EIGHTH EDITION \ "X. en L o Slavin. Union County College Cranford, New Jersey. The New School University New York City.

Transcription

1 M i tiro economics EIGHTH EDITION \ "X en L o Slavin Union County College Cranford, New Jersey The New School University New York City McGraw-Hill Irwin Boston Burr Ridge, IL Dubuque, IA Madison, Wl New York San Francisco St. Louis Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto

2 Expanded Contents 1 A Brief Economic History of the United States 1 Introduction 1 The American Economy in the 19th Century 2 Agricultural Development 2 The National Railroad Network 4 The Age of the Industrial Capitalist 5 The American Economy in the 20th Century 6 The Roaring Twenties 7 The 1930s: The Great Depression 7 - The 1940s: World War II and Peacetime Prosperity 10 The 1950s: The Eisenhower Years 13 The Soaring Sixties: The Years of Kennedy and Johnson 13 The Sagging Seventies: The Stagflation Decade 14 The 1980s: The Age of Reagan 15 The State of American Agriculture 15 The "New Economy" of the Nineties 16 Current Issue: America's Place in History 17 2 ' Resource Utilization 23 Economics Defined 23 The Central Fact of Economics: Scarcity 24 Scarcity and the Need to Economize 24 The Economic Problem 24 The Four Economic Resources 24 Opportunity Cost 26 Full Employment and Full Production 26 The Production Possibilities Curve 30 Productive Efficiency 35 Economic Growth 35 Current Issue: Will You Be Underemployed When You Graduate? 37 3j Supply and Demand 47 Demand 47 Supply 48 Equilibrium 50 Surpluses and Shortages 50 Shifts in Demand and Supply 51 Price Ceilings and Price Floors 55 Applications of Supply and Demand 60 Interest Rate Determination 60 College Parking 61 The Rationing Function of the Price System 61 Last Word 62 Current Issue: High Gas Prices: Something Only an Economist Could Love ' The Mixed Economy 71 The Three Questions of Economics 71 What Shall We Produce? 71 How Shall These Goods and Services Be Produced? 72 " For Whom Shall the Goods and Services Be Produced? 72 To Sum Up 73 The Invisible Hand, the Price Mechanism, and Perfect Competition 73 The Invisible Hand 73 The Price Mechanism 74 Competition 74 Trust 75 Equity and Efficiency 75 The Circular Flow Model 76 The Economic Role of Government 77 Market Failure 78 Externalities 78 Curbing Environmental Pollution 80 Lack of Public Goods and Services 81 Government Failure 82 Capital 84 The "Isms": Capitalism, Communism, Fascism, and Socialism 86 The Decline and Fall of the Communist System 89 Transformation in China 89 Current Issue: The Bridge to Nowhere 91 $J Demand, Supply, and Equilibrium 95 Demand Defined 95 Individual Demand and Market Demand 96 Changes in Demand 97 Increases in Demand 97 XV

