Economics for Dummies, Third Edition
By Sean Masaki Flynn, PHD
Table of Contents
Cover
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part 1: Economics: The Science of How People Deal with Scarcity
Chapter 1: What Economics Is and Why You Should Care
Considering a Little Economic History
Framing Economics as the Science of Scarcity
Sending Microeconomics and Macroeconomics to Separate
Corners
Understanding How Economists Use Models and Graphs
Chapter 2: Cookies or Ice Cream? Exploring Consumer Choices
Describing Human Behavior with a Choice Model
Pursuing Personal Happiness
You Can’t Have Everything: Examining Limitations
Making Your Choice: Deciding What and How Much You Want
Exploring Violations and Limitations of the Economist’s
Choice Model
Chapter 3: Producing Stuff to Maximize Happiness
Figuring Out What’s Possible to Produce
Deciding What to Produce
Promoting Technology and Innovation
Part 2: Microeconomics: The Science of Consumer and Firm
Behavior
Chapter 4: Supply and Demand Made Easy
Deconstructing Demand
Sorting Out Supply
Bringing Supply and Demand Together
Price Controls: Keeping Prices Away from Market
Equilibrium
Chapter 5: Introducing Homo Economicus, the Utility-
Maximizing Consumer
Choosing by Ranking
Getting Less from More: Diminishing Marginal Utility
Choosing Among Many Options When Facing a Limited
Budget
Deriving Demand Curves from Diminishing Marginal Utility
Chapter 6: The Core of Capitalism: The Profit-
Maximizing Firm
A Firm’s Goal: Maximizing Profits
Facing Competition
Analyzing a Firm’s Cost Structure
Comparing Marginal Revenues with Marginal Costs
Pulling the Plug: When Producing Nothing Is Your Best Bet
Chapter 7: Why Economists Love Free Markets and
Competition
Ensuring That Benefits Exceed Costs: Competitive Free
Markets
When Free Markets Lose Their Freedom: Dealing with
Deadweight Losses
Hallmarks of Perfect Competition: Zero Profits and Lowest
Possible Costs
Chapter 8: Monopolies: Bad Behavior without
Competition
Examining Profit-Maximizing Monopolies
Comparing Monopolies with Competitive Firms
Considering Good Monopolies
Regulating Monopolies
Chapter 9: Oligopoly and Monopolistic Competition:
Middle Grounds
Oligopolies: Looking at the Allure of Joining Forces
Understanding Incentives to Cheat the Cartel
Regulating Oligopolies
Studying a Hybrid: Monopolistic Competition
Part 3: Applying the Theories of Microeconomics
Chapter 10: Property Rights and Wrongs
Allowing Markets to Reach Socially Optimal Outcomes
Examining Externalities: The Costs and Benefits Others Feel
from Your Actions
Tragedy of the Commons: Overexploiting Commonly
Owned Resources
Chapter 11: Asymmetric Information and Public Goods
Facing Up to Asymmetric Information
Providing Public Goods
Chapter 12: Health Economics and Healthcare Finance
Defining Health Economics and Healthcare Finance
Noting the Limits of Health Insurance
Comparing Healthcare Internationally
Inflated Demand: Suffering from “Free” and Reduced-Cost Healthcare
Investigating Singapore’s Secrets
Chapter 13: Behavioral Economics: Investigating Irrationality
Explaining the Need for Behavioral Economics
Complementing Neo-Classical Economics with Behavioral Economics
Examining our Amazing, Efficient, and Error-Prone Brains Surveying Prospect Theory
Countering Myopia and Time Inconsistency
Gauging Fairness and Self-Interest
Part 4: Macroeconomics: The Science of Economic Growth and Stability
Chapter 14: How Economists Measure the Macroeconomy
Getting a Grip on the GDP (and Its Parts)
Diving In to the GDP Equation
Making Sense of International Trade and Its Effect on the Economy
Chapter 15: Inflation Frustration: Why More Money Isn’t Always Good
Buying an Inflation: When Too Much Money Is a Bad Thing
Measuring Inflation
Pricing the Future: Nominal and Real Interest Rates
Chapter 16: Understanding Why Recessions Happen
Introducing the Business Cycle
Striving for Full-Employment Output
Returning to Y*: The Natural Result of Price Adjustments
Responding to Economic Shocks: Short-Run and Long-Run Effects
Heading toward Recession: Getting Stuck with Sticky Prices
Achieving Equilibrium with Sticky Prices: The Keynesian Model
Chapter 17: Fighting Recessions with Monetary and Fiscal Policy
Stimulating Demand to End Recessions
Generating Inflation: The Risk of Too Much Stimulation
Figuring Out Fiscal Policy
Dissecting Monetary Policy
Chapter 18: Grasping Origins and Effects of Financial Crises
Understanding How Debt-Driven Bubbles Develop
Seeing the Bubble Burst
After the Crisis: Looking at Recovery
Part 5: The Part of Tens
Chapter 19: Ten Seductive Economic Fallacies
The Lump of Labor
The World Is Facing Overpopulation
Sequence Indicates Causation
Protectionism Is the Best Solution to Foreign Competition
The Fallacy of Composition
If It’s Worth Doing, Do It 100 Percent
Free Markets Are Dangerously Unstable
Low Foreign Wages Mean That Rich Countries Can’t Compete
Tax Rates Don’t Affect Work Effort
Forgetting Unintended Consequences
Chapter 20: Ten Economic Ideas to Hold Dear
Self-Interest Can Improve Society
Free Markets Require Regulation
Economic Growth Relies on Innovation
Freedom and Democracy Make Us Richer
Education Raises Living Standards
Intellectual Property Boosts Innovation
Weak Property Rights Cause All Environmental Problems
International Trade Is a Good Thing
Government Can Provide Public Goods
Preventing Inflation Is Easy
Chapter 21: Ten (Or So) Famous Economists
Adam Smith
David Ricardo
Karl Marx
Alfred Marshall
John Maynard Keynes
Kenneth Arrow and Gerard Debreu
Milton Friedman
Paul Samuelson
Robert Solow
Gary Becker
Robert Lucas
Appendix: Glossary
About the Author
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Index
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