Unit 1 The capitalist revolution
1.1 Income inequality
Exercise 1.1 Inequality in the fourteenth century
Exercise 1.2 Working with income data
1.2 Measuring income and living standards
Disposable income
Is our disposable income a good measure of our wellbeing?
Average disposable income and average wellbeing
Valuing government goods and services
Exercise 1.3 What should we measure?
Question 1.1 Choose the correct answer(s)
Einstein Comparing income at different times, and across different countries
The starting point: Nominal GDP
Taking account of price changes over time: Real GDP
Taking account of price differences among countries: International prices and purchasing power
1.3 History’s hockey stick: Growth in income
Great economists Adam Smith
Exercise 1.4 The advantages of ratio scales
Question 1.2 Choose the correct answer(s)
Question 1.3 Choose the correct answer(s)
1.4 The permanent technological revolution
Technological change in lighting
A connected world
1.5 The economy and the environment
Exercise 1.5 How much difference does a couple of degrees warmer or colder make?
Question 1.4 Choose the correct answer(s)
1.6 Capitalism defined: Private property, markets, and firms
Private property
Question 1.5 Choose the correct answer(s)
Markets
Exercise 1.6 The poorest man’s cottage
Exercise 1.7 Markets and social networks
Question 1.6 Choose the correct answer(s)
Firm
Defining capitalism precisely
Exercise 1.8 Capitalism
1.7 Capitalism as an economic system
How could capitalism lead to growth in living standards?
Technology
Specialization
Exercise 1.9 Firm or not?
1.8 The gains from specialization
Capitalism and specialization
The division of labour in firms
Markets, specialization, and comparative advantage
Exercise 1.10 Apples and wheat
1.9 Capitalism, causation and history’s hockey stick
How economists learn from facts Do institutions matter for growth in income?
1.10 Varieties of capitalism: Institutions, government, and the economy
When is capitalism dynamic?
Economic conditions
Political conditions
Political systems
Question 1.7 Choose the correct answer(s)
Question 1.8 Choose the correct answer(s)
1.11 Economics and the economy
Exercise 1.11 Where and when would you choose to have been born?
1.12 Conclusion
Concepts introduced in Unit 1
1.13 References
Unit 2 Technology, population, and growth
Index of real wages
Question 2.1 Choose the correct answer(s)
2.1 Economists, historians, and the Industrial Revolution
2.2 Economic models: How to see more by looking at less
How models are used in economics
Economic models
Exercise 2.1 Designing a model
2.3 Basic concepts: Prices, costs, and innovation rents
Ceteris paribus and simplification
Exercise 2.2 Using ceteris paribus
Incentives matter
Relative prices
Reservation positions and rents
Question 2.2 Choose the correct answer(s)
2.4 Modelling a dynamic economy: Technology and costs
What is a technology?
How does a firm evaluate the cost of production using different technologies?
Exercise 2.3 Isocost lines
2.5 Modelling a dynamic economy: Innovation and profit
How does a cost-reducing innovation raise the profits of the firm?
Question 2.3 Choose the correct answer(s)
Question 2.4 Choose the correct answer(s)
Great economists Joseph Schumpeter
2.6 The British Industrial Revolution and incentives for new technologies
Exercise 2.4 Britain but not France
Question 2.5 Choose the correct answer(s)
Exercise 2.5 Why did the Industrial Revolution not happen in Asia?
2.7 Malthusian economics: Diminishing average product of labour
Diminishing average product of labour
Production function
Exercise 2.6 The farmers’ production function
Question 2.6 Choose the correct answer(s)
2.8 Malthusian economics: Population grows when living standards rise
Exercise 2.7 Are people really like other animals?
Malthusian economics: The effect of technological improvement
Einstein Modelling Malthus
Exercise 2.8 Living standards in the Malthusian world
2.9 The Malthusian trap and long-term economic stagnation
Exercise 2.9 What would you add?
Question 2.7 Choose the correct answer(s)
Exercise 2.10 Defining economic progress
2.10 Escaping from Malthusian stagnation
Question 2.8 Choose the correct answer(s)
Exercise 2.11 The basic institutions of capitalism
2.11 Conclusion
Concepts introduced in Unit 2
2.12 References
Unit 3 Scarcity, work, and choice
Question 3.1 Choose the correct answer(s)
Question 3.2 Choose the correct answer(s)
3.1 Labour and production
Exercise 3.1 Ceteris paribus assumptions
Exercise 3.2 Production functions
Marginal product
Question 3.3 Choose the correct answer(s)
3.2 Preferences
Exercise 3.3 Why indifference curves never cross
Exercise 3.4 Your marginal rate of substitution
Question 3.4 Choose the correct answer(s)
Question 3.5 Choose the correct answer(s)
3.3 Opportunity costs
Question 3.6 Choose the correct answer(s)
Exercise 3.5 Opportunity costs
3.4 The feasible set
Question 3.7 Choose the correct answer(s)
3.5 Decision making and scarcity
Exercise 3.6 Exploring scarcity
Question 3.8 Choose the correct answer(s)
3.6 Hours of work and economic growth
Question 3.9 Choose the correct answer(s)
Exercise 3.7 Your production function
3.7 Income and substitution effects on hours of work and free time
Income and substitution effects
Technological progress
Question 3.10 Choose the correct answer(s)
3.8 Is this a good model?
Trial and error replaces calculations
The influence of culture and politics
Exercise 3.8 Another definition of economics
3.9 Explaining our working hours: Changes over time
Question 3.11 Choose the correct answer(s)
Exercise 3.9 Scarcity and choice
3.10 Explaining our working hours: Differences between countries
Exercise 3.10 Preferences and culture
Exercise 3.11 Working hours across countries and time
3.11 Conclusion
Concepts introduced in Unit 3
3.12 References
Unit 4 Social interactions
The Tragedy of the Commons
Resolving social dilemmas
Exercise 4.1 Social dilemmas
4.1 Social interactions: Game theory
Social and strategic interactions
Game
Question 4.1 Choose the correct answer(s)
4.2 Equilibrium in the invisible hand game
Question 4.2 Choose the correct answer(s)
When economists disagree Homo economicus in question: Are people entirely selfish?
