Section Ⅰ BASICS 1
chapter 1
The Challenge of Economics 1
The Central Problem of Scarcity 3
The Three Basic Economic Questions 4
WHAT to Produce 4
HOW to Produce 11
FOR WHOM to Produce 12
The Mechanisms of Choice 12
The Political Process 13
The Market Mechanism 13
Central Planning 14
Mixed Economies 14
Undesirable Choices 14
Market Failure 14
Government Failure 17
What Economics Is All About 19
Macro vs.Micro 19
Theo vs.Reality 20
Politics vs.Economics 20
Modest Expectations 21
Summary 22
Appendix：Using Graphs 25
Slopes 26
Shis 27
Linear vs.Nonlinear Curves 29
Causation 29
Headlines 3
Will Your Kids Be Better Off？ 3
North Korea Says It Is Running Out of Food 9
Russia Tightens Its Belt 9
Declining Faith in Government 18
chapter2 The U.S.Economy 30
What America Produces 32
How Much Output 32
The Mix of Output 35
Changing Industre Structure 38
How America Produces 40
Factors of Production 40
Business Organizations 42
Government Regulation 43
Striking a Balance 45
For Whom America Produces 45
The Distribution of Income 46
Income Mobility 47
In-Kind Income 47
Taxes and Transfers 48
Summary 50
Headlines 42
The Education Gap between Rich and Poor Nations 42
Income Share of the Rich 48
chapter 3 Supply and Demand 54
Market Participants 56
Goals 56
Constraints 56
Specialization and Exchange 56
Market Interactions 57
The Two Markets 57
Dollars and Exchange 58
Supply and Demand 59
Demand 59
Individual Demand 59
Determinants of Demand 62
Ceterus Paribus 63
Shifts in Demand 63
Movements vs.Shifts 64
Market Demand 64
The Market Demand Curve 65
The Use of Demand Curves 67
Supply 67
Determinants of Supply 68
The Market Supply Curve 68
Shifts in Supply 69
Equilibrium 70
Market Clearing 71
Surplus and Shortage 72
Changes in Equilibrium 74
Disequilibrium Pricing 76
Price Ceilings 77
Price Floors 78
Laissez Faire 79
Policy Perspectives 80
Free Tuition in California！ 80
Summary 81
Headlines 62
Higher Alcohol Prices and Student Drinking 62
Natural Gas Prices Rise as Temps Fall 65
California Forced to Turn the Lights Off 70
For Fans，What’s 4 Nights for U2？ 72
Buyers Line Up for Sony’s PIayStation 2 73
U2 Tour Turning Out 2 Be “Disaster” in Ticket Sales 74
Beef Prices on the Way Up 76
Section Ⅱ MICROECONOMICS 86
chapter 4 Consumer Demand 86
Patterns of Consumption 88
Determinants of Demand 88
The Sociopsychiatric Explanation 89
The Economic Explanation 89
The Demand Curve 91
Utility Theory 91
Price and Quantity 93
Price Elasticity 95
Elastic vs.Inelastic Demand 96
Price Elasticity and Total Revenue 97
Determinants of Elasticity 99
Policy Perspectives 100
Caveat Emptor：The Role of Advertising 100
Summary 102
Headlines 90
Men vs.Women：How They Spend 90
iTunes Music Store Hits Five Million Downloads 95
Dramatic Rise in Teenage Smoking 97
Cigarette Tax，Highest in Nation，Cuts Sales by Half 100
Where the Pitch Is Loudest 101
chapter 5 Supply Decisions 108
Capacity Constraints：The Production Function 110
Efficiency 111
Capacity 112
Marginal Physical Product 112
Law of Diminishing Returns 113
Short Run vs.Long Run 114
Costs of Production 114
Total Cost 114
Which Costs Matter？ 116
Average Cost 117
Marginal Cost 117
Supply Horizons 119
The Short-Run Production Decision 120
The Long-Run Investment Decision 120
Economic vs.Accounting Costs 121
Economic Cost 122
Economic Profit 123
Policy Perspectives 123
Invest in Labor or Capital？ 123
Summary 124
Headlines 114
“We Pretend to Work，They Pretend to Pay Us” 114
Mercedes-Benz 121
McDonald’s Plans Expansion in China 121
chapter 6 Competition 128
Market Structure 130
Perfect Competition 132
No Market Power 132
Price Takers 132
Market Demand vs.Firm Demand 133
The Firm’s Production Decision 134
Output and Revenues 135
Revenues vs.Profits 135
Profit Maximization 135
Price 135
Marginal Cost 135
Profit-Maximizing Rate of Output 137
Total Profit 139
Supply Behavior 140
A Firm’s Supply 140
Market Supply 141
Industry Entry and Exit 142
Entry 142
Tendency toward Zero Economic Profits 143
Exit 144
Equilibrium 144
Low Barriers to Entry 146
Market Characteristics 146
Policy Perspectives 147
The Virtues of Competition 147
Summary 149
Headlines 133
Southern Farmers Hooked on New Cash Crop 133
Cheaper Wireless Talk 144
