GLOBAL EDITION. Economics ELEVENTH EDITION. Michael Parkin

Transcription

1 GLOBAL EDITION Economics ELEVENTH EDITION Michael Parkin

2 Editor in Chief Executive Acquisitions Editor International Publisher International Programme Editor Editorial Project Manager Executive Marketing Manager International Marketing Manager Managing Editor Senior Production Project Manager Operations Specialist Donna Battista Adrienne D Ambrosio Laura Dent Leandra Paoli Sarah Dumouchelle Lori DeShazo Dean Erasmus Jeff Holcomb Nancy Freihofer Carol Melville International Senior Manufacturing Controller Trudy Kimber Cover Designer Jodi Notowitz Cover Images Robin Smith Director of Media Susan Schoenberg MyEconLab Content Project Manager Noel Lotz Executive Media Producer Melissa Honig Digital Publisher, Economics Denise Clinton Text Design and Project Management Integra Software Services, Inc. Copyeditor Catherine Baum Technical Illustrator Richard Parkin Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: Pearson Education Limited 2014 The right of Michael Parkin to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act Authorised adaptation from the United States edition, entitled Economics, 11th edition, ISBN: by Michael Parkin, published by Pearson Education All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6 10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text and on pages C-1 C-2. ISBN 10: ISBN 13: British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Typeset in Adobe Garamond Pro by Integra Software Services Inc. Printed and bound by Courier/Kendallville in the United States of America The publisher s policy is to use paper manufactured from sustainable forests.

3 Economics, Global Edition - PDF - PDF - PDF Table of Contents Cover Economics Brief Contents Detailed Contents Part One Introduction What Is Economics? Definition of Economics Two Big Economic Questions What, How, and For Whom? Does the Pursuit of Self-Interest Unintentionally Promote the Social Interest? The Economic Way of Thinking A Choice Is a Tradeoff Making a Rational Choice Benefit: What You Gain Cost: What You Must Give Up How Much? Choosing at the Margin Choices Respond to Incentives Economics as Social Science and Policy Tool Economist as Social Scientist Economist as Policy Adviser Appendix Graphs in Economics Graphing Data Scatter Diagrams

4 Graphs Used in Economic Models Variables That Move in the Same Direction Variables That Move in Opposite Directions Variables That Have a Maximum or a Minimum Variables That Are Unrelated The Slope of a Relationship The Slope of a Straight Line The Slope of a Curved Line Graphing Relationships Among More Than Two Variables Ceteris Paribus When Other Things Change Mathematical Note Equations of Straight Lines The Economic Problem Production Possibilities and Opportunity Cost Production Possibilities Frontier Production Efficiency Tradeoff Along the PPF Opportunity Cost Using Resources Efficiently The PPF and Marginal Cost Preferences and Marginal Benefit

5 Allocative Efficiency Economic Growth The Cost of Economic Growth A Nations Economic Growth Gains from Trade Comparative Advantage and Absolute Advantage Achieving the Gains from Trade Economic Coordination Firms Markets Property Rights Money Circular Flows Through Markets Coordinating Decisions Food: Import and Expand Production Possibilities Part One Wrap-Up Understanding the Scope of Economics Your Economic Revolution Talking with Jagdish Bhagwati Part Two How Markets Work Demand and Supply Markets and Prices Demand The Law of Demand Demand Curve and Demand Schedule A Change in Demand

6 Supply A Change in the Quantity Demanded Versus a Change in Demand The Law of Supply Supply Curve and Supply Schedule A Change in Supply A Change in the Quantity Supplied Versus a Change in Supply Market Equilibrium Price as a Regulator Price Adjustments Predicting Changes in Price and Quantity An Increase in Demand A Decrease in Demand An Increase in Supply A Decrease in Supply All the Possible Changes in Demand and Supply Demand and Supply: Cabbage and Kimchi Mathematical Note Demand, Supply, and Equilibrium Elasticity Price Elasticity of Demand Calculating Price Elasticity of Demand Inelastic and Elastic Demand

