Hp envy 750qd desktop pc

Dear Stud ent,

My object ive in writ

ing this b ook is to

provide yo u with ev

erything y ou need f

or

success in the cours

e and to i mprove y

our ability to make

better dec isions in y

our

everyday life – espe

cially und erstandin

g econom ic issues i

n the new s. My wri

ting

style is int ended to

be engag ing, clear,

and strai ghtforwa

rd with an emphasis

on

real-world applicatio

ns. As I w as writing

the text, I viewed m

yself expla ining the

concepts to a stude

nt in my o ffice. As a

result, th ere is a co

nversation al tone to

the text. T o avoid b

oredom, t he text us

es a fast-p aced, acti

on-packe d approac

h

that expla ins all ess

ential con cepts with

out becom ing an en

cyclopedi a.

As a princ iples of ec

onomics i nstructor

for over 3 0 years, I

know from first-hand

experienc e that ma

ny studen ts are app

rehensive about ta

king econ omics. In

fact,

I still reca ll vividly t

hat, as a freshman

about to take my

first econ omics cou

rse,

I had only the vagu

est idea o f what th

is subject was abou

t. To my d elight, my

freshman principles

of econo mics cour

se opened my eyes

to a new way of

thinking. And my y

ears of te aching th

is powerf ul reasoni

ng proces s inspired

me

to try to w rite a text

that conv eyed my e

xcitement about ec

onomics t o student

s.

Please rea d through

the prefa ce, which

takes you on a tou

r of the sp ecial

pedagogi cal featur

es and an cillary ma

terials tha t have be

en create d to help

you maxim ize your le

arning ex perience w

ith this te xtbook.

Regards,

Irvin Tuck er

Irvin Tucker

9780538469418_mic_se_wkg.indd 29780538469418_mic_se_wkg.indd 2 8/14/10 1:18 AM8/14/10 1:18 AM

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Dear Stud ent,

My object ive in writ

ing this b ook is to

provide yo u with ev

erything y ou need f

or

success in the cours

e and to i mprove y

our ability to make

better dec isions in y

our

everyday life – espe

cially und erstandin

g econom ic issues i

n the new s. My wri

ting

style is int ended to

be engag ing, clear,

and strai ghtforwa

rd with an emphasis

on

real-world applicatio

ns. As I w as writing

the text, I viewed m

yself expla ining the

concepts to a stude

nt in my o ffice. As a

result, th ere is a co

nversation al tone to

the text. T o avoid b

oredom, t he text us

es a fast-p aced, acti

on-packe d approac

h

that expla ins all ess

ential con cepts with

out becom ing an en

cyclopedi a.

As a princ iples of ec

onomics i nstructor

for over 3 0 years, I

know from first-hand

experienc e that ma

ny studen ts are app

rehensive about ta

king econ omics. In

fact,

I still reca ll vividly t

hat, as a freshman

about to take my

first econ omics cou

rse,

I had only the vagu

est idea o f what th

is subject was abou

t. To my d elight, my

freshman principles

of econo mics cour

se opened my eyes

to a new way of

thinking. And my y

ears of te aching th

is powerf ul reasoni

ng proces s inspired

me

to try to w rite a text

that conv eyed my e

xcitement about ec

onomics t o student

s.

Please rea d through

the prefa ce, which

takes you on a tou

r of the sp ecial

pedagogi cal featur

es and an cillary ma

terials tha t have be

en create d to help

you maxim ize your le

arning ex perience w

ith this te xtbook.

Regards,

Irvin Tuck er

Irvin Tucker

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Microeconomics for Today

IRVIN B. TUCKER UNIVERSITY OF NORTH CAROLINA CHARLOTTE

7 T H E D I T I O N

Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States

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iii

IRVIN B. TUCKER Irvin B. Tucker has over thirty years of experience teaching introductory economics at the University of North Carolina Charlotte. He earned his B.S. in economics at N.C. State University and his M.A. and Ph.D. in economics from the University of South Carolina. Dr. Tucker is former director of the Center for Economic Education at the University of North Carolina Charlotte and a longtime member of the National Council on Economic Education. He is recognized for his ability to relate basic principles to economic issues and public policy. His work has received national recognition by being awarded the Meritorious Levy Award for Excellence in Private Enterprise Education, the Federation of Independent Business Award for Postsecondary Educator of the Year in Entrepreneurship and Economic Education, and the Freedom Foundation’s George Washington Medal for Excellence in Economic Education. In addition, his research has been published in numer- ous professional journal articles on a wide range of topics including industrial organiza- tion, entrepreneurship, and economics of education. Dr. Tucker is also the author of the highly successful Survey of Economics, seventh edition, a text for the one-semester principles of economics courses, published by Cengage South-Western Publishing.

About the Author

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iv

Brief Contents

PART 1 Introduction to Economics 1 Chapter 1 Introducing the Economic Way of Thinking 2 Appendix to Chapter 1: Applying Graphs

to Economics 21

Chapter 2 Production Possibilities, Opportunity Cost, and Economic Growth 34

PART 2 Microeconomic Fundamentals 57 Chapter 3 Market Demand and Supply 58 Appendix to Chapter 3: Consumer Surplus,

Producer Surplus, and Market Effi ciency 91

Chapter 4 Markets in Action 100 Appendix to Chapter 4: Applying Supply

and Demand Analysis to Health Care 125

Chapter 5 Price Elasticity of Demand and Supply 129

Chapter 6 Consumer Choice Theory 153 Appendix to Chapter 6: Indifference Curve Analysis 168

Chapter 7 Production Costs 181

PART 3 Market Structures 211 Chapter 8 Perfect Competition 212

Chapter 9 Monopoly 240

Chapter 10 Monopolistic Competition and Oligopoly 267

Chapter 11 Labor Markets 294

PART 4 Microeconomic Policy Issues 321 Chapter 12 Income Distribution, Poverty, and Discrimination 322

Chapter 13 Antitrust and Regulation 348

Chapter 14 Environmental Economics 373

PART 5 The International Economy 401 Chapter 15 International Trade and Finance 402

Chapter 16 Economies in Transition 434

Chapter 17 Growth and the Less-Developed Countries 457

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v

Appendix A Answers to Odd-Numbered Study Questions and Problems 481

Appendix B Answers to Practice Quizzes 495

Appendix C Answers to Road Map Questions 497

Glossary 498

Index 511

BRIEF CONTENTS

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vi

Contents

About the Author iii

Preface xvi

PART 1

Introduction to Economics 1

CHAPTER 1

Introducing the Economic Way of Thinking 2

The Problem of Scarcity 3

Scarce Resources and Production 3

Economics: The Study of Scarcity and Choice 5

The Methodology of Economics 6

CHECKPOINT Can You Prove There Is No Trillion-Dollar Person? 9

Hazards of the Economic Way of Thinking 9

CHECKPOINT Should Nebraska State Join a Big-Time Athletic Conference? 10

YOU’RE THE ECONOMIST Mops and Brooms, the Boston Snow Index, the Super Bowl, and Other Economic Indicators 11

