Introductory Economics

Introductory Economics deals with the national economy as a whole—macroeconomics, in terms of inflation and unemployment. The book also discusses individual economic decision-makers—microeconomics, in view of the problems of scarcity and choice. Macroeconomics uses the market model of demand and supply as a tool to analyze the causes of, and present some cures for modern economic ailments. The text examines the economics of government fiscal policies with the framework of an aggregate demand and supply model. The book compares monetary policy and fiscal policy, explains the monetarist model of economic activity, and also investigates the roles of money, credit, interest rates. These economic activities have international consequences such as in trade, exchange rates, and on prevailing and future national economic policies. In microeconomics, the book focuses on the economics of exchange, the market mechanisms that increase the gains from trade, and the problems of choice facing consumers and producers in a competitive market. The text also tackles the problems found in resource markets (labor, natural resources, energy), in market failure, as well as analyzes the role of government. Economists, sociologists, students of economics or business, general readers interested in real-world economics, and policy makers involved in national economic development will find the book valuable.

Preface

Part 1 Tools and Problems

Chapter 1 Macroeconomic Problems

What Is Economics?

Macro- Versus Microeconomics

Macroeconomics Goals and Problems

The Great Depression

The Forties

The Fifties

The Sixties

The Phillips Curve

The Seventies

What Happened to the Phillips Curve?

The Eighties and Beyond

Summary

Discussion Questions

Test Yourself

Economic Controversies I: Another Great Depression?

The Coming Bust

We Can Manage Prosperity

Discussion Questions

Chapter 2 Supply and Demand

The Concept of Demand

The Demand Curve

The Concept of Supply

The Supply Curve

Changes in Supply

The Market at Work

Some Applications

Inflation: A Preview

Review of Market Actions

Summary

Discussion Questions

Test Yourself

Chapter 3 The Problem of Unemployment

The Unemployment Rate

The Labor Market

Cyclical Unemployment

Structural Unemployment

Frictional Unemployment

Unemployment Insurance

The Goal of Full Employment

How Serious Is the Unemployment Problem?

Summary

Discussion Questions

Test Yourself

Chapter 4 Understanding Inflatio

What Is Inflation?

The Inflation Record

Economic Effects of Inflation

The Role of Expectations

Winners and Losers

The Power of Compound Inflation

Coping with Inflation

Measuring Inflation

Three Inflation Measures

Real Versus Nominal Values

Summary

Discussion Questions

Test Yourself

Economic Controversies II: Inflation or Unemployment?

Winners and Losers

Unemployment Is More Important

Fight Inflation First

Discussion Questions

Part 2 A Simple Model of the Economy

Chapter 5 Measuring Economic Activity

Gross National Product

GNP as a Measure of Well-Being

Three Views of GNP

A Grain of Salt

Real Gross National Product

Per Capita RGNP

International Comparisons

Summary

Discussion Questions

Test Yourself

Chapter 6 Aggregate Demand

Spending and Income

Macroeconomic Equilibrium

Is Equilibrium Good?

Consumption Spending

Investment Spending

Government Spending

Net Export Spending

The Aggregate Demand Curve

Changes in Aggregate Demand

Slope of the AD Curve

Appendix: The Keynesian 45-Degree-Line Model

Summary

Discussion Questions

Test Yourself

Chapter 7 Aggregate Supply and the Economy

Aggregate Supply

The Aggregate Supply Curve

Changes in Aggregate Supply

Macroeconomic Equilibrium

Inventory Adjustments

Causes of Unemployment

Causes of Inflation

The Old-Time Religion

Wage and Price Controls

Indexation

Increasing Aggregate Supply

Winners and Losers from Economic Policies

Summary

Discussion Questions

Test Yourself

Economic Controversies III: Wage and Price Controls

Controls Are Useful

Price Controls Are Bad

Discussion Questions

Chapter 8 Fiscal Policy

The Role of Government

Government Spending

The Multiplier

The Multiplier in the Real World

Taxes

The Balanced-Budget Multiplier

Different Types of Taxes

The Total Tax Burden

Tax Expenditures

Transfer Payments

Automatic Stabilizers

Advantages and Disadvantages of Fiscal Policies

Deficit Spending and the National Debt

Summary

Discussion Questions

Test Yourself

Economic Controversies IV: Taxes and the Laffer Curve 204

The Tax Wedge

Cut Taxes Now!

