TY - BOOK AU - McConnell,Campbell R. AU - Brue,Stanley L. TI - Economics: principles, problems, and policies SN - 9780073126630 (alk. paper) AV - HB171.5 .M47 2008 U1 - 330 22 PY - 2008///] CY - New York, NY : PB - McGraw-Hill Education, KW - Economics N1 - Includes index; CONTENTS List of Key Graphs vi Preface vii Contributors xiv PART ONE An Introduction to Economics and #the Economy To the Student 2 1 The Nature and Method of #Economics 3 The Economic Perspective 3 Scarcity and Choice / Rational Behavior / Marginalism: Benefits and Costs Consider This: Free for All? 4 Why Study Economics? 5 Economics for Citizenship / Professional and #Personal Applications Economic Methodology 6 Theoretical Economics / Policy Economics Macroeconomics and Microeconomics 9 Macroeconomics / Microeconomics / Positive and #Normative Economics Pitfalls to Sound Reasoning 10 Biases / Loaded Terminology / Definitions / Fallacy of Composition / Causation Fallacies A Look Ahead 12 Last Word: Fast-Food Lines: An Economic #Perspective 12 Appendix Chapter 1: Graphs and Their Meaning 15 Construction of a Graph / Direct and Inverse Relationships / Dependent and Independent Variables / Other Things Equal / Slope of a Line / Vertical Intercept / Equation of a Linear Relationship / Slope of a Nonlinear Curve 2 The Economizing Problem 22 The Foundation of Economics 22 Unlimited Wants / Scarce Resources Economics: Employment and Efficiency 24 Full Employment: Using Available Resources / Full Production: Using Resources Efficiently / Production Possibilities Table / Production Possibilities Curve / Law of Increasing Opportunity Cost / Allocative Efficiency Revisited Unemployment, Growth, and the Future 28 Unemployment and Productive Inefficiency / A Growing Economy / A Qualification: International Trade / Examples and Applications Consider This: A Matter of Degrees: #Is College Worth the Cost? 32 Economic Systems 33 The Market System / The Command System The Circular Flow Model 34 Last Word: September 11, 2001, and the War on #Terrorism 35 3 Individual Markets: Demand #and Supply 39 Markets 39 Demand 40 Law of Demand / The Demand Curve / Market Demand / Change in Demand / Changes in Quantity Demanded Supply 45 Law of Supply / The Supply Curve / Determinants of Supply / Changes in Supply / Changes in Quantity Supplied Supply and Demand: Market Equilibrium 48 Surpluses / Shortages / Equilibrium Price and Quantity / Rationing Function of Prices / Changes in Supply, Demand, and Equilibrium / A Reminder: ?Other Things Equal? Consider This: The Cutting Edge 50 Application: Government-Set Prices 52 Price Ceilings and Shortages / Price Floors and Surpluses Last Word: Ticket Scalping: A Bum Rap? 55 3Web Applications and Extensions of Supply and Demand Analysis 59 (Web Chapter, www.mcconnell16.com) Changes in Supply and Demand 3W-1 Lettuce / American Flags / Pink Salmon / Gasoline / Sushi Preset Prices 3W-4 Olympic Figure Skating Finals / Olympic Curling Preliminaries Consider This: Taking Back a ?Gift? 3W-5 Nonpriced Goods: The American Bison 3W-6 Consumer and Producer Surplus 3W-7 Consumer Surplus / Producer Surplus / Efficiency #Revisited / Efficiency Losses Last Word: Efficiency Gains from Generic Drugs 3W-11 4 The Market System 60 Characteristics of the Market System 60 Private Property / Freedom of Enterprise and Choice / Self-Interest / Competition / Markets and Prices / Reliance on Technology and Capital Goods / Specialization / Use of Money / Active, but Limited, Government The Market System at Work 64 What Will Be Produced? / How Will the Goods and Services Be Produced? / Who Will Get the Goods and Services? / How Will the System Accommodate Change? Consider This: McHits and McMisses 66 Competition and the ?Invisible Hand? 69 Last Word: Shuffling the Deck 70 5 The U.S. Economy: Private and #Public Sectors 73 Households as Income Receivers 73 The Functional Distribution of Income / The Personal Distribution of Income Households as Spenders 74 Personal Taxes / Personal Saving / Personal #Consumption Expenditures The Business Population 75 Legal Forms of Businesses 76 Advantages and Disadvantages / The #Principal-Agent Problem The Public Sector: Government?s Role 79 Providing the Legal Structure / Maintaining Competition / Redistributing Income / Reallocating Resources / Promoting Stability / Government?s Role: A Qualification Consider This: Street Entertainers 82 The