Why Do Economists Disagree? 12

Careers in Economics 13

YOU’RE THE ECONOMIST Does Raising the Minimum Wage Help the Working Poor? 14

APPENDIX TO CHAPTER 1

Applying Graphs to Economics 21

A Direct Relationship 21

An Inverse Relationship 23

The Slope of a Straight Line 24

The Slope of a Curve 26

A Three-Variable Relationship in One Graph 27

A Helpful Study Hint for Using Graphs 29

1

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CONTENTS vii

CHAPTER 2

Production Possibilities, Opportunity Cost, and Economic Growth 34

Three Fundamental Economic Questions 35

Opportunity Cost 36

Marginal Analysis 37

The Production Possibilities Curve 38

The Law of Increasing Opportunity Costs 40

Sources of Economic Growth 42

YOU’RE THE ECONOMIST FedEx Wasn’t an Overnight Success 45

CHECKPOINT What Does a War on Terrorism Really Mean? 45

Present Investment and the Future Production Possibilities Curve 46

GLOBAL ECONOMICS How Does Public Capital Affect a Nation’s Curve? 47

PART 1 ROAD MAP 54

PART 2

Microeconomic Fundamentals 57

CHAPTER 3

Market Demand and Supply 58

The Law of Demand 59

The Distinction Between Changes in Quantity Demanded and Changes in Demand 61

Nonprice Determinants of Demand 63

CHECKPOINT Can Gasoline Become an Exception to the Law of Demand? 66

The Law of Supply 68

CHECKPOINT Can the Law of Supply Be Repealed for the Oil Market? 70

The Distinction Between Changes in Quantity Supplied and Changes in Supply 70

Nonprice Determinants of Supply 74

YOU’RE THE ECONOMIST PC Prices: How Low Can They Go? 75

GLOBAL ECONOMICS The Market Approach to Organ Shortages 78

2

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viii CONTENTS

A Market Supply and Demand Analysis 78

Rationing Function of the Price System 82

CHECKPOINT Can the Price System Eliminate Scarcity? 82

APPENDIX TO CHAPTER 3

Consumer Surplus, Producer Surplus, and Market Effi ciency 91

Consumer Surplus 91

Producer Surplus 92

Market Effi ciency 94

CHAPTER 4

Markets in Action 100

Changes in Market Equilibrium 101

CHECKPOINT Why the Higher Price for Ethanol Fuel? 104

Can the Laws of Supply and Demand Be Repealed? 105

YOU’RE THE ECONOMIST Rigging the Market for Milk 110

CHECKPOINT Is There Price-Fixing at the Ticket Window? 111

YOU’RE THE ECONOMIST Can Vouchers Fix Our Schools? 116

CHECKPOINT Should There Be a War on Drugs? 118

APPENDIX TO CHAPTER 4

Applying Supply and Demand Analysis to Health Care 125

The Impact of Health Insurance 125

Shifts in the Demand for Health Care 127

Shifts in the Supply of Health Care 128

CHAPTER 5

Price Elasticity of Demand and Supply 129

Price Elasticity of Demand 130

Price Elasticity of Demand Variations Along a Demand Curve 135

CHECKPOINT Will Fliers Flock to Low Summer Fares? 138

Determinants of Price Elasticity of Demand 138

CHECKPOINT Can Trade Sanctions Affect Elasticity of Demand for Cars? 139

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CONTENTS ix

YOU’RE THE ECONOMIST Cigarette Smoking Price Elasticity of Demand 140

Other Elasticity Measures 141

CHECKPOINT Can Honda Compete with Itself? 146

CHAPTER 6

Consumer Choice Theory 153

From Utility to the Law of Demand 154

YOU’RE THE ECONOMIST Why is Water Less Expensive than Diamonds? 156

CHECKPOINT When Dining Out, Do You Eat Smart? 159

Income and Substitution Effects and the Law of Demand 160

YOU’RE THE ECONOMIST Testing the Law of Demand with White Rats 161

CHECKPOINT Does the Substitution Effect Apply to Buying a Car? 162

APPENDIX TO CHAPTER 6

Indifference Curve Analysis 168

Constructing an Indifference Curve 168

Why Indifference Curves Are Downward-Sloping and Convex 168

The Indifference Map 170

The Budget Line 171

A Consumer Equilibrium Graph 173

Derivation of the Demand Curve 174

CHAPTER 7

Production Costs 181

Costs and Profi t 182

CHECKPOINT Should the Professor Go or Stay? 184

Short-Run Production Costs 184

Short-Run Cost Formulas 187

Marginal Cost Relationships 191

CHECKPOINT Did Michael Jordan Beat the Marginal-Average Rule? 193

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x CONTENTS

Long-Run Production Costs 195

Different Scales of Production 196

YOU’RE THE ECONOMIST Why is That Web Site You’re Using Free? 199

PART 2 ROAD MAP 207

PART 3

Market Structures 211

CHAPTER 8

Perfect Competition 212

Perfect Competition 213

Short-Run Profi t Maximization for a Perfectly Competitive Firm 215

Short-Run Loss Minimization for a Perfectly Competitive Firm 220

CHECKPOINT Should Motels Offer Rooms at the Beach for Only $50 a Night? 222

Short-Run Supply Curves Under Perfect Competition 223

Long-Run Supply Curves Under Perfect Competition 226

CHECKPOINT Are You in Business for the Long Run? 227

Three Types of Long-Run Supply Curves 228

YOU’RE THE ECONOMIST Gators Snapping Up Profi ts 232

CHAPTER 9

Monopoly 240

The Monopoly Market Structure 241

GLOBAL ECONOMICS Monopolies Around the World 244

Price and Output Decisions for a Monopolist 245

YOU’RE THE ECONOMIST The Standard Oil Monopoly 253

Price Discrimination 254

CHECKPOINT Why Don’t Adults Pay More for Popcorn at the Movies? 256

Comparing Monopoly and Perfect Competition 256

3

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CONTENTS xi

YOU’RE THE ECONOMIST New York Taxicabs: Where Have All the Fare Flags Gone? 259

The Case Against and for Monopoly 259

CHAPTER 10

Monopolistic Competition and Oligopoly 267

The Monopolistic Competition Market Structure 268

The Monopolistically Competitive Firm as a Price Maker 269

YOU’RE THE ECONOMIST Social Networking Sites: The New Advertising Game 272

Price and Output Decisions for a Monopolistically Competitive Firm 273

Comparing Monopolistic Competition and Perfect Competition 274

The Oligopoly Market Structure 277

Price and Output Decisions for an Oligopolist 279

