier in Reverse: The Great Depression of the 1930s
A Formula for the Multiplier
Summarizing the Multiplier Effect
Solved Problem 22.4: Using the Multiplier Formula
The Paradox of Thrift
22.5 The Aggregate Demand Curve
Conclusion
Chapter Summary and Problems
Appendix: The Algebra of Macroeconomic Equilibrium
Review Questions
Chapter 23: Aggregate Demand and Aggregate Supply Analysis
General Motors Hopes the Economic Expansion Doesn’t Die of Old Age
23.1 Aggregate Demand
Why Is the Aggregate Demand Curve Downward Sloping?
Shifts of the Aggregate Demand Curve versus Movements along It
The Variables That Shift the Aggregate Demand Curve
Don’t Let This Happen to You: Understand Why the Aggregate Demand Curve Is Downward Sloping
Solved Problem 23.1: Movements along the Aggregate Demand Curve or Shifts of the Curve?
Apply the Concept: Which Components of Aggregate Demand Changed the Most during the 2007–2009 Recession?
23.2 Aggregate Supply
The Long-Run Aggregate Supply Curve
The Short-Run Aggregate Supply Curve
Apply the Concept: How Sticky Are Wages?
Shifts of the Short-Run Aggregate Supply Curve versus Movements along It
Variables That Shift the Short-Run Aggregate Supply Curve
23.3 Macroeconomic Equilibrium in the Long Run and the Short Run
Recessions, Expansions, and Supply Shocks
Apply the Concept: Does It Matter What Causes a Decline in Aggregate Demand?
Apply the Concept: Is the Business Cycle Really a Cycle?
23.4 A Dynamic Aggregate Demand and Aggregate Supply Model
What Is the Usual Cause of Inflation?
The Recession of 2007–2009
Solved Problem 23.4: Showing the Oil Shock of 1974–1975 on a Dynamic Aggregate Demand and Aggregate Supply Graph
Conclusion
Chapter Summary and Problems
Appendix: Macroeconomic Schools of Thought
The Monetarist Model
The New Classical Model
The Real Business Cycle Model
The Austrian Model
Apply the Concept: Karl Marx: Capitalism’s Severest Critic
Part 9: Monetary and Fiscal Policy
Chapter 24: Money, Banks, and the Federal Reserve System
Is Venmo the End of Money?
24.1 What Is Money, and Why Do We Need It?
Barter and the Invention of Money
The Functions of Money
What Can Serve as Money?
Apply the Concept: Your Money Is No Good Here!
24.2 How Is Money Measured in the United States Today?
M1: A Narrow Definition of the Money Supply
M2: A Broad Definition of Money
Don’t Let This Happen to You: Don’t Confuse Money with Income or Wealth
Solved Problem 24.2: The Def initions of M1 and M2
What about Credit Cards and Debit Cards?
Apply the Concept: Are Bitcoins Money?
24.3 How Do Banks Create Money?
Bank Balance Sheets
Apply the Concept: Help for Young Borrowers: Fintech or Ceilings on Interest Rates?
Using T-accounts to Show How a Bank Can Create Money
The Simple Deposit Multiplier
Don’t Let This Happen to You: Don’t Confuse Assets and Liabilities
Solved Problem 24.3: Showing How Banks Create Money
The Simple Deposit Multiplier versus the Real-World Deposit Multiplier
24.4 The Federal Reserve System
The Establishment of the Federal Reserve System
How the Federal Reserve Manages the Money Supply
The “Shadow Banking System” and the Financial Crisis of 2007–2009
24.5 The Quantity Theory of Money
Connecting Money and Prices: The Quantity Equation
The Quantity Theory Explanation of Inflation
How Accurate Are Forecasts of Inflation Based on the Quantity Theory?
High Rates of Inflation
Apply the Concept: The German Hyperinflation of the Early 1920s
Conclusion
Chapter Summary and Problems
Chapter 25: Monetary Policy
Who Elected the Fed?