Circular Flow Revisited 83 Government Finance 84 Government Purchases and Transfers Federal Finance 85 Federal Expenditures / Federal Tax Revenues State and Local Finance 87 State Finances / Local Finances Last Word: The Financing of Corporations 88 6 The United States in the Global Economy 91 International Linkages 91 The United States and World Trade 92 Volume and Pattern / Rapid Trade Growth / #Participants in International Trade Specialization and Comparative Advantage 96 Basic Principle / Comparative Costs / Terms of Trade / #Gains from Specialization and Trade The Foreign Exchange Market 99 Dollar-Yen Market / Changing Rates: Depreciation and Appreciation Consider This: A Ticket to Ride 100 Government and Trade 101 Trade Impediments and Subsidies / Why Government #Trade Interventions? / Costs to Society Multilateral Trade Agreements and #Free-Trade Zones 103 Reciprocal Trade Agreements Act / General Agreement on Tariffs and Trade / World Trade Organization / The European Union / North American Free Trade Agreement Global Competition 106 Last Word: Petition of the Candlemakers, 1845 106 PART TWO Macroeconomic Measurement and #Basic Concepts 7 Measuring Domestic Output and National Income 112 Assessing the Economy?s Performance 112 Gross Domestic Product 112 A Monetary Measure / Avoiding Multiple Counting / GDP Excludes Nonproduction Transactions / Two Ways of Looking at GDP: Spending and Income The Expenditures Approach 115 Personal Consumption Expenditures (C) / Gross Private Domestic Investment (Ig) / Government Purchases #(G) / Net Exports (Xn) / Putting It All #Together: GDP 5 C 1 Ig 1 G 1 Xn Consider This: Stock Answers about Flows 117 The Income Approach 118 Compensation of Employees / Rents / Interest / #Proprietors? Income / Corporate Profits / From #National Income to GDP Other National Accounts 120 Net Domestic Product / National Income / Personal Income / Disposable Income / The Circular Flow Revisited Nominal GDP versus Real GDP 123 Adjustment Process in a One-Product Economy / An Alternative Method / Real-World Considerations and Data Shortcomings of GDP 125 Nonmarket Activities / Leisure / Improved Product #Quality / The Underground Economy / GDP and the Environment / Composition and Distribution of #Output / Noneconomic Sources of Well-Being Last Word: Feeding the GDP Accounts 127 8 Introduction to Economic Growth and Instability 131 Economic Growth 131 Growth as a Goal / Arithmetic of Growth / Main Sources of Growth / Growth in the United States / Relative Growth Rates The Business Cycle 133 Phases of the Business Cycle / Causation: A First Glance / Cyclical Impact: Durables and Nondurables Unemployment 135 Measurement of Unemployment / Types of Unemployment / Definition of Full Employment / Economic Cost of Unemployment / Noneconomic Costs / International Comparisons Inflation 141 Meaning of Inflation / Measurement of Inflation / Facts of Inflation / Types of Inflation / Complexities Consider This: Clipping Coins 143 Redistribution Effects of Inflation 144 Who Is Hurt by Inflation? / Who Is Unaffected or #Helped by Inflation? / Anticipated Inflation / Addenda Effects of Inflation on Output 147 Cost-Push Inflation and Real Output / Demand-Pull Inflation and Real Output / Hyperinflation and Breakdown Last Word: The Stock Market and the Economy 149 9 Basic Macroeconomic Relationships 152 The Income-Consumption and Income-Saving Relationships 152 The Consumption Schedule / The Saving Schedule / Average and Marginal Propensities / Nonincome Determinants of Consumption and Saving / Terminology, Shifts, and Stability Consider This: What Wealth Effect? 159 The Real Interest-Rate?Investment #Relationship 159 Expected Rate of Return / The Real Interest Rate / Investment Demand Curve / Shifts of the Investment #Demand Curve / Instability of Investment The Multiplier Effect 164 Rationale / The Multiplier and the Marginal Propensities / How Large Is the Actual Multiplier Effect? Last Word: Squaring the Economic Circle 167 PART THREE Macroeconomic Models and #Fiscal Policy 10 The Aggregate Expenditures#Model 172 Simplifications 172 Consumption and Investment Schedules 172 Equilibrium GDP: C 1 Ig 5 GDP 173 Tabular Analysis / Graphical Analysis Other Features of Equilibrium GDP 176 Saving Equals Planned Investment / No Unplanned Changes in Inventories Changes in Equilibrium GDP and the #Multiplier 177 Adding International Trade 179 