Important Notice: Media content referenced within the product description or the product text may not be available in the ebook version. Essentials of Economics, Second Edition is a text intended for a one-term course in economics for college students. It attempts to teach students of the analytic way of studying economics and provides the basics of the concept of political economy and uses this knowledge to explain the choice process in the public sector.
The book presents a comprehensive survey of economics. It contains chapters that highlight the importance of the microincentive structure of macroeconomic markets; identifies the determinants of supply, as well as the impact of public policy on those determinants; and presents both adaptive and rational expectations theory. The linkage between production theory and the cost curves faced by the firm; examination of the market structure; and the role of regulation and deregulation are covered as well.
Economics students will find the book very useful. Check out preview content for Essentials of Economics here. Adapted by Kathryn Graddy, it is the ideal text for teaching basic economic principles, with enough real-world applications to help students see the applicability, but not so much detail as to overwhelm them.
Watch a video interview of Paul Krugman here. A part of the most successful introductory economics series in the last twenty years, Essentials of Economics features inclusive, relatable examples, consistent problem-solving pedagogy, and innovative teaching support.
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Covering the core economics principles and providing engaging, relevant examples within just nineteen Chapters, Hubbard Essentials of Economics is the perfect teaching and learning resource for a one semester unit. The authors present economics as a dynamic, relevant discipline for Australasian students. Each chapter of the text opens with a case study featuring a real business or real business situation, refers to the study throughout the Chapter, and concludes with An Inside Look—a news article format which illustrates how a key principle covered in the Chapter relates to real business situations or was used by a real company to make a real business decision.
For one-semester Principles of Economics courses at two- and four-year colleges and universities Reveal the relevance of economics through real-world business examples One of the challenges of teaching Principles of Economics is fostering interest in concepts that may not seem applicable to students' lives.
Essentials of Economics, Fourth Edition makes economics relevant by demonstrating how real businesses use economics to make decisions every day. Regardless of their future career path—opening an art studio, trading on Wall Street, or bartending at the local pub—students will benefit from understanding the economic forces behind their work.
This program provides a better teaching and learning experience—for you and your students. Product market, p. A market for goods— Scarcity, p.
A situation in which unlimited such as computers—or services—such as wants exceed the limited resources available to medical treatment. Production possibilities frontier PPF , p. Trade, p. The act of buying and selling. A curve showing the maximum attainable combinations of two products that can be produced with available resources and current technology. Chapter Outline Managers at Tesla Motors Face Trade-Offs All-electric cars have struggled in the marketplace because the batteries that power them are costly and they have to be recharged about every miles.
Although sales of all-electric cars made by Tesla Motors represented only 0. It began selling a second automobile—the Model X— in late The Model X was designed to compete with gasoline-powered SUVs but also sold for a very high base price. Tesla only sells cars online and relies on company-owned service centers for maintenance and repairs. Tesla will likely face increased competition in future years from Apple and other companies that are exploring the electric vehicle market. Production Possibilities Frontiers and Opportunity Costs pages 42—47 2.
A key fact of economic life is that scarcity requires trade-offs. Scarcity is a situation in which unlimited wants exceed the limited resources available to fulfill those wants. Goods and services and the resources, or factors of production, that are used to make goods and services, are scarce.
A production possibilities frontier PPF is a curve showing the maximum attainable combinations of two products that can be produced with available resources and current technology. Graphing the Production Possibilities Frontier All combinations of products located on the production possibilities frontier are efficient because all available resources are being used. Combinations inside the frontier are inefficient because maximum output is not being obtained from available resources.
Opportunity cost is the highest-valued alternative that must be given up to engage in an activity. Increasing Marginal Opportunity Costs A production possibilities frontier that is bowed outward illustrates increasing marginal opportunity costs, which occur because some workers, machines, and other resources are better suited to one use than to another.
Increasing marginal opportunity costs illustrate an important concept: The more resources already devoted to any activity, the smaller the payoff to devoting additional resources to that activity.
