Essentials of Economics, 10th Edition PDF by Bradley R. Schiller

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Essentials of Economics, Tenth Edition

By Bradley R. Schiller

Essentials of Economics

Content:

About the Authors iii

Preface iv

Section I BASICS

Chapter 1

THE CHALLENGE OF ECONOMICS 2

How Did We Get So Rich? 3

The Central Problem of Scarcity 6

Three Basic Economic Questions 6

WHAT to Produce 7

HOW to Produce 12

FOR WHOM to Produce 13

The Mechanisms of Choice 13

The Political Process 14

The Market Mechanism 14

Central Planning 14

Mixed Economies 15

What Economics Is All About 15

Market Failure 15

Government Failure 15

Macro versus Micro 16

Theory versus Reality 16

Politics versus Economics 17

Modest Expectations 18

Policy Perspectives: Is “Free” Health Care Really Free? 18

Summary 19

Appendix: Using Graphs 21

Slopes 22

Shifts 23

Linear versus Nonlinear Curves 24

Causation 24

News Wires

Never Enough Money! 4

Will Your Kids Be Better Off? 5

North Korea’s Rockets Deepen Food Crisis 11

Chapter 2

THE U.S. ECONOMY 26

What America Produces 27

How Much Output 27

The Mix of Output 31

Changing Industry Structure 33

How America Produces 35

Factors of Production 35

The Private Sector: Business Types 37

The Government’s Role 38

Striking a Balance 40

For Whom America Produces 40

The Distribution of Income 40

Income Mobility 41

Government Redistribution: Taxes and Transfers 41

Policy Perspectives: Can We End Global Poverty? 43

Summary 43

News Wires U.S. Manufacturing: Output vs. Jobs since 1975 35

The Education Gap between Rich and Poor Nations 37

Income Share of the Rich 42

Chapter 3

SUPPLY AND DEMAND 46

Market Participants 47

Goals 47

Constraints 47

Specialization and Exchange 47

Market Interactions 48

The Two Markets 49

Dollars and Exchange 49

Supply and Demand 50

Demand 50

Individual Demand 50

Determinants of Demand 53

Ceteris Paribus 53

Shifts in Demand 54

Movements versus Shifts 55

Market Demand 55

The Market Demand Curve 56

The Use of Demand Curves 56

Supply 58

Determinants of Supply 58

The Market Supply Curve 59

Shifts in Supply 59

Equilibrium 60

Market Clearing 60

Market Shortage 62

Market Surplus 63

Changes in Equilibrium 64

Disequilibrium Pricing 65

Price Ceilings 65

Price Floors 66

Laissez Faire 67

Policy Perspectives: Did Gas Rationing Help or Hurt New

Jersey Motorists? 68

Summary 69

News Wires

Higher Alcohol Prices and Student Drinking 53

Electric Cars Hurt Most among Renewables on Oil’s Slump 55

Hurricane Sandy to Raise Prices on Used Cars 60

Scalpers Want Small Fortune for Tickets to See the Pope

in NYC 62

Apple iPhone 6 Plus Sells Out: Shipping Delays Expected 63

Gov. Christie Signs Order to Ration Gas in 12 NJ

Counties 69

Section II MICROECONOMICS

Chapter 4

CONSUMER DEMAND 72

Patterns of Consumption 73

Determinants of Demand 74

The Sociopsychiatric Explanation 74

The Economic Explanation 76

The Demand Curve 76

Utility Theory 76

Price and Quantity 78

Price Elasticity 79

Elastic versus Inelastic Demand 81

Price Elasticity and Total Revenue 82

Determinants of Price Elasticity 84

Other Changes in Consumer Behavior 85

Changes in Income 87

Policy Perspectives: Does Advertising Change Our

Behavior? 87

Summary 88

News Wires

Men versus Women: How They Spend 75

Price Cut on MacBook Air Jumpstarts Sales 80

Smokers Gasping at Obama’s Tax Hike 82

Starbucks Customers Shrug off Price Hike 84

San Francisco: The Butts Stop Here 85

