Economics 5th Edition PDF by N. Gregory Mankiw and Mark P. Taylor

By

Economics, Fifth Edition

By N. Gregory Mankiw and Mark P. Taylor

economics

CONTENTS

About the authors ix

Preface x

Acknowledgements xiii

PART 1

Introduction to Economics 1

1 What is economics? 1

The economy and economic systems 1

How people make decisions 3

How people interact 6

How the economy as a whole works 9

2 Thinking like an economist 15

Introduction 15

Economic methodology 15

Schools of thought 25

The economist as policy advisor 26

Why economists disagree 27

PART 2

The Theory of Competitive

Markets 33

3 The market forces of supply and demand 33

The assumptions of the competitive market model 33

Demand 35

Shifts versus movements along the demand curve 37

Supply 40

Supply and demand together 44

Prices as signals 47

Analyzing changes in equilibrium 48

Elasticity 53

The price elasticity of demand 53

Other demand elasticities 61

Price elasticity of supply 62

Applications of supply and demand elasticity 67

4 Background to demand: Consumer choices 74

The standard economic model 74

The budget constraint: What the consumer can afford 76

Preferences: What the consumer wants 80

Optimization: What the consumer chooses 86

Conclusion: Do people really behave this way? 98

Behavioural approaches to consumer behaviour 98

5 Background to supply: Firms in competitive markets 105

The costs of production 105

Production and costs 106

The various measures of cost 109

Costs in the short run and in the long run 115

Summary 116

Returns to scale 117

What is a competitive market? 123

Profit maximization and the competitive firm’s supply curve 125

The supply curve in a competitive market 132

Conclusion: Behind the supply curve 137

6 Consumers, producers and the efficiency of markets 141

Consumer surplus 141

Producer surplus 146

Market efficiency 150

PART 3

Interventions in Markets 159

7 Supply, demand and government policies 159

Controls on prices 159

Taxes 163

Subsidies 170

The tax system 171

The deadweight loss of taxation 172

Administrative burden 178

The design of the tax system 179

Taxes and equity 181

8 Public goods, common resources and

merit goods 189

The different kinds of goods 189

Public goods 190

Common resources 194

Merit goods 197

Conclusion 199

9 Market failure and externalities 204

Market failure 204

Externalities 204

Externalities and market inefficiency 206

Private solutions to externalities 210

Public policies towards externalities 213

Public/private policies towards externalities 216

Government failure 220

Conclusion 225

PART 4

Firm Behaviour and Market Structures 231

10 Firms’ production decisions 231

Isoquants and isocosts 231

The least-cost input combination 236

Conclusion 238

11 Market structures I: monopoly 242

Imperfect competition 242

Why monopolies arise 243

How monopolies make production

and pricing decisions 247

The welfare cost of monopoly 252

Price discrimination 254

Public policy towards monopolies 258

Conclusion: the prevalence of monopoly 261

12 Market structures II: monopolistic

competition 267

Competition with differentiated products 268

Advertising and branding 272

Conclusion 276

13 Market structures III: oligopoly 280

Characteristics of oligopoly 280

Game theory and the economics of

cooperation 284

Entry barriers in oligopoly 296

Public policy towards oligopolies 297

Conclusion 299

14 Market structures IV: Contestable

markets 304

The nature of contestable markets 304

The limitations of contestability 308

Summary 310

PART 5

Factor Markets 315

15 The economics of factor markets 315

The marginal product theory of

distribution 315

The demand for labour 315

The supply of labour 319

Equilibrium in the labour market 323

Other theories of the labour market 325

Marxist labour theory 325

Feminist economics and the labour market 326

Monopsony 327

Wage differentials 329

The economics of discrimination 334

The other factors of production: Land and

capital 337

Economic rent 340

Conclusion 341

PART 6

Inequality 347

16 Income inequality and poverty 347

The measurement of inequality 348

The political philosophy of redistributing

income 355

Policies to reduce poverty 359

Conclusion 362

PART 7

Trade 367

17 Interdependence and the gains from

trade 367

The production possibilities frontier 367

International trade 372

The principle of comparative advantage 376

The determinants of trade 379

The winners and losers from trade 380

Restrictions on trade 384

Criticisms of comparative advantage theory 391

Other theories of international trade 392

Conclusion 396

PART 8

Heterodox Economics 401

18 Information and behavioural

economics 401

Principal and agent 401

Asymmetric information 402

Behavioural economics 408

Conclusion 412