GLOBAL ECONOMICS Major Cartels in Global Markets 282

YOU’RE THE ECONOMIST How Oligopolists Compete at the Final Four 285

An Evaluation of Oligopoly 286

CHECKPOINT Which Model Fits the Cereal Aisle? 286

Review of the Four Market Structures 287

CHAPTER 11

Labor Markets 294

The Labor Market Under Perfect Competition 295

Labor Unions: Employee Power 301

Union Membership Around the World 305

Employer Power 306

YOU’RE THE ECONOMIST Should College Athletes Be Paid? 310

CHECKPOINT Can the Minimum Wage Create Jobs? 311

CHECKPOINT If You Don’t Like It, Mickey, Take Your Bat and Go Home 311

PART 3 ROAD MAP 317

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xii CONTENTS

PART 4

Microeconomic Policy Issues 321

CHAPTER 12

Income Distribution, Poverty, and Discrimination 322

The Distribution of Income 323

Global Comparisons of Income Distribution 329

Poverty 330

Antipoverty Programs 333

Social Security: Past, Present, and Future 334

Reform Proposals 336

YOU’RE THE ECONOMIST Pulling on the Strings of the Welfare Safety Net 338

CHECKPOINT Does a Negative Income Tax Discourage Work? 338

Discrimination 340

CHECKPOINT Should the Law Protect Women? 341

YOU’RE THE ECONOMIST Is Pay for Females Fair? 342

CHAPTER 13

Antitrust and Regulation 348

Antitrust 349

YOU’RE THE ECONOMIST Is Utah Pie’s Slice of the Pie Too Small? 353

Key Antitrust Cases 353

CHECKPOINT Does Price-Fixing Improve Your Education? 356

Mergers and Global Antitrust Policy 358

Regulation 359

Three Cases for Government Regulation 360

YOU’RE THE ECONOMIST Who Turned Out the Lights in California? 363

CHECKPOINT Why Doesn’t the Water Company Compete? 364

YOU’RE THE ECONOMIST Does Airline Deregulation Mean Friendlier Skies? 365

4

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CONTENTS xiii

CHAPTER 14

Environmental Economics 373

Competitive Markets and Environmental Effi ciency 374

Achieving Environmental Effi ciency 378

GLOBAL ECONOMICS How Should Carbon Emissions Be Reduced: Cap and Trade or Carbon Taxes? 388

GLOBAL ECONOMICS Why Is the Climate Change Problem So Hard to Solve? 390

CHECKPOINT Is It Effi cient to Buy Odor-Reducing Technology If You Live Next to a Hog Farm? 393

PART 4 ROAD MAP 399

PART 5

The International Economy 401

CHAPTER 15

International Trade and Finance 402

Why Nations Need Trade 403

Comparative and Absolute Advantage 406

CHECKPOINT Do Nations with an Advantage Always Trade? 408

Free Trade versus Protectionism 408

Arguments for Protection 410

Free Trade Agreements 411

GLOBAL ECONOMICS World Trade Slips on Banana Peel 412

The Balance of Payments 413

Birth of the Euro 414

CHECKPOINT Should Everyone Keep a Balance of Payments? 419

Exchange Rates 419

GLOBAL ECONOMICS Return to the Yellow Brick Road? 426

5

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xiv CONTENTS

CHAPTER 16

Economies in Transition 434

Basic Types of Economic Systems 435

The “ISMS” 441

GLOBAL ECONOMICS Choosing an Economic System on Another Planet 442

CHECKPOINT To Plan or Not to Plan—That Is the Question 446

Comparing Economic Systems 447

Economies in Transition 448

GLOBAL ECONOMICS China’s Quest for Free Market Reform 450

Privatization versus Nationalization 452

CHAPTER 17

Growth and the Less-Developed Countries 457

Comparing Developed and Less-Developed Countries 458

Economic Growth and Development Around the World 462

CHECKPOINT Does Rapid Growth Mean a Country Is Catching Up? 464

The Helping Hand of Advanced Countries 468

GLOBAL ECONOMICS Hong Kong: A Crouching Pacifi c Rim Tiger 471

CHECKPOINT Is the Minimum Wage an Antipoverty Solution for Poor Countries? 472

PART 5 ROAD MAP 478

APPENDIX A: Answers to Odd-Numbered Questions and Problems 481

APPENDIX B: Answers to Practice Quizzes 495

APPENDIX C: Answers to Road Map Questions 497

GLOSSARY 498

INDEX 511

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xv

Available Versions

Conversion Table for the Four Versions of this Text

Economics for Today Economics for Today

Macroeconomics for Today

Microeconomics for Today

Survey of Economics

1 Introducing the Economic Way of Thinking

X X X X

2 Production Possibilities, Opportunity Cost, and Economic Growth

X X X X

3 Market Supply and Demand X X X X 4 Markets in Action X X X X 5 Price Elasticity of Demand and

Supply X X X

6 Consumer Choice Theory X X 7 Production Costs X X X 8 Perfect Competition X X X 9 Monopoly X X X 10 Monopolistic Competition and

Oligopoly X X X

11 Labor Markets X X X 12 Income Distribution, Poverty, and

Discrimination X X X

13 Antitrust and Regulation X X 14 Environmental Economics X X 15 Gross Domestic Product X X X 16 Business Cycles and Unemployment X X X 17 Infl ation X X X 18 The Keynesian Model X X 19 The Keynesian Model in Action X X 20 Aggregate Demand and Supply X X X 21 Fiscal Policy X X X 22 The Public Sector X X X 23 Federal Defi cits, Surpluses, and the

National Debt X X X

24 Money and the Federal Reserve System

X X X

25 Money Creation X X X 26 Monetary Policy X X X 27 The Phillips Curve and Expectations

Theory X X

28 International Trade and Finance X X X X 29 Economies in Transition X X X X 30 Growth and the Less-Developed

Countries X X X X

Note: Chapter numbers refer to the complete book, Economics for Today

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Preface

xvi

TEXT WITH A MISSION The purpose of Economics for Today, Seventh Edition, is to teach, in an engag- ing style, the basic operations of the U.S. economy to students who will take a two-term economics course. Rather than taking an encyclopedic approach to economic concepts, Economics for Today focuses on the most important tool in economics—supply and demand analysis—and applies it to clearly explain real- world economic issues.