4.3 The prisoners’ dilemma
The prisoners’ dilemma
Question 4.3 Choose the correct answer(s)
Exercise 4.2 Political advertising
4.4 Social preferences: Altruism
Altruistic preferences as indifference curves
Exercise 4.3 Altruism and selflessness
Question 4.4 Choose the correct answer(s)
4.5 Altruistic preferences in the prisoners’ dilemma
Question 4.5 Choose the correct answer(s)
Exercise 4.4 Amoral self-interest
4.6 Public goods, free riding, and repeated interaction
Great economists Elinor Ostrom
Repeated games
Question 4.6 Choose the correct answer(s)
4.7 Public good contributions and peer punishment
4.8 Behavioural experiments in the lab and in the field
How economists learn from facts Laboratory experiments
Question 4.7 Choose the correct answer(s)
Exercise 4.5 Are lab experiments always valid?
Question 4.8 Choose the correct answer(s)
Exercise 4.6 Crowding out
4.9 Cooperation, negotiation, conflicts of interest, and social norms
Negotiation: Sharing mutual gains
Question 4.9 Choose the correct answer(s)
4.10 Dividing a pie (or leaving it on the table)
Einstein When will an offer in the ultimatum game be accepted?
Exercise 4.7 Acceptable offers
4.11 Fair farmers, self-interested students?
Exercise 4.8 Social preferences
Exercise 4.9 Offers in the ultimatum game
Question 4.10 Choose the correct answer(s)
Question 4.11 Choose the correct answer(s)
Exercise 4.10 Strikes and the ultimatum game
4.12 Competition in the ultimatum game
Exercise 4.11 A sequential prisoners’ dilemma
4.13 Social interactions: Conflicts in the choice among Nash equilibria
Great economists John Nash
Resolving conflict
Exercise 4.12 Conflict between Astrid and Bettina
Exercise 4.13 Conflict in business
Question 4.12 Choose the correct answer(s)
Exercise 4.14 Nash equilibria and climate change
4.14 Conclusion
Concepts introduced in Unit 4
4.15 References
Unit 5 Property and power: Mutual gains and conflict
5.1 Institutions and power
Institutions
Power
The power to say no
5.2 Evaluating institutions and outcomes: The Pareto criterion
The Pareto criterion
Great economists Vilfredo Pareto
Pareto efficiency
Question 5.1 Choose the correct answer(s)
5.3 Evaluating institutions and outcomes: Fairness
Substantive and procedural judgements
Substantive judgements
Exercise 5.1 Substantive fairness
Procedural judgements
Exercise 5.2 Procedural fairness
Evaluating fairness
Exercise 5.3 Splitting the profits in a partnership
5.4 A model of choice and conflict
Angela works the land on her own
A new character appears
Exercise 5.4 Using indifference curves
Question 5.2 Choose the correct answer(s)
5.5 Technically feasible allocations
Exercise 5.5 Changing conditions for production
Question 5.3 Choose the correct answer(s)
5.6 Allocations imposed by force
Question 5.4 Choose the correct answer(s)
New institutions: Law and private property
5.7 Economically feasible allocations and the surplus
Exercise 5.6 Biological and economic feasibility
Exercise 5.7 Why Angela works for 8 hours
Exercise 5.8 Take it or leave it?
Question 5.5 Choose the correct answer(s)
Question 5.6 Choose the correct answer(s)
5.8 The Pareto efficiency curve and the distribution of the surplus
Pareto efficiency and the Pareto efficiency curve
Question 5.7 Choose the correct answer(s)
5.9 Politics: Sharing the surplus
Question 5.8 Choose the correct answer(s)
5.10 Bargaining to a Pareto-efficient sharing of the surplus
Question 5.9 Choose the correct answer(s)
5.11 Angela and Bruno: The moral of the story
5.12 Measuring economic inequality
The Gini coefficient
Comparing income distributions and inequality across the world
Question 5.10 Choose the correct answer(s)
Exercise 5.9 Comparing distributions of wealth
Einstein Inequality as differences among people
Approximating the Gini using the Lorenz curve
5.13 A policy to redistribute the surplus and raise efficiency
Efficiency and fairness
Einstein The Lorenz curve and the Gini coefficient in a class-divided economy with a large population
5.14 Conclusion
Concepts introduced in Unit 5
5.15 References
Unit 6 The firm: Owners, managers, and employees
6.1 Firms, markets, and the division of labour
Great economists Herbert Simon
The coordination of work
Contracts and relationships
Exercise 6.1 The structure of an organization
Question 6.1 Choose the correct answer(s)
6.2 Other people’s money: The separation of ownership and control
Question 6.2 Choose the correct answer(s)
6.3 Other people’s labour
Exercise 6.2 Incomplete contracts
Great economists Karl Marx
Question 6.3 Choose the correct answer(s)
6.4 Employment rents
How economists learn from facts Managers exert power
When economists agree Coase and Marx on the firm and its employees
Counting the cost of job loss
How economists learn from facts How large are employment rents?
Question 6.4 Choose the correct answer(s)
6.5 Determinants of the employment rent
Exercise 6.3 Assumptions of the model
Question 6.5 Choose the correct answer(s)
6.6 Work and wages: The labour discipline model
The employee’s best response
Question 6.6 Choose the correct answer(s)
6.7 Wages, effort, and profits in the labour discipline model
Involuntary unemployment
Exercise 6.4 The employer sets the wage
Question 6.7 Choose the correct answer(s)
6.8 Putting the model to work: Owners, employees, and the economy
Exercise 6.5 Effort and wages
How economists learn from facts Workers speed up when the economy slows down
Exercise 6.6 Lazear’s results
Exercise 6.7 Outsourcing comes home
Question 6.8 Choose the correct answer(s)
6.9 Another kind of business organization
Exercise 6.8 A worker-owned cooperative
Great economists John Stuart Mill
Exercise 6.9 Was Mill wrong?
