Taylor T. Principles of Economics

New York: Textbook Media, 2014. — 694 p.This third edition teaches the tools and principles that are standard for introductory economics, in a way that students can see the applications for the U.S. and world economy. The facts, anecdotes, and explanations have been scrutinized and updated throughout. In addition, this book has been structured since the first edition to mix in international topics and to consider product, labor, and capital markets side by side, which helps it apply easily to so many of the topics now in the news: effects of globalization on growth and labor markets, budget deficits, the minimum wage, health insurance, and many more. As an adopter of the second edition said, “I have listened to all of Tim's programs for The Teaching Company and find him to be an extremely knowledgeable economist, who has the ability to take complex issues and make them come alive. His book is really an extension of his rather amazing style.”.The interconnected Economy.
What Is an Economy?
Market-Oriented vs Command Economies.
The Interconnectedness of an Economy.
The Division of Labor.
Why the Division of Labor Increases Production.
Trade and Markets.
The Rise of Globalization.
Microeconomics and Macroeconomics.
Microeconomics: The Circular Flow Diagram.
Macroeconomics: Goals, Frameworks, and Tools.
Studying Economics Doesn’t Mean Worshiping the Economy.
Key Concepts and Summary.
Appendix to.
Pie Graphs.
Bar Graphs.
Line Graphs.
Comparing Line Graphs with Pie Charts and Bar Graphs.
Summary and Key Concepts.
Choice in a world of Scarcity.
Choosing What to Consume.
A Consumption Choice Budget Constraint.
How Changes in Income and Prices Affect the Budget Constraint.
Personal Preferences Determine Specific Choices.
From a Model with Two Goods to the Real World of Many Goods.
Choosing Between Labor and Leisure.
An Example of a Labor-Leisure Budget Constraint.
How a Change in Wages Affects the Labor-Leisure Budget Constraint.
Making a Choice Along the Labor-Leisure Budget Constraint.
Choosing Between Present and Future Consumption.
Interest Rates: The Price of Intertemporal Choice.
The Power of Compound Interest.
An Example of Intertemporal Choice.
Three Implications of Budget Constraints.
Opportunity Cost.
Marginal Decision-Making and Diminishing Marginal Utility.
Sunk Costs.
The Production Possibilities Frontier and Social Choices.
The Shape of the Production Possibilities Frontier and Diminishing Marginal Returns.
Productive Efficiency and Allocative Efficiency.
Why Society Must Choose.
Confronting Objections to the Economic Approach.
A First Objection: People, Firms, and Society Don’t Act Like This.
A Second Objection: People, Firms, and Society Shouldn’t Do This.
Facing Scarcity and Making Trade-offs.
Key Concepts and Summary.
International Trade.
Absolute Advantage.
A Numerical Example of Absolute Advantage and Trade.
Trade and Opportunity Cost.
Limitations of the Numerical Example.
Comparative Advantage.
Identifying Comparative Advantage.
Mutually Beneficial Trade with Comparative Advantage.
How Opportunity Cost Sets the Boundaries of Trade.
Comparative Advantage Goes Camping.
The Power of the Comparative Advantage Example.
Intra-industry Trade between Similar Economies.
The Prevalence of Intra-industry Trade between Similar Economies.
Gains from Specialization and Learning.
Economies of Scale, Competition, Variety.
Dynamic Comparative Advantage.
The Size of Benefits from International Trade.
From Interpersonal to International Trade.
Key Concepts and Summary.
Demand and Supply.
Demand, Supply, and Equilibrium in Markets for Goods and Services.
Demand for Goods and Services.
Supply of Goods and Services.
Equilibrium — Where Demand and Supply Cross.
Shifts in Demand and Supply for Goods and Services.
The Ceteris Paribus Assumption.
An Example of a Shifting Demand Curve.
Factors That Shift Demand Curves.
Summing Up Factors That Change Demand.
An Example of a Shift in a Supply Curve.
Factors That Shift Supply Curves.
Summing Up Factors That Change Supply.
Shifts in Equilibrium Price and Quantity: The Four-Step Process.
Good Weather for Salmon Fishing.
Seal Hunting and New Drugs.
The Interconnections and Speed of Adjustment in Real Markets.