Every effort has been made to make Economics for Today the most “stu- dent friendly” text on the market. This text was written because so many others expose students to a confusing array of economic analyses that force students to simply memorize in order to pass the course. Instead, Economics for Today presents a straightforward and unbiased approach that effectively teaches the application of basic economic principles. After reading this text, the student should be able to say “now that economics stuff in the news makes sense.”

HOW IT FITS TOGETHER The text presents the core principles of microeconomics, macroeconomics, and international economics. The fi rst 14 chapters introduce the logic of economic analysis and develop the core of microeconomic analysis. Here students learn the role of demand and supply in determining prices in competitive versus mo- nopolistic markets. This part of the book explores such issues as minimum wage laws, rent control, and pollution. The next 13 chapters develop the macroeco- nomics part of the text. Using the modern, yet simple, aggregate demand and aggregate supply model, the text explains measurement of and changes in the price level, national output, and employment in the economy. The study of mac- roeconomics also includes how the supply of money and the demand for money infl uence the economy. Finally, the text concludes with three chapters devoted entirely to global issues. For example, students will learn how the supply of and demand for currencies determine exchange rates and what the complications of a strong or a weak dollar are.

TEXT FLEXIBILITY The full version of Economics for Today is easily adapted to an instructor’s preference for the sequencing of microeconomics and macroeconomics topics. The text can be used in a macroeconomic–microeconomic sequence by teaching

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PREFACE xvii

the fi rst four chapters and then Parts 5 through 7. Next, microeconomics is covered in Parts 2 through 4. Finally, the course can be completed with Part 8, consisting of three chapters devoted to international economics.

An important design of this text is that it accommodates the two camps for teaching principles of macroeconomics: (1) those who cover both the Keynes- ian Cross and AD/AS models and (2) those who skip the Keynesian model and cover only the AD/AS model. For instructors who prefer the former model se- quence, Economics for Today moves smoothly in Chapters 18–19 (8–9) from the Keynesian model (based on the Great Depression) to the AD/AS model in Chapter 20 (10). For instructors using the latter approach, this text is written so that instructors can skip the Keynesian model in Chapters 18–19 (8–9) and proceed from Chapter 17 (7) to Chapter 20 (10) without losing anything. For example, the spending multiplier is completely covered both in the Keynesian and AD/AS model chapters.

For instructors who wish to teach the self-correcting AD/AS model, emphasis can be placed on the appendixes to Chapters 20 (10) and 26 (16). Instructors who choose not to cover this model can simply skip these appendixes. In short, Economics for Today provides more comprehensive and fl exible coverage of mac- roeconomics models than is available in other texts. Also, a customized text might meet your needs. If so, contact your South-Western/Cengage Learning sales repre- sentative for information.

HOW NOT TO STUDY ECONOMICS To some students, studying economics is a little frightening because many chap- ters are full of graphs. Students often make the mistake of preparing for tests by trying to memorize the lines of graphs. When their graded tests are returned, the students using this strategy will probably exclaim, “What happened?” The answer to this query is that the students should have learned the economic concepts fi rst; then they would understand the graphs as illustrations of these underlying concepts. Stated simply, superfi cial cramming for economics quizzes does not work.

For students who are anxious about using graphs, the appendix to Chap- ter 1 provides a brief review of graphical analysis. In addition, the Graphing Workshop and Study Guide contain step-by-step features on how to interpret graphs.

CHANGES TO THE SEVENTH EDITION The basic layout of the seventh edition remains the same. The following are changes:

Chapter 1 recognizes that students taking introductory college-level • economics courses are considering their major. One reason to select

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xviii PREFACE

economics is that the average starting salary for an undergraduate economics major is higher compared to many other majors. To aid their decision, current average starting salary figures for selected majors have been provided.

Chapter 9 on Monopoly presents a new concept, network good, which • updates this chapter by linking economies of scale and monopoly power to the popular Facebook and Match.com Web sites.

Chapter 12 on Income Distribution, Poverty, and Discrimination has been • updated with the latest figures on family income distribution and poverty rates. In addition, the feature articles on Social Security and fair pay for females have been updated. These are all timely features that generate great interest for students.

Chapter 14 on Environmental Economics is among today’s highly • controversial issues. This issue is addressed by new Global Economics features titled “How Should Carbon Emissions Be Reduced: Cap and Trade or Carbon Taxes?” and “Why Is the Climate Change Problem So Hard to Solve?” The Analyze the Issue sections that accompany these features give students an opportunity to participate in this important environmental debate.

Chapter 17 on Inflation updates data on inflation and the You’re the Economist • feature on “How Much More Does It Cost to Laugh?” In addition, a new Checkpoint titled “What Is the Real Price of Gasoline?” is added that provides an application for adjusting the price of gasoline for inflation over time. And here students enjoy learning how to convert Babe Ruth’s 1932 salary into today’s dollars.

Chapter 20(10) on Aggregate Demand and Supply has been revised to provide • a unique, complete, unbiased, and realistic comparison of the Keynesian and self-correction macroeconomic models in contrast to texts that present only or primarily the self-correction model. To enhance student understanding and interest, updated actual CPI and real GDP numbers are used throughout rather than generic Ps and Qs. For example, a new exhibit is added that explains with actual data how decreases in aggregate demand during the current recession caused a movement along the flat Keynesian range of the aggregate supply curve with the CPI constant. Here students can clearly visualize and comprehend the Keynesian argument against the classical school that prices and wages are inflexible downward.

The appendix to Chapter 20(10) fully develops and explains the opposing • self-correction model based on downward flexibility of prices and wages and a downward shifting short-run aggregate supply curve. Only by providing a complete presentation of both the Keynesian and self-correction models can the student understand the current macroeconomic public policy debate.

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PREFACE xix

Chapter 21(11) on Fiscal Policy also uses realism as its hallmark by • explaining the stimulus package and the spending multiplier process with real-world updated numbers.

Chapter 22(12) on The Public Sector highlights the important current issue • of the changing economic character of the United States with global comparisons to other countries. Here, for example, updated data traces the growth of U.S. government expenditures and taxes since the Great Depression. And U.S. spending and taxation are compared to other countries. An explanation of the Value Added Tax (VAT) has been added to the You’re the Economist feature discussion of the flat tax and national sales tax.

