Economics PDF
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89756_Index_ptg01.indd 877 14/11/12 2:58 PM DWghewoOaaiijitsewsromnthi w hntbctogSS ehhorae,oho rhto ceoeraTpur luara,okco dean mtlhaadLnilsbhwbndn dsd bycSsuooeeidEieao owo tn noillietironfbaDct lge nperttwmo eis c’e ohhkT jhe tetimatatttognt w ednonv,yla ihh cwaeeh ieDurr sanestlcooeo ncnyuno orrnreeeKrthie ddtetoimh’.rvs esreoobdeniart ac d seieeaycyg dnnImweat i n tfuo,ghc irodtm wc.tteuo n ehoacl, ccgb ndt hroohro h .mFc psainc d trr ahaeo eate soYmka o2ruirltih reel thtmo yn nfkref eeloieaify eo4enwsotr onedcsim eeareccck te sh tnvrs/usoec btr e reo he roseaart7si gv ey,mcefeete metainbes e nf .pepnnh, r,ciat ookh w . . .ee lslui“d VTaoih o tsaiao a rWlnunnaAwmneitcanbia iwi.r.hibueeb vm n t tjl odoowgevpuedkLBoiblto idhrhrhelete nevnwnm ah epeeip euriraohsen ae iooentlkacthollw g aeal,.yi xc ht tou,piuudino isyrevg“Q mn c,sarenc oehui fasd a aaimt cfe n saoaxhrgbyou inodnt rattpiroobsnit,ee su dopohoraiec ut gt oet.Lnstpycilafda ec s srudmgslostee w rItimwf hoateodwodytn k .af r oo r i optbha utmnrilaem”ameo ,a.ednaurtinhi tef eoo cna pTtv smhistoh makdsshlnssaahtietxs.s snsetlhfe ncao eae, hott i? aFseg ee ii do yrannse astia an nitu y evr idE“sydeYnh.ortoon cu rn nn msok ersfcooct e Easewb diueeiaptecbdouddgu, et o utscns r as oierleansn aeanv ,P- dsn n,ueow” ts wdoaed s aotfkygnetdr mvsiwefaentcuuoolkmta oaoloooern o edilgfrl otiobsfrsi rygcil. u,arfrunrninootit n w eneitl mohlr s stgykhnhbcet waey ddti,seahtetcnt ehonmi shl ado,sont uaatsiedhom a e t auachag hf Otui .u wys dtdf oben p setr stl treeei Io,ty fo te-vh yeatn a i’sot–ivffi ae chafshtu ot.hn aeetefdti t tgr iuchhoctnlTtneouteturhdraef aleodo hoednw s afefo alrg teraemmkeern orp.srnbHetoasoo ewn ooy e xc ae hBares omkoudmces—oea wa srstoytih s ueoaoh nmus dbk u fsnr an a abitdaiouws e”ktetrteaoist scyahr n otyniosy htrua. mlo swwn enys ae n—,, wdal tmp Bgot eicf fd oecryo aqatdutchl pe rit fuaeibecteu “ t c ninuo ahal stroeagouhlctrhttods eys heluadmdlieoeriho ftfgsone ,r no gdss i yewsaa iifr ooebiop mm Ffiednmncw oeo stst sewliu uupwoih oie. nenemte,n . nno ouwi e sdpnhrgaeyxn.reteExa o’df pnd tciehtshYoniridtrorada htnfrhicn heeeets aoanaro ft irderecaisact s ncac egthc ullbngiuirahdosh ntai idnntiovr htgs itamigh iana fi. iEendnet,anonoden t dc s”hlTlnseudncbcax ndktr i a goeisc to t at,lbhh d paentti ew dthpmaehsthnrntwbi abofg eea aadfniodhr aesooeoeao nsodoor dpi ecritlem nbr au rcayaenouvtkttr him hwt tleieapts ohn s smmrekeli g.ntiaye c.ois gsot a dlaree sy V n—eo sprce Eettiw f.r rtt eioiie .gyti— ho gucppadaecnl saidoled uIanhedeo,moe emxbrrrligte flt anysdnm goma n na l ottsrehswiiwl seigo e oscbatn srutiuoctntae Oamn ,er ontee amalah osimcicni tgateantsnf g rnrity ehmiiik—awefi mnsm dnecrt.sn tw i l rctcs euycst al gadahetgoi mec stsh.hasotaoc l y sss ua,are ,WotaHceu tal s o aygthcnary o h tt ua ol etfoooo leer —e eeulnhwra nup ya skmarrdde oe -i slritfbalonb n muirpthglewgyo ar hga -iymekwlcsivtyosnest .ei u e.st hy p o ur Best Wishes, Roger A. Arnold Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 89756_front_end_se_ptg01_hires.indd 1 01/11/12 3:10 PM Economics 11e Roger A. Arnold California State University San Marcos Australia ● Brazil ● Canada ● Mexico ● Singapore ● Spain ● United Kingdom ● United States Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 89756_FM_SE_ptg01.indd 1 14/11/12 2:36 PM Economics 11e © 2014, 2011 South-Western, Cengage Learning Roger A. Arnold ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means—graphic, electronic, Editorial Director: Erin Joyner or mechanical, including photocopying, recording, taping, Web distribution, Editor in Chief: Joe Sabatino information storage and retrieval systems, or in any other manner—except as may be permitted by the license terms herein. 