Net Exports and Aggregate Expenditures / The Net Export Schedule / Net Exports and Equilibrium GDP / International Economic Linkages Adding the Public Sector 182 Government Purchases and Equilibrium GDP / Taxation and Equilibrium GDP Equilibrium versus Full-Employment GDP 185 Recessionary Gap / Application: The U.S. Recession of #2001 / Inflationary Gap / Application: U.S. Inflation #in the Late 1980s Limitations of the Model 187 Last Word: Say?s Law, the Great Depression, #and Keynes 188 11 Aggregate Demand and #Aggregate Supply 193 Aggregate Demand 193 Aggregate Demand Curve / Determinants of #Aggregate Demand Aggregate Supply 197 Aggregate Supply in the Long Run / Aggregate Supply in the Short Run / Determinants of Aggregate Supply Equilibrium and Changes in Equilibrium 201 Increases in AD: Demand-Pull Inflation / Decreases in AD: Recession and Cyclical Unemployment / Decreases in AS: Cost- Push Inflation / Increases in AS: Full Employment with Price-Level Stability Consider This: Ratchet Effect 205 Last Word: Why Is Unemployment in Europe #So High? 207 Appendix Chapter 11: The Relationship of the Aggregate Demand Curve to the Aggregate #Expenditures Model 211 Deriving the Aggregate Demand Curve from the Aggregate Expenditures Model / Aggregate Demand Shifts and the Aggregate Expenditures Model 12 Fiscal Policy 214 Legislative Mandates 214 Fiscal Policy and the AD-AS Model 215 Expansionary Fiscal Policy / Contractionary Fiscal #Policy / Financing of Deficits and Disposing of #Surpluses / Policy Options: G or T Built-In Stability 218 Automatic or Built-In Stabilizers Evaluating Fiscal Policy 220 Full-Employment Budget / Recent U.S. Fiscal Policy Problems, Criticisms, and Complications 223 Problems of Timing / Political Considerations / Future Policy Reversals / Offsetting State and Local Finance / Crowding-Out Effect / Fiscal Policy in the Open Economy Last Word: The Leading Indicators 227 Current Thinking on Fiscal Policy 228 PART FOUR Money, Banking, and Monetary Policy 13 Money and Banking 232 The Functions of Money 232 The Supply of Money 233 Money Definition M1 / Money Definition M2 / #Money Definition M3 Consider This: Are Credit Cards Money? 236 What ?Backs? the Money Supply? 236 Money as Debt / Value of Money / Money and Prices / Stabilization of Money?s Value The Demand for Money 238 Transactions Demand, Dt / Asset Demand, Da / #Total Money Demand, Dm The Money Market 240 Adjustment to a Decline in the Money Supply / Adjustment to an Increase in the Money Supply The Federal Reserve and the Banking #System 242 Historical Background / Board of Governors / FOMC / #The 12 Federal Reserve Banks / Commercial Banks and Thrifts / Fed Functions and the Money Supply / Federal Reserve Independence Recent Developments in Money and #Banking 245 The Relative Decline of Banks and Thrifts / Consolidation among Banks and Thrifts / Convergence of Services Provided by Financial Institutions / Globalization of Financial Markets / Electronic Transactions Last Word: The Global Greenback 248 14 How Banks and Thrifts Create #Money 252 The Balance Sheet of a Commercial Bank 252 Prologue: The Goldsmiths 252 A Single Commercial Bank 253 Formation of a Commercial Bank / Money-Creating Transactions of a Commercial Bank / Profits, Liquidity, #and the Federal Funds Market The Banking System: Multiple-Deposit #Expansion 260 The Banking System?s Lending Potential / The Monetary Multiplier / Some Modifications / Need for #Monetary Control Last Word: The Bank Panics of 1930 to 1933 265 15 Monetary Policy 268 Consolidated Balance Sheet of the Federal Reserve Banks 268 Assets / Liabilities Tools of Monetary Policy 270 Open-Market Operations / The Reserve Ratio / The Discount Rate / Easy Money and Tight Money / Relative Importance Monetary Policy, Real GDP, and the #Price Level 276 Cause-Effect Chain / Effects of an Easy Money Policy / #Effects of a Tight Money Policy Monetary Policy in Action 279 The Focus on the Federal Funds Rate / Recent Monetary Policy / Problems and Complications / ?Artful Management? or ?Inflation Targeting?? / Monetary Policy and the International Economy Consider This: Pushing on a String 282 The ?Big Picture? 