Economic Growth Economic growth is the ability of the economy to increase the production of goods and services. Economic growth can occur if more resources become available or if a technological advance makes resources more productive. Growth may lead to greater increases in production for one good than another. If the price of health care rises, households have to choose whether to buy less health care or spend less on other goods and services.
The government provides health insurance to about 30 percent of the population through programs such as Medicare for people over age 65 and Medicaid for low-income people. Of course, both households and the government can borrow to pay for some of their spending, but ultimately the funds they can borrow are also limited.
About 54 percent of the population has private health insurance, often provided by an employer. When the fees doctors charge, the cost of prescription drugs, and the cost of hospital stays rise, the cost to employers of providing health insurance increases.
Some employers— particularly small firms—will even stop offering health insurance to their employees. In either case, the price employees pay for health care will rise. How do people respond to rising health care costs? In fact, studies have shown that rising health care costs cause people to cut back their spending on medical services, just as people cut back their spending on other goods and services when their prices rise.
One academic study indicates that for every 1 percent increase in the amount employers charge employees for insurance, , people become uninsured.
Of course, people without health insurance can still visit the doctor and obtain prescriptions, but they have to pay higher prices than do people with insurance. Although the consequences of being uninsured can be severe, particularly if someone develops a serious illness, economists are not surprised that higher prices for health insurance lead to less health insurance being purchased: Faced with limited incomes, people have to make choices among the goods and services they buy.
The Congressional Budget Office estimates that as the U. Many policymakers are concerned that this rapid increase in Medicare spending will force a reduction in spending on other government programs. Daniel Callahan, a researcher at the Hastings Center for Bioethics, has argued that policymakers should consider taking some dramatic steps, such as having Medicare stop paying for open-heart surgery and other expensive treatments for people over 80 years of age. Spending less on prolonging the lives of the very old in order to save resources that can be used for other purposes is a very painful trade-off to consider.
But in a world of scarcity, trade-offs of some kind are inevitable. Suppose the U. He asks you, one of his economic advisors, to prepare a report discussing the relevant factors he should consider. Use the concepts of opportunity cost and trade-offs to discuss some of the main issues you would deal with in your report. Solution: If the federal government has a fixed budget for medical research, then the opportunity cost of funding more research on heart disease is the reduction in funding for research on other diseases.
The decision should be made at the margin: to maximize the benefits from government spending on medical research, the last dollar devoted to research on heart disease should result in the same marginal benefit—less disease and fewer deaths—as the last dollar spent on research for other diseases.
If the additional funding for research on heart disease comes at the expense of other non-medical research expenditures, then the opportunity cost will be different, but a similar analysis should be conducted. Uwe Reinhardt, an economist at Princeton University, wrote the following in a column in the New York Times: [Cost-effectiveness analysis] seeks to establish which of several alternative strategies capable of achieving a given therapeutic goal is the least-cost strategy.
It seems a sensible form of inquiry in a nation that is dismayed over the rising cost of health care. Are there any decisions you make during your everyday life that indicate whether you consider health and life to be priceless? Source: Uwe E. Solution: Nothing is priceless. Every day we makes decisions, such as driving a car or flying in a plane, that increase by at least a small amount the chances that we will be hurt or killed. If health and life were literally priceless, every decision we make would have the sole objective of minimizing the chances of our being injured or killed.
In a broader sense, we do not devote all of our resources to improving health care because resources devoted to, say, saving lives through medical research are not available for other needs, such as improving education. We always have to consider the opportunity cost of using resources in one way rather than in another.
Trade is the act of buying and selling. Trade makes it possible for people to become better off by increasing both their production and their consumption.
Specialization and Gains from Trade PPFs depict the combinations of two goods that can be produced if no trade occurs. We can use PPFs to show how someone can benefit from trade even if she is better than someone else at producing both goods. Absolute Advantage versus Comparative Advantage Absolute advantage is the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.