Chapter 23(13) on Federal Deficits, Surpluses, and the National Debt • focuses on the current “hot button” issue of federal deficits and the national debt using updated data and exhibits. This chapter now includes a discussion of the “PayGo” rule and a new exhibit giving a global comparison of the national debt as a percentage of GDP. The current financial crisis in Greece is included in the chapter debate over the consequences of the U.S. national debt.

Chapter 26(16) on Monetary Policy has been updated using actual data in • the model that link changes in the money supply and changes in the aggregate demand curve required to restore the economy to full employment. Students’ interest is enhanced by adding a set of exhibits comparing monetary policy during the Great Depression to monetary policy during the current Great Recession.

The final three chapters of the text are the international chapters, and each • has been updated. For example, the chapter on International Trade and Finance explains the recent sharp decline in the U.S. balance of trade. The chapter on Economies in Transition contrasts privatization in Cuba, Russia, and China to recent nationalization in the United States. And the chapter on Growth and the Less-Developed Countries presents updated data used to explain, for example, the link between economic freedom and quality-of-life indicators.

New lecture PowerPoint• ® slides have been developed by the author and tested in his classroom.

ALTERNATE VERSIONS OF THE BOOK For instructors who wish to spend various amounts of time for their courses and offer different topics of this text:

Economics for Today.• This complete version of the book contains all 30 chapters. It is designed for two-semester introductory courses that cover both microeconomics and macroeconomics.

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xx PREFACE

Microeconomics for Today. • This version contains 17 chapters and is designed for one-semester courses in introductory microeconomics.

Macroeconomics for Today.• This version contains 20 chapters and is designed for one-semester courses in introductory macroeconomics.

Survey of Economics. • This version of the book contains 23 chapters. It is designed for one-semester courses that cover the basics of both microeconomics and macroeconomics.

The accompanying table shows precisely which chapters are included in each book.

Instructors who wish more information about these alternative versions should contact their local South-Western/Cengage Learning representative.

MOTIVATIONAL PEDAGOGICAL FEATURES Economics for Today strives to motivate and advance the boundaries of peda- gogy with the following features:

Part Openers Each part begins with a statement of the overall mission of the chapters in the part. In addition, there is a nutshell introduction of each chapter in relation to the part’s learning objective.

Chapter Previews Each chapter begins with a preview designed to pique the student’s interest and reinforce how the chapter fi ts into the overall scheme of the book. Each preview appeals to the student’s “Sherlock Holmes” impulses by posing several economics puzzles that can be solved by understanding the material presented in the chapter.

Margin Definitions and Flashcards Key concepts introduced in the chapter are highlighted in bold type and then defi ned with the defi nitions again in the margins. This feature therefore serves as a quick reference. Key terms are also defi ned on the Tucker Web site with a Flashcard feature that is great for learning terms.

You’re the Economist Each chapter includes boxed inserts that provide the acid test of “relevance to everyday life.” This feature gives the student an opportunity to encounter timely, real-world extensions of economic theory. For example, students read about

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PREFACE xxi

Fred Smith as he writes an economics term paper explaining his plan to create FedEx. To ensure that the student wastes no time fi guring out which concepts apply to the article, applicable concepts are listed after each title. Many of these boxed features include quotes from newspaper articles over a period of years demonstrating that economic concepts remain relevant over time.

Conclusion Statements Throughout the chapters, highlighted conclusion statements of key concepts ap- pear at the ends of sections and tie together the material just presented. Students will be able to see quickly if they have understood the main points of the sec- tion. A summary of these conclusion statements is provided at the end of each chapter.

Global Economics Today’s economic environment is global. Economics for Today carefully inte- grates international topics throughout the text and presents the material using a highly readable and accessible approach designed for students with no training in international economics. All sections of the text that present global econom- ics are identifi ed by a special global icon in the text margin and in the Global Economics boxes. In addition, the fi nal three chapters of the book are devoted entirely to international economics.

Analyze the Issue This feature follows each You’re the Economist and Global Economics feature and asks specifi c questions that require students to test their knowledge of how the material in the boxed insert is relevant to the applicable concept. To allow these questions to be used in classroom discussions or homework assignments, answers are provided in the Instructor’s Manual rather than the text.

Checkpoint Watch for these! Who said learning economics can’t be fun? This feature is a unique approach to generating interest and critical thinking. These questions spark students to check their progress by asking challenging economics puzzles in game-like style. Students enjoy thinking through and answering the questions, and then checking the answers at the end of the chapter. Students who answer correctly earn the satisfac- tion of knowing they have mastered the concepts.

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xxii PREFACE

Illustrations Attractive large graphical presentations with grid lines and real-world num- bers are essential for any successful economics textbook. Each exhibit has been carefully analyzed to ensure that the key concepts being represented stand out clearly. Brief descriptions are included with graphs to provide guidance for stu- dents as they study the graph. When actual data are used, the Web site reference is provided so that students can easily locate the data source.

Causation Chains Game This will be one of your favorites. The highly successful causation chains are in- cluded under many graphs throughout the text. This pedagogical device helps stu- dents visualize complex economic relationships in terms of simple box diagrams that illustrate how one change causes another change. Each exhibit having a cau- sation chain in the text is included in the Animated Causation Chains game on the Tucker Web site (www.cengage.com/economics/tucker). This game makes it fun to learn. Arrange the blocks correctly and hear the cheers.

Key Concepts Key concepts introduced in the chapter are listed at the end of each chapter and on the Tucker Web site (www.cengage.com/economics/tucker). As a study aid, you can use the key concepts as fl ashcards to test your knowledge. First state the defi - nition and then click on the term to check for correctness.

Visual Summaries Each chapter ends with a brief point-by-point summary of the key concepts. Many of these summarized points include miniaturized versions of the important graphs and causation chains that illustrate many of the key concepts. These are intended to serve as visual reminders for students as they fi nish the chapters and are also useful in reviewing and studying for quizzes and exams.

Study Questions and Problems The end-of-chapter questions and problems offer a variety of levels ranging from straightforward recall to deeply thought-provoking applications. The an- swers to odd questions and problems are in the back of the text. This feature gives students immediate feedback without requiring the instructor to check their work.

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PREFACE xxiii

End-of-Chapter Practice Quizzes A great help before quizzes. Many instructors test students using multiple-choice questions. For this reason, the fi nal section of each chapter provides the type of multiple-choice questions given in the instructor’s Test Bank. The answers to all of these questions are given in the back of the text. In addition, students may visit the Tucker Web site (www.cengage.com/economics/tucker) and answer these questions online where an explanation of each correct answer is given.

Part Road Map This feature concludes each part with review questions listed by chapter from the previous part. To reinforce the concepts, each set of questions relates to the in- teractive causation chain game. Click on the Tucker Web site (www.cengage.com/ economics/tucker) and make learning fun listening to the cheers when correct and jeers for a wrong answer. Answers to the questions are in the back of the text.

