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SURVEY OF
ec nomics
8th EDITION
IRVIN B. TUCKER
UniversityofNorth Carolina Charlotte
Australia(cid:129)Brazil(cid:129)Japan(cid:129)Korea(cid:129)Mexico(cid:129)Singapore(cid:129)Spain(cid:129)UnitedKingdom(cid:129)UnitedStates
SurveyofEconomics,EighthEdition ©2013,2011South-Western,CengageLearning
IrvinB.Tucker
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BRIEF
contents
PART 1
INTRODUCTION TO ECONOMICS 1
Chapter 1 Introducing the Economic Way of Thinking 2
Appendix 1: Applying Graphs to Economics 17
Chapter 2 Production Possibilities, Opportunity Cost, and Economic Growth 27
PART 2
THE MICROECONOMY 47
Chapter 3 Market Demand and Supply 48
Chapter 4 Markets in Action 73
Appendix 4: Applying Supply and Demand Analysis to Health Care 94
Chapter 5 Price Elasticity of Demand 98
Chapter 6 Production Costs 112
Chapter 7 Perfect Competition 131
Chapter 8 Monopoly 152
Chapter 9 Monopolistic Competition and Oligopoly 175
Chapter 10 Labor Markets and Income Distribution 194
PART 3
THE MACROECONOMY AND FISCAL POLICY 227
Chapter 11 Gross Domestic Product 228
Chapter 12 Business Cycles and Unemployment 248
Chapter 13 Inflation 270
Chapter 14 Aggregate Demand and Supply 288
Appendix 14: The Self-Correcting Aggregate Demand and Supply Model 313
Chapter 15 Fiscal Policy 325
Chapter 16 The Public Sector 345
Chapter 17 Federal Deficits, Surpluses, and the National Debt 364
PART 4
MONEY, BANKING, AND MONETARY POLICY 391
Chapter 18 Money and the Federal Reserve System 392
Chapter 19 Money Creation 409
Chapter 20 Monetary Policy 428
Appendix 20: Policy Disputes Using the Self-Correcting Aggregate
Demand and Supply Model 451
PART 5
THE INTERNATIONAL ECONOMY 461
Chapter 21 International Trade and Finance 462
Chapter 22 Economies in Transition 491
Chapter 23 Growth and the Less-Developed Countries 510
Appendix A: Answers to Odd-Numbered Study Questions and Problems 534
Appendix B: Answers to Practice Quizzes 547
Appendix C: Answers to Road Map Questions 549
Glossary 550
Index 557
iii
contents
PREFACE xvi
ABOUT THE AUTHOR xxv
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? 7
Hazards of the Economic Way of Thinking 8
CHECKPOINT: Should Nebraska State Join a Big-Time Athletic Conference? 9
ECONOMICS IN PRACTICE: Mops and Brooms, the Boston Snow Index,
the Super Bowl, and other Economic Indicators 9
Why Do Economists Disagree? 10
ECONOMICS IN PRACTICE: Does the Minimum Wage Really Help the
Working Poor? 11
Careers in Economics 12
Key Concepts 13
Summary 13
Study Questions and Problems 14
Checkpoint Answers 14
Practice Quiz 15
appendix 1 Applying Graphs to Economics 17
A Direct Relationship 17
An Inverse Relationship 18
The Slope of a Straight Line 20
A Three-Variable Relationship in One Graph 20
A Helpful Study Hint for Using Graphs 22
Key Concepts 22
Summary 23
Study Questions and Problems 23
Practice Quiz 24
chapter 2 Production Possibilities, Opportunity Cost, and Economic Growth 27
Three Fundamental Economic Questions 28
Opportunity Cost 28
Marginal Analysis 30
iv
CONTENTS v
The Production Possibilities Curve 30
The Law of Increasing Opportunity Costs 32
Sources of Economic Growth 34
ECONOMICS IN PRACTICE: FedEx Wasn’t an Overnight Success 36
CHECKPOINT: What Does a War on Terrorism Really Mean? 36
Present Investment and the Future Production Possibilities Curve 36
GLOBAL ECONOMICS: How Does Public Capital Affect a Nation’s Curve? 38
Key Concepts 38
Summary 39
Study Questions and Problems 40
Checkpoint Answer 41
Practice Quiz 41
PART 1 Road Map 44
PART 2
THE MICROECONOMY 47
chapter 3 Market Demand and Supply 48
The Law of Demand 49
The Distinction between Changes in Quantity Demanded and Changes
in Demand 51
Nonprice Determinants of Demand 52
CHECKPOINT: Can Gasoline Become an Exception to the Law of Demand? 56
The Law of Supply 56
CHECKPOINT: Can the Law of Supply Be Repealed for the Oil Market? 58
The Distinction between Changes in Quantity Supplied and Changes in Supply 59
Nonprice Determinants of Supply 61
ECONOMICS IN PRACTICE: PC Prices: How Low Can They Go? 62
A Market Supply and Demand Analysis 64
GLOBAL ECONOMICS: The Market Approach to Organ Shortages 67
CHECKPOINT: Can the Price System Eliminate Scarcity? 67
Key Concepts 68
Summary 68
Study Questions and Problems 69
Checkpoint Answers 70
Practice Quiz 71
chapter 4 Markets in Action 73
