Essentials of Economics

Front Cover
Front Matter
Half title
Dedication
Full title
Imprint
About the authors
Preface
The foundation
Special features
Resources for educators and students
Reviewers
Brief contents
Detailed contents
Part 1 Introduction
Chapter 1 Economics: Foundations and models
Three key economic ideas
People are rational
People respond to economic incentives
Optimal decisions are made at the margin
Solved problem 1.1 Apple makes a decision at the margin
Scarcity, trade-offs and 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
Economic models
The role of assumptions in economic models
Forming and testing hypotheses in economic models
Normative and positive analysis
Don’t let this happen to you
Don’t confuse positive analysis with normative analysis
Economics as a social science
Making the connection 1.1 Good economics doesn’t always mean good politics
Microeconomics and macroeconomics
Conclusion
An inside look
Rise of the machines: What jobs will survive as robots move into the workplace?
Chapter summary and problems
Chapter 1 Appendix
Using graphs and formulas
Graphs of one variable
Graphs of two variables
Formulas
Appendix Questions and problems
Chapter 2 Choices and trade-offs in the market
Production possibility frontiers and real-world trade-offs
Graphing the production possibility frontier
Increasing marginal opportunity costs
Making the connection 2.1 Trade-offs and emergency aid relief
Economic growth
Comparative advantage and trade
Specialisation and gains from trade
Absolute advantage versus comparative advantage
Don’t let this happen to you
Don’t confuse absolute advantage with comparative advantage
Comparative advantage and the gains from trade
Solved problem 2.1 Comparative advantage and the gains from trade
The market system
The gains from free markets
The market mechanism
Making the connection 2.2 Story of the market system in action: I, pencil
The role of the entrepreneur
The legal basis of a successful market system
Protection of private property
Making the connection 2.3 Illegal downloads from cyberspace
Enforcement of contracts and property rights
Conclusion
An inside look
Expansion and production mix at BMW
Chapter summary and problems
Part 2 How the market works
Chapter 3 Where prices come from: The interaction of demand and supply
The demand side of the market
Demand schedules and demand curves
The law of demand
Holding everything else constant: The ceteris paribus condition
What explains the law of demand?
Variables that shift market demand
Making the connection 3.1 The ageing of the Baby Boom generation
A change in demand versus a change in quantity demanded
The supply side of the market
Supply schedules and supply curves
The law of supply
Variables that shift supply
A change in supply versus a change in quantity supplied
Market equilibrium: Putting demand and supply together
How markets eliminate surpluses and shortages
Demand and supply both count
Shifts in a curve versus movements along a curve
The effect of demand and supply shifts on equilibrium
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
The effect of shifts in supply on equilibrium
The effect of shifts in demand on equilibrium
The effect of shifts in demand and supply over time
Solved problem 3.1 Demand and supply both count: Pharmacists and accountants
Making the connection 3.2 The rise and rise of fitness trackers
Solved problem 3.2 Demand and supply both count: The australian housing market
Conclusion
An inside look
Global PC shipments decline for 12th straight quarter but HP bucks fall, Gartner says
Chapter summary and problems
Chapter 3 Appendix
Behavioural economics: Do people make their choices rationally?
Pitfalls in decision making
Ignoring non-monetary opportunity costs
Making the connection 3A.1 Experimental economics: A test of fairness?
Business implications of consumers ignoring non-monetary opportunity costs
Failing to ignore sunk costs
Making the connection 3A.2 A blogger who understands the importance of ignoring sunk costs?
Being unrealistic about future behaviour
Solved problem 3A.1 How do you get people to save more of their income?