Price Ceilings and Price Floors in Markets for Goods and Services.
Price Ceilings.
Price Floors.
Responses to Price Controls: Many Margins for Action.
Policy Alternatives to Price Ceilings and Price Floors.
Supply, Demand, and Efficiency.
Consumer Surplus, Producer Surplus, Social Surplus.
Inefficiency of Price Floors and Price Ceilings.
Demand and Supply as a Social Adjustment Mechanism.
Key Concepts and Summary.
Labor and Financial Capital Marketspdf.
Demand and Supply at Work in Labor Markets.
Equilibrium in the Labor Market.
Shifts in Labor Demand.
Shifts in Labor Supply.
Technology and Wage Inequality: The Four-Step Process.
Price Floors in the Labor Market: Living Wages and Minimum Wages.
The Minimum Wage as an Example of a Price Floor.
Demand and Supply in Financial Capital Markets.
Who Demands and Who Supplies in Financial Capital Markets.
Equilibrium in Financial Capital Markets.
Shifts in Demand and Supply in Financial Capital Markets.
The United States as a Global Borrower: The Four-Step Process.
Price Ceilings in Financial Capital Markets: Usury Laws.
Don’t Kill the Price Messengers.
Key Concepts and Summary.
Globalization and Protectionism.
Protectionism: An Indirect Subsidy from Consumers to Producers.
Demand and Supply Analysis of Protectionism.
Who Benefits and Who Pays?
International Trade and Its Effects on Jobs, Wages, and Working Conditions.
Fewer Jobs?
Trade and Wages.
Labor Standards.
The Infant Industry Argument.
The Dumping Argument.
The Growth of Anti-Dumping Cases.
Why Might Dumping Occur?
Should Anti-Dumping Cases Be Limited?
The Environmental Protection Argument.
The Race to the Bottom Scenario.
Pressuring Low-Income Countries for Higher Environmental Standards.
The Unsafe Consumer Products Argument.
The National Interest Argument.
How Trade Policy Is Enacted: Global, Regional, and National.
The World Trade Organization.
Regional Trading Agreements.
Trade Policy at the National Level.
Long-Term Trends in Barriers to Trade.
The Trade-offs of Trade Policy.
Key Concepts and Summary.
Elasticity.
Price Elasticity of Demand.
Price Elasticity of Supply.
Elastic, Inelastic, and Unitary Elasticity.
Applications of Elasticity.
Elasticity as a General Concept.
Key Concepts and Summary.
Household Decision-Making.
Consumption Choices.
How Changes in Income and Prices Affect Consumption Choices.
Labor-Leisure Choices.
Intertemporal Choices in Financial Capital Markets.
Key Concepts and Summary.
Appendix to.
What Is an Indifference Curve?
Utility-Maximizing with Indifference Curves.
Changes in Income.
Responses to Price Changes: Substitution and Income Effects.
Indifference Curves with Labor-Leisure and Intertemporal Choices.Key Concepts and Summary.
Cost and Industry Structure.
The Structure of Costs in the Short Run.
The Structure of Costs in the Long Run.Key Concepts and Summary.
Perfect Competition.
Quantity Produced by a Perfectly Competitive Firm.
Entry and Exit in the Long-Run Output.
Factors of Production in Perfectly Competitive Markets.
Efficiency in Perfectly Competitive Markets.Key Concepts and Summary.
Monopoly.
Barriers to Entry.
Legal Restrictions.
Control of a Physical Resource.
Technological Superiority.
Natural Monopoly.
Intimidating Potential Competition.
Summing Up Barriers to Entry.
How a Profit-Maximizing Monopoly Chooses Output and Price.
Demand Curves Perceived by a Perfectly Competitive Firm and by a Monopoly.
Total and Marginal Revenue for a Monopolist.
Marginal Revenue and Marginal Cost for a Monopolist.
Illustrating Monopoly Profits.
The Inefficiency of Monopoly.Key Concepts and Summary.
Monopolistic Competition and Oligopoly.
Monopolistic Competition.
Differentiated Products.
Perceived Demand for a Monopolistic Competitor.
How a Monopolistic Competitor Chooses Price and Quantity.
Monopolistic Competitors and Entry.
