Principles of economics

OpenStax

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0.1 About openstax

0.2 About openstax’s resources

0.3 Customization

0.6 About Principles of Economics

0.7 Coverage and scope

0.8 Pedagogical foundation

0.9 Questions for each level of learning

0.10 Updated art

0.11 About our team

0.12 Senior contributing author

0.13 Contributing authors

0.14 Expert reviewers

0.15 Ancillaries

1 The use of mathematics in principles of economics

1.1 Algebraic models

1.2 Growth rates

1.3 Displaying data graphically and interpreting the graph

1.4 Key concepts and summary

1.5 Review questions

2 Indifference curves

3 Present discounted value

4 The expenditure-output model

4.1 The axes of the expenditure-output diagram

4.2 Building the aggregate expenditure schedule

4.3 Equilibrium in the keynesian cross model

4.4 The multiplier effect

4.5 Key concepts and summary

4.6 Self-check questions

4.7 Review questions

4.8 Critical thinking questions

Welcome to economics!

1 What is economics, and why is it important?

1.1 The problem of scarcity

1.2 The division of and specialization of labor

1.3 Why the division of labor increases production

1.4 Trade and markets

1.5 Why study economics?

1.6 Key concepts and summary

2 Microeconomics and macroeconomics

2.1 Microeconomics

2.2 Macroeconomics

2.3 Key concepts and summary

3 How economists use theories and models to understand economic issues

3.1 Key concepts and summary

4 How economies can be organized: an overview of economic systems

4.1 Regulations: the rules of the game

4.2 The rise of globalization

4.3 Key concepts and summary

Choice in a world of scarcity

Introduction to choice in a world of scarcity

1 How individuals make choices based on their budget constraint

2 The production possibilities frontier and social choices

2.1 The shape of the ppf and the law of diminishing returns

2.2 Productive efficiency and allocative efficiency

2.3 Why society must choose

2.4 The ppf and comparative advantage

2.5 Key concepts and summary

3 Confronting objections to the economic approach

Demand and supply

Introduction to demand and supply

1 Demand, supply, and equilibrium in markets for goods and services

2 Shifts in demand and supply for goods and services

3 Changes in equilibrium price and quantity: the four-step process

4 Price ceilings and price floors

5 Demand, supply, and efficiency

Labor and financial markets

Introduction to labor and financial markets

1 Demand and supply at work in labor markets

2 Demand and supply in financial markets

3 The market system as an efficient mechanism for information

Introduction to elasticity

1 Price elasticity of demand and price elasticity of supply

2 Polar cases of elasticity and constant elasticity

3 Elasticity and pricing

4 Elasticity in areas other than price

4.1 Income elasticity of demand

4.2 Cross-price elasticity of demand

4.3 Elasticity in labor and financial capital markets

4.4 Expanding the concept of elasticity

4.5 Key concepts and summary

Consumer choices

Introduction to consumer choices

1 Consumption choices

2 How changes in income and prices affect consumption choices

3 Labor-leisure choices

4 Intertemporal choices in financial capital markets

Cost and industry structure

Introduction to cost and industry structure

1 Explicit and implicit costs, and accounting and economic profit

2 The structure of costs in the short run

2.1 Fixed and variable costs

2.2 Average total cost, average variable cost, marginal cost

2.3 Lessons from alternative measures of costs

2.4 A variety of cost patterns

2.5 Key concepts and summary

3 The structure of costs in the long run

Perfect competition

Introduction to perfect competition

1 Perfect competition and why it matters

2 How perfectly competitive firms make output decisions

2.1 Determining the highest profit by comparing total revenue and total

2.2 Comparing marginal revenue and marginal costs

2.3 Profits and losses with the average cost curve

2.4 The shutdown point

2.5 Short-run outcomes for perfectly competitive firms

2.6 Marginal cost and the firm’s supply curve

2.7 Key concepts and summary

3 Entry and exit decisions in the long run

4 Efficiency in perfectly competitive markets

Introduction to a monopoly

1 How monopolies form: barriers to entry

2 How a profit-maximizing monopoly chooses output and price

Monopolistic competition and oligopoly

Introduction to monopolistic competition and oligopoly

1 Monopolistic competition