Appendix Questions and problems
Chapter 4 Elasticity: The responsiveness of demand and supply
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 4.1 Calculating the price elasticity of demand for wheat using the midpoint formula
When demand curves intersect, the flatter curve is more elastic
Polar cases of perfectly elastic and perfectly inelastic demand
Don’t let this happen to you
Don’t confuse inelastic with perfectly inelastic
The determinants of the price elasticity of demand
Availability of close substitutes
Passage of time
Making the connection 4.1 The price elasticity of demand for breakfast cereal
Luxuries versus necessities
Solved problem 4.2 Using price elasticity to analyse the drug problem
Definition of the market
Share of the good in the consumer’s budget
The relationship between price elasticity and total revenue
Elasticity and revenue with a linear demand curve
Solved problem 4.3 Price and revenue don’t always move in the same direction
Estimating price elasticity of demand
Other demand elasticities
Cross-price elasticity of demand
Income elasticity of demand
Making the connection 4.2 Using elasticity to analyse the disappearing family farm
The price elasticity of supply and its measurement
Measuring the price elasticity of supply
Determinants of the price elasticity of supply
Making the connection 4.3 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
An inside look
Liquor retailing in Australia
Chapter summary and problems
Chapter 5 Economic efficiency, government price setting and taxes
Consumer surplus and producer surplus
Consumer surplus
Producer surplus
Making the connection 5.1 The consumer surplus from broadband Internet service
What consumer surplus and producer surplus measure
The efficiency of competitive markets
Marginal benefit equals marginal cost in competitive equilibrium
Economic surplus
Deadweight loss
Economic surplus and economic efficiency
Government intervention in the market: Price floors and price ceilings
Price floors: The example of agricultural markets
Price ceilings: The example of rent controls
Making the connection 5.2 Price floors in labour markets: The minimum wage
Black markets and peer-to-peer sites
Don’t let this happen to you
Don’t confuse scarcity with a shortage
Solved problem 5.1 What is the economic effect of a black market for apartments?
The results of government intervention: Winners, losers and inefficiency
Positive and normative analysis of price ceilings and price floors
The economic impact of taxes
The effect of taxes on economic efficiency
Tax incidence: Who actually pays a tax?
Solved problem 5.2 When do consumers pay all of a sales tax increase?
Conclusion
An inside look
Australian smokers to pay more than $45 for a packet of cigarettes from 2020
Chapter summary and problems
Part 3 Firms and market structures
Chapter 6 Technology, production and costs
Technology: An economic definition
The short run and the long run in economics
The difference between fixed costs and variable costs
Making the connection 6.1 Improving inventory control at Bunnings
Implicit costs versus explicit costs
Making the connection 6.2 Fixed costs in the publishing industry
The production function
A first look at the relationship between production and cost
The marginal product of labour and the average product of labour
The law of diminishing returns
Making the connection 6.3 Adam Smith’s famous account of the division of labour in a pin factory
The relationship between marginal product and average product
Graphing production
The relationship between short-run production and short-run cost
Marginal cost
The relationship between marginal cost and average total cost
Solved problem 6.1 The relationship between marginal cost and average total cost
Graphing cost curves
Costs in the long run
Economies of scale
Long-run average cost curves for bookshops
Solved problem 6.2 Using long-run average cost curves to understand business strategy
Making the connection 6.4 The colossal River Rouge: Diseconomies of scale at the Ford Motor company
Don’t let this happen to you
Don’t confuse diminishing returns with diseconomies of scale
Conclusion
An inside look
Tesla: The Gigafactory is the key
Chapter summary and problems
Chapter 7 Firms in perfectly competitive markets
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 Jones’ oats with the market demand curve for oats
How a firm maximises profit in a perfectly competitive market
Revenue for a firm in a perfectly competitive market
Determining the profit-maximising level of output
Illustrating profit or loss on the cost curve graph
Showing profit on the graph
Solved problem 7.1 Determining profit-maximising price and quantity
Don’t let this happen to you
Remember that firms maximise total profit, not profit per unit
Illustrating when a firm is breaking even or operating at a loss
Deciding whether to produce or to shut down in the short run
Making the connection 7.1 Losing money in the solar panel industry
Solved problem 7.2 When to shut down an oil well
The supply curve of the firm in the short run
The market supply curve in a perfectly competitive industry
‘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
Increasing-cost and decreasing-cost industries
Making the connection 7.2 In the App Store, easy entry makes the long run pretty short
Perfect competition and efficiency
Productive efficiency
Allocative efficiency
Dynamic efficiency
Solved problem 7.3 How productive efficiency and dynamic efficiency benefit consumers
Conclusion
An inside look
Why the sharing economy could have a hard landing in Australia
Chapter summary and problems
Chapter 8 Monopoly markets
Is any firm ever really a monopoly?
Where do monopolies come from?