25.1 What Is Monetary Policy?
The Goals of Monetary Policy
25.2 The Money Market and the Fed’s Choice of Monetary Policy Targets
Monetary Policy Targets
The Demand for Money
Shifts in the Money Demand Curve
How the Fed Manages the Money Supply: A Quick Review
Equilibrium in the Money Market
A Tale of Two Interest Rates
Choosing a Monetary Policy Target
The Importance of the Federal Funds Rate
Managing the Federal Funds Rate Today
25.3 Monetary Policy and Economic Activity
How Interest Rates Affect Aggregate Demand
The Effects of Monetary Policy on Real GDP and the Price Level
Apply the Concept: Quantitative Easing, the Fed’s Balance Sheet, and Negative Interest Rates in Europe
Can the Fed Eliminate Recessions?
Fed Forecasts
Apply the Concept: Trying to Hit a Moving Target: Making Policy with “Real-Time Data”
A Summary of How Monetary Policy Works
Don’t Let This Happen to You: Remember That with Monetary Policy, It’s the Interest Rates—Not the Money—That Counts
25.4 Monetary Policy in the Dynamic Aggregate Demand and Aggregate Supply Model
The Effects of Monetary Policy on Real GDP and the Price Level: A More Complete Account
Using Monetary Policy to Fight Inflation
Solved Problem 25.4: The Effects of Monetary Policy
25.5 A Closer Look at the Fed’s Setting of Monetary Policy Targets
Should the Fed Target the Money Supply?
Why Doesn’t the Fed Target Both the Money Supply and the Interest Rate?
The Taylor Rule
Solved Problem 25.5: Applying the Taylor Rule
Inflation Targeting . . . or Nominal GDP Targeting?
Apply the Concept: Should the Fed Worry about the Prices of Food and Gasoline?
25.6 Fed Policies during the 2007–2009 Recession
The Inflation and Deflation of the Housing Market Bubble
The Changing Mortgage Market
The Role of Investment Banks
Apply the Concept: The Wonderful World of Leverage
The Fed and the Treasury Department Respond
Conclusion
Chapter Summary and Problems
Chapter 26: Fiscal Policy
Can Fiscal Policy Increase Economic Growth?
26.1 What Is Fiscal Policy?
What Fiscal Policy Is and What It Isn’t
Automatic Stabilizers versus Discretionary Fiscal Policy
An Overview of Government Spending and Taxes
Apply the Concept: Is Spending on Social Security and Medicare a Fiscal Time Bomb?
26.2 The Effects of Fiscal Policy on Real GDP and the Price Level
Short-Run Expansionary and Contractionary Fiscal Policy
A Summary of How Fiscal Policy Affects Aggregate Demand
Don’t Let This Happen to You: Don’t Confuse Fiscal Policy and Monetary Policy
26.3 Fiscal Policy in the Dynamic Aggregate Demand and Aggregate Supply Model
26.4 The Government Purchases and Tax Multipliers
The Effect of Changes in the Tax Rate
Taking into Account the Effects of Aggregate Supply
The Multipliers Work in Both Directions
Solved Problem 26.4: Fiscal Policy Multipliers
26.5 The Limits to Using Fiscal Policy to Stabilize the Economy
Apply the Concept: Why Was the Recession of 2007–2009 So Severe?
Does Government Spending Reduce Private Spending?
Crowding Out in the Short Run
Crowding Out in the Long Run
Fiscal Policy in Action: Did the Stimulus Package of 2009 Succeed?
26.6 Deficits, Surpluses, and Federal Government Debt
How the Federal Budget Can Serve as an Automatic Stabilizer
Should the Federal Budget Always Be Balanced?
Solved Problem 26.6: The Italian Government Confronts a Budget Deficit
The Federal Government Debt
Is Government Debt a Problem?
Apply the Concept: Modern Monetary Theory: Should We Stop Worrying and Love the Debt?
26.7 Long-Run Fiscal Policy and Economic Growth
Explaining Long-Run Increases in Real GDP
How Can Fiscal Policy Affect Long-Run Economic Growth? The Long-Run Effects of Tax Policy
Tax Simplification
The Economic Effects of Tax Reform
How Large Are Supply-Side Effects?