286 Last Word: For the Fed, Life Is a Metaphor 287 PART FIVE Long-Run Perspectives and Macroeconomic Debates 16 Extending the Analysis of #Aggregate Supply 292 From Short Run to Long Run 292 Short-Run Aggregate Supply / Long-Run Aggregate Supply / Equilibrium in the Extended AD-AS Model Applying the Extended AD-AS Model 295 Demand-Pull Inflation in the Extended AD-AS Model / Cost-Push Inflation in the Extended AD-AS Model / Recession and the Extended AD-AS Model The Inflation-Unemployment Relationship 297 The Phillips Curve / Aggregate Supply Shocks and the #Phillips Curve The Long-Run Phillips Curve 300 Short-Run Phillips Curve / Long-Run Vertical Phillips #Curve / Disinflation Taxation and Aggregate Supply 302 Taxes and Incentives to Work / Incentives to Save and #Invest / The Laffer Curve / Criticisms of the Laffer Curve / Rebuttal and Evaluation Consider This: Sherwood Forest 304 Last Word: Has the Impact of Oil Prices #Diminished? 305 17 Economic Growth 308 Ingredients of Growth 308 Supply Factors / Demand Factor / Efficiency Factor Production Possibilities Analysis 309 Growth and Production Possibilities / Labor and #Productivity / Growth in the AD-AS Model U.S. Economic Growth Rates 312 Consider This: Economic Growth Rates Matter! 313 Accounting for Growth 312 Labor Inputs versus Productivity / Technological Advance / Quantity of Capital / Education and Training / Economies of Scale and Resource Allocation / Other Factors The Productivity Acceleration: #A New Economy? 316 Reasons for the Productivity Acceleration / Macroeconomic Implications / Skepticism about Permanence / What Can #We Conclude? Is Growth Desirable and Sustainable? 320 The Antigrowth View / In Defense of Economic Growth Last Word: Women and Economic Growth 322 18 Deficits, Surpluses, and #the Public Debt 325 Deficits, Surpluses, and Debt: Definitions 325 Budget Philosophies 325 Annually Balanced Budget / Cyclically Balanced #Budget / Functional Finance The Public Debt: Facts and Figures 326 Causes / Quantitative Aspects / Social Security Considerations False Concerns 329 Bankruptcy / Burdening Future Generations Substantive Issues 330 Income Distribution / Incentives / Foreign-Owned Public Debt/ Crowding Out and the Stock of Capital Deficits and Surpluses: 1992?2012 332 From Deficits to Surpluses / What to Do with the Surpluses? / Back to Deficits in 2002 / The Tax Cuts of 2003 Last Word: The Long-Run Fiscal Imbalance: #Social Security 334 19 Disputes over Macro Theory and #Policy 338 Some History: Classical Economics #and Keynes 338 The Classical View / The Keynesian View What Causes Macro Instability? 340 Mainstream View / Monetarist View / Real-Business-Cycle View / Coordination Failures Does the Economy ?Self-Correct?? 344 New Classical View of Self-Correction / Mainstream #View of Self-Correction Rules or Discretion? 347 In Support of Policy Rules / In Defense of Discretionary Stabilization Policy / Increased Macro Stability Consider This: On the Road Again 348 Summary of Alternative Views 350 Last Word: The Taylor Rule: Could a Robot Replace Alan Greenspan? 351 PART SIX Microeconomics of Product Markets 20 Elasticity of Demand and Supply 356 Price Elasticity of Demand 356 The Price Elasticity Coefficient and Formula / Interpretations of Ed / Refinement: Midpoint Formula / Graphical Analysis / The Total-Revenue Test / Price Elasticity and the Total-Revenue Curve / Determinants of Price Elasticity of Demand / Applications of Price Elasticity of Demand Consider This: A Bit of a Stretch 358 Price Elasticity of Supply 364 Price Elasticity of Supply: The Market Period / Price #Elasticity of Supply: The Short Run / Price Elasticity #of Supply: The Long Run / Applications of Price #Elasticity of Supply Cross Elasticity and Income Elasticity of #Demand 367 Cross Elasticity of Demand / Income Elasticity of Demand Last Word: Elasticity and Pricing Power: Why Different Consumers Pay Different Prices 369 21 Consumer Behavior and Utility Maximization 372 A Closer Look at the Law of Demand 372 Income and Substitution Effects / Law of Diminishing Marginal Utility Consider This: Vending Machines and #Marginal Utility 375 Theory of Consumer Behavior 376 Consumer Choice and Budget Constraint / Utility-Maximizing Rule / Numerical Example / Algebraic Restatement Utility Maximization and the Demand #Curve 378 Deriving the Demand Schedule and Curve / Income and Substitution Effects Revisited Applications and Extensions 379 DVDs and DVD Players / The Diamond-Water Paradox / #The Value of Time / Medical Care Purchases / Cash and Noncash Gifts Last Word: Criminal Behavior 382 Appendix to Chapter 21: Indifference