Making the connection 8.1 Does Hasbro have a monopoly on Monopoly?
Entry blocked by government action
Control of a key resource
Network externalities
Making the connection 8.2 Are diamond (profits) forever? The De Beers diamond monopoly
Natural monopoly
How does a monopoly choose price and output?
Marginal revenue
Profit maximisation for a monopolist
Solved problem 8.1 Finding profit-maximising price and output for a monopolist
Don’t let this happen to you
Don’t assume that charging a higher price is always more profitable for a monopolist
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
Government policy towards monopolies
Trade practices laws and enforcement
Mergers: The trade-off between market power and efficiency
Making the connection 8.3 Anti-competitive behaviour in the airline cargo industry
Regulating natural monopolies
Solved problem 8.2 Water restrictions and water supply companies
Conclusion
An inside look
Footy fans stuck with Foxtel until 2022
Chapter summary and problems
Chapter 8 Appendix
Price discrimination
The requirements for successful price discrimination
Solved problem 8A.1 How Dell Technologies uses price discrimination to increase profits
Airlines: The kings of price discrimination
Perfect price discrimination
Price discrimination across time
Making the connection 8A.1 The Internet leaves you open to price discrimination
Appendix Questions and problems
Chapter 9 Monopolistic competition and oligopoly
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
How a monopolistically competitive firm maximises profit in the short run
Solved problem 9.1 How not to maximise profit
What happens to profit in the long run?
How does 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
Making the connection 9.1 The rise and decline and rise of Starbucks
Is zero economic profit inevitable in the long run?
Solved problem 9.2 Buffalo Wild Wings increase costs to increase demand
Comparing perfect competition and monopolistic competition
Excess capacity under monopolistic competition
Is monopolistic competition inefficient?
How consumers benefit from monopolistic competition
Oligopoly and barriers to entry
Barriers to entry
Game theory and oligopoly
A duopoly game: Price competition between two firms
Firm behaviour and the prisoners’ dilemma
Don’t let this happen to you
Don’t misunderstand why each manager ends up charging a price of $450
Can firms escape the prisoners’ dilemma?
Making the connection 9.2 Is there a dominant strategy for bidding on eBay?
Solved problem 9.3 Is advertising a prisoners’ dilemma for Coca-Cola and Pepsi?
Cartels: the case of OPEC
Making the connection 9.3 Is Virgin Australia’s business strategy more important than the structure of the airline industry?
Conclusion
An inside look
Booming coffee market moves into consolidation phase
Chapter summary and problems
Part 4 Markets for factors of production
Chapter 10 The markets for labour and other factors of production
The demand for labour
The marginal revenue product of labour
Solved problem 10.1 Hiring decisions by a firm that is a price maker
The market demand curve for labour and the factors that shift it
The supply of labour
The market supply curve of labour and the factors that shift it
Equilibrium in the labour market
The effect on equilibrium wages of a shift in labour demand
Making the connection 10.1 Will your future income depend on which courses you take at university?
The effect on equilibrium wages of a shift in labour supply
Making the connection 10.2 Should you fear the effect of robots on the labour market?
Explaining differences in wages
Don’t let this happen to you
Remember that prices and wages are determined at the margin
Making the connection 10.3 Technology and the earnings of ‘superstars’
Compensating differentials
Discrimination
Trade unions
Solved problem 10.2 Is ‘comparable worth’ legislation the answer to closing the gap between men’s and women's pay?
Personnel economics
Should workers’ pay depend on how much they work or on how much they produce?
Other considerations in setting compensation schemes
The markets for capital and natural resources
The market for capital
Solved problem 10.3 How to receive your payments
The market for natural resources
Monopsony
The marginal productivity theory of income distribution
Conclusion
An inside look
Huge Indian Premier League pay day for England bad boy Ben Stokes
Chapter summary and problems
Part 5 The role of government
Chapter 11 Government intervention in the market
What’s good about markets and why does the government intervene?
The economic bases for government intervention
Market failure and government failure
Don’t let this happen to you
Just because something is wrong, it doesn’t mean the government has to put it right
Deregulation and privatisation
Externalities and efficiency
The effect of externalities
How externalities in production reduce economic efficiency
How externalities in consumption reduce economic efficiency
Externalities and market failure
What causes externalities?
