Essentials of Economics

554 Pages·2018·14.414 MB·English

by  Mr John Sloman, Dean Garratt

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In a world full of volatility, uncertainty and confl icting approaches, this market-leading concise A
text on introductory economics looks at the key economic issues of today and helps you make EIGHTH EDITION
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sense of them.
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This new edition has been updated with the most recent data and coverage of economic issues

such as growth, unemployment, the environment, Brexit and behavioural economics. Its classic
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features and clear, engaging writing style are complemented by a strong theoretical basis and
a wealth of pedagogical features to support learning. Expect real-life examples, case studies, F
questions and problems to guide your understanding.

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Always up-to-date! The Sloman Economics New! Access additional resources on the free
News Site companion website
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Make use of the leading student-friendly blog The website is full of supporting material such
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that’s updated several times a month with news as threshold concepts, audio animations, case
and topical stories, all linked to your textbook studies, web appendices, glossary, fl ashcards O
chapters, so you can understand current aff airs and answers to selected questions from the
more deeply. book. M
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This book can also be supported by a premium homework and assessment system,
MyLab Economics. Learn more inside. S
JOHN SLOMAN was Director of the Economics Network from its foundation in 1999 until 2012,
and is now Visiting Fellow at the University of Bristol where the Network is based. John is also DJ
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Visiting Professor at the University of the West of England, Bristol.
AH JOHN SLOMAN