6.10 Principals and agents: Interactions under incomplete contracts
Why are contracts incomplete?
Principal–agent models
Verifiable information, asymmetric information
Exercise 6.10 Principal–agent relationships
6.11 Conclusion
Concepts introduced in Unit 6
6.12 References
Unit 7 The firm and its customers
7.1 Breakfast cereal: Choosing a price
How economists learn from facts Estimating demand curves using surveys
Question 7.1 Choose the correct answer(s)
Question 7.2 Choose the correct answer(s)
Question 7.3 Choose the correct answer(s)
Exercise 7.1 Changes in the market
7.2 Economies of scale and the cost advantages of large-scale production
Economies and diseconomies of scale
Cost advantages
Demand advantages
Question 7.4 Choose the correct answer(s)
Einstein The size and cost of a pipe
Diseconomies of scale: CORE’s Dilbert law of firm hierarchy
7.3 Production: The cost function for Beautiful Cars
Marginal cost
Question 7.5 Choose the correct answer(s)
Question 7.6 Choose the correct answer(s)
Exercise 7.2 The cost function for Apple-Cinnamon Cheerios
Exercise 7.3 Cost functions for university education
7.4 Demand and isoprofit curves: Beautiful Cars
The demand curve
Question 7.7 Choose the correct answer(s)
The isoprofit curves
Question 7.8 Choose the correct answer(s)
Exercise 7.4 Looking at isoprofit curves
7.5 Setting price and quantity to maximize profit
Constrained optimization
Constrained optimization
Question 7.9 Choose the correct answer(s)
Question 7.10 Choose the correct answer(s)
Question 7.11 Choose the correct answer(s)
7.6 Looking at profit maximization as marginal revenue and marginal cost
Question 7.12 Choose the correct answer(s)
7.7 Gains from trade
Consumer surplus, producer surplus, profit
Pareto efficiency
Exercise 7.5 Changing the rules of the game
Question 7.13 Choose the correct answer(s)
7.8 The elasticity of demand
Question 7.14 Choose the correct answer(s)
Question 7.15 Choose the correct answer(s)
Einstein The elasticity of demand and the marginal revenue
The size of the markup chosen by the firm
7.9 Using demand elasticities in government policy
Exercise 7.6 Elasticity and expenditure
Exercise 7.7 Food taxes and health
7.10 Price-setting, competition, and market power
Great economists Augustin Cournot
Market failure
Competition policy
Exercise 7.8 Multinationals or independent retailers?
Question 7.16 Choose the correct answer(s)
7.11 Product selection, innovation, and advertising
7.12 Prices, costs, and market failure
7.13 Conclusion
Concepts introduced in Unit 7
7.14 References
Unit 8 Supply and demand: Price-taking and competitive markets
8.1 Buying and selling: Demand and supply
Question 8.1 Choose the correct answer(s)
Exercise 8.1 Selling strategies and reservation prices
8.2 The market and the equilibrium price
Great economists Alfred Marshall
Price-taking
Exercise 8.2 Price-takers
Question 8.2 Choose the correct answer(s)
8.3 Price-taking firms
Price-taking firm
Question 8.3 Choose the correct answer(s)
8.4 Market supply and equilibrium
Question 8.4 Choose the correct answer(s)
8.5 Competitive equilibrium: Gains from trade, allocation, and distribution
Pareto efficiency
Price-taking
A complete contract
No effects on others
Fairness
Exercise 8.3 Maximizing the surplus
Exercise 8.4 Surplus and deadweight loss
Question 8.5 Choose the correct answer(s)
Question 8.6 Choose the correct answer(s)
Einstein Total surplus and WTP
8.6 Changes in supply and demand
An increase in demand
An increase in supply due to improved productivity
An increase in supply: More bakeries enter the market
Exercise 8.5 The market for quinoa
Exercise 8.6 Prices, shocks, and revolutions
Question 8.7 Choose the correct answer(s)
Question 8.8 Choose the correct answer(s)
8.7 The effects of taxes
Using taxes to raise revenue
Using taxes to change behaviour
Exercise 8.7 The deadweight loss of the butter tax
Question 8.9 Choose the correct answer(s)
Question 8.10 Choose the correct answer(s)
8.8 The model of perfect competition
Perfect competition
Great economists Léon Walras
Exercise 8.8 Price-fixing
Question 8.11 Choose the correct answer(s)
8.9 Looking for competitive equilibria
Exercise 8.9 Price dispersion
Exercise 8.10 The Fulton Fish Market
8.10 Price-setting and price-taking firms
8.11 Conclusion
Concepts introduced in Unit 8
8.12 References
Unit 9 The labour market: Wages, profits, and unemployment
9.1 The wage-setting curve, the price-setting curve, and the labour market
The labour market
Firms and employees
Firms and customers
Wages and employment
Question 9.1 Choose the correct answer(s)
9.2 Measuring the economy: Employment and unemployment
Exercise 9.1 Employment, unemployment, and participation
Question 9.2 Choose the correct answer(s)
9.3 The wage-setting curve: Employment and real wages
Simplifying the model
Exercise 9.2 Shifts in the wage-setting curve
Question 9.3 Choose the correct answer(s)
9.4 The firm’s hiring decision
Question 9.4 Choose the correct answer(s)
9.5 The price-setting curve: Wages and profits in the whole economy
Exercise 9.3 The price-setting curve
Question 9.5 Choose the correct answer(s)
Einstein The price-setting curve
Step 1: The firm sets its price
Step 2: The price level in the economy as a whole and the real wage
Step 3: Profits, wages, and the price-setting curve
9.6 Wages, profits, and unemployment in the whole economy
Unemployment as a characteristic of labour market equilibrium
Exercise 9.4 Is this really a Nash equilibrium?
Question 9.6 Choose the correct answer(s)
Question 9.7 Choose the correct answer(s)
9.7 How changes in demand for goods and services affect unemployment
What could go wrong?