The economically efficient level of pollution reduction
Making the connection 11.1 The reduction in lead in Melbourne’s air
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
Making the connection 11.2 The fable of the bees
Government policies to deal with externalities
Policies for externalities in production
Policies for externalities in consumption
Command and control and market-based approaches
Making the connection 11.3 Should the government tax soft drinks?
Solved problem 11.1 Using a tax to deal with a negative externality
Licences to pollute?
Making the connection 11.4 Can a price on carbon reduce global warming?
Four categories of goods
The optimal quantity of a public good
Common resources
Policy for business and individual behaviour that can increase economic efficiency
The rule of law
Patents, trademarks and copyright protection
Making the connection 11.5 Who owns the Wizard of Oz?
Asymmetric information
Conclusion
An inside look
Too big to fail: China pledges to set up landmark emissions trading scheme
Chapter summary and problems
Chapter 12 Social policy and inequality
The tax system
An overview of the Australian tax system
Progressive and regressive taxes
Making the connection 12.1 Which groups pay the most in taxes?
Marginal and average income tax rates
Evaluating taxes
Tax incidence revisited: The effect of price elasticity
Don’t let this happen to you
Remember not to confuse who pays the tax with who bears the burden of the tax
Making the connection 12.2 Do companies really bear the burden of the federal company income tax?
Solved problem 12.1 The effect of price elasticity on the excess burden of a tax
Income distribution and poverty
Measuring the distribution of income and poverty
The poverty rate in Australia
Explaining income inequality
Showing the income distribution with a Lorenz curve
Problems in measuring poverty and the distribution of income
Solved problem 12.2 Are many individuals stuck in poverty?
Making the connection 12.3 Is income all that matters?
Conclusion
An inside look
3.6 million households pay no net tax after churn
Chapter summary and problems
Part 6 Macroeconomic foundations
Chapter 13 GDP: Measuring total production, income and economic growth
Gross domestic product measures total production
Measuring total production: Gross domestic product
Measuring GDP using the value-added method
Other measures of total production and total income
Solved problem 13.1 Calculating GDP
Methods of measuring gross domestic product
Production, expenditure and 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
Does GDP measure what we want it to measure?
Shortcomings in GDP as a measure of total production
Making the connection 13.1 Why do many developing countries have such large underground economies?
Shortcomings of GDP as a measure of wellbeing
Making the connection 13.2 How else can we measure economic wellbeing?
Real GDP versus nominal GDP
Calculating real GDP
Calculating the economic growth rate
The GDP deflator
Making the connection 13.3 How did the standard of living in Nigeria almost double overnight?
Long-run economic growth is the key to rising living standards
Making the connection 13.4 The connection between economic prosperity and health
Calculating growth rates and the rule of 70
What determines the rate of long-run economic growth?
Solved problem 13.2 Where does long-run growth come from?
Potential GDP
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
New growth theory
Is economic growth good or bad?
Conclusion
An inside look
The four factors that drag Australia down
Chapter summary and problems
Chapter 14 Unemployment and inflation
Measuring the unemployment rate and the labour force participation rate
The labour force survey
Problems with measuring the unemployment rate
Solved problem 14.1 What would happen if the ABS labour force survey included the military?
Trends in labour force participation
How long are people usually unemployed?
Job creation and job destruction
Making the connection 14.1 What explains the increase in welfare recipients?
Solved problem 14.2 Correctly interpreting labour force data
The costs of unemployment
Costs to the economy
Costs to the individual
The distribution of unemployment
Types of unemployment
Cyclical unemployment
Frictional unemployment and job search
Structural unemployment
Full employment
Don’t let this happen to you
Don’t confuse full employment with a zero unemployment rate
Explaining frictional and structural unemployment
Government policies and the unemployment rate
Social security and other payments to the unemployed
Labour market regulation and deregulation
Minimum wages
Trade unions
Efficiency wages
Making the connection 14.2 Why did Henry Ford pay his workers twice as much as other car manufacture?
Measuring inflation
The consumer price index
Is the CPI accurate?
Don’t let this happen to you
Don’t confuse the price level with the inflation rate
The producer price index
Using price indexes to adjust for the effects of inflation
Solved problem 14.3 What has been happening with real wages in Australia?