Interactive Quizzes In addition to the end-of-chapter practice quizzes, there are additional multiple- choice questions written by the author on the Tucker Web site (www.cengage. com/economics/tucker). Each quiz contains multiple questions like those found on a typical exam. Feedback is included for each answer so that you may know instantly why you have answered correctly or incorrectly. In addition, you may email yourself and/or your instructor the quiz results with a listing of correct and incorrect answers. Between this feature and the end-of-chapter practice quizzes, students are well prepared for tests.

Online Exercises These exercises for each chapter are designed to spark students’ excitement about researching on the Internet by asking them to access online economic data and then answer questions related to the content of the chapter. All Internet exercises are on the Tucker Web site (www.cengage.com/economics/tucker) with direct links to the addresses so that students will not have the tedious and error-prone task of entering long Web site addresses.

Learning Objectives Learning objectives link sections in the text and steps to achieve learning objec- tives. The steps include reference to “Ask the Instructor Video Clips” and the “Graphing Workshop” available through the CourseMate Web site.

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xxiv PREFACE

A SUPPLEMENTS PACKAGE DESIGNED FOR SUCCESS To learn more about the supplements for Economics for Today, visit the Tucker Web site, www.cengage.com/economics/tucker. For additional information, con- tact your South-Western/Cengage sales representative.

INSTRUCTOR RESOURCES Aplia Aplia, www.aplia.com, has joined forces with South-Western, the leading pub- lisher for principles of economics and fi nance, to create the Aplia Integrated Textbook Solution. More students are currently using an Aplia product for principles of economics than those who are using all other Web-based learning programs combined. Because the homework in Aplia is automatically graded, you can assign homework more frequently to ensure your students are putting forth full effort and getting the most out of your class.

Instructor’s Manual This manual, prepared by Douglas Copeland of Johnson County Community College, provides valuable course assistance to instructors. It includes chapter outlines, instructional objectives, critical thinking/group discussion questions, hints for effective teaching, answers to the Analyze the Issue questions, answers to even-numbered questions and problems, summary quizzes with answers, and classroom games. Instructor’s Manual ISBN: 1111222452.

Test Bank Too often, Test Banks are not written by the author and the questions do not really fi t the text. Not so here. The Test Bank is prepared by the text author to match the text. The Test Bank includes over 7,000 multiple-choice, true-false, and short essay questions arranged by the order presented in the chapter and grouped with concept headings that make it easy to select questions. Most ques- tions have been thoroughly tested in the classroom by the author and are clas- sifi ed by topic and degree of diffi culty. Text page references help locate pages where material related to questions is explained.

Macro Test Bank ISBN: 1111222495 Micro Test Bank ISBN: 1111222509

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PREFACE xxv

ExamView ExamView Computerized Testing Software contains all of the questions in the printed Test Bank. ExamView is an easy-to-use test creation software compat- ible with both Windows and Macintosh. Instructors can add or edit questions, instructions, and answers; select questions by previewing them on the screen; or select questions randomly or by number. Instructors can also create and admin- ister quizzes online, whether over the Internet, a local area network (LAN), or a wide area network (WAN). ExamView is available on the Instructor’s Resource CD ISBN: 1111222525.

PowerPoint® Lecture Slides This state-of-the-art slide presentation developed by the text author provides instructors with visual support in the classroom for each chapter. Lecture slides contain vivid automated highlights of important concepts and exhibits. Instruc- tors can edit the PowerPoint® presentations or create their own exciting in-class presentations. These slides are available on the Instructor’s Resource CD (ISBN: 1111222525) as well as for downloading from the Tucker Web site at www. cengage.com/economics/tucker.

PowerPoint® Exhibit Slides These slides contain the fi gures, charts, and tables from the text. Instructors can easily incorporate them into their own PowerPoint® presentations by download- ing from the Tucker Web site at www.cengage.com/economics/tucker. They are also available on the Instructor’s Resource CD ISBN: 1111222525.

Instructor’s Resource CD-ROM Get quick access to all instructor ancillaries from your desktop. This easy-to- use CD lets you review, edit, and copy exactly what you need in the format you want. This supplement contains the Instructor’s Manual, Test Bank, ExamView Testing software, and the PowerPoint® Lecture and Exhibit slides. IRCD ISBN: 1111222525.

JoinIn TurningPoint CD JoinIn is a response system that allows you to trans- form your classroom and assess your students’ progress with instant in-class quiz- zes and polls. Our exclusive agreement to offer TurningPoint software lets you pose book-specifi c questions and display students’ answers seamlessly within the Microsoft PowerPoint® slides of your own lecture, in conjunction with the “clicker” hardware of your choice. Enhance how your students interact with you, your lecture, and each other. For college and university adopters only. Contact your local South-Western representative to learn more.

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xxvi PREFACE

Complete Online Tomlinson Videos Course The Tomlinson videos are online multimedia video lecture series that provide students with instructional assis- tance 24/7. Students can watch these segments over and over as they prepare for class, review topics, and study for exams. Lecture notes and quizzes for each segment are also available. Professors may require students to view the videos before class to leave the class time free for activities or further explanation. www.cengage.com/economics/ tomlinson

STUDENT RESOURCES Study Guide The Study Guide is recommended for each student using the text. It is perhaps the best way to prepare for quizzes. The Study Guide was prepared by the text author to prepare students before they take tests in class. The Study Guide contains stu- dent-friendly features such as the chapter in a nutshell, key concepts review, learn- ing objectives, fi ll-in-the-blank questions, step-by-step interpretation of the graph boxes, multiple-choice questions, true-false questions, and crossword puzzles.

Full Study Guide ISBN: 1111222460 Macro Study Guide ISBN: 1111222487 Micro Study Guide ISBN: 1111222479

The Tucker CourseMate Web site Available for purchase, the CourseMate Web site: (www.cengagebrain.com) fea- tures a content-rich, robust set of multimedia learning tools. These Web features have been specifi cally developed with the student in mind:

ABC News Videos.• This supplement consists of high-interest clips from current news events as well as historic raw footage going back forty years. Perfect for discussion starters or to enrich your lectures and spark interest in the material in the text, these brief videos provide students with a new lens through which to view the past and present, one that will greatly enhance their knowledge and understanding of significant events and open up new dimensions in learning. Clips are drawn from such programs as World News Tonight, Good Morning America, This Week, Primetime Live, 20/20, and Nightline, as well as numerous ABC News specials and material from the Associated Press Television News and British Movietone News collections. Your South-Western Publishing representative will be happy to provide a complete listing of the videos and policies addressed.