3 XVI Expanded Contents Decreases in Demand 98 Problems 98 What Causes Changes in Demand? 101 Supply Defined 103 Individual Supply and Market Supply 103 Changes in Supply 104 What Causes Changes in Supply? 106 Graphing the Demand and Supply Curves 107 Graphing the Demand Curve 108 Graphing the Supply Curve 109 Equilibrium 110 Finding Equilibrium Price and Quantity 112 Current Issue: Why Can't I Sell My House? The Elasticities of Demand and Supply 119 The Elasticity of Demand 119 Measuring Elasticity 119 The Meaning of Elasticity 121 Determinants of the Degree of Elasticity of Demand 126 Advertising 129 Elasticity and Total Revenue 131 Elastic Demand and Total Revenue 131 Inelastic Demand and Total Revenue 131 Elasticity of Supply 132 Elasticity over Time 133 Tax Incidence 135 Last Word 138 Current Issue: How Elastic Is Your Demand for Food? 139 7! Theory of Consumer Behavior 145 Utility 146 What Is Utility? 146 Marginal Utility 146 Total Utility 147 Maximizing Utility 147 The Water-Diamond Paradox 149 Some Limitations of Utility Applications 150 Consumer Surplus 150 Do Price Gougers Rip Us Off? 154 Current Issue: All-You-Can-Eat Buffets Cost 161 Costs 161 Fixed Costs 162 Variable Costs 162 Total Cost 162 Marginal Cost 162 The Short Run and the Long Run 165 The Short Run 165 The Long Run 165 Average Cost 165 Average Fixed Cost 166 Average Variable Cost 166 Average Total Cost 167 Graphing the AFC, AVC, ATC, and MC Curves 168 Why Are the AVC and ATC Curves U-Shaped? 171 The Production Function and the Law of Diminishing Returns 173 Economies of Scale 175 Diseconomies of Scale 176 A Summing Up 177 The Decision to Operate or Shut Down 178 The Decision to Go Out of Business or Stay in Business 180 Choosing Plant Size 183 Current Issue: Wedding Hall or City Hall? Profit, Loss, and Perfect Competition 191 Total Revenue and Marginal Revenue 191 Graphing Demand and Marginal Revenue 192 Economic and Accounting Profit 193 Profit Maximization and Loss Minimization 193 A Summing Up 196 Efficiency 200 Review of Efficiency and Profit Maximization 201 Do You Really Need to Make a Profit? 202 Definition of Perfect Competition 202 The Perfect Competitor's Demand Curve 205 The Short Run 206 The Long Run 208 Alternative Calculation of Profit and Loss 213 The Perfect Competitor: A Price Taker, Not a Price Maker 214 Efficiency, Price, and Profit 215 Current Issue: The Internet Effect: A More Perfect Knowledge and Lower Prices Monopoly 227 Monopoly Defined 227 The Graph of the Monopolist 228 Calculating the Monopolist's Profit 230 Review of the Monopolist's Economic Analysis 231 The Monopolist in the Short Run and in the Long Run 234 Are All Monopolies Big Companies? 234 Barriers to Entry 235 Limits to Monopoly Power 239

4 Expanded Contents xvii Economies of Scale and Natural Monopoly 239 What Is Natural Monopoly? 239 Two Policy Alternatives 241 Is Bigness Good or Bad? 242 When Is Bigness Bad? 242 When Is Bigness Good? 244 The Economic Case against Bigness 244 Conclusion 244 Current Issue: Would You Allow Wal-Mart to Open a Supercenter in Your Community? Monopolistic Competition 251 Monopolistic Competition Defined 251 The Monopolistic Competitor in the Short Run 251 The Monopolistic Competitor in the Long Run 253 Product Differentiation 254 The Typical Monopolistic Competitor 256 Price Discrimination 258 Is the Monopolistic Competitor Inefficient? 261 Current Issue: Selling Status Oligopoly 267 Oligopoly Defined 267 Two Measures of the Degree of Oligopolization 268 Concentration Ratios 268 The Herfindahl-Hirschman Index (HHI) 269 The Competitive Spectrum 270 Cartels 270 Open Collusion 272 Covert Collusion 272 Price Leadership 273 Cutthroat Competition 275 Conclusion 278 Current Issue: Cutthroat Competition in the College Textbook Market 279 Appendix: The Four Types of Competition: A Review 287 Perfect Competition 287 Monopoly 288 Monopolistic Competition 288 Oligopoly 288 Perfect Competition versus Imperfect Competition 288 Summary Tables Corporate Mergers and Antitrust 293 A Historical Perspective on Corporate Concentration 293 Antitrust 294 The Political Background 294 The Sherman Antitrust Act 294 The Clayton Antitrust Act 296 The Federal Trade Commission Act (1914) 296 Modern Antitrust 297 Partial Breakdown of the Rule of Reason 297 The 60 Percent Rule 298 Two Landmark Cases 298 European Antitrust 299 Types of Mergers 300 Horizontal Mergers 300 Vertical Mergers 300 Conglomerate Mergers 301 Deregulation 301 Corporate Misconduct 302 How Effective Is Antitrust? 303 The Trend toward Bigness 303 Current Issue: The Enron Case Demand in the Factor Market 311 Derived Demand 311 Productivity 312 Prices of Substitute Resources 312 Marginal Revenue Product (MRP) 313 The MRP of the Imperfect Competitor 317 Changes in Resource Demand 318 Changes in Resource Demand versus Changes in Quantity of Resource Demanded 318 The Four Reasons for Changes in Resource Demand 319 Optimum Resource Mix for the Firm 321 Current Issue: Washing Machines and Women's Liberation Labor Unions 329 A Short History of the American Labor Movement 329 The Early Years 329 Key Labor Legislation 330 Craft Unions versus Industrial Unions 331 Union Organizing since the 1950s 333 The Formation of Change to Win 335 Jobs: Exportable and Nonexportable 335 The Economic Power of Labor Unions 336 The Economic Power of Large Employers 336 Collective Bargaining 338 Strikes, Lockouts, and Givebacks 338 The Collective Bargaining Agreement 340 The Strike 340 \ Averting Strikes: Mediation and Arbitration 341