Does inflation impose costs on the economy?
Inflation affects the distribution of income
The problem with anticipated inflation
The problem with unanticipated inflation
Hyperinflation
Deflation
Making the connection 14.3 What’s so bad about falling prices?
What causes inflation?
Conclusion
An inside look
All eyes on inflation next week, but not everything is as it seems . . .
Chapter summary and problems
Chapter 15 Aggregate demand and aggregate supply analysis
The business cycle
Some basic business cycle definitions
What happens during the business cycle
Don’t let this happen to you
Don’t confuse short-run fluctuations with long-run trends
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
Be clear why the aggregate demand curve is downward sloping
Making the connection 15.1 Should Germany reduce its reliance on exports?
Solved problem 15.1 Movements along the aggregate demand curve versus shifts of the aggregate demand curve
Aggregate supply
The long-run aggregate supply curve
Shifts in the long-run aggregate supply curve
The short-run aggregate supply curve
Shifts of the short-run aggregate supply curve versus movements along it
Variables that shift the short-run aggregate supply curve
Variables that shift the short-run and long-run aggregate supply curves
Macroeconomic equilibrium in the long run and the short run
Recessions, expansions and supply shocks
A dynamic aggregate demand and aggregate supply model
What is the usual cause of inflation?
Making the connection 15.2 Does technological change create unemployment?
Solved problem 15.2 Showing the oil shock of 1974 on a dynamic aggregate demand and aggregate supply graph
Conclusion
An inside look
Housing boom lifts Harvey Norman’s profit
Chapter summary and problems
Chapter 15 Appendix
The aggregate expenditure model
Showing a recession on the 45˚ line diagram
Appendix Summary and problems
Part 7 Monetary and fiscal policy
Chapter 16 Money, banks and the Reserve Bank of Australia
What is money and why do we need it?
Barter and the invention of money
The functions of money
Making the connection 16.1 Money in a World War II prisoner-of-war camp
What can serve as money?
Making the connection 16.2 Coca-Cola dries up as the Zimbabwe currency no longer serves as money
How do we measure money today?
M1: the narrowest definition of the money supply
Broader definitions of money
Don’t let this happen to you
Don’t confuse money with income or wealth
Making the connection 16.3 Are bitcoins money?
How do financial institutions create money?
Bank balance sheets
Using T-accounts to show how a bank can create money
The simple deposit multiplier
Solved problem 16.1 Showing how banks create money
The simple deposit multiplier versus the real-world deposit multiplier
An overview of the financial system
The role of financial markets and financial intermediaries
The Reserve Bank of Australia
How the RBA manages financial liquidity and interest rates
Exchange rate management
Conclusion
An inside look
Innovation in electronic payments to accelerate demise of cheques
Chapter summary and problems
Chapter 17 Monetary policy
What is monetary policy?
The goals of monetary policy
The demand for and supply of money
The demand for money
Shifts in the money demand curve
How the RBA manages the supply of cash
Equilibrium in the money market
The market for loanable funds
Making the connection 17.1 Ebenezer Scrooge: Accidental promoter of economic growth?
Solved problem 17.1 Are future budget deficits a threat to the economy?
A tale of two interest rates
Monetary policy and economic activity
How interest rates affect aggregate demand
Making the connection 17.2 Why did the Global Financial Crisis occur?
The effects of monetary policy on real GDP and the price level
Can the RBA eliminate contractions and recessions?
Using monetary policy to fight inflation
Solved problem 17.2 The effects of monetary policy
Is monetary policy always effective and fair?
Don’t let this happen to you
Remember that with monetary policy, it’s the interest rate—not the money—that counts
Making the connection 17.3 How does the RBA measure inflation?
Is the independence of the Reserve Bank of Australia a good idea?
The case for RBA independence
The case against RBA independence
Conclusion
An inside look
RBA independence on interest rates: A tick for a resilient economy
Chapter summary and problems
Chapter 18 Fiscal policy
What is fiscal policy?