19 Heterodox theories in economics 416

Introduction 416

Institutional economics 419

Feminist economics 422

Complexity economics 425

Conclusion 428

PART 9

The Data of Macroeconomics 433

20 Measuring a nation’s well-being and the

price level 433

Marxist economics 433

The Austrian school 434

Keynesianism 435

Monetarism 435

The nature of macroeconomics 436

The economy’s income and expenditure 436

The measurement of gross domestic

product 438

The components of GDP 441

Real versus nominal GDP 444

The limitations of GDP as a measure of

well-being 448

International differences in GDP and the quality

of life 450

Measuring the cost of living 451

The Consumer Prices Index 451

Correcting economic variables for the effects

of inflation 456

Conclusion 458

PART 10

The Real Economy

in the Long Run 463

21 Production and growth 463

Economic growth around the world 463

Growth theory 465

Productivity 465

The determinants of economic growth 467

Causes of growth 471

Endogenous growth theory 475

Economic growth and public policy 476

Conclusion: The importance of long-run

growth 481

22 Unemployment and the labour market 485

Identifying unemployment 485

The causes of unemployment 488

The natural rate of unemployment 494

Marx and the reserve army of the

unemployed 501

The cost of unemployment 501

Conclusion 503

PART 11

Long-Run Macroeconomics 509

23 Saving, investment and the financial

system 509

Financial institutions in the economy 509

Present value: Measuring the time value of

money 515

Managing risk 517

Asset valuation 522

Saving and investment in the national

income accounts 523

The market for loanable funds 526

24 The monetary system 535

The meaning of money 535

The role of central banks 541

The European Central Bank and the

Eurosystem 542

The Bank of England 543

Banks and the money supply 543

The central bank’s tools of monetary control 547

Money growth and inflation 550

What is inflation? 550

The costs of inflation 559

Deflation 563

Conclusion 564

25 Open-economy macroeconomics 569

The international flows of goods and

capital 569

The prices for international transactions:

Real and nominal exchange rates 574

A first theory of exchange rate determination:

Purchasing power parity 577

A macroeconomic theory of the open

economy 580

Supply and demand for loanable funds

and for foreign currency exchange 581

Equilibrium in the open economy 584

How policies and events affect an open

economy 586

Conclusion 591

PART 12

Short-Run Economic

Fluctuations 595

26 Business cycles 595

Trend growth rates 596

Causes of changes in the business cycle 602

Business cycle models 604

Macroeconomic models of the economy 608

Conclusion 610

27 Keynesian economics and IS–LM

analysis 614

The Keynesian cross 614

The multiplier effect 618

The IS and LM curves 623

General equilibrium using the IS–LM model 626

From IS–LM to aggregate demand 628

Conclusion 634

28 Aggregate demand and aggregate

supply 637

Three key facts about economic

fluctuations 637

Explaining short-run economic

fluctuations 638

The aggregate demand curve 640

The aggregate supply curve 642

Two causes of economic fluctuations 648

New Keynesian economics 652

29 The influence of monetary and fiscal

policy on aggregate demand 657

How monetary policy influences aggregate

demand 657

How fiscal policy influences aggregate

demand 664

Using policy to stabilize the economy 667

Conclusion 669

30 The short-run trade-off between inflation

and unemployment 674

The relationship between inflation and

unemployment 674

The Phillips curve 675

Shifts in the Phillips curve: The role of

expectations 678

The long-run vertical Phillips curve as an

argument for central bank independence 684

Shifts in the Phillips curve: The role of supply

shocks 685

The cost of reducing inflation 687

Inflation targeting 692

Reflecting on the Phillips curve 696

Conclusion 698

31 Supply-side policies 703

Shifts in the aggregate supply curve 703

Types of supply-side policies 707

Conclusion 715

PART 13

International

Macroeconomics 719

32 The causes and aftermath of the financial

crisis 719

The causes of the crisis 719

The efficient markets hypothesis 726

The financial crisis and sovereign

debt 734

The sovereign debt crisis 739

Austerity policies: Too far too quickly? 743

The productivity puzzle 747

33 Common currency areas 755

The euro 755

The benefits and costs of a common

currency 757

The theory of optimum currency areas 760

Is Europe an optimum currency area? 763

Fiscal policy and common currency

areas 766

The fiscal compact 769

Conclusion 770

34 The future of the European Union 774

The euro 774

Italy 777

Brexit 777

Conclusion 785

Glossary 788

Index 798

Credits 810

List of formulae 812

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