7 The Factors that Influence the Elasticity of Demand Elasticity Along a Linear Demand Curve Total Revenue and Elasticity Your Expenditure and Your Elasticity More Elasticities of Demand Income Elasticity of Demand Cross Elasticity of Demand Elasticity of Supply Calculating the Elasticity of Supply The Factors That Influence the Elasticity of Supply The Elasticity of Demand for Taxi Rides Efficiency and Equity Resource Allocation Methods Market Price Command Majority Rule Contest First-Come, First-Served Lottery Personal Characteristics Force Benefit, Cost, and Surplus Demand, Willingness to Pay, and Value Individual Demand and Market Demand Consumer Surplus

8 Supply and Marginal Cost Supply, Cost, and Minimum Supply-Price Individual Supply and Market Supply Producer Surplus Is the Competitive Market Efficient? Efficiency of Competitive Equilibrium Market Failure Sources of Market Failure Alternatives to the Market Is the Competitive Market Fair? Its Not Fair If the Result Isn't Fair Its Not Fair If the Rules Aren't Fair Case Study: A Generator Shortage in a Natural Disaster Making Traffic Flow Efficiently Government Actions in Markets A Housing Market with a Rent Ceiling A Housing Shortage Increased Search Activity A Black Market Inefficiency of a Rent Ceiling Are Rent Ceilings Fair? A Labor Market with a Minimum Wage Minimum Wage Brings Unemployment

9 Is the Minimum Wage Fair? Inefficiency of a Minimum Wage Taxes Tax Incidence A Tax on Sellers A Tax on Buyers Equivalence of Tax on Buyers and Sellers Tax Incidence and Elasticity of Demand Tax Incidence and Elasticity of Supply Taxes and Efficiency Taxes and Fairness Production Quotas and Subsidies Production Quotas Subsidies Markets for Illegal Goods A Free Market for a Drug A Market for an Illegal Drug Legalizing and Taxing Drugs Minimum Wage in Hong Kong and Singapore Global Markets in Action How Global Markets Work International Trade Today What Drives International Trade?

10 Why the United States Imports T-Shirts Why the United States Exports Airplanes Winners, Losers, and the Net Gain from Trade Gains and Losses from Imports Gains and Losses from Exports Gains for All International Trade Restrictions Tariffs Import Quotas Other Import Barriers Export Subsidies The Case Against Protection Helps an Infant Industry Grow Counteracts Dumping Saves Domestic Jobs Allows Us to Compete with Cheap Foreign Labor Penalizes Lax Environmental Standards Prevents Rich Countries from Exploiting Developing Countries Reduces Offshore Outsourcing that Sends Good U.S. Jobs to Other Countries Avoiding Trade Wars Why Is International Trade Restricted? Compensating Losers A Tariff on Solar Panels

11 Part Two Wrap-Up Understanding How Markets Work The Amazing Market Talking with Susan Athey Part Three Households Choices Utility and Demand Consumption Choices Consumption Possibilities Preferences Utility-Maximizing Choice A Spreadsheet Solution Choosing at the Margin The Power of Marginal Analysis Revealing Preferences Predictions of Marginal Utility Theory A Fall in the Price of a Movie A Rise in the Price of Soda A Rise in Income The Paradox of Value Temperature: An Analogy New Ways of Explaining Consumer Choices Behavioral Economics Neuroeconomics Controversy Influencing Consumer Choice for Sugary Drinks

12 Possibilities, Preferences, and Choices Consumption Possibilities Budget Equation Preferences and Indifference Curves Marginal Rate of Substitution Degree of Substitutability Predicting Consumer Choices Best Affordable Choice A Change in Price A Change in Income Substitution Effect and Income Effect Paper Books Versus e-books Part Three Wrap-Up Understanding Households' Choices Making the Most of Life Talking with Steven D. Levitt Part Four Firms and Markets Organizing Production The Firm and Its Economic Problem The Firms Goal Accounting Profit Economic Accounting