Worker resistance to a reduction in the nominal wage
Wage and price reductions might not lead to higher sales and employment
The role of government policy
Exercise 9.5 Wages and aggregate demand
Question 9.8 Choose the correct answer(s)
9.8 Labour market equilibrium and the distribution of income
Factors that affect labour market equilibrium: Unemployment and inequality
Question 9.9 Choose the correct answer(s)
Einstein The Lorenz curve and the Gini coefficient in an economy with unemployed, employed, and employers (owners)
9.9 Labour supply, labour demand, and bargaining power
Changes in labour supply: The effects of immigration
Exercise 9.6 Immigration of entrepreneurs
Question 9.10 Choose the correct answer(s)
9.10 Labour unions: Bargained wages and the union voice effect
Labour unions and the bargained wage-setting curve
The union voice effect
Question 9.11 Choose the correct answer(s)
9.11 Labour market policies to address unemployment and inequality
The effect of policies that shift the price-setting curve
Education and training
A wage subsidy
The effect of policies that shift the wage-setting curve
9.12 Looking backward: Baristas and bread markets
Taking a price, setting a price
Complete and incomplete contracts
Pareto efficiency and unexploited opportunities for mutual gains
The politics and sociology of markets
Question 9.12 Choose the correct answer(s)
9.13 Conclusion
Concepts introduced in Unit 9
9.14 References
Unit 10 Banks, money, and the credit market
10.1 Money and wealth
Money
Wealth
Income
Expenditure
Question 10.1 Choose the correct answer(s)
Question 10.2 Choose the correct answer(s)
10.2 Borrowing: Bringing consumption forward in time
10.3 Impatience and the diminishing marginal returns to consumption
Smoothing
Pure impatience, or how impatient you are as a person
Impatience
Exercise 10.1 The consequences of pure impatience
Question 10.3 Choose the correct answer(s)
10.4 Borrowing allows smoothing by bringing consumption to the present
A person’s discount rate
Exercise 10.2 Income and substitution effects
Question 10.4 Choose the correct answer(s)
10.5 Lending and storing: Smoothing and moving consumption to the future
10.6 Investing: Another way to move consumption to the future
Exercise 10.3 An increase in the interest rate
Exercise 10.4 Lifetime income
Question 10.5 Choose the correct answer(s)
Question 10.6 Choose the correct answer(s)
10.7 Assets, liabilities, and net worth
Question 10.7 Choose the correct answer(s)
10.8 Banks, money, and the central bank
Types of money
Question 10.8 Choose the correct answer(s)
10.9 The central bank, the money market, and interest rates
Exercise 10.5 Interest rate markups
Einstein Present value (PV)
Net present value (NPV)
Bond prices and yields
10.10 The business of banking and bank balance sheets
Leverage for non-banks
Question 10.9 Choose the correct answer(s)
10.11 The central bank’s policy rate can affect spending
Question 10.10 Choose the correct answer(s)
Exercise 10.6 Interest rates and consumption spending
10.12 Credit market constraints: A principal–agent problem
Question 10.11 Choose the correct answer(s)
Exercise 10.7 Microfinance and lending to the poor
10.13 Inequality: Lenders, borrowers, and those excluded from credit markets
Question 10.12 Choose the correct answer(s)
Exercise 10.8 Unpopular banks
Exercise 10.9 Limits on lending
10.14 Conclusion
Concepts introduced in Unit 10
10.15 References
Unit 11 Rent-seeking, price-setting, and market dynamics
Great economists Friedrich Hayek
Question 11.1 Choose the correct answer(s)
11.1 How people changing prices to gain rents can lead to a market equilibrium
Market equilibration through rent-seeking
Einstein Equilibration through rent-seeking in an experimental market
Exercise 11.1 A supply shock and adjustment to a new market
Exercise 11.2 Cotton prices and the American Civil War
Question 11.2 Choose the correct answer(s)
11.2 How market organization can influence prices
11.3 Short-run and long-run equilibria
Short-run and long-run elasticities
Question 11.3 Choose the correct answer(s)
11.4 Prices, rent-seeking, and market dynamics at work: Oil prices
Short-run supply and demand
The 1970s oil price shocks
The 2000–2008 oil price shock
Exercise 11.3 The world market for oil
Exercise 11.4 The shale oil revolution
11.5 The value of an asset: Basics
Bonds
Stocks
Risk
Trading strategies
How economists learn from facts The wisdom of crowds: The weight of stock (oxen) and the value of stocks
Question 11.4 Choose the correct answer(s)
11.6 Changing supply and demand for financial assets
Exercise 11.5 Supply and demand curves
Question 11.5 Choose the correct answer(s)
11.7 Asset market bubbles
Information, uncertainty, and beliefs
When economists disagree Do bubbles exist?
Exercise 11.6 Markets for gems
Question 11.6 Choose the correct answer(s)
11.8 Modelling bubbles and crashes
How do bubbles come to an end?
Exercise 11.7 What is the fundamental value of a Bitcoin?
Exercise 11.8 The big ten asset price bubbles of the last 400 years
Question 11.7 Choose the correct answer(s)
Question 11.8 Choose the correct answer(s)
11.9 Non-clearing markets: Rationing, queuing, and secondary markets
Exercise 11.9 IOC policy
Exercise 11.10 The price of a ticket
Question 11.9 Choose the correct answer(s)
11.10 Markets with controlled prices
Exercise 11.11 Why not raise the price?