Don't Bet on the Lafferites

Discussion Questions

Part 3 Money, Credit, and the Economy

Chapter 9 Money and Banking

The Money Supply

Money Substitutes

The Interest Rate

Money and Banks

Fractional-Reserve Banking

How Banks "Create" Money

The Fed

Open Market Operations

Reserve Requirement Policy

Discount Rate Policy

Summary

Discussion Questions

Test Yourself

Chapter 10 Money, Credit, and the Economy

The Credit Market

The Stock Market

Demand for Credit

The Credit Demand Curve

The Supply of Credit

The Credit Market at Work

The Inflation Premium

Disintermediation

The Real Interest Rate

Investment and the Credit Market

Monetary Policy

Summary

Discussion Questions

Test Yourself

Economic Controversies V: Credit Market Controls?

Credit Regulations Needed

Deregulate the Credit Market

Discussion Questions

Chapter 11 Monetary Versus Fiscal Policy

Expansionary Monetary Policies

Expansionary Fiscal Policies

Public Versus Private Sector Growth

Inflation in the Long Run

Advantages and Disadvantages

Contractionary Policies

Financing Government Spending

Borrowing from the Public

Borrowing from the FRS

Accommodating Monetary Policy

Conflicting Monetary Policy

Summary

Discussion Questions

Test Yourself

Chapter 12 The Monetarists

The Equation of Exchange

The Barter Economy

Money as a Commodity

Money and the Economy

Monetary Policy: The Monetarist View

Fiscal Policy: The Monetarist View

Monetarist Policy Recommendations

Criticisms of Monetary Policies

Friedman's Policy of Rules

Who's Right, Here?

Summary

Discussion Questions

Test Yourself

Economic Controversies VI: Independence of the Federal Reserve System

End the FRS' Independence

Keep the FRS Independent

Discussion Questions

Part 4 International Economics

Chapter 13 International Trade

Why Do Nations Trade?

Gains from Trade

Comparative Advantage in the Real World

Trade Restrictions

Who Pays the Tariff?

The Rationale of Barriers to Trade

The Balance of Payments

Stages of Balance of Payments

The Balance of Trade

Summary

Discussion Questions

Test Yourself

Chapter 14 The Foreign Exchange Market

The Exchange Rate

The Foreign Exchange Market

The Foreign Exchange Market at Work

Exchange Market Intervention

Fixed Exchange Rates

Summary

Discussion Questions

Test Yourself

Economic Controversies VII: Flexible or Fixed Exchange Rates?

Fixed Exchange Rates

Let Exchange Rates Float

Discussion Questions

Chapter 15 International Economics

Trade and the Economy

International Credit Markets

Eurodollars

Monetary Policy with Flexible Exchange Rates

Fiscal Policy with Flexible Exchange Rates

Economic Policy with Flexible Exchange Rates

Economi.c Policy with Intervention

Fixed Exchange Rates

International Economic Policies

Summary

Discussion Questions

Test Yourself

Chapter 16 Problems, Coals, and Trade-Offs

Macroeconomic Goals

International Economic Goals

Policy Tools

Trade-Offs in Economic Policies

Economic Policy Choices

Policy Problems

Setting National Priorities

Summary

Discussion Questions

Test Yourself

Economic Controversies VIII: Defending the Dollar

Defend the Dollar!

Fight Inflation First

Let the Dollar Fall

Discussion Questions

Part 5 The Economics of Exchange

Chapter 17 Scarcity and Choice

The Problem of Scarcity

Changing Trade-Offs

Scarcity and Choice for the Individual

Scarcity and Choice for the Business Firm

Scarcity and Choice for Society

Economic Growth

Real World Economics: lim Daniels Has a Hangover?

Summary

Discussion Questions

Test Yourself

Chapter 18 Specialization and Exchange

A Barter Economy

The Theory of Comparative Advantage

Mutually Advantageous Exchange

The Gains from Trade

Specialization in the Real World

Comparative Advantage in the Real World

The Role of Money

Limits to Exchange

Distribution of the Gain

Other Reasons for Exchange

Real World Economics: Bullish on Wall Street

Summary

Discussion Questions

Test Yourself

Chapter 19 Demand and Supply: The Micro Side

The Role of the Market

How the Market Works

The Concept of Demand

The Demand Curve

The Concept of Supply

The Supply Curve

Changes in Supply

The Market at Work

Changing Markets

Summary of Market Actions

The Market's Verdict

Real World Economics: Apartment House Rents

Summary

Discussion Questions

Test Yourself

Chapter 20 Markets at Work

Real World Economics: Falling Calculator Prices

Real World Economics: Coffee and Tea

Real World Economics: Cut-Rate Air Fares

Real World Economics: Cigarette Taxes

Real World Economics: Rent Controls

Real World Economics: Price Floors

Appendix: More about Elasticity

Summary

Discussion Questions

Test Yourself

Part 6 Consumer and Producer Choice

Chapter 21 Consumer Choice

How Much To Buy?