Curve #Analysis 386 The Budget Line: What Is Attainable / Indifference Curves: What Is Preferred / The Indifference Map / Equilibrium at Tangency / The Measurement of Utility / The Derivation of the Demand Curve 22 The Costs of Production 392 Economic Costs 392 Explicit and Implicit Costs / Normal Profit as a Cost / Economic Profit (or Pure Profit) / Short Run and Long Run Short-Run Production Relationships 394 Law of Diminishing Returns Consider This: Diminishing Returns from Study 395 Short-Run Production Costs 398 Fixed, Variable, and Total Costs / Per-Unit, or Average, Costs / Marginal Cost / Shifts of the Cost Curves Long-Run Production Costs 403 Firm Size and Costs / The Long-Run Cost Curve / Economies and Diseconomies of Scale / Minimum Efficient Scale and Industry Structure Applications and Illustrations 408 Rising Cost of Insurance and Security / Successful #Start-Up Firms / The Verson Stamping Machine / The Daily Newspaper / Aircraft and Concrete Plants Last Word: Irrelevancy of Sunk Costs 409 23 Pure Competition 413 Four Market Models 413 Pure Competition: Characteristics and Occurrence 414 Relevance of Pure Competition Demand as Seen by a Purely Competitive #Seller 415 Perfectly Elastic Demand / Average, Total, and Marginal Revenue / Graphical Portrayal Profit Maximization in the Short Run 416 Total-Revenue?Total-Cost Approach: Profit-Maximization Case / Marginal- Revenue?Marginal-Cost Approach Consider This: The Still There Motel 423 Marginal Cost and Short-Run Supply 423 Generalized Depiction / Diminishing Returns, Production Costs, and Product Supply / Changes in Supply / Firm and Industry: Equilibrium Price Profit Maximization in the Long Run 427 Assumptions / Goal of Our Analysis / Long-Run Equilibrium / Long-Run Supply for a Constant-Cost Industry / Long-Run Supply for an Increasing-Cost Industry / Long-Run Supply for a Decreasing-Cost Industry Pure Competition and Efficiency 431 Productive Efficiency: P 5 Minimum ATC / Allocative #Efficiency: P 5 MC Last Word: Pure Competition and Consumer Surplus 434 24 Pure Monopoly 438 An Introduction to Pure Monopoly 438 Examples of Monopoly / Dual Objectives of the #Study of Monopoly Barriers to Entry 439 Economies of Scale / Legal Barriers to Entry: #Patents and Licenses / Ownership or Control of Essential Resources / Pricing and Other Strategic #Barriers to Entry Monopoly Demand 441 Marginal Revenue Is Less Than Price / The Monopolist #Is a Price Maker / The Monopolist Sets Prices in the #Elastic Region of Demand Output and Price Determination 444 Cost Data / MR 5 MC Rule / No Monopoly Supply #Curve / Misconceptions Concerning Monopoly Pricing / Possibility of Losses by Monopolist Economic Effects of Monopoly 447 Price, Output, and Efficiency / Income Transfer / Cost Complications / Assessment and Policy Options Price Discrimination 451 Conditions / Examples of Price Discrimination / Price Discrimination Outcomes Consider This: Price Discrimination at the Ballpark 452 Regulated Monopoly 453 Socially Optimal Price: P 5 MC / Fair-Return Price: P 5 ATC / Dilemma of Regulation Last Word: De Beers? Diamonds: Are Monopolies Forever? 456 25 Monopolistic Competition and #Oligopoly 460 Monopolistic Competition 460 Relatively Large Number of Sellers / Differentiated Products / Easy Entry and Exit / Advertising / Monopolistically Competitive Industries Price and Output in Monopolistic #Competition 462 The Firm?s Demand Curve / The Short Run: Profit or Loss / The Long Run: Only a Normal Profit Monopolistic Competition and Efficiency 464 Neither Productive nor Allocative Efficiency / #Excess Capacity Product Variety 466 Benefits of Product Variety / Further Complexity Oligopoly 467 A Few Large Producers / Homogeneous or Differentiated Products / Control over Price, but Mutual Interdependence / Entry Barriers / Mergers / Measures of Industry Concentration Oligopoly Behavior: A Game-Theory #Overview 469 Mutual Interdependence Revisited / Collusive Tendencies / Incentive to Cheat Consider This: Creative Strategic Behavior 470 Three Oligopoly Models 471 Kinked-Demand Theory: Noncollusive Oligopoly / #Cartels and Other Collusion / Price Leadership Model Oligopoly and Advertising 477 Positive Effects of Advertising / Potential Negative #Effects of Advertising Oligopoly and Efficiency 479 Productive and Allocative Efficiency / Qualifications Last Word: Oligopoly in the Beer Industry 480 26 