Truck Sales Rise and Hybrid Sales Fall as Gas Prices Drop 86

Chapter 5

SUPPLY DECISIONS 92

Capacity Constraints: The Production Function 93

Efficiency 95

Capacity 95

Marginal Physical Product 95

Law of Diminishing Returns 96

Short Run versus Long Run 97

Costs of Production 98

Total Cost 98

Which Costs Matter? 99

Average Cost 100

Marginal Cost 100

Supply Horizons 102

The Short-Run Production Decision 103

The Long-Run Investment Decision 103

Economic versus Accounting Costs 104

Economic Cost 105

Economic Profit 105

Policy Perspectives: Can We Outrun Diminishing Returns? 106

Summary 107

News Wires

“We Pretend to Work, They Pretend to Pay Us” 97

Tesla to Boost Output in 2015; Tesla Plans “Gigafactory” 104

Chapter 6

COMPETITION 110

Market Structure 111

Perfect Competition 113

No Market Power 113

Price Takers 114

Market Demand versus Firm Demand 114

The Firm’s Production Decision 116

Output and Revenues 116

Revenues versus Profits 116

Profit Maximization 117

Price 117

Marginal Cost 117

Profit-Maximizing Rate of Output 117

Total Profit 120

Supply Behavior 121

A Firm’s Supply 121

Market Supply 122

Industry Entry and Exit 123

Entry 124

Tendency toward Zero Economic Profits 125

Exit 126

Equilibrium 126

Low Barriers to Entry 127

Market Characteristics 127

Policy Perspectives: Does Competition Help Us or Hurt

Us? 128

Summary 130

News Wires

Catfish Farmers Feel Forced Out of Business 114

Flat Panels, Thin Margins 124

U.S. Catfish Growers Struggle against High Feed Prices,

Foreign Competition 126

The T-Shirt Business: Too Much Competition 128

Chapter 7

MONOPOLY 132

Monopoly Structure 133

Monopoly = Industry 133

Price versus Marginal Revenue 134

Monopoly Behavior 136

Profit Maximization 136

The Production Decision 136

The Monopoly Price 137

Monopoly Profits 138

Barriers to Entry 138

Threat of Entry 139

Patent Protection: Polaroid versus Kodak 139

Other Entry Barriers 140

Comparative Outcomes 141

Competition versus Monopoly 141

Near Monopolies 142

WHAT Gets Produced 144

FOR WHOM 145

HOW 145

Any Redeeming Qualities? 145

Research and Development 146

Entrepreneurial Incentives 146

Economies of Scale 146

Natural Monopolies 147

Contestable Markets 147

Structure versus Behavior 147

Policy Perspectives: Why Is Flying Monopoly Air Routes So

Expensive? 148

Summary 150

News Wires

SCO Suit May Blunt the Potential of Linux 140

Judge Rules Microsoft Violated Antitrust Laws 141

OPEC Keeps Output Target on Hold, Predicts Low

Prices 143

German Brewers Fined over Price-Fixing 144

Two Drug Firms Agree to Settle Pricing Suit 145

Following the Fares 149

Chapter 8

THE LABOR MARKET 152

Labor Supply 153

Income versus Leisure 154

Market Supply 155

Labor Demand 155

Derived Demand 155

Marginal Physical Product 157

Marginal Revenue Product 158

The Law of Diminishing Returns 158

The Hiring Decision 161

The Firm’s Demand for Labor 161

Market Equilibrium 162

Equilibrium Wage 163

Equilibrium Employment 163

Changing Market Outcomes 163

Changes in Productivity 163

Changes in Price 164

Legal Minimum Wages 164

Labor Unions 166

Policy Perspectives: Should CEO Pay Be Capped? 167

Summary 169

News Wires

Thousands of Hopeful Job Seekers Attend Career Fair at

Rutgers 154

Hewlett-Packard’s Job Cuts to Hit 34,000 156

Most Lucrative College Degrees 157

Alabama’s Nick Saban Gets Raise, Contract Extension 162

Obama Proposes to Increase Federal Minimum Wage 165