What fiscal policy is and what it isn’t
Automatic stabilisers versus discretionary fiscal policy
An overview of government spending and taxes
Using fiscal policy to influence aggregate demand
Expansionary fiscal policy
Contractionary fiscal policy
Don’t let this happen to you
Don’t confuse fiscal policy and monetary policy
The multiplier effect and government purchases and tax multipliers
The government purchases multiplier
A simple formula for the multiplier
Summarising the multiplier effect
The tax multiplier
The effect of changes in tax rates
Taking into account the effects of aggregate supply
The multipliers work in both directions
Making the connection 18.1 The multiplier in reverse: The Great Depression of the 1930s
Solved problem 18.1 Fiscal policy multipliers
The limits to using fiscal policy to stabilise the economy
Does government spending reduce private spending?
Crowding out in the short run
Crowding out in the long run
Making the connection 18.2 Why was the United States’ recession of 2007–2009 so severe?
Deficits, surpluses and federal government debt
How the federal budget can serve as an automatic stabiliser
Should the federal budget always be balanced?
Solved problem 18.2 The effect of economic fluctuations on the budget deficit
Is government debt a problem?
Making the connection 18.3 Government bankruptcy in Europe
The effects of fiscal policy in the long run
The long-run effects of tax policy
Tax simplification
The economic effect of tax reform
How large are supply-side effects from tax cuts?
Conclusion
An inside look
Japan cabinet approves $175b fiscal boost
Chapter summary and problems
Chapter 18 Appendix 1
Is there a short-run trade-off between unemployment and inflation?
The Phillips curve
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
Do workers understand inflation?
Appendix 1 Questions and problems
Chapter 18 Appendix 2
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
Appendix 2 Problems
Part 8 The international economy
Chapter 19 Comparative advantage and the gains from international trade
An overview of international trade
The importance of trade to the Australian economy
Australian international trade in a world context
Making the connection 19.1 The iPhone is made in China . . . or is it?
Comparative advantage in international trade
A brief review of comparative advantage
Comparative advantage and absolute advantage
How countries gain from international trade
Increasing consumption through trade
Solved problem 19.1 The gains from trade
Why don’t we see complete specialisation?
Does anyone lose as a result of international trade?
Don’t let this happen to you
Remember that trade creates both winners and losers
Where does comparative advantage come from?
Government policies that restrict international trade
Tariffs
Quotas
Measuring the economic impact of the sugar quota
Solved problem 19.2 Measuring the economic effect of a quota
Gains from unilateral elimination of tariffs and quotas
Domestic support policies
Other barriers to trade
The arguments over trade policies and globalisation
Why do some people oppose the World Trade Organization?
Dumping
Making the connection 19.2 The unintended consequences of banning goods made with child labour
Radical environmentalism
Positive versus normative analysis (once again)
Conclusion
An inside look
China-Australia Free Trade Agreement: outcomes at a glance
Chapter summary and problems
Chapter 20 Macroeconomics in an open economy
The balance of payments: Linking Australia to the international economy
The current account
The capital account
The financial account
Why is the balance of payments always zero?
Don’t let this happen to you
Don’t confuse the balance of trade, the current account balance and the balance of payments
Solved problem 20.1 Understanding the arithmetic of open economies
The foreign exchange market and exchange rates
Equilibrium in the market for foreign exchange
Don’t let this happen to you
Don’t confuse what happens when a currency appreciates with what happens when it depreciates
How do shifts in demand and supply affect the exchange rate?
Some exchange rates are not determined by the market
Making the connection 20.1 The Chinese yuan: The world’s most controversial currency
How movements in the exchange rate affect exports and imports
Solved problem 20.2 The effect of changing exchange rates on the prices of imports
The real exchange rate
Exchange rate systems
The current exchange rate system
The floating dollar
What determines exchange rates in the long run?
Making the connection 20.2 The Big Mac theory of exchange rates
The four determinants of exchange rates in the long run
Making the connection 20.3 Greece and Germany: Diverse economies, common currency
The international sector and national saving and investment
Current account balance equals net foreign investment
Domestic saving, domestic investment and net foreign investment
The effect of a government budget deficit on investment
Is Australia’s current account deficit a problem?
Making the connection 20.4 International debt relief for poor countries
Monetary policy and fiscal policy in an open economy
Monetary policy in an open economy
Fiscal policy in an open economy
Conclusion
An inside look
Brexit tipped to push $A higher, RBA to cut rate
Chapter summary and problems
Glossary
Index