Technology, R&D, and Efficiency 484 Invention, Innovation, and Diffusion 484 Invention / Innovation / Diffusion / R&D Expenditures / Modern View of Technological Advance Role of Entrepreneurs and Other #Innovators 486 Forming Start-Ups / Innovating within Existing Firms / Anticipating the Future / Exploiting University and Government Scientific Research A Firm?s Optimal Amount of R&D 488 Interest-Rate Cost of Funds / Expected Rate of Return / Optimal R&D Expenditures Increased Profit via Innovation 490 Increased Revenue via Product Innovation / Reduced #Cost via Process Innovation Imitation and R&D Incentives 493 Benefits of Being First Consider This: Trade Secrets 494 Role of Market Structure 495 Market Structure and Technological Advance / #Inverted-U Theory / Market Structure and #Technological Advance: The Evidence Technological Advance and Efficiency 497 Productive Efficiency / Allocative Efficiency / Creative Destruction Last Word: On the Path to the Personal #Computer and Internet 498 PART SEVEN Microeconomics of Resource Markets 27 The Demand for Resources 504 Significance of Resource Pricing 504 Marginal Productivity Theory of #Resource Demand 505 Resource Demand as a Derived Demand / Marginal Revenue Product / Rule for Employing Resources: #MRP 5 MRC / MRP as Resource Demand Schedule / Resource Demand under Imperfect Product Market Competition / Market Demand for a Resource Determinants of Resource Demand 509 Changes in Product Demand / Changes in Productivity / Changes in the Prices of Other Resources / Occupational Employment Trends Consider This: She?s The One 509 Elasticity of Resource Demand 513 Optimal Combination of Resources 514 The Least-Cost Rule / The Profit-Maximizing Rule / #Numerical Illustration Marginal Productivity Theory of Income Distribution 516 Last Word: Input Substitution: The Case of ATMs 517 28 Wage Determination 521 Labor, Wages, and Earnings 521 General Level of Wages 522 Role of Productivity / Real Wages and Productivity / #Secular Growth of Real Wages A Purely Competitive Labor Market 524 Market Demand for Labor / Market Supply of Labor / #Labor Market Equilibrium Monopsony Model 526 Upward-Sloping Labor Supply to Firm / MRC Higher #than the Wage Rate / Equilibrium Wage and Employment / Examples of Monopsony Power Three Union Models 528 Demand-Enhancement Model / Exclusive or Craft Union Model / Inclusive or Industrial Union Model / Wage #Increases and Unemployment Bilateral Monopoly Model 531 Indeterminate Outcome of Bilateral Monopoly / #Desirability of Bilateral Monopoly The Minimum-Wage Controversy 532 Case against the Minimum Wage / Case for the #Minimum Wage / Evidence and Conclusions Wage Differentials 533 Marginal Revenue Productivity / Noncompeting Groups / Compensating Differences / Market Imperfections Consider This: My Entire Life 536 Pay for Performance 537 The Principal-Agent Problem Revisited / Addenda: Negative Side Effects of Pay for Performance Last Word: Are Chief Executive Officers (CEOs) #Overpaid? 539 29 Rent, Interest, and Profit 542 Economic Rent 542 Perfectly Inelastic Supply / Changes in Demand / #Land Rent: A Surplus Payment / Application: A Single #Tax on Land / Productivity Differences and Rent #Differences / Alternative Uses of Land Interest 545 Loanable Funds Theory of Interest / Extending the Model / Range of Interest Rates / Pure Rate of Interest / Role of the Interest Rate / Application: Usury Laws Consider This: That Is Interest 547 Economic Profit 551 Role of the Entrepreneur / Sources of Economic #Profit / Functions of Profit Last Word: Determining the Price of Credit 553 Income Shares 554 PART EIGHT Microeconomics of Government 30 Government and Market #Failure 558 Public Goods 558 Demand for Public Goods / Supply of Public Goods / Optimal Quantity of a Public Good / Cost-Benefit Analysis Externalities 562 Spillover Costs / Spillover Benefits / Individual Bargaining: Coase Theorem / Liability Rules and Lawsuits / Government Intervention / A Market-Based Approach to Spillover Costs / Society?s Optimal Amount of Externality Reduction / Recycling / Global Warming Information Failures 572 Inadequate Information Involving Sellers / Inadequate Information Involving Buyers / Qualification Consider This: ?Lemons? 