The Graphing Workshop.• The Graphing Workshop is a one-stop learning resource for help in mastering the language of graphs, one of the more difficult aspects of an economics course for many students. It enables students to

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PREFACE xxvii

explore important economic concepts through a unique learning system made up of tutorials, interactive drawing tools, and exercises that teach how to interpret, reproduce, and explain graphs.

Ask the Instructor Video Clips.• Via streaming video, difficult concepts are explained and illustrated. These video clips are extremely helpful review and clarification tools if a student has trouble understanding an in-class lecture or is a visual learner.

Economic Applications • (EconApps). EconNews Online, EconDebates, and EconData features help to deepen students’ understanding of the theoretical concepts through hands-on exploration and analysis of the latest economic news stories, policy debates, and data.

FOR STUDENTS AND INSTRUCTORS The Wall Street Journal The Wall Street Journal is synonymous with the latest word on business, economics, and public policy. Economics for Today makes it easy for students to apply economic concepts to this authoritative publication, and for you to bring the most up-to-date, real-world events into your classroom. For a nominal additional cost, Economics for Today can be packaged with a card entitling students to a 15-week subscription to both the print and online versions of the Wall Street Journal. Instructors with at least seven students who activate their subscriptions will automatically receive their own free subscription. Contact your South-Western/Cengage Learning sales representative for package pricing and ordering information.

CENGAGE LEARNING’S GLOBAL ECONOMIC WATCH Lessons from real life right now

The credit collapse. Tumbling markets. Bailouts and bankruptcies. Surging unemployment. Political debate. Today’s fi nancial turmoil transforms academic theory into intense real-life challenges that affect every family and business sector—making it one of the most teachable moments in modern history.

Cengage Learning’s Global Economic Watch helps instructors bring these pivotal current events into the classroom—through a powerful, continuously updated online suite of content, discussion forums, testing tools, and more.

The Watch, a fi rst-of-its-kind resource, stimulates discussion and under- standing of the global downturn with easy-to-integrate teaching solutions:

A content-rich blog of breaking news, expert analysis, and commentary—• updated multiple times daily—plus links to many other blogs

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xxviii PREFACE

A powerful real-time database of hundreds of relevant and vetted journal, • newspaper, and periodical articles, videos, and podcasts—updated four times every day

A thorough overview and timeline of events leading up to the global • economic crisis

Discussion and testing content, PowerPoint• ® slides on key topics, sample syllabi, and other teaching resources

Instructor and student forums for sharing questions, ideas, and opinions•

History is happening now. Bring it into your classroom. For more • information on how you can enrich your course with The Watch, please visit www.cengage.com/thewatch.

TextChoice: Economic Issues and Activities TextChoice is the home of Cengage Learning’s online digital content. TextChoice provides the fastest, easiest way for you to create your own learning materi- als. South-Western’s Economic Issues and Activities content database includes a wide variety of high-interest, current event/policy applications as well as class- room activities that are designed specifi cally to enhance introductory economics courses. Choose just one reading, or many—even add your own material—to create an accompaniment to the textbook that is perfectly customized to your course. Contact your South-Western/Cengage Learning sales representative for more information.

Tucker Web Site The Tucker Web site at www.cengage.com/economics/tucker provides access to: Animated Causation Chains, practice quizzes, interactive quizzing, and other downloadable teaching and learning resources.

ACKNOWLEDGMENTS A deep debt of gratitude is owed to the reviewers for their expert assistance. All comments and suggestions were carefully evaluated and served to improve the fi nal product. To each of the reviewers of all seven editions, I give my sincerest thanks.

