The study of economics should begin with a sense of wonder. Pause for a moment and consider a typical day in your life. It might start with a bagel made in a local bakery with flour produced in Minnesota from wheat grown in Kansas. After class you drive with a friend on an interstate highway that is part of a system that took 20 years and billions of dollars to build. You stop for gasoline refined in Louisiana from Saudi Arabian crude oil. Later, you log onto the Web with a laptop assembled in Indonesia from parts made in China and Skype with your brother in Mexico City. You use or consume tens of thousands of things. Somebody organized men and women and materials to produce and distribute them. Thousands of decisions went into their completion, and somehow they got to you.
In the United States, about 150 million people—almost half the total population—work at hundreds of thousands of different jobs producing nearly $18 trillion worth of goods and services every year. Some cannot find work; some choose not to work. The United States imports more than $300 billion worth of automobiles and parts and more than $350 billion worth of petroleum and petroleum products each year; it exports around $140 billion worth of agricultural products, including food. In the modern economy, consumers’ choices include products made all over the globe.
Economics is the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided. The key word in this definition is choose. Economics is a behavioral, or social, science. In large measure, it is the study of how people make choices. The choices that people make, when added up, translate into societal choices.
The purpose of this chapter and the next is to elaborate on this definition and to introduce the subject matter of economics. What is produced? How is it produced? Who gets it? Why? Is the result good or bad? Can it be improved?
PArT i Introduction To Economics 35
1 The Scope and Method of Economics 35
2 The Economic Problem: Scarcity and Choice 56
3 Demand, Supply, and Market Equilibrium 76
4 Demand and Supply Applications 106
5 Elasticity 123
PArT ii The Market System 143
6 Household Behavior and Consumer Choice 146
7 The Production Process: The Behavior of Profit-Maximizing Firms 175
8 Short-Run Costs and Output Decisions 198
9 Long-Run Costs and Output Decisions 219
10 Input Demand: The Labor and Land Markets 243
11 Input Demand: The Capital Market and theInvestment Decision 259
12 General Equilibrium and the Efficiency of PerfectCompetition 282
PArT iii Market Imperfections and theRole of Government 297
13 Monopoly and Antitrust Policy 297
14 Oligopoly 322
15 Monopolistic Competition 344
16 Externalities, Public Goods, and Common Resources 360
17 Uncertainty and Asymmetric Information 383
18 Income Distribution and Poverty 398
19 Public Finance: The Economics of Taxation 422
PArT iV The World Economy 444
20 International Trade, Comparative Advantage, and Protectionism 444
21 Economic Growth in Developing Economies 468
PArT V Methodology 485
22 Critical Thinking about Research 485
Photo Credits 526