Monopoly and antitrust policy

Introduction to monopoly and antitrust policy

1 Corporate mergers

2 Regulating anticompetitive behavior

3 Regulating natural monopolies

4 The great deregulation experiment

Environmental protection and negative externalities

Introduction to environmental protection and negative externalities

1 The economics of pollution

2 Command-and-control regulation

3 Market-oriented environmental tools

3.1 Pollution charges

3.2 Marketable permits

3.3 Better-defined property rights

3.4 Applying market-oriented environmental tools

3.5 Key concepts and summary

4 The benefits and costs of u.s. environmental laws

5 International environmental issues

6 The tradeoff between economic output and environmental protection

Positive externalities and public goods

Introduction to positive externalities and public goods

1 Why the private sector under invests in innovation

2 How governments can encourage innovation

2.1 Intellectual property rights

2.2 Policy #1: government spending on research and development

2.3 Policy #2: tax breaks for research and development

2.4 Policy #3 cooperative research

2.5 Key concepts and summary

Poverty and economic inequality

Introduction to poverty and economic inequality

1 Drawing the poverty line

2 The poverty trap

3 The safety net

3.1 Temporary assistance for needy families

3.2 The earned income tax credit (eitc)

3.3 Supplemental nutrition assistance program (snap)

3.5 Key concepts and summary

4 Income inequality: measurement and causes

5 Government policies to reduce income inequality

Issues in labor markets: unions, discrimination, immigration

Introduction to issues in labor markets: unions, discrimination,

1.1 Facts about union membership and pay

1.2 Higher wages for union workers

1.3 The decline in u.s. union membership

1.4 Key concepts and summary

2 Employment discrimination

2.1 Earnings gaps by race and gender

2.2 Investigating the female/male earnings gap

2.3 Investigating the black/white earnings gap

2.4 Competitive markets and discrimination

2.5 Public policies to reduce discrimination

2.6 An increasingly diverse workforce

2.7 Key concepts and summary

Information, risk, and insurance

Introduction to information, risk, and insurance

1 The problem of imperfect information and asymmetric information

1.1 “lemons” and other examples of imperfect information

1.2 How imperfect information can affect equilibrium price and quantity

1.3 When price mixes with imperfect information about quality

1.4 Mechanisms to reduce the risk of imperfect information

1.5 Key concepts and summary

2 Insurance and imperfect information

2.1 How insurance works

2.3 Risk groups and actuarial fairness

2.4 The moral hazard problem

2.5 The adverse selection problem

2.6 U.s. health care in an international context

2.7 Government regulation of insurance

2.8 The patient protection and affordable care act

2.9 Key concepts and summary

2.11 References

Financial markets

Introduction to financial markets

1 How businesses raise financial capital

1.1 Early stage financial capital

1.2 Profits as a source of financial capital

1.3 Borrowing: banks and bonds

1.4 Corporate stock and public firms

1.5 How firms choose between sources of financial capital

1.6 Key concepts and summary

2 How households supply financial capital

3 How to accumulate personal wealth

Introduction to public economy

1 Voter participation and costs of elections

2 Special interest politics

3 Flaws in the democratic system of government

3.1 Where is government’s self-correcting mechanism?

3.2 A balanced view of markets and government

3.3 Key concepts and summary

The macroeconomic perspective

Introduction to the macroeconomic perspective

1 Measuring the size of the economy: gross domestic product

2 Adjusting nominal values to real values

3 Tracking real gdp over time

4 Comparing gdp among countries

5 How well gdp measures the well-being of society

Economic growth

Introduction to economic growth

1 The relatively recent arrival of economic growth

2 Labor productivity and economic growth

3 Components of economic growth

4 Economic convergence

4.1 Arguments favoring convergence

4.2 Arguments that convergence is neither inevitable nor likely

4.3 The slowness of convergence

4.4 Key concepts and summary

Introduction to unemployment

1 How the unemployment rate is defined and computed

2 Patterns of unemployment

3 What causes changes in unemployment over the short run

3.1 Cyclical unemployment