Monopolistic Competition and Efficiency.
The Benefits of Variety and Product Differentiation.
Oligopoly.
Why Do Oligopolies Exist?
Collusion or Competition?
The Prisoner’s Dilemma.
The Oligopoly Version of the Prisoner’s Dilemma.
How to Enforce Cooperation.Key Concepts and Summary.
Competition and Public Policy.
Corporate Mergers.
Regulations for Approving Mergers.
The Four-Firm Concentration Ratio.
The Herfindahl-Hirschman Index.
New Directions for Antitrust.
Regulating Anticompetitive Behavior.
When Breaking Up Is Hard to Do: Regulating Natural Monopolies.
The Choices in Regulating a Natural Monopoly.
Cost-Plus versus Price Cap Regulation.
The Great Deregulation Experiment.
Doubts about Regulation of Prices and Quantities.
The Effects of Deregulation.
Frontiers of Deregulation.
Around the World: From Nationalization to Privatization.
Key Concepts and Summary.
Environmental Protection and Negative Externalities.
Externalities.
Pollution as a Negative Externality.
Command-and-Control Regulation.
Market-Oriented Environmental Tools.
Market-Friendly Environmental Tool #: Pollution Charges.
Market-Friendly Environmental Tool #: Marketable Permits.
Market-Friendly Environmental Tool #: Better-Defined Property Rights.
Applying Market-Oriented Environmental Tools.
The Benefits and Costs of US Environmental Laws.
Benefits and Costs of Clean Air and Clean Water.
Marginal Benefits and Marginal Costs.
The Unrealistic Goal of Zero Pollution.
International Environmental Issues.
The Trade-off between Economic Output and Environmental Protection.
Key Concepts and Summary.
Technology, Positive Externalities and Public Goods.
The Incentives for Developing New Technology.
Some Grumpy Inventors.
The Positive Externalities of New Technology.
Contrasting Positive Externalities and Negative Externalities.
How to Raise the Rate of Return for Innovators.
Intellectual Property Rights.
Government Spending on Research and Development.
Tax Breaks for Research and Development.
Cooperative Research and Development.
A Balancing Act.
Public Goods.
The Definition of a Public Good.
The Free Rider Problem.
The Role of Government in Paying for Public Goods.
Positive Externalities and Public Goods.
Key Concepts and Summary.
Poverty and Economic Inequality.
Drawing the Poverty Line.
The Poverty Trap.
The Safety Net.
Temporary Assistance for Needy Families.
Earned Income Credit (EIC).
Food Stamps.
Medicaid.
Other Safety Net Programs.
Measuring Income Inequality.
Income Distribution by Quintiles.
Lorenz Curve.
Causes of Growing Income Inequality.
The Changing Composition of American Households.
A Shift in the Distribution of Wages.
Government Policies to Reduce Income Inequality.
Redistribution.
The Ladder of Opportunity.
Inheritance Taxes.
The Trade-off between Incentives and Income Equality.
Key Concepts and Summary.
Issues in Labor Market - Unions, Discrimination and Immigration.
Labor Unions.
Facts about Union Membership and Pay.
Higher Wages for Union Workers.
The Decline in US Union Membership.
Concluding Thoughts about the Economics of Unions.
Employment Discrimination.
Earnings Gaps by Race and Gender.
Investigating the Female/Male Earnings Gap.
Investigating the Black/White Earnings Gap.
Competitive Markets and Discrimination.
Public Policies to Reduce Discrimination.
An Increasingly Diverse Workforce.
Immigration.
Historical Patterns of Immigration.
Economic Effects of Immigration.
Proposals for Immigration Reform.Key Concepts and Summary.
Information, Risk and Insurance.
The Problem of Imperfect Information.
“Lemons” and Other Examples of Imperfect Information.
How Imperfect Information Can Affect Equilibrium Price and Quantity.
When Price Mixes with Imperfect Information about Quality.
Mechanisms to Reduce the Risk of Imperfect Information.
Insurance and Imperfect Information.
How Insurance Works.
Risk Groups and Actuarial Fairness.
The Moral Hazard Problem.
The Adverse Selection Problem.
Government Regulation of Insurance.Key Concepts and Summary.
Financial Markets.