Jack E. Adams University of Arkansas- Little Rock

John W. Alderson, III East Arkansas Community College

Irma Alonso Florida International University

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PREFACE xxix

Hasaan Aly The Ohio State University

James Q. Aylsworth Lakeland Community College

Randy Barnes Mirimar College

Atin Basu Virginia Military Institute

Klaus G. Becker Texas Tech University

Randall W. Bennett Gonazaga University

John P. Blair Wright State University

Orn B. Bodvarsson St. Cloud State University

Tantatape Brahmasrene Purdue University North Central

Joyce Bremer Oakton Community College

Anne Bresnock California State University, Pomona

Stacey Brook University of Sioux Falls

Stephanie Campbell Mineral Area College

Juan Castro ETX Baptist University

Dell Champlin Eastern Illinois University

Doug Copeland Johnson County Community College

John P. Dahlquist College of Alameda

James P. D’Angelo University of Cincinnati

Jan L. Dauve University of Missouri

Gregory J. Delemeester Marietta College

Robert C. Dolan University of Richmond

William Dougherty Carroll County Community College

James W. Eden Portland Community College

Ronald Elkins Central Washington University

Tommy Eshleman University of Nebraska, Kearney

John L. Ewing-Smith Burlington County College

Chris Fawson Utah State University

Arthur A. Fleisher, III Metropolitan State College of Denver

Kaya Ford Northern Virginia Community College

Arthur Friedberg Mohawk Valley Community College

Scott Gabeheart Mesa Community College

Linda Ghent Eastern Illinois University

Cindy Gibson Keuka College

J. P. Gilbert Mira Costa College

Deborah Goldsmith City College of San Francisco

Sanford D. Gordon University of South Florida

Gary Green Manatee Community College

Serge S. Grushchin ASA College of Advanced Technology

Steven Hackett Humbolt State University

Gail A. Hawks Miami Dade Community College

Michael G. Heslop Northern Virginia Community College

Yu-Mong Hsiao Campbell University

R. Jack Inch Oakland Community College

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xxx PREFACE

Hans R. Isakson University of Northern Iowa

Barbara H. John University of Dayton

Petur O. Jonsson Fayetteville State University

Paul Jorgensen Linn-Benton Community College

Louise Keely University of Wisconsin

Randall G. Kesselring Arkansas State University

Harry T. Kolendrianos Danville Community College

William F. Kordsmeier University of Central Arkansas

Margaret Landman Bridgewater State College

David Latzko Pennsylvania State University, York

Ralph F. Lewis Orange Coast College

Stephen E. Lile Western Kentucky University

Dandan Liu Bowling Green State University

Melody Lo University of Southern Mississippi

Thomas Maloy Muskegon Community College

Dayle Mandelson University of Wisconsin-Stout

Robert A. Margo Vanderbilt University

Melanie Marks Longwood College

Michael Marlow Cal Polytechnic State U-SLO

Fred May Trident Technical College

James C. McBrearty University of Arizona

Diana L. McCoy Truckee Meadows Community College

Donald P. McDowell Florida Community College

Fazlul Miah Fayetteville State University

David S. Moewes Concordia College

Margaret Moore Franklin University

Marie Mora New Mexico State University

Kevin J. Murphy Oakland University

Jack Muryn University of Wisconsin- Washington County

Lee Nordgren Indiana University

Peter K. Olson Indiana University

Patrick B. O’Neill University of North Dakota

Jan Palmer Ohio University

Michael L. Palmer Maple Woods Community College

Elliott Parker University of Nevada in Reno

Kathy Parkison Indiana University-Kokomo

Donald W. Pearson Eastern Michigan University

Martin Perline Wichita State University

Elaine Peterson California State University, Stanislaus

Maurice Pfannestiel Wichita State University

Michael J. Pisani Texas A&M University

L. Wayne Plumly, Jr. Valdosta State University

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PREFACE xxxi

Ray Polchow Muskingum Area Technical College

Renee Prim Central Piedmont Community College

Fernando Quijano Dickinson State University

R. Larry Reynolds Boise State University

Kathryn Roberts Chipola Junior College

Steve Robinson University of North Carolina at Wilmington

Craig Rogers Canisius College

Lawrence P. Schrenk University of Baltimore

Kurt A. Schwabe Ohio University

Lisa Simon California Polytechnic State University

Larry Singell University of Oregon

Alden W. Smith Anne Arundel Community College

Tricia Snyder William Patterson University

Angela M. Sparkman Itawamba Community College

Larry Spizman SUNY-Oswego

Rebecca Summary Southeast Missouri State University

Daniel A. Talley Dakota State University

Daryl Thorne Valencia Community College

Larry Towle Eastern Nazarene College

Greg Trandel University of Georgia

Richard Trieff Des Moines Area Community College

Tracy M. Turner Kansas State University

Lee Van Scyok University of Wisconsin- Oshkosh

Roy van Til University of Maine-Farmington

Darlene Voeltz Rochester Community and Technical College

Rosemary Walker Washburn University

Harold Warren East Tennessee State University

Leo M. Weeks Northwestern University

Robert G. Welch Midwestern State University

Herbert D. Werner University of Missouri

Michael D. White St. Cloud State University

Gwen Williams Alvernia College

Virginia S. York Gulf Coast Community College

Paul Young Dodge City Community College

Michael J. Youngblood Rock Valley College

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xxxii PREFACE

SPECIAL THANKS My appreciation goes to Steve Scoble, Sr. Acquisitions Editor for South-Western/ Cengage Learning. My thanks also to Michael Guendelsberger, Developmen- tal Editor, Kelly Hillerich, Content Project Manager; Allyn Bissmeyer, Editorial Assistant; and Suellen Ruttkay, Marketing Coordinator, who put all the pieces of the puzzle together and brought their creative talent to this text, and Sharon Tripp for the copyediting of the manuscript. I am also grateful to John Carey for his skillful marketing. I especially wish to express my deepest appreciation to Douglas Copeland of Johnson County Community College for preparing the Instructor’s Manual. Finally, I give my sincere thanks for a job well done to the entire team at Cengage South-Western.

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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.

1

© G

et ty

Im ag

es

part

1Introduction to Economics

The first two chapters introduce you to a foundation of economic knowledge vital to understanding the other chapters in the text. In these introductory chapters, you will begin to learn a valuable reasoning approach to solving economics puzzles that economists call “the economic way of thinking.” Part 1 develops the cornerstone of this type of logi- cal analysis by presenting basic economic models that explain such important topics as scarcity, opportunity cost, production possibilities, and economic growth.

Copyright 2010 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.

2

chapter

1

Welcome to an exciting and useful subject

economists call “the economic way of thinking.”

As you learn this reasoning technique, it will

become infectious. You will discover that the world

is full of economics problems requiring more

powerful tools than just common sense. As you

master the methods explained in this book, you

will appreciate economics as a valuable reasoning

approach to solving economics puzzles. Stated

differently, the economic way of thinking is

important because it provides a logical framework

for organizing your thoughts and understanding an

economic issue or event. Just to give a sneak

preview, in later chapters you will study the perils

of government price fixing for gasoline and health

care. You will also find out why colleges and

universities charge students different tuitions for

the same education. You will investigate whether

you should worry if the federal government fails to

balance its budget. You will learn that the island of

Yap uses large stones with holes in the center as

money. In the final chapter, you will study why

some countries grow rich while others remain poor

and less developed. And the list of fascinating

and relevant topics continues throughout each

chapter. As you read these pages, your efforts will

be rewarded by an understanding of just how

economic theories and policies affect our daily

lives—past, present, and future.

Chapter 1 acquaints you with the foundation

of the economic way of thinking. The first building

blocks joined are the concepts of scarcity and

choice. The next building blocks are the steps in

the model-building process that economists use to

study the choices people make. Then we look at

some pitfalls of economic reasoning and explain

why economists might disagree with one another.

The chapter concludes with a discussion of why

you may wish to be an economics major.

Introducing the Economic Way of Thinking

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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.

3

In this chapter, you will learn to solve these economics puzzles:

Can you prove there is no person worth a trillion dollars?•

Why would you purchase more Coca-Cola when the price increases?•

How can we explain the relationship between the Super Bowl winner and • changes in the stock market?

THE PROBLEM OF SCARCITY Our world is a fi nite place where people, both individually and collectively, face the problem of scarcity. Scarcity is the condition in which human wants are for- ever greater than the available supply of time, goods, and resources. Because of scarcity, it is impossible to satisfy every desire. Pause for a moment to list some of your unsatisfi ed wants. Perhaps you would like a big home, gourmet meals, designer clothes, clean air, better health care, shelter for the homeless, more leisure time, and so on. Unfortunately, nature does not offer the Garden of Eden, where every desire is fulfi lled. Instead, there are always limits on the economy’s ability to satisfy unlim- ited wants. Alas, scarcity is pervasive, so “You can’t have it all.”

You may think your scarcity problem would disappear if you were rich, but wealth does not solve the problem. No matter how affl uent an individual is, the wish list continues to grow. We are familiar with the “rich and famous” who never seem to have enough. Although they live well, they still desire fi ner homes, faster planes, and larger yachts. In short, the condition of scarcity means all individuals, whether rich or poor, are dissatisfi ed with their material well-being and would like more. What is true for individuals also applies to society. Even Uncle Sam can’t escape the problem of scarcity because the federal government never has enough money to spend for the poor, education, highways, police, national defense, Social Security, and all the other programs it wishes to fund.