572 Last Word: Lojack: A Case of Positive #Externalities 576 31 Public Choice Theory and the Economics of Taxation 580 Revealing Preferences through Majority #Voting 580 Inefficient Voting Outcomes / Paradox of Voting / #Median-Voter Model Government Failure 584 Special Interests and Rent Seeking / Clear Benefits, Hidden Costs / Limited and Bundled Choice / Bureaucracy and Inefficiency / Imperfect Institutions Apportioning the Tax Burden 586 Benefits Received versus Ability to Pay / Progressive, Proportional, and Regressive Taxes Tax Incidence and Efficiency Loss 589 Elasticity and Tax Incidence / Efficiency Loss of a Tax / Probable Incidence of U.S. Taxes / The U.S. Tax Structure Last Word: ?Government Failure? in the News 594 PART NINE Microeconomic Issues and Policies 32 Antitrust Policy and #Regulation 598 The Antitrust Laws 598 Historical Background / Sherman Act of 1890 / Clayton Act of 1914 / Federal Trade Commission Act of 1914 / #Celler-Kefauver Act of 1950 Antitrust Policy: Issues and Impacts 600 Issues of Interpretation / Issues of Enforcement / #Effectiveness of Antitrust Laws Consider This: Of Catfish and Sneakers (and Other Things in Common) 604 Industrial Regulation 604 Natural Monopoly / Problems with Industrial #Regulation / Legal Cartel Theory Deregulation 606 Social Regulation 607 Distinguishing Features / The Optimal Level of Social Regulation / Two Reminders Last Word: The United States v. Microsoft 610 33 Agriculture: Economics and #Policy 614 Economics of Agriculture 614 Short-Run Problem: Price and Income Instability / #Long-Run Problem: A Declining Industry Economics of Farm Policy 620 Rationale for Farm Subsidies / Background: The Parity #Concept / Economics of Price Supports / #Reduction of Surpluses Criticisms and Politics 624 Criticisms of the Price Support System / #The Politics of Farm Policy Recent Reform 626 Freedom to Farm Act of 1996 / The Farm Act of 2002 Last Word: The Sugar Program: A Sweet Deal 628 34 Income Inequality and #Poverty 631 Facts about Income Inequality 631 Distribution of Personal Income by Income Category / Distribution of Personal Income by Quintiles (Fifths) / The Lorenz Curve and Gini Ratio / Income Mobility: The Time Dimension / Effect of Government Redistribution Causes of Income Inequality 634 Ability / Education and Training / Discrimination / Preferences and Risks / Unequal Distribution of Wealth / Market Power / Luck, Connections, and Misfortune Trends in Income Inequality 636 Causes of Growing Inequality Equality versus Efficiency 638 The Case for Equality: Maximizing Total Utility / The Case for Inequality: Incentives and Efficiency / The Equality-Efficiency Tradeoff Consider This: Slicing the Pizza 640 The Economics of Poverty 640 Definition of Poverty / Incidence of Poverty / #Poverty Trends / The ?Invisible? Poor The Income-Maintenance System 642 Social Insurance Programs / Public Assistance Programs Welfare: Goals and Conflicts 644 Common Features / Conflicts among Goals Welfare Reform 645 Temporary Assistance to Needy Families / #Assessment of TANF Last Word: U.S. Family Wealth and Its #Distribution 646 35 Labor Market Institutions and Issues: Unionism, Discrimination, #Immigration 650 Unionism in America 650 Business Unionism / Union Membership / The Decline of Unionism Collective Bargaining 652 The Work Agreement / The Bargaining Process Economic Effects of Unions 654 The Union Wage Advantage / Efficiency and Productivity Labor Market Discrimination 657 Types of Discrimination / Costs of Discrimination Economic Analysis of Discrimination 659 Taste-for-Discrimination Model / Statistical Discrimination / Occupational Segregation: The Crowding Model Antidiscrimination Policies and Issues 663 The Affirmative Action Controversy / Recent Developments Immigration 665 Number of Immigrants / Economics of Immigration / Complications and Modifications / Immigration: Two Views Last Word: Orchestrating Impartiality 668 36 The Economics of Health Care 672 The Health Care Industry 672 Twin Problems: Costs and Access 672 High and Rising Health Care Costs 673 Health Care Spending / Quality of Care: Are We Healthier? / Economic Implications of Rising Costs / The Basic Problem Limited Access 676 Why the Rapid Rise in Costs? 676 Peculiarities of the Health Care Market / The Increasing Demand for Health Care / Role of Health Insurance / #Supply Factors in Rising Health Care Prices / #Relative Importance Consider This: What?s Cold and Clammy and #Out of Date? 682 Reform of the Health Care System 682 Universal Access / Cost Containment: Altering Incentives / Recent Laws and Proposals Last Word: A Market for Human Organs? 