How Businesses Raise Financial Capital.
Early-Stage Financial Capital.
Profits as a Source of Financial Capital.
Borrowing: Banks and Bonds.
Corporate Stock and Public Firms.
How Firms Choose between Sources of Financial Capital.
How Households Supply Financial Capital.
Bank Accounts.
Bonds.
Stocks.
Mutual Funds.
Housing and Other Tangible Assets.
The Trade-offs between Return and Risk.
How to Become Rich.
Why It’s Hard to Get Rich Quick: The Random Walk Theory.
Getting Rich the Slow, Boring Way.
How Capital Markets Transform Financial Flows.
Key Concepts and Summary.
Appendix to.
Public Choice.
When Voters Don’t Participate.
Special-Interest Politics.
Identifiable Winners, Anonymous Losers.
Pork Barrels and Logrolling.
Voting Cycles.
Where Is Government’s Self-Correcting Mechanism?
A Balanced View of Markets and Government.
Key Concepts and Summary.
The Macroeconomic Perspectivepdf.
Measuring the Size of the Economy: Gross Domestic Product.
GDP Measured by Components of Demand.
GDP Measured by What Is Produced.
The Problem of Double Counting.
Comparing GDP among Countries.
Converting Currencies with Exchange Rates.
Converting to Per Capita GDP.
The Pattern of GDP over Time.
How Well Does GDP Measure the Well-Being of Society?
Some Differences between GDP and Standard of Living.
Does a Rise in GDP Overstate or Understate the Rise in the Standard of Living?
GDP Is Rough, but Useful.Key Concepts and Summary.
Economic Growthpdf.
The Relatively Recent Arrival of Economic Growth.
Worker Productivity and Economic Growth.
The Power of Sustained Economic Growth.
The Aggregate Production Function.
Components of the Aggregate Production Function.
Growth Accounting Studies.
A Healthy Climate for Economic Growth.
Future Economic Convergence?
Arguments Favoring Convergence.
Arguments That Convergence Is Neither Inevitable Nor Likely.
The Slowness of Convergence.
Key Concepts and Summary.
Unemploymentpdf.
Unemployment and the Labor Force.
In or Out of the Labor Force?
Calculating the Unemployment Rate.
Controversies over Measuring Unemployment.
Patterns of Unemployment.
The Historical US Unemployment Rate.
Unemployment Rates by Group.
International Unemployment Comparisons.
Why Unemployment Is a Puzzle for Economists.
Looking for Unemployment with Flexible Wages.
Why Wages Might Be Sticky Downward.
The Short Run: Cyclical Unemployment.
The Long Run: The Natural Rate of Unemployment.
Frictional Unemployment.
Productivity Shifts and the Natural Rate of Unemployment.
Public Policy and the Natural Rate of Unemployment.
The Natural Rate of Unemployment in Recent Years.
The Natural Rate of Unemployment in Europe.
A Preview of Policies to Fight Unemployment.
Key Concepts and Summary.
Inflationpdf.
Combining Prices to Measure the Inflation Rate.
The Changing Price of a Basket of Goods.
Index Numbers.
Measuring Changes in the Cost of Living.
Practical Solutions for the Substitution and the Quality/New Goods Biases.
Alternative Price Indexes: PPI, GDP Deflator, and More.
Inflation Experiences.
Historical Inflation in the US Economy.
Inflation around the World.
Adjusting Nominal Values to Real Values.
Nominal to Real GDP.
Nominal to Real Interest Rates.
The Dislocations of Inflation.
The Land of Funny Money.
Unintended Redistributions of Purchasing Power.
Blurred Price Signals.
Problems of Long-Term Planning.
Some Benefits of Inflation?
Indexing and Its Limitations.
Indexing in Private Markets.
Indexing in Government Programs.
Might Indexing Reduce Concern Over Inflation?
A Preview of Policy Discussions of Inflation.
Key Concepts and Summary.
The Balance of Tradepdf.
Measuring Trade Balances.
Components of the US Current Account Balance.
Trade Balances in Historical and International Context.
The Intimate Connection between Trade Balances and Flows of Financial Capital.
The Parable of Robinson Crusoe and Friday.
The Balance of Trade as the Balance of Payments.
The National Saving and Investment Identity.