5 XV111 Expanded Contents Current Issue: Will You Ever Be a Member of a Labor Union? Labor Markets and Wage Rates 347 The Supply of Labor 347 Noncompeting Groups 347 The Theory of the Dual Labor Market 348 The Backward-Bending Labor Supply Curve 350 The Demand for Labor 351 The Marginal Revenue Product Schedule 351 Nonhomogeneous Jobs 352 The Effects of Employment Discrimination on Wages 353 Employment Discrimination against Women 353 Employment Discrimination against African Americans 355 Conclusion 356 The Wage Rate: Supply and Demand 356 High Wage Rates and Economic Rent 356 Real Wages versus Money Wages 358 The Minimum Wage and the Living Wage 362 The Minimum Wage Rate: 1938 to the Present 362 Should There Be a Minimum Wage Rate? 363 The Living Wage 365 Current Issue: The Education Gap Rent, Interest, and Profit 373 Rent 373 What Is Land? 373 How Is Rent Determined? 375 Economic Rent 376 Are Prices High because Rents Are High, or Are Rents High because Prices Are High? 377 Interest 378 What Is Capital? 378 How Is the Interest Rate Determined? 378 Interest Rates and Consumer Loans 379 The Present Value of Future Income 381 Profits 384 How Are Profits Determined? 384 How Large Are Profits? 384 Theories of Profit 384 Conclusion 387 Current Issue: Subprime, Fringe, and Payday Lending Income Distribution and Poverty 395 Income Distribution in the United States 395 The Poor, the Middle Class, and the Rich 395 Distribution of Wealth in the United States 400 Distribution of Income: Equity and Efficiency 400 What Determines Income Distribution? 402 Poverty in America 403 Poverty Defined 403 Who Are the Poor? 405 Child Poverty 407 The Main Government Transfer Programs 408 Theories of the Causes of Poverty 412 The Conservative View versus the Liberal View 414 Solutions 416 Current Issue: Will Social Security Be There for You? International Trade 427 Part I: A Brief History of U.S. Trade 428 U.S. Trade before U.S. Trade since U.S. Government Trade Policy 429 Part II: The Theory of International Trade 431 Specialization and Trade 431 Comparative Advantage 431 Absolute Advantage versus Comparative Advantage 435 The Arguments for Protection 435 Tariffs or Quotas 440 Conclusion 441 Part III: The Practice of International Trade 442 What Are the Causes of Our Trade Imbalance? 442 Part IV: Our Trade Deficit with Japan and China 444 Japanese Trading Practices 444 Our Trade Deficit with China 446 Trading with China and Japan: More Differences than Similarities 447 Final Word 448 Free Trade in Word and Deed 448 Reducing Our Trade Deficit 449 Current Issue: Buy American? International Finance 455 The Mechanics of International Finance 455 Financing International Trade 455 The Balance of Payments 456

6 Expanded Contents Exchange Rate Systems 458 Living beyond Our Means 471 The Gold Standard 459 A Codependent Relationship 471 The Gold Exchange Standard, Wh y We Need t0 Worr y The Freely Floating Exchange Rate System, 1973 to the Deficit 472 about the Current Account u w r >?^nt tf 61, c / C, -ui M3 u D Current Issue: Editorial: American How Well Do Freely Floating (Flexible) Exchange Rates _.,.._ Work? 463 Exceptionality 472 The Euro 463 The Yen and the Yuan 463 _,. Glossary 479 Running Up a Tab in the Global Economy 466 From Largest Creditor to Largest Debtor 466 Index 488