3.2 Why wages might be sticky downward

3.3 Key concepts and summary

4 What causes changes in unemployment over the long run

Introduction to inflation

1 Tracking inflation

2 How changes in the cost of living are measured

2.1 The cpi and core inflation index

2.2 Practical solutions for the substitution and the quality/new goods

2.3 Additional price indices: ppi, gdp deflator, and more

2.4 Key concepts and summary

3 How the u.s. and other countries experience inflation

4 The confusion over inflation

5 Indexing and its limitations

The international trade and capital flows

Introduction to the international trade and capital flows

1 Measuring trade balances

2 Trade balances in historical and international context

3 Trade balances and flows of financial capital

4 The national saving and investment identity

5 The pros and cons of trade deficits and surpluses

6 The difference between level of trade and the trade balance

The aggregate demand/aggregate supply model

Introduction to the aggregate demand/aggregate supply model

1 Macroeconomic perspectives on demand and supply

1.1 Say’s law and the macroeconomics of supply

1.2 Keynes’ law and the macroeconomics of demand

1.3 Combining supply and demand in macroeconomics

1.4 Key concepts and summary

2 Building a model of aggregate demand and aggregate supply

3 Shifts in aggregate supply

4 Shifts in aggregate demand

5 How the ad/as model incorporates growth, unemployment, and inflation

6 Keynes’ law and say’s law in the ad/as model

The keynesian perspective

Introduction to the keynesian perspective

1 Aggregate demand in keynesian analysis

2 The building blocks of keynesian analysis

3 The phillips curve

4 The keynesian perspective on market forces

The neoclassical perspective

Introduction to the neoclassical perspective

1 The building blocks of neoclassical analysis

2 The policy implications of the neoclassical perspective

3 Balancing keynesian and neoclassical models

Money and banking

Introduction to money and banking

1 Defining money by its functions

2 Measuring money: currency, m1, and m2

3 The role of banks

4 How banks create money

Monetary policy and bank regulation

Introduction to monetary policy and bank regulation

1 The federal reserve banking system and central banks

2 Bank regulation

2.1 Bank supervision

2.3 Deposit insurance

2.4 Lender of last resort

2.5 Key concepts and summary

3 How a central bank executes monetary policy

4 Monetary policy and economic outcomes

5 Pitfalls for monetary policy

Exchange rates and international capital flows

Introduction to exchange rates and international capital flows

1 How the foreign exchange market works

2 Demand and supply shifts in foreign exchange markets

3 Macroeconomic effects of exchange rates

4 Exchange rate policies

Government budgets and fiscal policy

Introduction to government budgets and fiscal policy

1 Government spending

3 Federal deficits and the national debt

4 Using fiscal policy to fight recession, unemployment, and inflation

5 Automatic stabilizers

6 Practical problems with discretionary fiscal policy

7 The question of a balanced budget

The impacts of government borrowing

Introduction to the impacts of government borrowing

1 How government borrowing affects investment and the trade balance

2 Fiscal policy, investment, and economic growth

3 How government borrowing affects private saving

4 Fiscal policy and the trade balance

Macroeconomic policy around the world

Introduction to macroeconomic policy around the world

1 The diversity of countries and economies across the world

2 Improving countries’ standards of living

3 Causes of unemployment around the world

4 Causes of inflation in various countries and regions

5 Balance of trade concerns

International trade

Introduction to international trade

1 Absolute and comparative advantage

2 What happens when a country has an absolute advantage in all goods

3 Intra-industry trade between similar economies

4 The benefits of reducing barriers to international trade

Globalization and protectionism

Introduction to globalization and protectionism

1 Protectionism: an indirect subsidy from consumers to producers

2 International trade and its effects on jobs, wages, and working conditions

3 Arguments in support of restricting imports

4 How trade policy is enacted: globally, regionally, and nationally

5 The tradeoffs of trade policy

Source: OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11

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