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Sr. Art Director: Michelle Kunkler Cover and Internal Designer: Red Hangar © 2014 Cengage Learning. All Rights Reserved. Design Cover Image: © Comstock Images/Getty Cengage Learning WebTutor™ is a trademark of Cengage Learning. Images, Inc. Library of Congress Control Number: 2012952308 Student Edition ISBN 13: 978-1-133-18975-6 Student Edition ISBN 10: 1-133-18975-X South-Western Cengage Learning 5191 Natorp Boulevard Mason, OH 45040 USA Cengage Learning products are represented in Canada by Nelson Education, Ltd. For your course and learning solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in the United States of America 1 2 3 4 5 6 7 16 15 14 13 12 Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 89756_FM_SE_ptg01.indd 2 14/11/12 2:36 PM This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest. Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 89756_Index_ptg01.indd 877 14/11/12 2:58 PM To Sheila, Daniel, and David Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 89756_FM_SE_ptg01.indd 3 14/11/12 2:36 PM Contents Brief Contents An Introduction to economics Microeconomics Part 1 economics: the science of scarcity Part 8 Microeconomic Fundamentals Chapter 1 What Economics Is About 1 Chapter 20 Elasticity 441 Appendix A Working with Diagrams 26 Chapter 21 Consumer Choice: Maximizing Utility and Behavioral Economics 468 Appendix B Should You Major in Economics? 34 Appendix E Budget Constraint and Indifference Curve Analysis 487 Chapter 2 Production Possibilities Frontier Framework 42 Chapter 22 Production and Costs 495 Chapter 3 Supply and Demand: Theory 57 Chapter 4 Prices: Free, Controlled, and Relative 90 Part 9 Product Markets and Policies Chapter 5 Supply, Demand, and Price: Applications 107 Chapter 23 Perfect Competition 526 Macroeconomics Chapter 24 Monopoly 554 Chapter 25 Monopolistic Competition, Oligopoly, and Game Theory 576 Part 2 Macroeconomic Fundamentals Chapter 26 Government and Product Markets: Antitrust and Regulation 599 Chapter 6 Macroeconomic Measurements, Part I: Prices and Part 10 Factor Markets and Related Issues Unemployment 129 Chapter 27 Factor Markets: With Emphasis on the Labor Market 618 Chapter 7 Macroeconomic Measurements, Part II: GDP and Real GDP 144 Chapter 28 Wages, Union, and Labor 642 Part 3 Macroeconomic stability, Chapter 29 The Distribution of Income and Poverty 657 Instability, and Fiscal Policy Chapter 30 Interest, Rent, and Profit 674 Chapter 8 Aggregate Demand and Aggregate Supply 165 Part 11 Market Failure, Public Choice, Chapter 9 Classical Macroeconomics and the and special-Interest-Group Politics Self-Regulating Economy 195 Chapter 10 Keynesian Macroeconomics and Economic Instability: Chapter 31 Market Failure: Externalities, Public Goods, and Asymmetric A Critique of the Self-Regulating Economy 217 Information 694 Chapter 11 Fiscal Policy and the Federal Budget 246 Chapter 32 Public Choice and Special-Interest-Group Politics 721 Part 4 Money, the economy, and Monetary Policy Part 12 economics theory-Building and everyday Life Chapter 12 Money, Banking, and the Financial System 269 Chapter 33 Building Theories to Explain Everyday Life: From Chapter 13 The Federal Reserve System 287 Observations to Questions to Theories to Predictions 741 Appendix C The Market for Reserves (or the Federal Funds Market) 304 Chapter 14 Money and the Economy 308 the Global economy Chapter 15 Monetary Policy 335 Appendix D Bond Prices and the Interest Rate 357 Part 13 International economics and Globalization Part 5 expectations and Growth Chapter 34 International Trade 763 Chapter 16 Expectations Theory and the Economy 360 Chapter 35 International Finance 781 Chapter 17 Economic Growth: Resources, Technology, Ideas, and Chapter 36 Globalization and International Impacts on the Economy 799 Institutions 384 Web Chapters Part 6 the Financial Crisis of 2007–2009 Chapter 18 The Financial Crisis of 2007–2009 402 Chapter 37 The Economic Case For and Against Government: Five Topics Considered 830 Part 7 Government and the economy Chapter 38 Stocks, Bonds, Futures, and Options 851 Chapter 19 Debates in Macroeconomics Over the Role and Effects Chapter 39 Agriculture: Problems, Policies, and Unintended Effects 870 of Government 425 Self-Test Appendix 831 Glossary 858 Index 869 Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 89756_FM_SE_ptg01.indd 4 14/11/12 2:36 PM Contents Contents An Introduction to economics Part 1 economics: the science of scarcity CHAPteR 1: WHAt eConoMICs Is ABout 1 Your Life, 2014–2024 1 A Definition of Economics 2 Low Admission Rates at Goods and Bads 2 Resources 2 Scarcity and a Definition of Economics 2 Yale 6 The Counterintuitive in Economics 3 What Does Scarcity Have Key Concepts in Economics 5 to Do with the Number of Opportunity Cost 5 Opportunity Cost and Behavior 7 Benefits and Costs 7 Friends You Have? 9 Decisions Made at the Margin 8 Efficiency 10 Economics Is About Why Did the British Incentives 12 Unintended Effects 12 Exchange 14 Soldiers Wear Red The Market and Government 14 Uniforms? 