Swiss Voters Reject Strict CEO Pay Limits in Referendum 168

Chapter 9

GOVERNMENT INTERVENTION 172

Market Failure 173

The Nature of Market Failure 174

Sources of Market Failure 174

Public Goods 174

Joint Consumption 175

The Free-Rider Dilemma 175

Externalities 177

Consumption Decisions 177

Production Decisions 179

Social versus Private Costs 181

Policy Options 182

Market Power 185

Restricted Supply 185

Antitrust Policy 186

Inequity 186

Macro Instability 188

Policy Perspectives: Will the Government Get It Right? 188

Summary 190

News Wires

Israel’s “Iron Dome” Works! 176

Secondhand Smoke Kills 600,000 People a Year: Study 178

Obama Vetoes Keystone Pipeline 183

Breathing Easier 184

Bloomberg: Forced Recycling a Waste 185

Section III MACROECONOMICS

Chapter 10

THE BUSINESS CYCLE 192

Assessing Macro Performance 194

GDP Growth 195

Business Cycles 195

Real GDP 195

Erratic Growth 196

Unemployment 198

The Labor Force 198

The Unemployment Rate 200

The Full Employment Goal 201

Inflation 203

Relative versus Average Prices 203

Redistributions 205

Uncertainty 209

Measuring Inflation 210

The Price Stability Goal 210

Policy Perspectives: Is Another Recession Coming? 211

Summary 212

News Wires

Market in Panic as Stocks Are Dumped in 12,894,600

Share Day: Bankers Halt It 193

Economy: Sharpest Decline in 26 Years 195

Depression Slams World Economies 198

How Unemployment Affects the Family 201

UPS to Hire up to 95,000 Seasonal Employees for Holiday

Season 202

Inflation and the Weimar Republic 204

College Tuition in the U.S. Again Rises Faster than Inflation 205

Chapter 11

AGGREGATE SUPPLY AND DEMAND 214

A Macro View 215

Macro Outcomes 215

Macro Determinants 216

Stable or Unstable? 216

Classical Theory 216

The Keynesian Revolution 217

The Aggregate Supply–Demand Model 218

Aggregate Demand 218

Aggregate Supply 220

Macro Equilibrium 221

Macro Failure 222

Undesirable Outcomes 222

Unstable Outcomes 223

Shift Factors 225

Competing Theories of Short-Run Instability 227

Demand-Side Theories 227

Supply-Side Theories 228

Eclectic Explanations 228

Policy Options 229

Fiscal Policy 229

Monetary Policy 229

Supply-Side Policy 229

Policy Perspectives: Which Policy Lever to Use? 230

Summary 231

News Wires

Job Losses Surge as U.S. Downturn Accelerates 223

Consumer Confidence Plummets 225

Sandy Pummels New York Area 226

Chapter 12

FISCAL POLICY 234

Components of Aggregate Demand 235

Consumption 236

Investment 236

Government Spending 237

Net Exports 238

Equilibrium 238

The Nature of Fiscal Policy 239

Fiscal Stimulus 239

More Government Spending 241

Tax Cuts 244

Inflation Worries 247

Fiscal Restraint 247

Budget Cuts 248

Tax Hikes 248

Fiscal Guidelines 248

Policy Perspectives: Must the Budget Be Balanced? 249

Summary 252

News Wires

Recession Looming 237

U.S. Congress Gives Final Approval to $787 Billion

Stimulus 240

The 2008 Economic Stimulus: First Take on Consumer

Response 245

Wal-Mart Woes: Consumer Spending Curbed by Payroll

Tax 249

Chapter 13

MONEY AND BANKS 254

The Uses of Money 255

Many Types of Money 256

The Money Supply 256

Cash versus Money 256

Transactions Accounts 257

Basic Money Supply 257

Near Money 258

Aggregate Demand 259

Creation of Money 259

Deposit Creation 259

A Monopoly Bank 260

Reserve Requirements 262

Excess Reserves 263

A Multibank World 263

The Money Multiplier 263

Limits to Deposit Creation 264

Excess Reserves as Lending Power 265