13 A Firms Opportunity Cost of Production Economic Accounting: A Decisions The Firms Constraints Technological and Economic Efficiency Technological Efficiency Economic Efficiency Information and Organization Command Systems Incentive Systems The PrincipalAgent Problem Coping with the PrincipalAgent Problem Types of Business Organization Pros and Cons of Different Types of Firms Markets and the Competitive Environment Measures of Concentration Limitations of a Concentration Measure Produce or Outsource? Firms and Markets Firm Coordination Market Coordination Why Firms? Battling for Markets in Internet Advertising Output and Costs Decision Time Frames The Short Run

14 The Long Run Short-Run Technology Constraint Product Schedules Product Curves Total Product Curve Marginal Product Curve Average Product Curve Short-Run Cost Total Cost Marginal Cost Average Cost Marginal Cost and Average Cost Why the Average Total Cost Curve Is U-Shaped Cost Curves and Product Curves Shifts in the Cost Curves Long-Run Cost The Production Function Short-Run Cost and Long-Run Cost The Long-Run Average Cost Curve Economies and Diseconomies of Scale Expanding Capacity at McDonalds Perfect Competition What Is Perfect Competition? How Perfect Competition Arises Price Takers Economic Profit and Revenue The Firms Decisions

15 The Firms Output Decision Marginal Analysis and the Supply Decision Temporary Shutdown Decision The Firms Supply Curve Output, Price, and Profit in the Short Run Market Supply in the Short Run Short-Run Equilibrium A Change in Demand Profits and Losses in the Short Run Three Possible Short-Run Outcomes Output, Price, and Profit in the Long Run Entry and Exit A Closer Look at Entry A Closer Look at Exit Long-Run Equilibrium Changes in Demand and Supply as Technology Advances An Increase in Demand A Decrease in Demand Technological Advances Change Supply Competition and Efficiency Efficient Use of Resources Choices, Equilibrium, and Efficiency Perfect Competition in iphone Apps

16 Monopoly Monopoly and How It Arises How Monopoly Arises Monopoly Price-Setting Strategies A Single-Price Monopolys Output and Price Decision Price and Marginal Revenue Marginal Revenue and Elasticity Price and Output Decision Single-Price Monopoly and Competition Compared Comparing Price and Output Efficiency Comparison Redistribution of Surpluses Rent Seeking Rent-Seeking Equilibrium Price Discrimination Two Ways of Price Discriminating Increasing Profit and Producer Surplus A Price-Discriminating Airline Efficiency and Rent Seeking with Price Discrimination Monopoly Regulation Efficient Regulation of a Natural Monopoly Second-Best Regulation of a Natural Monopoly Is Google Misusing Monopoly Power?

17 Monopolistic Competition What Is Monopolistic Competition? Large Number of Firms Product Differentiation Competing on Quality, Price, and Marketing Entry and Exit Examples of Monopolistic Competition Price and Output in Monopolistic Competition The Firms Short-Run Output and Price Decision Profit Maximizing Might Be Loss Minimizing Long Run: Zero Economic Profit Monopolistic Competition and Perfect Competition Is Monopolistic Competition Efficient? Product Development and Marketing Innovation and Product Development Advertising Using Advertising to Signal Quality Brand Names Efficiency of Advertising and Brand Names Product Differentiation and Entry in the Market for Smartphones Oligopoly What Is Oligopoly? Barriers to Entry Small Number of Firms

18 Examples of Oligopoly Oligopoly Games What Is a Game? The Prisoners Dilemma An Oligopoly Price-Fixing Game A Game of Chicken Repeated Games and Sequential Games A Repeated Duopoly Game A Sequential Entry Game in a Contestable Market Antitrust Law The Antitrust Laws Price Fixing Always Illegal Three Antitrust Policy Debates Mergers and Acquisitions Batam Fast and Penguin in a Duopoly Game Part Four Wrap-Up Understanding Firms and Markets Managing Change and Limiting Market Power Talking with Thomas Hubbard Part Five Market Failure and Government Public Choices and Public Goods Public Choices Why Governments Exist Public Choice and the Political Marketplace Political Equilibrium