Question 11.10 Choose the correct answer(s)
11.11 The role of economic rents
Question 11.11 Choose the correct answer(s)
11.12 Conclusion
Concepts introduced in Unit 11
11.13 References
Unit 12 Markets, efficiency, and public policy
Exercise 12.1 Property rights and contracts in Madagascar
12.1 Market failure: External effects of pollution
Question 12.1 Choose the correct answer(s)
12.2 External effects and bargaining
Great economists Ronald Coase
Exercise 12.2 Bargaining power
Exercise 12.3 A positive externality
Question 12.2 Choose the correct answer(s)
Question 12.3 Choose the correct answer(s)
12.3 External effects: Policies and income distribution
Regulation
Taxation
Enforcing compensation
Diagnosis and treatment in the case of chlordecone
Great economists Arthur Pigou
Exercise 12.4 Pigouvian subsidy
Exercise 12.5 Comparing policies
Question 12.4 Choose the correct answer(s)
12.4 Property rights, contracts, and market failures
Exercise 12.6 Incomplete contracts
12.5 Public goods
Exercise 12.7 Rivalry and excludability
Question 12.5 Choose the correct answer(s)
12.6 Missing markets: Insurance and lemons
Hidden actions and moral hazard
Hidden attributes and adverse selection
Hidden attributes and adverse selection
Adverse selection in the insurance market
Moral hazard in the insurance market
Exercise 12.8 Hidden attributes
Question 12.6 Choose the correct answer(s)
Question 12.7 Choose the correct answer(s)
12.7 Incomplete contracts and external effects in credit markets
Question 12.8 Choose the correct answer(s)
12.8 The limits of markets
What determines the balance between firms and markets?
Repugnant markets
Merit goods
Exercise 12.9 Capitalism among consenting adults
12.9 Market failure and government policy
Looking ahead: A broader role for governments
Exercise 12.10 Market failure
12.10 Conclusion
Concepts introduced in Unit 12
12.11 References
Unit 13 Economic fluctuations and unemployment
Correlation may not be causation
Exercise 13.1 The OECD Better Life Index
13.1 Growth and fluctuations
Exercise 13.2 Defining recessions
Question 13.1 Choose the correct answer(s)
Einstein Ratio scales and logarithms
13.2 Output growth and changes in unemployment
Exercise 13.3 Okun’s Law
Question 13.2 Choose the correct answer(s)
Einstein Okun’s law
13.3 Measuring the aggregate economy
13.4 Measuring the aggregate economy: The components of GDP
Consumption (C)
Investment (I)
Government spending on goods and services (G)
Exports (X)
Imports (M)
Net exports (X − M)
GDP (Y)
Shortcomings of GDP as a measure
Exercise 13.4 How to use FRED
Question 13.3 Choose the correct answer(s)
Question 13.4 Choose the correct answer(s)
13.5 How households cope with fluctuations
Household shocks
Economy-wide shocks
Exercise 13.5 Health insurance
Question 13.5 Choose the correct answer(s)
13.6 Why is consumption smooth?
Credit constraints
Weakness of will
How economists learn from facts My diet starts tomorrow
Limited co-insurance
Exercise 13.6 Changes in income, changes in consumption
Question 13.6 Choose the correct answer(s)
Question 13.7 Choose the correct answer(s)
13.7 Why is investment volatile?
Coordination game
Exercise 13.7 Consulting FRED
Question 13.8 Choose the correct answer(s)
13.8 Measuring the economy: Inflation
What is inflation?
Exercise 13.8 Measuring inflation
Exercise 13.9 The CPI and the GDP deflator
13.9 Conclusion
Concepts introduced in Unit 13
13.10 References
Unit 14 Unemployment and fiscal policy
14.1 The transmission of shocks: The multiplier process
14.2 The multiplier model
Question 14.1 Choose the correct answer(s)
Question 14.2 Choose the correct answer(s)
Einstein Calculating the multiplier
14.3 Household target wealth, collateral, and consumption spending
Exercise 14.1 A household’s balance sheet
Exercise 14.2 Housing in France and Germany
Question 14.3 Choose the correct answer(s)
14.4 Investment spending
Question 14.4 Choose the correct answer(s)
Question 14.5 Choose the correct answer(s)
14.5 The multiplier model: Including the government and net exports
Consumption
Investment
Government spending
Net exports
Exercise 14.3 The multiplier model
Question 14.6 Choose the correct answer(s)
Einstein The multiplier in an economy with a government and foreign trade
14.6 Fiscal policy: How governments can dampen and amplify fluctuations
The paradox of thrift and the fallacy of composition
Great economists John Maynard Keynes
How governments can amplify fluctuations
Exercise 14.4 Spending cuts in a recession
Question 14.7 Choose the correct answer(s)
14.7 The multiplier and economic policymaking
Crowding out
How economists learn from facts The Mafia and the multiplier
When economists disagree How responsive is the economy to government spending?
Exercise 14.5 Methods to estimate the multiplier
Exercise 14.6 Contributions to change in real gross domestic product over the business cycle
Exercise 14.7 The fall of France
Exercise 14.8 Stimulus without more debt
Question 14.8 Choose the correct answer(s)
14.8 The government’s finances
Revenue
Expenditure
Government primary deficit
Exercise 14.9 Efficiency and fairness
14.9 Fiscal policy and the rest of the world
Foreign markets matter
Imports dampen domestic fluctuations
Trade constrains the use of fiscal stimulus
Exercise 14.10 Coordinating a stimulus
Question 14.9 Choose the correct answer(s)
14.10 Aggregate demand and unemployment
Question 14.10 Choose the correct answer(s)
14.11 Conclusion
Concepts introduced in Unit 14
14.12 References
Unit 15 Inflation, unemployment, and monetary policy
15.1 What’s wrong with inflation?
Describing a change in price level
Question 15.1 Choose the correct answer(s)
Question 15.2 Choose the correct answer(s)
15.2 Inflation results from conflicting and inconsistent claims on output
Great economists Bill Phillips
Question 15.3 Choose the correct answer(s)
Question 15.4 Choose the correct answer(s)
15.3 Inflation, the business cycle, and the Phillips curve
The bargaining gap and the Phillips curve
Bargaining gap
Exercise 15.1 The bargaining gap in a recession
Exercise 15.2 Positive and negative shocks
Question 15.5 Choose the correct answer(s)
15.4 Inflation and unemployment: Constraints and preferences
Exercise 15.3 The Phillips curve and the policymaker’s preferences
15.5 What happened to the Phillips curve?
15.6 Expected inflation and the Phillips curve
Introducing expected inflation
The shifting Phillips curve
Exercise 15.4 A negative aggregate demand shock with high unemployment
Exercise 15.5 Inflation, expected inflation, and the bargaining gap
Question 15.6 Choose the correct answer(s)
Question 15.7 Choose the correct answer(s)
15.7 Supply shocks and inflation
Exercise 15.6 An oil shock
Einstein The price-setting curve with imported materials
The markup price-setting equation for the firm
15.8 Monetary policy
The transmission of monetary policy
Market interest rates
Asset prices
Profit expectations and confidence
Exchange rate
A warning
The zero lower bound
How is QE supposed to work?