Consumer Benefits: Utility

Maximizing Utility

Opportunity Cost

Consumer Equilibrium

Changing Consumer Choice

Changing Prices: Demand Curves

Substitutes, Complements, and Income Effects

Changing Preferences

Real World Economics: Cas Lines Grow Longer in Nation's Capital

Appendix: Indifference Curve Analysis

Summary

Discussion Questions

Test Yourself

Chapter 22 Production and Cost

Who are the Producers?

Motives of the Firm

Production and Costs

Different Views of Production Costs

Costs in the Long Run

Real World Economics: Toys and Games

Appendix: Production Theory

Summary

Discussion Questions

Test Yourself

Chapter 23 Producer Choice: Monopoly

What Is a Monopoly?

Monopoly Revenues

The Monopoly Production Decision

Monopoly Pricing

Changing Costs

Technological Advances

Monopoly in the Real World

Real World Economics: A Money-Losing Monopoly

Summary

Discussion Questions

Test Yourself

Chapter 24 Producers in competitive Markets

Perfect Competition

Price Takers

Maximizing Profits

Supply Curves

Equilibrium for the Industry

Changing Costs for the Firm

Supply in the Long Run

Real World Economics: A Monopoly versus a Competitive Market

Summary

Discussion Questions

Test Yourself

Chapter 25 Imperfect Competition

Product Differentiation

Price Discrimination

Benefits of Price Discrimination

Cartels

Oligopolies

Government Regulation

Real World Economics: Automotive Oligopoly

Summary

Discussion Questions

Test Yourself

Part 7 Resource Markets

Chapter 26 Labor Markets

The Supply of Labor

The Demand for Labor

Changes in Labor Demand

The Labor Demand Curve

Wage Rate Differentials

Labor Unions

Government Labor Policies

Real World Economics: Cost-of-Living Clauses

Summary

Discussion Questions

Test Yourself

Chapter 27 Capital and Natural

Resource Markets

The Demand for Inputs

Investment: The Demand for Capital

Input Supplies: Natural Resources

The Impact of Price Expectations

The Problem of Property Rights

Unstable Prices

Real World Economics: Training and Education Programs

Summary

Discussion Questions

Test Yourself

Chapter 28 Energy Markets

Energy and Economic Development

Price, Quantity, and Substitution Effects

Energy Supplies

Energy Price Controls

OPEC and the Supply of Oil

Managing the Energy Problem

The Paradox of Net Energy

Energy and the Environment

Real World Economics: The Price of Energy

Summary

Discussion Questions

Test Yourself

Part 8 Market Failures

Chapter 29 Free Market Choice

The Free Market Economy

The Invisible Hand

Bureaucratic Choice

Self-Interest and the Invisible Hand

The Economic Properties of Demand

Total Benefits and Consumers' Surplus

The Economic Properties of Supply

Market Equilibrium: Net Benefits

Taxes and Net Benefits

Government Subsidies

Democratic Choice

Voting: What Does the Public Want?

The Role of Government: Market Failures

Real World Economics: Ticket Scalping

Summary

Discussion Questions

Test Yourself

Chapter 30 Market Failures: Externalities

Private versus Social Costs and Benefits

External Benefits

External Costs

Optimal Pollution

Externality Policy Options

Limits to Government Actions

Public Goods

Real World Economics: Free Market or Democratic Choice

Summary

Discussion Questions

Test Yourself

Chapter 31 Market Failures: Monopolies

Monopoly Problems

Government Monopoly Policy

Antitrust Regulation

Trade-Off: Patent Monopolies

Costs and Benefits of Monopoly Regulation

Natural Monopolies

Pricing of Natural Monopolies

Real World Economics: U.S. Postal Service

Summary

Discussion Questions

Test Yourself

Chapter 32 Scarcity and Choice: The Poverty Problem

Fighting Poverty: The Record

Who Are the Poor?

Causes of Poverty

Transfer Payments

What Kind of Transfers?

Minimum Wages

Job Training and Education

Public Employment Programs

Costs of Government Action

Real World Economics: The Social Security Tax

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

Glossary

Answers to "Test Yourself"

Index