10 Ceteris Paribus and Theory 16 When Are People the Most Ceteris Paribus Thinking 16 What Is a Theory? 17 Likely to “Lose” Library Economic Categories 20 Books? The Case of Alchian and Allen’s University Positive and Normative Economics 20 Microeconomics and Macroeconomics 20 Economics 19 Chapter Summary 22 Key Terms and Concepts 23 Video Questions and Problems 24 Questions and Problems 24 “I Don’t Believe That Every Time a Person Does Working with Numbers and Graphs 25 Something, He Compares th e Marginal Benefits and APPendIx A: WoRkInG WItH dIAGRAMs 26 Costs” 21 Slope of a Line 27 Slope of a Line Is Constant 28 Slope of a Curve 28 The 45-Degree Line 28 Pie Charts 30 Bar Graphs 30 Line Graphs 31 APPendIx B: sHouLd You MAjoR In eConoMICs? 34 Five Myths About Economics and Being an Economics Major 35 What Awaits You As an Economics Major? 38 What Do Economists Do? 39 Places to Find More Information 41 Concluding Remarks 41 v Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 89756_FM_SE_ptg01.indd 5 14/11/12 2:36 PM vi Contents CHAPteR 2: PRoduCtIon PossIBILItIes FRontIeR FRAMeWoRk 42 The Production Possibilities Frontier 42 The Straight-Line PPF: Constant Opportunity Costs 42 The Bowed-Outward (Concave- The PPF and Your Downward) PPF: Increasing Opportunity Costs 43 Law of Increasing Opportunity Grades 49 Costs 44 Economic Concepts in a PPF Framework 45 Political Debates Explained Specialization and Trade Can Move Us Beyond Our PPF 50 in Terms of the PPF 52 A Simple Two-Person PPF Model 50 On or Beyond the PPF? 53 Chapter Summary 55 Key Terms and Concepts 55 Video Questions and Problems 55 “What Purpose Does the PPF Serve?” 54 Questions and Problems 55 Working with Numbers and Graphs 56 CHAPteR 3: suPPLY And deMAnd: tHeoRY 57 What Is Demand? 57 The Law of Demand 58 Four Ways to Represent the Law of Demand 58 Why Disney World Ticket Prices 60 Does Quantity Demanded Go Down as Price Goes Up? 59 Individual Demand Curve and Market Demand Curve 60 A Change in Quantity Demanded iPods and the Law of Demand 64 Versus a Change in Demand 61 What Factors Cause the Demand Curve to Shift? 63 Movement Factors and Shift Factors 66 The Dowry and Marriage Supply 68 Market Disequilibrium 78 The Law of Supply 68 Why Most Supply Curves Are Upward Sloping 68 Changes When Might You Buy in Supply Mean Shifts in Supply Curves 69 What Factors Cause the Supply Curve to More Than You Want to Shift? 70 A Change in Supply versus a Change in Quantity Supplied 72 Buy? 81 The Market: Putting Supply and Demand Together 73 “Sorry, but This Flight Has Supply and Demand at Work at an Auction 73 Moving to Equilibrium: What Been Overbooked” 83 Happens to Price When There Is a Surplus or a Shortage? 74 Speed of Moving to Equilibrium 76 Moving to Equilibrium: Maximum and Minimum Prices 76 The Connection Between Equilibrium and Predictions 76 Equilibrium in Terms of Consumers’ and Producers’ Surplus 77 What Can Change Equilibrium Price and Quantity? 82 “I Thought Prices Equaled Costs Plus 10 Percent” 86 Epilogue: Who Feeds Cleveland? 84 Chapter Summary 87 Key Terms and Concepts 87 Video Questions and Problems 88 Questions and Problems 88 Working with Numbers and Graphs 89 CHAPteR 4: PRICes: FRee, ContRoLLed, And ReLAtIve 90 A Price Ceiling in the Price 90 Kidney Market 95 Price as a Rationing Device 90 Price as a Transmitter of Information 91 1973 and 1979 96 Price Controls 92 Will a Soda Tax Reduce Price Ceiling 92 Price Floor: Definition and Effects 97 Obesity? 101 Two Prices: Absolute and Relative 100 Relative Prices and Having Absolute (Money) Price and Relative Price 100 Taxes on Specific Goods and Relative Children 103 Price Changes 102 Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 89756_FM_SE_ptg01.indd 6 14/11/12 2:36 PM
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