No national monetary policy
Exercise 15.7 Fiscal or monetary policy?
Question 15.8 Choose the correct answer(s)
Einstein The real interest rate and the Fisher equation
15.9 The exchange rate channel of monetary policy
Exercise 15.8 Why bonds?
Question 15.9 Choose the correct answer(s)
15.10 Demand shocks and demand-side policies
The recession and the policy response
The recession and the model
Exercise 15.9 A construction boom
15.11 Macroeconomic policy before the global financial crisis: Inflation-targeting policy
Question 15.10 Choose the correct answer(s)
15.12 Another reason for rising inflation at low unemployment
15.13 Conclusion
Concepts introduced in Unit 15
15.14 References
Unit 16 Technological progress, employment, and living standards in the long run
Exercise 16.1 Wealth and life satisfaction
Question 16.1 Choose the correct answer(s)
16.1 Technological progress and living standards
Question 16.2 Choose the correct answer(s)
16.2 The job creation and destruction process
Exercise 16.2 Schumpeter revisited
16.3 Job flows, worker flows, and the Beveridge curve
The Beveridge curve
Exercise 16.3 Beveridge curves and the German labour market
Question 16.3 Choose the correct answer(s)
16.4 Investment, firm entry, and the price-setting curve in the long run
Determinants of economic performance in the long run
From the equilibrium markup to the price-setting curve in the long run
The long-run price-setting curve
Exercise 16.4 Measuring the conditions for investment
Question 16.4 Choose the correct answer(s)
Question 16.5 Choose the correct answer(s)
16.5 New technology, wages, and unemployment in the long run
New knowledge and new technology: The innovation diffusion gap
Adjustment to technological change: The employment and wage adjustment gap
Lessons from creative destruction and consumption smoothing
Question 16.6 Choose the correct answer(s)
Question 16.7 Choose the correct answer(s)
16.6 Technological change and income inequality
Exercise 16.5 Technological progress and inequality
Question 16.8 Choose the correct answer(s)
16.7 How long does it take for labour markets to adjust to shocks?
16.8 Institutions and policies: Why do some countries do better than others?
Exercise 16.6 You are the policymaker
Question 16.9 Choose the correct answer(s)
16.9 Technological change, labour markets, and trade unions
The Nordic case: Inclusive unions and employers’ associations
The Japanese case: Inclusive employers’ associations
The Spanish case: Non-inclusive unions
Unemployment benefits and unemployment
Exercise 16.7 Unemployment rates and labour market institutions
Question 16.10 Choose the correct answer(s)
16.10 Changes in institutions and policies
Exercise 16.8 The labour market model
16.11 Slower productivity growth in services, and the changing nature of work
The rise and fall of manufacturing employment
The economics of slower productivity growth in services
Einstein How faster productivity growth in goods production may shift employment from goods to services
Question 16.11 Choose the correct answer(s)
16.12 Wages and unemployment in the long run
16.13 Conclusion
Concepts introduced in Unit 16
16.14 References
Unit 17 The Great Depression, golden age, and global financial crisis
How economists learn from facts ‘I made a mistake’
17.1 Three economic epochs
Question 17.1 Choose the correct answer(s)
Question 17.2 Choose the correct answer(s)
17.2 The Great Depression, positive feedbacks, and aggregate demand
Exercise 17.1 Farmers in the Great Depression
17.3 Policymakers in the Great Depression
Fiscal policy in the Great Depression
Monetary policy in the Great Depression
The gold standard
A change in expectations
The Great Depression
Exercise 17.2 Advantages and disadvantages of fixed exchange rates
Question 17.3 Choose the correct answer(s)
17.4 The golden age of high growth and low unemployment
The golden age of capitalism
17.5 Workers and employers in the golden age
Question 17.4 Choose the correct answer(s)
17.6 The end of the golden age
Question 17.5 Choose the correct answer(s)
Question 17.6 Choose the correct answer(s)
Question 17.7 Choose the correct answer(s)
17.7 After stagflation: The fruits of a new policy regime
Exercise 17.3 Workers’ bargaining power
17.8 Before the financial crisis: Households, banks, and the credit boom
The great moderation and the global financial crisis
Housing booms and the financial accelerator
Financial deregulation and subprime borrowers
Financial deregulation and bank leverage
The subprime housing crisis of 2007
Great economists Hyman Minsky
Exercise 17.4 Household wealth as a balance sheet
Question 17.8 Choose the correct answer(s)
Question 17.9 Choose the correct answer(s)
17.9 Modelling housing bubbles
Tipping point
Exercise 17.5 Differences between equilibrium and stability
Question 17.10 Choose the correct answer(s)
17.10 The financial crisis and the great recession
Exercise 17.6 The crisis and the multiplier
Question 17.11 Choose the correct answer(s)
17.11 The role of banks in the crisis
House prices and bank solvency
Bank liquidity and the credit crunch
Fire sales: A positive feedback process
Governments rescue banks
Exercise 17.7 How conventional wisdom on financial markets contributed to the global financial crisis
Exercise 17.8 Behaviour in the financial crisis
Question 17.12 Choose the correct answer(s)
17.12 The economy as teacher
Exercise 17.9 Banking regulations can help bring on financial crises
Exercise 17.10 Hoover’s balanced budget
Exercise 17.11 Austerity policy
17.13 Conclusion
Concepts introduced in Unit 17
17.14 References
Unit 18 The nation and the world economy
18.1 Globalization and deglobalization in the long run
Exercise 18.1 Price gaps that did and didn’t fall
Exercise 18.2 Learning more about tariffs
Question 18.1 Choose the correct answer(s)
Question 18.2 Choose the correct answer(s)
18.2 Globalization and investment
Balance of payments account (BP)
Current account (CA)
Exercise 18.3 International capital flows: Does capital flow from richer to poorer countries?