The National Saving and Investment Identity.
Domestic Savings and Investment Determine the Trade Balance.
Exploring Trade Balances One Factor at a Time.
How Short-Term Movements in the Business Cycle Can Affect the Trade Balance.
When Are Trade Deficits and Surpluses Beneficial or Harmful?
The Difference between Level of Trade and the Trade Balance.
Final Thoughts about Trade Balances.
Key Concepts and Summary.
The Aggregate Supply - Aggregate Demand Modelpdf.
Macroeconomic Perspectives on Demand and Supply.
Say’s Law and the Macroeconomics of Supply.
Keynes’ Law and the Macroeconomics of Demand.
Combining Supply and Demand in Macroeconomics.
Building a Model of Aggregate Supply and Aggregate Demand.
The Aggregate Supply Curve and Potential GDP.
The Aggregate Demand Curve.
Equilibrium in the Aggregate Supply – Aggregate Demand Model.
AS and AD Are Macro, not Micro.
Shifts in Aggregate Supply.
How Productivity Growth Shifts the AS Curve.
How Changes in Input Prices Shift the AS Curve.
Shifts in Aggregate Demand.
How Changes by Consumers and Firms Can Affect AD.
How Government Macroeconomic Policy Choices Can Shift AD.
How the AS – AD Model Combines Growth, Unemployment, Inflation, and the Balance of Trade.
Growth and Recession in the AS – AD Diagram.
Unemployment in the AS – AD Diagram.
Inflationary Pressures in the AS – AD Diagram.
The Balance of Trade and the AS – AD Diagram.
Keynes’ Law and Say’s Law in the AS – AD Model.
Key Concepts and Summary.
The Keynesian Perspectivepdf.
The Building Blocks of Keynesian Analysis.
The Importance of Aggregate Demand in Recessions.
Wage and Price Stickiness.
The Two Keynesian Assumptions in the AS – AD Model.
The Components of Aggregate Demand.
What Causes Consumption to Shift?
What Causes Investment to Shift?
What Causes Government Demand to Shift?
What Causes Exports and Imports to Shift?
The Phillips Curve.
The Discovery of the Phillips Curve.
The Instability of the Phillips Curve.
Keynesian Policy for Fighting Unemployment and Inflation.
The Expenditure-Output Model.
The Axes of the Expenditure-Output Diagram.
The Potential GDP Line and the -degree Line.
The Aggregate Expenditure Schedule.
Building the Aggregate Expenditure Schedule.
Consumption as a Function of National Income.
Investment as a Function of National Income.
Government Spending and Taxes as a Function of National Income.
Exports and Imports as a Function of National Income.
Building the Combined Aggregate Expenditure Function.
Equilibrium in the Keynesian Cross Model.
Where Equilibrium Occurs.
Recessionary and Inflationary Gaps.
The Multiplier Effect.
How Does the Multiplier Work?
Calculating the Multiplier.
Calculating Keynesian Policy Interventions.
Multiplier Trade-offs: Stability vs the Power of Macroeconomic Policy.
Is Keynesian Economics Pro-Market or Anti-Market?
Key Concepts and Summary.
Appendix to PDF.
The Neo Classical Perspectivepdf.
The Building Blocks of Neoclassical Analysis.
The Importance of Potential GDP in the Long Run.
The Role of Flexible Prices.
How Fast Is the Speed of Macroeconomic Adjustment?
Policy Implications of the Neoclassical Perspective.
Fighting Recession or Encouraging Long-Term Growth?
Fighting Unemployment or Inflation?
The Neoclassical Phillips Curve Trade-Off.
Macroeconomists Riding Two Horses.
Key Comments and Summary.
Money and Bankspdf.
Defining Money by Its Functions.
Barter and the Double Coincidence of Wants.
Three Functions for Money.
Measuring Money: Currency, M, and M.
How Banks Work.
Banks as Financial Intermediaries.
A Bank’s Balance Sheet.
How Banks Go Bankrupt.
How Banks Create Money.
The Story of System Bank.
The Money Multiplier.
Cautions about the Money Multiplier.Key Concepts and Summary.
Monetary Policy and Bank Regulationpdf.
Monetary Policy and the Central Bank.