Whiskered Catfish Stir a New Trade Controversy 145
T-Shirt Shop Owners Lament：Too Many T-Shirt Shops 147
chapter 7 Monopoly 152
Monopoly Structure 154
Monopoly = Industry 154
Price vs.Marginal Revenue 154
Monopoly Behavior 157
Profit Maximization 157
The Production Decision 157
The Monopoly Price 157
Monopoly Profits 158
Barriers to Entry 159
Threat of Entry 159
Patent Protection：Polaroid vs.Kodak 160
Other Entry Barriers 161
Comparative Outcomes 163
Competition vs.Monopoly 163
Near Monopolies 163
WHAT Gets Produced 165
FOR WHOM 166
HOW 166
Any Redeeming Qualities？ 166
Research and Development 166
Entrepreneurial Incentives 167
Economies of Scale 167
Natural Monopolies 168
Contestable Markets 168
Structure vs.Behavior 169
Policy Perspectives 169
Flying Monopoly Air 169
Summary 171
Headlines 161
Suit Threat Slows Linux Sales 161
Judge Says Microsoft Broke Antitrust Law 162
OPEC Votes to Cut Production 164
Music Firms Settle Lawsuit 165
2 Drug Firms Agree to Settle Pricing Suit 167
Following the Fares 171
chapter 8 The Labor Market 176
Labor Supply 178
Income vs.Leisure 179
Market Supply 180
Labor Demand 181
Derived Demand 181
Marginal Physical Product 183
Marginal Revenue Product 184
The Law of Diminishing Returns 184
The Hiring Decision 187
The Firm’s Demand for Labor 187
Market Equilibrium 189
Equilibrium Wage 189
Equilibrium Employment 189
Changing Market Outcomes 190
Changes in Productivity 190
Changes in Price 190
Legal Minimum Wages 191
Labor Unions 192
Policy Perspectives 194
Capping CEO Pay 194
Summary 197
Headlines 178
In Moscow，25，000 Apply for 630 Jobs at McDonald’s 178
Less Pay，More Play 180
Boeing to Issue Layoff Notices 181
Majoring in Money 182
Top Dollar，Top Coaches 188
Senate GOP Blocks Minimum Wage Hike 191
Disney Chief May Reap $771 Million 195
What’s a President Worth？ 196
chapter 9 Government Intervention 200
Market Failure 202
The Nature of Market Failure 202
Sources of Market Failure 203
Public Goods 203
Joint Consumption 203
The Free-Rider Dilemma 204
Externalities 206
Consumption Decisions 206
Production Decisions 209
Social vs.Private Costs 211
Policy Options 212
Market Power 214
Restricted Supply 214
Antitrust Policy 216
Equity 217
Macro Instability 218
Policy Perspectives 218
Trust in Government？ 218
Summary 220
Headlines 205
Napster Gets Napped 205
Passive Smoke Doesn’t Kill—or Does It？ 207
Breathe Easy 214
Forced Recycling Is a Waste 215
Section Ⅲ MACROECONOMICS 224
chapter 10 The Business Cycle 224
Assessing Macro Performance 227
GDP Growth 227
Business Cycles 227
Real GDP 228
Erratic Growth 229
Unemployment 232
The Labor Force 232
The Unemployment Rate 233
The Full-Employment Goal 234
Inflation 236
Relative vs.Average Prices 236
Redistributions 238
Uncertainty 243
Measuring Inflation 243
The Price-Stability Goal 244
Summary 245
Headlines 226
Market in Panic as Stocks Are Dumped in 12，894，600 Share Day：Bankers Halt It 226
Economy Contracts in 3rd Quarter 228
Depression Slams World Economies 230
How Unemployment Affects the Family 234
Inflation and the Weimar Republic 237
Tuition Is Up 11.5% at Community Colleges 238
chapter 11 Aggregate Supply and Demand 250
A Macro View 252
Macro Outcomes 252
Macro Determinants 252
Stable or Unstable？ 253
Classical Theory 253
The Keynesian Revolution 254
The Aggregate Supply-Demand Model 255
Aggregate Demand 256
Aggregate Supply 257
Macro Equilibrium 258
Macro Failure 259
Undesirable Outcomes 260
Unstable Outcomes 261
Shift Factors 262
Competing Theories of Short-Run Instability 265
Demand-Side Theories 265
Supply-Side Theories 267
Eclectic Explanations 267
Policy Options 267
Fiscal Policy 268
Monetary Policy 268
Supply-Side Policy 268
Policy Perspectives 269
The Changing Choice of Policy Levers 269
Summary 270
Headlines 261
Too Much Supply，Too Little Demand 261
Falling Stocks Smash Nest Eggs 263
Attack Puts Chill on European Businesses 264
Difficult Passage 264
Consumers Are Spending Big Time 266
chapter 12 Fiscal Policy 274
Components of Aggregate Demands 276
Consumption 276
Investment 277
Government Spending 277
Net Exports 278
Equilibrium 278
The Nature of Fiscal Policy 279
Fiscal Stimulus 280
More Government Spending 280
