Economics

1066 Pages·2009·46.974 MB·English

by  Paul Krugman, Robin Wells

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Cover Photo Credits
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PhotoDisc;Farmer on tractor: Photodisc;Pipes in oil field:
Photodisc;Tugboat: Flat Earth Images;Squash: Photodisc;Mom and
Baby: Photodisc;Machine Worker: Digitalvision;Cargo:Photodisc;
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Flowers in a field: Stockbyte;Engineers:PhotoDisc;Oil Refinery at
Night: Digitalvision;Double-decker bus: Flat Earth Images;Lambs:
Photodisc;Fruit-stand: Photodisc;Fifth Row: Cornstalks:
Stockbyte;Sewage treatment plant: Digital Vision;Evening dining:
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Senior Publishers: Catherine Woods and Craig Bleyer
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Senior Marketing Manager: Scott Guile Photodisc;Depression:Imagebank/Getty Images;Logs on truck:
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Development Editor, Media, Supplements: Marie McHale Logging:Photodisc;Father and Son: Photodisc;Flags:Photodisc;
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Assistant Editor: Tom Acox
Logs:Photodisc;Oil Refinery: Photodisc;Tokyo Stock Exchange:
Director of Market Research and Development: Steven Rigolosi Media Bakery;Doctor:Stockbyte;Railroad Crossing: PhotoDisc;
Associate Managing Editor: Tracey Kuehn Currency: Photodisc;Hong Kong Intersection: Photodisc
Project Editor: Anthony Calcara
Art Director and Interior Designer: Babs Reingold
Text Credits
Cover Designers: Babs Reingold and Lyndall Culbertson
Layout Designer: Lee Ann McKevitt Chapter 6, Source information for Table 6-1 on page 147:
Eggs, beef:Kuo S. Huang and Biing-Hwan Lin, Estimation of Food
Illustrations:TSI Graphics and Lyndall Culbertson
Demand and Nutrient Elasticities from Household Survey Data,
Photo Editors: Cecilia Varas, Donna Ranieri United States Department of Agriculture Economic Research
Photo Researchers: Elyse Rieder and Julie Tesser Service Technical Bulletin, No. 1887 (Washington, DC: U.S.
Department of Agriculture, 2000); Stationery, gasoline, airline
Production Manager: Barbara Anne Seixas
travel, foreign travel:H. S. Houthakker and Lester D. Taylor,
Composition:TSI Graphics Consumer Demand in the United States, 1929–1970: Analyses and
Printing and Binding: RR Donnelley Projections(Cambridge, MA: Harvard University Press, 1966);
Housing, restaurant meals:H. S. Houthakker and Lester D.
Taylor, Consumer Demand in the United States: Analyses and
ISBN-13: 978-0-7167-7158-6 Projections,2nd ed. (Cambridge, MA: Harvard University Press,
ISBN-10: 0-7167-7158-6 1970). Chapter 12, Source information for “Economics in
Action” on page 310: www.ercb.com, Dr. Dobb’s Electronic
Library of Congress Control Number: 2009920558 Review of Computer Books. Chapter 17, Source article for
“Economics in Action” on page 439: M. Gross, J.L. Sindelar, J.
Mullahy, and R. Anderson, Policy Watch: Alcohol and Cigarette
© 2009 by Worth Publishers Taxes, Journal of Economic Perspectives, 7,211–222, 1993.Chapter
All rights reserved. 20, Source article of “For Inquiring Minds” box on page
501: C. Camerer et al., Labor Supply of New York City Cab
Printed in the United States of America Drivers: One Day at a Time. Quarterly Journal of Economics, 112,
407–471, 1997. Chapter 20, Source article of “For Inquiring
First printing 2009 Minds” box on page 511: Nancy Stokey, A Quantitative Model
of the British Industrial Revolution, 1780–1850. Carnegie-
Rochester Conference Series on Public Policy, 55,55–109, 2001.
Worth Publishers Chapter 21, Source article of “For Inquiring Minds” box on
page 557: Joe Nocera, “Can We Turn Off Our Emotions When
41 Madison Avenue
Investing?” New York Times, September 29, 2007. Retrieved from:
New York, NY 10010
http://www.nytimes.com/2007/09/29/business/29nocera.html?
www.worthpublishers.com _r=1&scp=1&sq=nocera%20Zweig&st=cse&oref=slogin
SECOND EDITION
Paul Krugman Robin Wells
Princeton University
WORTH PUBLISHERS
To beginning students everywhere, which we all were at one time.
About the Authors
Paul Krugman,
recipient of the 2008 Nobel Memorial Prize in Economic