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DEAN GARRATT is a Senior Teaching Fellow at Aston Business School and Associate of the G S
Economics Network. Dean is also Academic Assessor for Government Economics Service and a
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tutor on HM Treasury’s Graduate Development Programme. O
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Cover image: © Maggie Sully / Alamy Stock Photo www.pearson-books.com T
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Cover image: © Maggie Sully / Alamy Stock Photo
ESSENTIALS OF
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ESSENTIALS OF
ECONOMICS
EIGHTH EDITION
JOHN SLOMAN
The Economics Network, University of Bristol;
Visiting Professor, University of the West of England
DEAN GARRATT
Aston Business School
Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Dubai • Singapore • Hong Kong
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First published 1998 (print)
Second edition published 2001 (print)
Third edition published 2004 (print)
Fourth edition published 2007 (print)
Fifth edition published 2010 (print)
Sixth edition published 2013 (print and electronic)
Seventh edition published 2016 (print and electronic)
Eighth edition published 2019 (print and electronic)
© Pearson Education Limited 1998, 2001, 2004, 2007, 2010 (print)
© Pearson Education Limited 2013, 2016, 2019 (print and electronic)
The rights of John Sloman and Dean Garratt to be identified as authors of this work has been asserted by
them in accordance with the Copyright, Designs and Patents Act 1988.
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ISBN: 978-1-292-23959-0 (print)
978-1-292-23964-4 (PDF)
978-1-292-23966-8 (ePub)
British Library Cataloguing-in-Publication Data
A catalogue record for the print edition is available from the British Library
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All Part and Chapter opener images: John Sloman
Cover image: © Maggie Sully / Alamy Stock Photo
Print edition typeset in 10/12 pt Sabon MT Pro by Pearson CSC
Printed and bound by L.E.G.O. S.p.A., Italy
NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION
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About the authors
John Sloman is Visiting Fellow at the Garratt, Jon Guest and Elizabeth Jones of Economics for Business
University of Bristol and Associate (Pearson Education, 8th edition 2019) and with Elizabeth Jones of
of the Economics Network (www. Essential Economics for Business (5th edition 2017). Translations or
economicsnetwork.ac.uk) a UK-wide editions of the various books are available for a number of different
organisation, where, until his retire- countries with the help of co-authors around the world.
ment in 2012, he was Director. The John is very interested in promoting new methods of teaching
Economics Network is based at the economics, including group exercises, experiments, role playing,
University of Bristol and provides a computer-aided learning and use of audience response systems and
range of services designed to promote podcasting in teaching. He has organised and spoken at conferences
and share good practice in learning for both lecturers and students of economics throughout the UK and
and teaching economics. The Net- in many other countries.
work is supported by grants from the As part of his work with the Economics Network he has con-
Royal Economic Society, the Scottish Economic Society and univer- tributed to its two sites for students and prospective students of
sity economic departments and units from across the UK. economics: Studying Economics (www.studyingeconomics
John is also visiting professor at the University of the West of .ac.uk) and Why Study Economics? (www.whystudyeconomics
England, Bristol, where, from 1992 to 1999, he was Head of School .ac.uk)
of Economics. He taught at UWE until 2007. From March to June 1997, John was a visiting lecturer at the
John has taught a range of courses, including economic principles University of Western Australia. In July and August 2000, he was
on social science and business studies degrees, development econom- again a visiting lecturer at the University of Western Australia and
ics, comparative economic systems, intermediate macroeconomics also at Murdoch University in Perth.
and managerial economics. He has also taught economics on various In 2007, John received a Lifetime Achievement Award as ‘outstand-
professional courses. ing teacher and ambassador of economics’ presented jointly by the
He is also the co-author with Dean Garratt and Jon Guest of Higher Education Academy, the Government Economic Service and
Economics (Pearson Education, 10th edition 2018), with Dean the Scottish Economic Society.
Dean Garratt is a senior teaching fel- high-quality teaching practice. He has been involved in several pro-
low at Aston Business School. He jects promoting a problem-based learning (PBL) approach in the
joined Aston University in September teaching of economics. In 2006, Dean was awarded the Outstanding
2018 having previously been a Princi- Teaching Prize by the Economics Network. The award recognises
pal Lecturer at Nottingham Business exemplary teaching practice that deepens and inspires interest in
School. Dean teaches economics at a economics. In 2013, he won the student-nominated Nottingham
variety of levels, including modules in Business School teacher of the year award.
macroeconomics and economics for Dean is an academic assessor for the Government Economic
non-specialists. He is passionate Service (GES) helping to assess candidates at Economic Assessment
about encouraging students to com- Centres (EACs). In this role he assesses candidates looking to join
municate economics more intuitively, the GES, the UK’s largest employer of professional economists.
to deepen their interest in economics and to apply economics to a Dean runs sessions on HM Treasury’s Graduate Development
range of issues. Programme (GDP). These sessions cover principles in policy mak-
Earlier in his career Dean worked as an economic assistant at ing, applying economics principles and ideas to analyse policy issues
both HM Treasury and at the Council of Mortgage Lenders. While
and contemporary developments in macroeconomics.
at these institutions he was researching and briefing on a variety of
Outside of work, Dean is an avid watcher of many sports.
issues relating to the household sector and to the housing and mort-
Having been born in Leicester, he is a season ticket holder at both
gage markets.
Leicester City Football Club and Leicestershire County Cricket
Dean is a Senior Fellow of the Higher Education Academy and
Club.
an Associate of the Economics Network which aims to promote
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Brief contents
About the authors v
Preface xv
Student and lecturer resources xv
Acknowledgements xxi
Part A INTRODUCTION
1 Economic issues 2
Part B MICROECONOMICS
2 Markets, demand and supply 30
3 Markets in action 48
4 The demand decision 71
5 The supply decision 93
6 Market structures 121
7 Wages and the distribution of income 162
8 Market failures and government policy 193
Part C MACROECONOMICS
9 Aggregate demand and the business cycle 232
10 Aggregate supply and economic growth 273
11 The financial system, money and interest rates 301
12 Output, unemployment and inflation 341
13 Macroeconomic policy 374
Part D INTERNATIONAL ECONOMICS
14 Globalisation and international trade 414
15 Balance of payments and exchange rates 453
Websites appendix W:1
Key ideas and glossary K:1
Index I:1
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Detailed contents
About the authors v Other determinants of demand 32
Movements along and shifts in the demand curve 33
Preface xv
2.2 Supply 34
Student and lecturer resources xv
Supply and price 34
Acknowledgements xxi The supply curve 34
Other determinants of supply 35
Movements along and shifts in the supply curve 36
Part A INTRODUCTION
2.3 The Determination of Price 36
Equilibrium price and output 36
1 Economic issues 2 Movement to a new equilibrium 43
1.1 Engaging with Economics 3 2.4 The Free-Market Economy 45
An island economy 3 Advantages of a free-market economy 45
Economic puzzles and issues 3 Problems with a free-market economy 45
1.2 The Economic Problem 5
Chapter 2 Boxes
The problem of scarcity 5
2.1 UK House Prices: Unearthing the foundations of house
Demand and supply 6
price patterns 38
1.3 Dividing Up the Subject 6
2.2 Stock Market Prices: Taking stock of share prices 40
Microeconomics 7
2.3 Commodity Prices: Riding the commodities Big Dipper 42
Macroeconomics 9
1.4 Modelling Economic Relationships 12
The production possibility curve 13 3 Markets in action 48
The circular flow of goods and incomes 15
3.1 Price Elasticity of Demand 49
Models and data 16
The price elasticity of demand 49
1.5 Economic Systems 19
Measuring the price elasticity of demand 50
The command economy 20
Interpreting the figure for elasticity 50
The free-market economy 22
Determinants of price elasticity of demand 51
The price mechanism 22
3.2 Price Elasticity of Demand and Consumer
The mixed market economy 26
Expenditure 52
Chapter 1 Boxes 3.3 Price Elasticity of Supply (PES) 55
1.1 The Opportunity Costs of Studying: What are you The determinants of price elasticity of supply 57
sacrificing? 8 3.4 Other Elasticities 57
1.2 Business Cycles: The inherent volatility of economies 11 Income elasticity of demand 57
1.3 Nominal and Real House Prices: Going through the roof 18 Cross-price elasticity of demand 58
1.4 Command Economies: Rise and fall of planning 3.5 Markets and Adjustment over Time 60
in Russia 22 Short-run and long-run adjustment 60
Price expectations and speculation 60
3.6 Markets Where Prices are Controlled 63
Part B MICROECONOMICS Setting a minimum (high) price 63
Setting a maximum (low) price 64
2 Markets, demand and supply 30
Chapter 3 Boxes
2.1 Demand 31 3.1 The Measurement of Elasticity 52
The relationship between demand and price 31 3.2 Advertising and its Effect on Demand Curves: How to
The demand curve 31 increase sales and price 56
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