Tax Cuts 284
Inflation Worries 286
Fiscal Restraint 287
Budget Cuts 288
Tax Hikes 288
Fiscal Guidelines 289
Policy Perspectives 289
Unbalanced Budgets 289
Summary 291
Headlines 277
Consumer Confidence Plunges to Two-Year Low 277
Retailers See Results from Child Tax Credit Checks 285
Tax Cuts Could Improve Growth 287
chapter 13 Money and Banks 294
The Uses of Money 296
Many Types of Money 296
The Money Supply 297
Cash vs.Money 297
Transaction Accounts 298
Basic Money Supply 298
Near Money 299
Aggregate Demand 300
Creation of Money 300
Deposit Creation 300
A Monopoly Bank 301
Reserve Requirements 303
Excess Reserves 304
A Multibank World 304
The Money Multiplier 304
Limits to Deposit Creation 306
Excess Reserves as Lending Power 306
The Macro Role of Banks 306
Financing Aggregate Demand 306
Constraints on Money Creation 308
Policy Perspectives 308
Digital Money 308
Summary 309
Headlines 297
Goods Replace Rubles in Russia’s Vast Web of Trade 297
Writing Checks Going Out of Style 299
chapter 14 Monetary Policy 312
The Federal Reserve System 314
Federal Reserve Banks 314
The Board of Governors 315
The Fed Chairman 316
Monetary Tools 316
Reserve Requirements 316
The Discount Rate 318
Open-Market Operations 320
Powerful Levers 322
Shifting Aggregate Demand 322
Expansionary Policy 323
Restrictive Policy 323
Price vs.Output Effects 325
Aggregate Demand 325
Aggregate Supply 325
Policy Perspectives 327
Fixed Rules or Discretion？ 327
Summary 328
Headlines 318
Central Bank in China Raises Reserve Requirement 318
Fed Cuts Key Rate by Half a Point 320
Fed Increases Dosage of Anti-Inflation Medicine 324
chapter 15 Economic Growth 332
The Nature of Growth 334
Short-Run Changes in Capacity Use 334
Long-Run Changes in Capacity 334
Nominal vs.Real GDP 335
Growth Indexes 336
The GDP Growth Rate 336
GDP per Capita：A Measure of Living Standards 337
GDP per Worker：A Measure of Productivity 340
Sources of Productivity Growth 340
Labor Quality 341
Capital Investment 341
Management 341
Research and Development 342
Policy Levers 342
Education and Training 342
Immigration Policy 343
Investment Incentives 343
Savings Incentives 344
Government Finances 345
Deregulation 345
Economic Freedom 346
Policy Perspectives 347
Is More Growth Desirable？ 347
Summary 349
Headlines 338
What Economic Growth Has Done for U.S.Families 338
O Canada，You’re One Tough Cookie 343
Americans Save Little 344
Economic Freedom and Per Capita Income 347
Keeping Up with the Patels and the Wangs 348
chapter 16 Theory and Reality 352
Policy Levers 354
Fiscal Policy 354
Monetary Policy 357
Supply-Side Policy 359
Idealized Uses 361
Case 1：Recession 361
Case 2：Inflation 362
Case 3：Stagflation 363
Fine-Tuning 363
The Economic Record 363
Why Things Don’t Always Work 365
Goal Conflicts 365
Measurement Problems 366
Design Problems 368
Implementation Problems 369
Policy Perspectives 372
Hands Off or Hands On？ 372
Summary 374
Headlines 357
Budget Deficit May Surpass $450 Billion 357
Falling Consumer Confidence Could Alter Fed Outlook 359
Macro Performance in the 1990s 365
Despite Job Losses，the Recession Is Finally Declared Officially Over 367
Tough Calls in Economic Forecasting 368
Japanese Tighten Belts 369
Budget Economics，Politics Collide 371
Section Ⅳ INTERNATIONAL 378
chapter 17 International Trade 378
U.S.Trade Patterns 380
Imports 380
Exports 380
Trade Balances 380
Motivation to Trade 382
Production and Consumption without Trade 383
Trade Increases Specialization and World Output 385
Comparative Advantage 386
Opportunity Costs 386
Absolute Costs Don’t Count 387
Terms of Trade 387
Limits to the Terms of Trade 387
The Market Mechanism 388
Protectionist Pressures 389
Microeconomic Losers 389
The Net Gain 390
Barriers to Trade 391
Tariffs 391
Quotas 391
Nontariff Barriers 393
Exchange Rates 394
Global Pricing 395
Appreciation/Depreciation 395
Foreign Exchange Markets 395
Policy Perspectives 397
Policing World Trade 397
Summary 399
Headlines 381
Exports in Relation to GDP 381
Whining over Wine 389
A Litany of Losers 390
Sugar Quota a Sour Deal 394
China Quickly Rebuffs Pressure from U.S.to Strengthen Its Currency 397
Bush Sets Tariffs on Steel Imports 398
Glossary 403
Index 407