Sciences, is Professor of Economics at Princeton University, where he regularly
teaches the principles course. He received his BA from Yale and his PhD from MIT.
Prior to his current position, he taught at Yale, Stanford, and MIT. He also spent a
year on the staff of the Council of Economic Advisers in 1982–1983. His research
is mainly in the area of international trade, where he is one of the founders of the
“new trade theory,” which focuses on increasing returns and imperfect competi-
tion. He also works in international finance, with a concentration in currency
crises. In 1991, Krugman received the American Economic Association’s John Bates
Clark medal. In addition to his teaching and academic research, Krugman writes
extensively for nontechnical audiences. Krugman is a regular op-ed columnist for
the New York Times. His latest trade books, both best sellers, include The Return of
Depression Economics and the Crisis of 2008, a history of recent economic troubles
and their implications for economic policy, and The Conscience of a Liberal, a study
of the political economy of economic inequality and its relationship with political
polarization from the Gilded Age to the present. His earlier books, Peddling
ProsperityandThe Age of Diminished Expectations, have become modern classics.
Robin Wells
was a Lecturer and Researcher in Economics at Princeton Uni-
versity. She received her BA from the University of Chicago and her PhD from the
University of California at Berkeley; she then did postdoctoral work at MIT. She
has taught at the University of Michigan, the University of Southampton (Unit-
ed Kingdom), Stanford, and MIT. The subject of her teaching and research is the
theory of organizations and incentives.
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brief contents
preface xxv part 9 Factor Markets and Risk
part 1 What Is Economics? chapter 20 Factor Markets and the Distribution of
Income 509
introduction The Ordinary Business of Life 1
appendix Indifference Curve Analysis of Labor
chapter1 First Principles 5
Supply 537
chapter 2 Economic Models:Trade-offs and
chapter 21 Uncertainty, Risk, and Private
Trade 23
Information 543
appendix Graphs in Economics 45
part 10 Introduction to Macroeconomics
part 2 Supply and Demand
chapter22 Macroeconomics: The Big Picture 569
chapter3 Supply and Demand 61
chapter23 Tracking the Macroeconomy 589
chapter 4 Consumer and Producer Surplus 93
chapter24 Unemployment and Inflation 615
chapter5 The Market Strikes Back 117
chapter 6 Elasticity 143 part 11 Long-Run Economic Growth
chapter 25 Long-Run Economic Growth 641
part 3 Individuals and Markets
chapter 26 Savings, Investment Spending, and the
chapter 7 Taxes 167 Financial System 673
chapter 8 International Trade 195
part 12 Short-Run Economic Fluctuations
part 4 Economics and Decision Making chapter 27 Income and Expenditure 703
chapter 9 Making Decisions 225 appendix Deriving the Multiplier Algebraically 730
part 5 The Consumer chapter 28 Aggregate Demand and Aggregate
Supply 731
chapter 10 The Rational Consumer 249
part 13 Stabilization Policy
chapter 11 Consumer Preferences and Consumer
Choice 271 chapter 29 Fiscal Policy 767
appendix Taxes and the Multiplier 795
part 6 The Production Decision
chapter 30 Money, Banking, and the Federal Reserve
chapter 12 Behind the Supply Curve: Inputs and
System 797
Costs 303
chapter 31 Monetary Policy 831
chapter 13 Perfect Competition and the Supply
Curve 329 appendix Reconciling the Two Models of the
Interest Rate 855
part 7 Market Structure: Beyond Perfect chapter 32 Inflation, Disinflation, and Deflation 859
Competition
part 14 Events and Ideas
chapter 14 Monopoly 355
chapter 33 Macroeconomics: Events and Ideas 885
chapter 15 Oligopoly 387
chapter 16 Monopolistic Competition and Product part 15 The Open Economy
Differentiation 415 chapter 34 Open-Economy Macroeconomics 909
part 8 Microeconomics and Public Policy Solutions to “Check Your
chapter 17 Externalities 433 Understanding” Questions S-1
chapter 18 Public Goods and Common Resources 459 Glossary G-1
chapter 19 The Economics of the Welfare State 479 Index I-1
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