Apply the Concept: Will President Trump’s Fiscal Policy Raise the Rate of Economic Growth?
Conclusion
Chapter Summary and Problems
Appendix: A Closer Look at the Multiplier
An Expression for Equilibrium Real GDP
A Formula for the Government Purchases Multiplier
A Formula for the Tax Multiplier
The “Balanced Budget” Multiplier
The Effects of Changes in Tax Rates on the Multiplier
The Multiplier in an Open Economy
Problem and Applications
Chapter 27: Inflation, Unemployment, and Federal Reserve Policy
The Fed Deals with Inflation, Unemployment, . . . and the President
27.1 The Discovery of the Short-Run Trade-off between Unemployment and Inflation
Explaining the Phillips Curve with Aggregate Demand and Aggregate Supply Curves
Is the Phillips Curve a Policy Menu?
Is the Short-Run Phillips Curve Stable?
The Long-Run Phillips Curve
The Role of Expectations of Future Inflation
Apply the Concept: Do Workers Understand Inflation?
27.2 The Short-Run and Long-Run Phillips Curves
Shifts in the Short-Run Phillips Curve
How Does a Vertical Long-Run Phillips Curve Affect Monetary Policy?
Apply the Concept: Does the Natural Rate of Unemployment Ever Change?
Solved Problem 27.2: Changing Views of the Phillips Curve
27.3 Monetary Policy and Expectations of the Inflation Rate
The Implications of Rational Expectations for Monetary Policy
Is the Short-Run Phillips Curve Really Vertical?
Real Business Cycle Models
27.4 Federal Reserve Policy from the 1970s to the Present
The Effect of a Supply Shock on the Phillips Curve
Paul Volcker and Disinflation
Don’t Let This Happen to You: Don’t Confuse Disinflation with Deflation
Solved Problem 27.4: Using Monetary Policy to Lower the Inflation Rate
Recent Fed Chairs and the Debate over the Fed’s Future
Apply the Concept: Has the Phillips Curve Disappeared?
Should the Fed Be Independent of Congress and the President?
Conclusion
Chapter Summary and Problems
Part 10: The International Economy
Chapter 28: Macroeconomics in an Open Economy
Amazon Deals with a Fluctuating Dollar
28.1 The Balance of Payments: Linking the United States to the International Economy
The Current Account
The Financial Account
The Capital Account
Why Is the Balance of Payments Always Zero?
Don’t Let This Happen to You: Don’t Confuse the Trade Balance, the Current Account Balance, and the Balance of Payments
28.2 The Foreign Exchange Market and Exchange Rates
Equilibrium in the Market for Foreign Exchange
Shifts in Demand and Supply in the Foreign Exchange Market
How Movements in the Exchange Rate Affect Exports and Imports
Apply the Concept: Is a Strong Currency Good for a Country?
Don’t Let This Happen to You: Don’t Confuse What Happens When a Currency Appreciates with What Happens When It Depreciates
Solved Problem 28.2: Toyota Rides the Exchange Rate Rollercoaster
The Real Exchange Rate
Exchange Rates in the Long Run
Apply the Concept: The Big Mac Theory of Exchange Rates
28.3 Exchange Rate Systems
The Floating Dollar
The Euro
Pegging against the Dollar
Apply the Concept: The Chinese Yuan: The World’s Most Controversial Currency
28.4 The International Sector and National Saving and Investment
Net Exports Equal Net Foreign Investment
Domestic Saving, Domestic Investment, and Net Foreign Investment
Solved Problem 28.4: Arriving at the Saving and Investment Equation
28.5 The Effect of a Government Budget Deficit on Investment
28.6 Monetary Policy and Fiscal Policy in an Open Economy
Monetary Policy in an Open Economy
Fiscal Policy in an Open Economy
Conclusion
Chapter Summary and Problems
Online Appendix: The Gold Standard and the Bretton Woods System
Glossary
Company Index
Subject Index
Credits