The Federal Reserve.
Other Tasks and Funding of Central Banks.
How a Central Bank Affects the Money Supply.
Open Market Operations.
Reserve Requirements.
The Discount Rate.
Quantitative Easing.
Forward Guidance.
Monetary Policy and Economic Outcomes.
The Effect of Monetary Policy on Interest Rates.
The Effect of Monetary Policy on Aggregate Demand.
What the Federal Reserve Has Done.
Pitfalls for Monetary Policy.
Long and Variable Time Lags.
Excess Reserves.
Unpredictable Movements of Velocity.
Is Unemployment or Inflation More Important?
Should the Central Bank Tackle Asset Bubbles and Leverage Cycles?
Bank Regulation.
Bank Runs.
A Weakened Banking Sector.
Deposit Insurance.
Bank Supervision.
Lender of Last Resort.Key Concepts and Summary.
Exchange Rates and International Capital Flowspdf.
How the Foreign Exchange Market Works.
The Extraordinary Size of the Foreign Exchange Markets.
Demanders and Suppliers of Currency in Foreign Exchange Markets.
Participants in the Exchange Rate Market.
Strengthening and Weakening Currency.
Demand and Supply Shifts in Foreign Exchange Markets.
Expectations about Future Exchange Rates.
Differences across Countries in Rates of Return.
Relative Inflation.
Purchasing Power Parity.
Macroeconomic Effects of Exchange Rates.
Exchange Rates, Aggregate Demand, and Aggregate Supply.
Fluctuations in Exchange Rates.
Exchange Rates, Trade Balances, and International Capital Flows.
Summing Up Public Policy and Exchange Rates.
Exchange Rate Policies.
Floating Exchange Rates.
Using Soft Pegs and Hard Pegs.
Trade-offs of Soft Pegs and Hard Pegs.
A Single Currency.Government Budgets and Fiscal Policypdf.
An Overview of Government Spending.
Total US Government Spending.
Keeping Federal Budget Numbers in Perspective.
State and Local Government Spending.
An Overview of Taxation.
State and Local Taxes.
Federal Deficits and Debt.
Debt/GDP Ratio.
The Path from Deficits to Surpluses to Deficits.
Using Fiscal Policy to Affect Recession, Unemployment and Inflation.
Expansionary Fiscal Policy.
Contractionary Fiscal Policy.
Automatic Stabilizers.
Counterbalancing Recession and Boom.
Practical Problems with Discretionary Fiscal Policy.
Long and Variable Time Lags.
Temporary and Permanent Fiscal Policy.
Coordinating Fiscal and Monetary Policy.
Structural Economic Change Takes Time.
The Limitations of Potential GDP and the Natural Rate of Unemployment.
Educating Politicians.
Summing Up Discretionary Fiscal Policy.
Requiring a Balanced Budget?Key Concepts and Summary.
Government borrowings and National Savingspdf.
How Government Borrowing Affects Investment and the Trade Balance.
The National Saving and Investment Identity.
What about Budget Surpluses and Trade Surpluses?
Fiscal Policy, Investment, and Economic Growth.
Crowding Out Physical Capital Investment.
The Interest Rate Connection.
Public Investment in Human Capital.
How Fiscal Policy Can Improve Technology.
Summary of Fiscal Policy, Investment, and Economic Growth.
Will Private Saving Offset Government Borrowing?
Fiscal Policy and the Trade Balance.
Twin Deficits?
Fiscal Policy and Exchange Rates.
From Budget Deficits to International Economic Crisis.
Using Fiscal Policy to Address Trade Imbalances.Key Concepts and Summary.
Macroeconomic Policy around the worldpdf.
The Diversity of Countries and Economies across the World.
Economic Growth.
Growth Policies for the Technological Leaders.
Growth Policies for the Converging Economies.
Growth Policies for the Technologically Disconnected.
Lower Unemployment.
Unemployment from a Recession.
The Natural Rate of Unemployment.
Undeveloped Labor Markets.
Policies for Lower Inflation.
Policies for a Sustainable Balance of Trade.
Concerns over International Trade in Goods and Services.
Concerns over International Flows of Capital.
Final Thoughts on Economics and Market Institutions.
Key Concepts and Summary.