686 PART TEN International Economics and #the World Economy 37 International Trade 690 Some Key Facts 690 The Economic Basis for Trade 691 Comparative Advantage: Graphical #Analysis 692 Two Isolated Nations / Specializing Based on Comparative Advantage / Terms of Trade / Gains from Trade / Trade with Increasing Costs / The Case for Free Trade Supply and Demand Analysis of Exports and Imports 697 Supply and Demand in the United States / Supply and Demand in Canada / Equilibrium World Price, #Exports, and Imports Trade Barriers 700 Economic Impact of Tariffs / Economic Impact of Quotas / Net Costs of Tariffs and Quotas / Impact #on Income Distribution The Case for Protection: A Critical Review 703 Military Self-Sufficiency Argument / Increased Domestic Employment Argument / Diversification-for-Stability Argument / Infant Industry Argument / Protection-against-Dumping Argument / Cheap Foreign Labor Argument / A Summing Up Consider This: Shooting Yourself in the Foot 704 Last Word: The WTO Protests 706 The World Trade Organization 707 38 Exchange Rates, the Balance of Payments, and Trade Deficits 711 Financing International Trade 711 U.S. Export Transaction / U.S. Import Transaction The Balance of Payments 712 Current Account / Capital Account / Official Reserves Account / Payments, Deficits, and Surpluses Flexible Exchange Rates 715 Depreciation and Appreciation / Determinants of Exchange Rates / Flexible Rates and the Balance of Payments / Disadvantages of Flexible Exchange Rates Consider This: The Big Mac Index 717 Fixed Exchange Rates 720 Use of Reserves / Trade Policies / Exchange Controls and Rationing / Domestic Macroeconomic Adjustments International Exchange-Rate Systems 722 The Gold Standard: Fixed Exchange Rates / The Bretton Woods System / The Current System: The Managed Float Recent U.S. Trade Deficits 726 Causes of the Trade Deficits / Implications of #U.S. Trade Deficits Last Word: Speculation in Currency Markets 728 39Web The Economics of Developing Countries 732 (Web Chapter, www.mcconnell16.com) The Rich and the Poor 39W-1 Classifications / Comparisons / Growth, Decline, and #Income Gaps / The Human Realities of Poverty Obstacles to Economic Development 39W-3 Natural Resources / Human Resources / Capital #Accumulation / Technological Advance / Sociocultural and Institutional Factors The Vicious Circle 39W-10 Role of Government 39W-11 A Positive Role / Public Sector Problems Role of Advanced Nations 39W-12 Expanding Trade / Foreign Aid: Public Loans #and Grants / Flows of Private Capital Where from Here? 39W-15 DVC Policies for Promoting Growth / IAC Policies for #Fostering DVC Growth Last Word: Famine in Africa 39W-16 40Web Transition Economies: Russia and China 733 (Web Chapter, www.mcconnell16.com) Ideology and Institutions 40W-1 State Ownership and Central Planning 40W-2 Planning Goals and Techniques Problems with Central Planning 40W-3 The Coordination Problem / The Incentive Problem Collapse of the Soviet Economy 40W-5 Declining Growth / Poor Product Quality / Lack of Consumer Goods / Large Military Burden / Agricultural Drag The Russian Transition to a Market #System 40W-6 Privatization / Price Reform / Promotion of Competition / Making the Ruble Fully Convertible / Price-Level Stabilization / Other Major Problems / Recent Revival Market Reforms in China 40W-10 Agricultural and Rural Reform / Reform of Urban Industries / Special Economic Zones / Development of Supporting Institutions / Transformation of the SOEs Outcomes and Prospects 40W-11 Positive Outcomes of Reform / Problems Conclusion 40W-13 Last Word: Police Smash Down Smirnov?s #Doors 40W-14 Glossary G Index I-1 N2 - McConnell and Brue’s Economics: Principles, Problems, and Policies is the leading Principles of Economics textbook because it is innovative and teaches students in a clear, unbiased way. The 17th Edition builds upon the tradition of leadership with three main goals: help the beginning student master the principles essential for understanding the economizing problem, specific economic issues, and the policy alternatives; help the student understand and apply the economic perspective and reason accurately and objectively about economic matters; and promote a lasting student interest in economics and the economy UR - http://www.loc.gov/catdir/toc/ecip0617/2006022747.html ER -