19 What is a Public Good? A Fourfold Classification Mixed Goods and Externalities Inefficiencies that Require Public Choices Providing Public Goods The Free-Rider Problem Marginal Social Benefit from a Public Good Marginal Social Cost of a Public Good Efficient Quantity of a Public Good Inefficient Private Provision Efficient Public Provision Inefficient Public Overprovision Positive Externalities: Education and Health Care Private Benefits and Social Benefits Government Actions in the Market for a Mixed Good with External Benefits Bureaucratic Inefficiency and Government Failure Health-Care Services Reforming Health Care Externalities and the Environment Negative Externalities: Pollution Sources and Consequences of Air Pollution Production and Pollution: How Much?

20 Establish Property Rights Mandate Clean Technology Tax or Cap and Price Pollution Coping with Global Externalities The Tragedy of the Commons Unsustainable Use of a Common Resource Inefficient Use of a Common Resource Achieving an Efficient Outcome A Carbon Tax at Work Part Five Wrap-Up Understanding Market Failure and Government We, the People, Talking with Caroline M. Hoxby Part Six Factor Markets, Inequality, and Uncertainty Markets for Factors of Production The Anatomy of Factor Markets Markets for Labor Services Markets for Capital Services Markets for Land Services and Natural Resources Entrepreneurship The Demand for a Factor of Production Value of Marginal Product A Firms Demand for Labor

21 A Firms Demand for Labor Curve Changes in a Firms Demand for Labor Labor Markets A Competitive Labor Market Differences and Trends in Wage Rates A Labor Market with a Union Capital and Natural Resource Markets Capital Rental Markets Land Rental Markets Nonrenewable Natural Resource Markets Labor Markets in China Mathematical Note Present Value and Discounting Economic Inequality Economic Inequality in the United States The Distribution of Income The Income Lorenz Curve The Distribution of Wealth Wealth or Income? Annual or Lifetime Income and Wealth? Trends in Inequality

22 Poverty Inequality in the World Economy Income Distributions in Selected Countries Global Inequality and Its Trends The Sources of Economic Inequality Human Capital Discrimination Contests Among Superstars Unequal Wealth Income Redistribution Income Taxes Income Maintenance Programs Subsidized Services The Big Tradeoff Using Subsidies to Redistribute Income Uncertainty and Information Decisions in the Face of Uncertainty Expected Wealth Risk Aversion Utility of Wealth Expected Utility Making a Choice with Uncertainty Buying and Selling Risk Insurance Markets

23 A Graphical Analysis of Insurance Risk That Cant Be Insured Private Information Asymmetric Information: Examples and Problems The Market for Used Cars The Market for Loans The Market for Insurance Uncertainty, Information, and the Invisible Hand Information as a Good Monopoly in Markets that Cope with Uncertainty Grades as Signals Part Six Wrap-Up Understanding Factor Markets, Inequality, and Uncertainty For Whom? Talking with David Card Part Seven Monitoring Macroeconomic Performance Measuring GDP and Economic Growth Gross Domestic Product GDP Defined GDP and the Circular Flow of Expenditure and Income Why Domestic and Why Gross? Measuring U.S. GDP The Expenditure Approach The Income Approach Nominal GDP and Real GDP Calculating Real GDP The Uses and Limitations of Real GDP

24 The Standard of Living Over Time The Standard of Living Across Countries Limitations of Real GDP Changing Estimates of a Recession Appendix Graphs in Macroeconomics The Time-Series Graph Making a Time-Series Graph Reading a Time-Series Graph Ratio Scale Reveals Trend A Time-Series with a Trend Using a Ratio Scale Mathematical Note Chained-Dollar Real GDP Monitoring Jobs and Inflation Employment and Unemployment Why Unemployment Is a Problem Current Population Survey Three Labor Market Indicators Other Definitions of Unemployment Most Costly Unemployment Alternative Measures of Unemployment Unemployment and Full Employment Frictional Unemployment Structural Unemployment