Question 18.3 Choose the correct answer(s)
18.3 Globalization and migration
Question 18.4 Choose the correct answer(s)
18.4 Specialization and the gains from trade among nations
Economies of agglomeration
Exercise 18.4 Assess some country production specialization patterns
18.5 Specialization, factor endowments, and trade between countries
Diversification in the absence of trade
Trade and specialization
Gains from trade
Great economists David Ricardo
Exercise 18.5 Comparative advantage
Exercise 18.6 Power and bargaining
Question 18.5 Choose the correct answer(s)
Question 18.6 Choose the correct answer(s)
Question 18.7 Choose the correct answer(s)
18.6 Winners and losers from trade and specialization
Exercise 18.7 Winners and losers from specialization due to economies of scale
Question 18.8 Choose the correct answer(s)
Exercise 18.8 The collapse of the Soviet Union
18.7 Winners and losers in the very long run and along the way
Question 18.9 Choose the correct answer(s)
18.8 Migration: Globalization of labour
Exercise 18.9 The economic effects of immigration
18.9 Globalization and anti-globalization
Exercise 18.10 Rodrik’s Trilemma
Exercise 18.11 Examine the respective strengths and costs of economic independence, and interdependency
18.10 Trade and growth
Exercise 18.12 The effect of trade on growth
When economists disagree Heckscher–Ohlin, the Leontief paradox, and the new trade theory
18.11 Conclusion
Concepts introduced in Unit 18
18.12 References
Unit 19 Economic inequality
Exercise 19.1 Income variation across and within countries
19.1 Inequality across the world and over time
Wealth, earnings, market income and disposable income
Income inequalities over time and among countries
Inequalities between and within nations
A glimpse into the future of the rich economies: The missing middle?
Exercise 19.2 Inequalities among your classmates
Question 19.1 Choose the correct answer(s)
Question 19.2 Choose the correct answer(s)
Question 19.3 Choose the correct answer(s)
Einstein The Gini coefficient and worldwide income differences
Exercise 19.3 Another way to interpret Gini coefficients
19.2. Accidents of birth: Another lens to study inequality
Gender and other forms of categorical inequality
Intergenerational inequality
Exercise 19.4 How inequalities of birth persist between generations
Question 19.4 Choose the correct answer(s)
19.3 What (if anything) is wrong with inequality?
Perceived, ideal and actual inequalities
When is inequality unfair?
Exercise 19.5 Estimated, ideal, and actual distributions of wealth
Exercise 19.6 A level playing field
19.4 How much inequality is too much (or too little)?
A lens for looking at unfairness: The veil of ignorance.
Feasible inequality
A preference for fairness
Question 19.5 Choose the correct answer(s)
19.5 Endowments, technology, and institutions
Income and endowments
Using the model to review inequality from previous units
How endowments, technology, institutions, and inequality interact over time
Exercise 19.7 Yichen, Renfu, Mark, and Stephanie
19.6 Inequality, endowments, and principal–agent relationships
Question 19.6 Choose the correct answer(s)
19.7 Putting the model to work: Explaining changes in inequality
A more educated and more productive workforce
A reduction in labour market segmentation
Automation
Exercise 19.8 How automation affects employment
Question 19.7 Choose the correct answer(s)
19.8 Predistribution
Exercise 19.9 Non-compete contracts in the labour market model
Question 19.8 Choose the correct answer(s)
Question 19.9 Choose the correct answer(s)
19.9 Explaining recent trends in inequality in market income
19.10 Redistribution: Taxes and transfers
Differences among economies in the extent and nature of redistribution
The welfare state
Progressive and regressive redistribution
How economists learn from facts What is the best way to give money to the poor? Randomize and find out.
Exercise 19.10 Regressive and progressive taxes
19.11 Equality and economic performance
Exercise 19.11 The U-turn countries
Exercise 19.12 High and low performers
Question 19.10 Choose the correct answer(s)
19.12 Conclusion
Concepts introduced in Unit 19
19.13 References
Unit 20 Economics of the environment
Question 20.1 Choose the correct answer(s)
20.1 Recap: External effects, incomplete contracts, and missing markets
Question 20.2 Choose the correct answer(s)
20.2 Climate change
Climate change and economic activity
Exercise 20.1 Assessing the economic impacts of global warming
Exercise 20.2 Climate change causes and evidence
Question 20.3 Choose the correct answer(s)
20.3 The abatement of environmental damages: Cost-benefit analysis
Abatement costs and the feasible set
Environment-consumption indifference curves
Cost-benefit analysis: The ideal policymaker chooses an abatement level
Exercise 20.3 Choosing abatement strategies
Exercise 20.4 Optimistic and pessimistic policies
Question 20.4 Choose the correct answer(s)
Question 20.5 Choose the correct answer(s)
Einstein Marginal abatement costs and the total productivity of abatement expenditures
20.4 Conflicts of interest: Bargaining over wages, pollution, and jobs
The firm has all the bargaining power
Citizens have all the bargaining power
Dividing the mutual gains
Question 20.6 Choose the correct answer(s)
20.5 Cap and trade environmental policies
Cap and trade: Examples of emissions trading
How high should the price of carbon emissions be?
Exercise 20.5 Assessing cap and trade policies
Exercise 20.6 A successful tradable emissions permit program
Exercise 20.7 Would a carbon tax reduce emissions more than regulation?
20.6 The measurement challenges of environmental policy
Contingent valuation
Hedonic pricing
How economists learn from facts Natural capital and green growth
When economists disagree Willingness to pay versus the right to a livable environment
Exercise 20.8 Wealth and natural capital
Question 20.7 Choose the correct answer(s)
20.7 Dynamic environmental policies: Future technologies and lifestyles
Prices, quantities and green innovation
Environmental policy and long-term changes in lifestyles
How economists learn from facts Social preferences and environmental sustainability
Exercise 20.9 Improvements in technology
Exercise 20.10 The price elasticity of demand
Question 20.8 Choose the correct answer(s)
Question 20.9 Choose the correct answer(s)
20.8 Environmental dynamics
Multiple equilibria and tipping points
Environmental tipping point
Climate change and environmental collapse
Prudential policies to address tipping points
Exercise 20.11 Representing regime shifts
Exercise 20.12 Self-reinforcing processes
20.9 Why is addressing climate change so difficult?
International cooperation
Unrepresented generations
When economists disagree The discounting dilemma: How should we account for future costs and benefits?