If the two individuals have different opportunity costs for producing two goods, each individual will have a comparative advantage in the production of one of the goods. Comparative advantage is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors. Comparing the possible combinations of production and consumption before and after specialization and trade occur proves that trade is mutually beneficial.
Comparative Advantage and the Gains from Trade The basis for trade is comparative advantage, not absolute advantage. Individuals, firms, and countries are better off if they specialize in producing the goods and services for which they have a comparative advantage and obtain the other goods and services they need by trading. Teaching Tips Even good students have difficulty understanding comparative advantage.
A good example of comparative advantage is the career of baseball legend Babe Ruth. Before he achieved his greatest fame as a home run hitter and outfielder with the New York Yankees, Ruth was a star pitcher with the Boston Red Sox.
Ruth may have been the best left-handed pitcher in the American League during his years with Boston — , but he was used more as an outfielder in his last two years with the team.
In fact, he established a record for home runs in a season 29 in The Yankees acquired Ruth in and made him a full-time outfielder. The opportunity cost of this decision for the Yankees was the wins he could have earned as a pitcher. But because New York already had skilled pitchers, the opportunity cost of replacing him as a pitcher was lower than the cost of replacing Ruth as a hitter.
It can be argued that Ruth had an absolute advantage as both a hitter and pitcher for the Yankees in , but a comparative advantage only as a hitter. In the United States and most other countries, trade is carried out in markets. A market is a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade. A product market is a market for goods—such as computers—or services—such as medical treatment. A factor market is a market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.
Factors of production are the labor, capital, natural resources, and other inputs used to make goods and services. The Circular Flow of Income A circular-flow diagram is a model that illustrates how participants in markets are linked. The diagram demonstrates the interaction between firms and households in both product and factor markets. The Gains from Free Markets A free market is a market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed.
Adam Smith is considered the father of modern economics. His book, An Inquiry into the Nature and Causes of the Wealth of Nations, published in , was an influential argument for the free market system.
This assumption underlies nearly all economic analysis. The Role of the Entrepreneur in the Market System Entrepreneurs are an essential part of a market economy. An entrepreneur is someone who operates a business, bringing together the factors of production—labor, capital, and natural resources—to produce goods and services.
Entrepreneurs often risk their own funds to start businesses and organize factors of production to produce those goods and services that consumers want.
The Legal Basis of a Successful Market System The absence of government intervention is not enough for a market economy to work well. Government has to provide a legal environment that allows markets to operate efficiently. Property rights are the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
To protect intellectual property rights, the federal government grants a patent that gives an inventor — often a firm—the exclusive right to produce and sell a new product for 20 years from the date the patent was filed.
Books, films, and software receive copyright protection. Under U. Business activity often involves someone agreeing to carry out some action in the future. These agreements often take the form of legal contracts. For the market system to work, businesses and individuals have to rely on these contracts being carried out. Enforcing contracts or property rights requires an independent court system and judges who are able to make impartial decisions on the basis of the law.
If property rights are not well enforced fewer goods and services will be produced, leaving the economy inside its production possibilities frontier. Teaching Tips To initiate class discussion regarding intellectual property rights, ask students these questions: 1. How many of you have downloaded music via the Internet? Should the government have the right to grant exclusive rights to musicians and other artists to produce and sell their creative works?
Should the government fine or prosecute individuals who illegally obtain music, books, movies, and other creative works in violation of property rights laws? What types of regulation and privilege might merchants and manufacturers seek from the government? How might these regulations and privileges keep the invisible hand from working?
Solving the Problem Step 1: Review the chapter material. This problem is about how goods and services are produced and sold and how factors of production are employed in a free market economic system as described by Adam Smith in An Inquiry into the Nature and Causes of the Wealth of Nations. Step 2: Answer part a. At the time, governments gave guilds—associations of producers—the authority to control production.
The production controls limited the output of goods such as shoes and clothing, as well as the number of producers of these items. Limiting production and competition led to higher prices and fewer choices for consumers.
Instead of catering to the wants of consumers, producers sought favors from government officials. Step 3: Answer part b.
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