25 Cyclical Unemployment Natural Unemployment Real GDP and Unemployment Over the Cycle The Price Level, Inflation, and Deflation Why Inflation and Deflation are Problems The Consumer Price Index Reading the CPI Numbers Constructing the CPI Measuring the Inflation Rate Distinguishing High Inflation from a High Price Level The Biased CPI The Magnitude of the Bias Some Consequences of the Bias Alternative Price Indexes Core Inflation The Real Variables in Macroeconomics Jobs Growth in Recovery Part Seven Wrap-Up Monitoring Macroeconomic Performance The Big Picture Talking with Richard Clarida Part Eight Macroeconomic Trends Economic Growth The Basics of Economic Growth Calculating Growth Rates Economic Growth Versus Business Cycle Expansion The Magic of Sustained Growth

26 Applying the Rule of 70 Long-Term Growth Trends Long-Term Growth in the U.S. Economy Real GDP Growth in the World Economy How Potential GDP Grows What Determines Potential GDP? What Makes Potential GDP Grow? Why Labor Productivity Grows Preconditions for Labor Productivity Growth Physical Capital Growth Human Capital Growth Technological Advances Growth Theories, Evidence, and Policies Classical Growth Theory Neoclassical Growth Theory New Growth Theory New Growth Theory Versus Malthusian Theory Sorting Out the Theories The Empirical Evidence on the Causes of Economic Growth Policies for Achieving Faster Growth Making an Economy Grow Finance, Saving, and Investment Financial Institutions and Financial Markets

27 Finance and Money Physical Capital and Financial Capital Capital and Investment Wealth and Saving Financial Capital Markets Financial Institutions Insolvency and Illiquidity Interest Rates and Asset Prices The Loanable Funds Market Funds that Finance Investment The Real Interest Rate The Demand for Loanable Funds The Supply of Loanable Funds Equilibrium in the Loanable Funds Market Changes in Demand and Supply Government in the Loanable Funds Market A Government Budget Surplus A Government Budget Deficit The Global Loanable Funds Market International Capital Mobility International Borrowing and Lending Demand and Supply in the Global and National Markets Bailing Out Sovereign Debt Markets

28 Money, the Price Level, and Inflation What Is Money? Medium of Exchange Unit of Account Store of Value Money in the United States Today Depository Institutions Types of Depository Institutions What Depository Institutions Do Economic Benefits Provided by Depository Institutions How Depository Institutions Are Regulated Financial Innovation The Federal Reserve System The Structure of the Fed The Feds Balance Sheet The Feds Policy Tools How Banks Create Money Creating Deposits by Making Loans The Money Creation Process The Money Multiplier The Money Market The Influences on Money Holding The Demand for Money Shifts in the Demand for Money Curve Money Market Equilibrium The Quantity Theory of Money

29 Can More Money Keep the Recovery Going? Mathematical Note The Money Multiplier The Exchange Rate and the Balance of Payments The Foreign Exchange Market Trading Currencies Exchange Rates Questions About the U.S. Dollar Exchange Rate An Exchange Rate Is a Price The Demand for One Money Is the Supply of Another Money Demand in the Foreign Exchange Market Demand Curve for U.S. Dollars Supply in the Foreign Exchange Market Supply Curve for U.S. Dollars Market Equilibrium Exchange Rate Fluctuations Changes in the Demand for U.S. Dollars Changes in the Supply of U.S. Dollars Changes in the Exchange Rate Fundamentals, Expectations, and Arbitrage The Real Exchange Rate Exchange Rate Policy Flexible Exchange Rate

30 Fixed Exchange Rate Crawling Peg Financing International Trade Balance of Payments Accounts Borrowers and Lenders Debtors and Creditors Is U.S. Borrowing for Consumption? Current Account Balance Net Exports Where Is the Exchange Rate? The Dollar and the Euro Part Eight Wrap-Up Understanding Macroeconomic Trends Expanding the Frontier Talking with Xavier Sala-i-Martin Part Nine Macroeconomic Fluctuations Aggregate Supply and Aggregate Demand Aggregate Supply Quantity Supplied and Supply Long-Run Aggregate Supply Short-Run Aggregate Supply Changes in Aggregate Supply Aggregate Demand The Aggregate Demand Curve Changes in Aggregate Demand