Exercise 20.13 Simulating different discount rates
Question 20.10 Choose the correct answer(s)
20.10 Policy choices matter
Differences between countries
Lessons from the existence of win-win policies
Is ‘make the polluter pay’ fair?
Exercise 20.14 High and low performers
Question 20.11 Choose the correct answer(s)
20.11 Conclusion
Concepts introduced in Unit 20
20.12 References
Unit 21 Innovation, information, and the networked economy
Exercise 21.1 Patents and innovation in the pharmaceutical industry
21.1 The innovation process: Invention and diffusion
Invention and innovation
Radical innovation
Incremental innovation
Diffusion
When economists disagree The end of the permanent technological revolution?
Exercise 21.2 The permanent technological revolution
Question 21.1 Choose the correct answer(s)
21.2 Innovation systems
The Silicon Valley innovation system
The German innovation system
The economics of innovation systems
Exercise 21.3 Comparing innovation systems
Question 21.2 Choose the correct answer(s)
21.3 External effects: Complements, substitutes, and coordination
Innovations that are complements
Innovations that are substitutes
The role of public policy
Complements
Substitutes and standards
Exercise 21.4 Complements
Exercise 21.5 Substitutes and complements
Question 21.3 Choose the correct answer(s)
21.4 Economies of scale and winner-take-all competition
The supply side: First copy costs and economies of scale in production
The demand side: Economies of scale through network effects
Question 21.4 Choose the correct answer(s)
21.5 Matching (two-sided) markets
Matching (two-sided) markets
A model of a two-sided matching market
Market failures in matching markets
A catalogue of policies
Exercise 21.6 Understanding matching markets
Exercise 21.7 Why do curves in the matching markets model slope upwards?
Exercise 21.8 Mismatched posters and seekers in a matching market model
Exercise 21.9 Chicken-and-egg
Question 21.5 Choose the correct answer(s)
21.6 Intellectual property rights
Intellectual property rights
Patents
Trademarks
Copyright
How intellectual property rights affect innovation
Creative commons licensing
When economists disagree Intellectual property rights: Dynamo or drag?
Exercise 21.10 Thomas Jefferson
Exercise 21.11 How copyright improved Italian opera, and how such protection should be limited
Exercise 21.12 Intellectual property rights
Question 21.6 Choose the correct answer(s)
21.7 Optimal patents: Balancing the objectives of invention and diffusion
The trade-off between the benefits of diffusion and of invention
Feasible invention and diffusion
Optimal patent duration
Exercise 21.13 Optimal patents
Question 21.7 Choose the correct answer(s)
Question 21.8 Choose the correct answer(s)
21.8 Public funding of basic research, education, and information infrastructure
Government-funded research
Competitions and prizes
Exercise 21.14 Government-funded research
Question 21.9 Choose the correct answer(s)
Question 21.10 Choose the correct answer(s)
21.9 Conclusion
Concepts introduced in Unit 21
21.10 References
Unit 22 Economics, politics, and public policy
22.1 The government as an economic actor
Coercion and providing public services
Part of the solution
Part of the problem
Exercise 22.1 Building self-control into government
Exercise 22.2 The relationship between economic development and size of government
22.2 Government acting as a monopolist
Preferences and feasible sets
A rent-seeking dictator
Even a dictator faces constraints on what he can do
The dictator chooses a tax to maximize his total rents
Question 22.1 Choose the correct answer(s)
22.3 Political competition affects how the government will act
How economists learn from facts Does electoral competition affect policy?
Political competition as a constraint
Exercise 22.3 Comparing duration curves for governments and monopolistic firms
Exercise 22.4 Income and substitution effects
22.4 Why an erstwhile dictator might submit to political competition
Exercise 22.5 Effects of cost-saving improvements to public services
Question 22.2 Choose the correct answer(s)
22.5 Democracy as a political institution
Great economists Kenneth Arrow
22.6 Political preferences and electoral competition: The median voter model
The median voter and party platforms in an ideal democracy
Exercise 22.6 Rock-paper-scissors politics
22.7 A more realistic model of electoral competition
Accountability through political and economic competition: Summing up
Great economists Albert O. Hirschman
Exercise 22.7 Nash equilibria in the median voter model
Question 22.3 Choose the correct answer(s)
22.8 The advance of democracy
Social unrest and universal suffrage
Spending priorities in a democracy
Exercise 22.8 Past influences on current government spending patterns
Exercise 22.9 Comparing government expenditures
22.9 Varieties of democracy
Accountability and transfers of power
Exercise 22.10 How democracy helps protect the governed
22.10 Democracy makes a difference
How economists learn from facts Women’s suffrage and the reduction in child mortality in the US
Exercise 22.11 Work times and inequality in less democratic democracies
22.11 A puzzle: The persistence of unfairness and market failures in democracies
Government failure
Economic infeasibility
Administrative infeasibility
Special interests
22.12 Economic infeasibility
How policies work by shifting the Nash equilibrium
Unintended consequences
Economic feasibility: An example from Chile
Exercise 22.12 Economies succeed when national policies align with individual impulses
Question 22.4 Choose the correct answer(s)
22.13 Administrative infeasibility
Limited information
Limited capacities
Administrative infeasibility: An application from Nigeria
22.14 Special interests
Democratic accountability of elected officials
‘All animals are equal. But some are more equal than others.’
How economists (and political scientists) learn from facts Does money talk?
Special interests: The story of Chile continued
22.15 Policy matters and economics works
22.16 Conclusion
Concepts introduced in Unit 22
22.17 References