Changes in Market Equilibrium 74
CHECKPOINT: Why the Higher Price for Ethanol Fuel? 76
Can the Laws of Supply and Demand Be Repealed? 77
vi CONTENTS
ECONOMICS IN PRACTICE: Who Turned Out the Lights in California? 79
CHECKPOINT: Is There Price Fixing at the Ticket Window? 82
ECONOMICS IN PRACTICE: Rigging the Market for Milk 82
Market Failure 83
CHECKPOINT: Should There Be a War on Drugs? 87
ECONOMICS IN PRACTICE: Can Vouchers Fix Our Schools? 88
Key Concepts 89
Summary 89
Study Questions and Problems 90
Checkpoint Answers 90
Practice Quiz 91
appendix 4 Applying Supply and Demand Analysis to Health Care 94
The Impact of Health Insurance 94
Shifts in the Demand for Health Care 96
Shifts in the Supply of Health Care 96
chapter 5 Price Elasticity of Demand 98
Price Elasticity of Demand 99
Price Elasticity of Demand Variations Along a Demand Curve 103
CHECKPOINT: Will Fliers Flock to Low Summer Fares? 105
Determinants of Price Elasticity of Demand 105
CHECKPOINT: Can Trade Sanctions Affect Elasticity of Demand for Cars? 106
ECONOMICS IN PRACTICE: Cigarette Smoking Price Elasticity of Demand 107
Key Concepts 108
Summary 108
Study Questions and Problems 109
Checkpoint Answers 109
Practice Quiz 110
chapter 6 Production Costs 112
Costs and Profit 113
CHECKPOINT: Should the Professor Go or Stay? 114
Short-Run Production Costs 115
Short-Run Cost Formulas 117
Long-Run Production Costs 121
Different Scales of Production 123
ECONOMICS IN PRACTICE: Why Is That Web Site You’re Using Free? 125
Key Concepts 126
Summary 126
Study Questions and Problems 127
CONTENTS vii
Checkpoint Answer 128
Practice Quiz 129
chapter 7 Perfect Competition 131
Perfect Competition 132
Short-Run Profit Maximization for a Perfectly Competitive Firm 134
Short-Run Loss Minimization For a Perfectly Competitive Firm 137
CHECKPOINT: Should Motels Offer Rooms at the Beach for Only $50 a Night? 141
Short-Run Supply Curves Under Perfect Competition 141
Long-Run Supply Curves Under Perfect Competition 144
CHECKPOINT: Are You in Business for the Long Run? 145
ECONOMICS IN PRACTICE: Gators Snapping Up Profits 146
Key Concepts 147
Summary 147
Study Questions and Problems 148
Checkpoint Answers 149
Practice Quiz 150
chapter 8 Monopoly 152
The Monopoly Market Structure 153
Price and Output Decisions for a Monopolist 155
GLOBAL ECONOMICS: Monopolies Around the World 156
Price Discrimination 162
ECONOMICS IN PRACTICE: The Standard Oil Monopoly 164
CHECKPOINT: Why Don’t Adults Pay More for Popcorn at the Movies? 165
Comparing Monopoly and Perfect Competition 165
The Case Against and For Monopoly 168
ECONOMICS IN PRACTICE: New York Taxicabs: Where Have All the Fare
Flags Gone? 168
Key Concepts 169
Summary 169
Study Questions and Problems 171
Checkpoint Answer 172
Practice Quiz 173
chapter 9 Monopolistic Competition and Oligopoly 175
The Monopolistic Competition Market Structure 176
Price and Output Decisions for a Monopolistically Competitive Firm 177
ECONOMICS IN PRACTICE: Social Networking Sites: The New Advertising Game 178
Comparing Monopolistic Competition and Perfect Competition 179
Oligopoly—Competition Among a Few 182
viii CONTENTS
Price and Output Decisions for an Oligopolist 183
GLOBAL ECONOMICS: Major Cartels in Global Markets 184
An Evaluation of Oligopoly 187
CHECKPOINT: Which Model Fits the Cereal Aisle? 187
Review of the Four Market Structures 187
ECONOMICS IN PRACTICE: How Oligopolists Compete at the Final Four 188
Key Concepts 188
Summary 188
Study Questions and Problems 190
Checkpoint Answer 191
Practice Quiz 191
chapter 10 Labor Markets and Income Distribution 194
The Labor Market Under Perfect Competition 195
Labor Unions: Employee Power 200
Union Membership Around the World 202
The Distribution of Income 204
Equality Versus Efficiency 205
Poverty 207
Antipoverty Programs 209
ECONOMICS IN PRACTICE: Pulling on the Strings of the Welfare Safety Net 212
Discrimination 213
ECONOMICS IN PRACTICE: Is Pay for Females Fair? 214
CHECKPOINT: Should the Law Protect Women? 215
Key Concepts 215
Summary 215
Study Questions and Problems 216
Checkpoint Answer 217
Practice Quiz 217
PART 2 Road Map 220
PART 3
THE MACROECONOMY AND FISCAL POLICY 227
chapter 11 Gross Domestic Product 228
Gross Domestic Product 229
Measuring GDP 230
CHECKPOINT: How Much Does Mario Add to GDP? 234
GDP In Other Countries 234
GDP Shortcomings 234