31 Explaining Macroeconomic Trends and Fluctuations Short-Run Macroeconomic Equilibrium Long-Run Macroeconomic Equilibrium Economic Growth and Inflation in the AS-AD Model The Business Cycle in the AS-AD Model Fluctuations in Aggregate Demand Fluctuations in Aggregate Supply Macroeconomic Schools of Thought The Classical View The Keynesian View The Monetarist View The Way Ahead Aggregate Supply and Aggregate Demand in Action Expenditure Multipliers Fixed Prices and Expenditure Plans Expenditure Plans Consumption and Saving Plans Marginal Propensities to Consume and Save Slopes and Marginal Propensities Consumption as a Function of Real GDP Import Function Real GDP with a Fixed Price Level Aggregate Planned Expenditure Actual Expenditure, Planned Expenditure, and Real GDP Equilibrium Expenditure

32 Convergence to Equilibrium The Multiplier The Basic Idea of the Multiplier The Multiplier Effect Why Is the Multiplier Greater Than 1? The Size of the Multiplier The Multiplier and the Slope of the AE Curve Imports and Income Taxes The Multiplier Process Business Cycle Turning Points The Multiplier and the Price Level Adjusting Quantities and Prices Aggregate Expenditure and Aggregate Demand Deriving the Aggregate Demand Curve Changes in Aggregate Expenditure and Aggregate Demand Equilibrium Real GDP and the Price Level Expenditure Changes in the 2012 Expansion Mathematical Note The Algebra of the Keynesian Model Inflation, Jobs, and the Business Cycle Inflation Cycles Demand-Pull Inflation Cost-Push Inflation

33 Expected Inflation Forecasting Inflation Inflation and the Business Cycle Inflation and Unemployment: The Phillips Curve The Short-Run Phillips Curve The Long-Run Phillips Curve Changes in the Natural Unemployment Rate The Business Cycle Mainstream Business Cycle Theory Real Business Cycle Theory The Shifting InflationUnemployment Tradeoff Part Nine Wrap-Up Understanding Macroeconomic Fluctuations Boom and Bust Talking with Ricardo J. Caballero Part Ten Macroeconomic Policy Fiscal Policy The Federal Budget The Institutions and Laws Highlights of the 2013 Budget The Budget in Historical Perspective Budget Balance and Debt State and Local Budgets Supply-Side Effects of Fiscal Policy Full Employment and Potential GDP The Effects of the Income Tax

34 Taxes on Expenditure and the Tax Wedge Taxes and the Incentive to Save and Invest Tax Revenues and the Laffer Curve The Supply-Side Debate Generational Effects of Fiscal Policy Generational Accounting and Present Value The Social Security Time Bomb Generational Imbalance International Debt Fiscal Stimulus Automatic Fiscal Policy and Cyclical and Structural Budget Balances Discretionary Fiscal Stimulus Contractionary Fiscal Policy Monetary Policy Monetary Policy Objectives and Framework Monetary Policy Objectives Operational Stable Prices Goal Operational Maximum Employment Goal Responsibility for Monetary Policy The Conduct of Monetary Policy The Monetary Policy Instrument The Feds Decision-Making Strategy Monetary Policy Transmission

35 Quick Overview Interest Rate Changes Exchange Rate Fluctuations Money and Bank Loans The Long-Term Real Interest Rate Expenditure Plans The Change in Aggregate Demand, Real GDP, and the Price Level The Fed Fights Recession The Fed Fights Inflation Loose Links and Long and Variable Lags Extraordinary Monetary Stimulus The Key Elements of the Crisis The Policy Actions Persistently Slow Recovery Policy Strategies and Clarity The Fed Stimulates with Operation Twist Part Ten Wrap-Up Understanding Macroeconomic Policy Glossary Index Credits Tradeoffs and Free Lunches Talking with Stephanie Schmitt-Grohé