The Macro Role of Banks 265

Financing Aggregate Demand 265

Constraints on Money Creation 266

Policy Perspectives: Are Bitcoins the New Money? 267

Summary 267

News Wires

Bras: The Currency of Russia in the 1990s 256

How Would You Like to Pay for That? 259

Chapter 14

MONETARY POLICY 270

The Federal Reserve System 271

Federal Reserve Banks 272

The Board of Governors 272

The Fed Chair 273

Monetary Tools 273

Reserve Requirements 273

The Discount Rate 275

Open Market Operations 277

Powerful Levers 279

Shifting Aggregate Demand 279

Expansionary Policy 280

Restrictive Policy 280

Interest Rate Targets 281

Price versus Output Effects 281

Aggregate Demand 281

Aggregate Supply 281

Policy Perspectives: How Much Discretion Should the Fed

Have? 283

Summary 284

News Wires

China Cuts Reserve Requirements 275

Fed Cuts Key Interest Rate Half-Point to

1 Percent 277

Chapter 15

ECONOMIC GROWTH 286

The Nature of Growth 287

Short-Run Changes in Capacity Use 287

Long-Run Changes in Capacity 287

Nominal versus Real GDP 289

Growth Indexes 289

The GDP Growth Rate 289

GDP per Capita: A Measure of Living Standards 290

GDP per Worker: A Measure of Productivity 292

Sources of Productivity Growth 294

Labor Quality 294

Capital Investment 294

Management 294

Research and Development 294

Policy Levers 295

Education and Training 295

Immigration Policy 295

Investment Incentives 296

Savings Incentives 297

Government Finances 297

Deregulation 298

Economic Freedom 299

Policy Perspectives: Is More Growth Desirable? 300

Summary 301

News Wires

What Economic Growth Has Done for U.S. Families 291

House Poised to Pass STEM Immigration Bill 296

Americans Save Little 297

Improvement in Economic Freedom and Economic

Growth 300

Chapter 16

THEORY AND REALITY 304

Policy Tools 305

Fiscal Policy 305

Monetary Policy 307

Supply-Side Policy 309

Idealized Uses 311

Case 1: Recession 311

Case 2: Inflation 311

Case 3: Stagflation 311

Fine-Tuning 312

The Economic Record 313

Why Things Don’t Always Work 314

Goal Conflicts 314

Measurement Problems 315

Design Problems 317

Implementation Problems 318

Policy Perspectives: Hands Off or Hands On? 320

Summary 321

News Wires

Budget Deficit Sets Record in February 308

Macro Performance, 2004–2014 314

NBER Makes It Official: Recession Started One Year Ago 316

Tough Calls in Economic Forecasting 317

Section IV INTERNATIONAL

Chapter 17

INTERNATIONAL TRADE 324

U.S. Trade Patterns 325

Imports 325

Exports 325

Trade Balances 327

Motivation to Trade 328

Production and Consumption without Trade 328

Trade Increases Specialization and World

Output 330

Comparative Advantage 331

Opportunity Costs 331

Absolute Costs Don’t Count 332

Terms of Trade 332

Limits to the Terms of Trade 332

The Market Mechanism 332

Protectionist Pressures 333

Microeconomic Losers 333

The Net Gain 334

Barriers to Trade 335

Tariffs 335

Quotas 336

Nontariff Barriers 338

Exchange Rates 339

Global Pricing 340

Appreciation/Depreciation 340

Foreign Exchange Markets 341

Policy Perspectives: Who Enforces World Trade Rules? 342

Summary 344

News Wires

Exports in Relation to GDP 326

Insight: Brazil Protects Its… Wines? 334

A Litany of Losers 335

U.S. Solar Tariffs on Chinese Cells May Boost Prices 336

Obama Cuts Sour Deal on Sugar 339

What the Strong U.S. Dollar Means for Americans Traveling

to Europe This Year 340

Glossary 347

Index 351

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