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economics The Basics Michael Mandel 3rd Edition Succeed in this course! look inside for: + How it Works + Economic Milestones + Spotlights + Links to the Blog Is technological change raising living standards? save time study smarter is Motivation is Momentum WHAT DO YOU NEED TO KNOW ABOUT THE ECONOMICS of Healthcare? is Moving Forward is McGraw-Hill The McGraw-Hill Economics Series ESSENTIALS OF ECONOMICS Brue, McConnell, and Flynn Essentials of Economics Third Edition Mandel M: Economics: The Basics Third Edition Schiller and Gebhardt Essentials of Economics Tenth Edition PRINCIPLES OF ECONOMICS Asarta and Butters  Connect Master: Economics First Edition Colander Economics, Microeconomics, and Macroeconomics Tenth Edition Frank, Bernanke, Antonovics, and Heffetz Principles of Economics, Principles of Microeconomics, Principles of Macroeconomics Sixth Edition Frank, Bernanke, Antonovics, and Heffetz Streamlined Editions: Principles of Economics, Principles of Microeconomics, Principles of Macroeconomics Third Edition Karlan and Morduch Economics, Microeconomics, and Macroeconomics Second Edition McConnell, Brue, and Flynn Economics, Microeconomics, and Macroeconomics Twenty-First Edition Samuelson and Nordhaus Economics, Microeconomics, and Macroeconomics Nineteenth Edition Schiller and Gebhardt The Economy Today, The Micro Economy Today, and The Macro Economy Today Fourteenth Edition Slavin Economics, Microeconomics, and Macroeconomics Eleventh Edition ECONOMICS OF SOCIAL ISSUES Guell Issues in Economics Today Eighth Edition Register and Grimes Economics of Social Issues Twenty-First Edition ECONOMETRICS Gujarati and Porter Basic Econometrics Fifth Edition MANAGERIAL ECONOMICS Baye and Prince Managerial Economics and Business Strategy Ninth Edition Brickley, Smith, and Zimmerman Managerial Economics and Organizational Architecture Sixth Edition Thomas and Maurice Managerial Economics Twelfth Edition INTERMEDIATE ECONOMICS Bernheim and Whinston Microeconomics Second Edition Dornbusch, Fischer, and Startz Macroeconomics Twelfth Edition Frank Microeconomics and Behavior Ninth Edition ADVANCED ECONOMICS Romer Advanced Macroeconomics Fourth Edition MONEY AND BANKING Cecchetti and Schoenholtz Money, Banking, and Financial Markets Fifth Edition URBAN ECONOMICS O’Sullivan Urban Economics Eighth Edition LABOR ECONOMICS Borjas Labor Economics Seventh Edition McConnell, Brue, and Macpherson Contemporary Labor Economics Eleventh Edition PUBLIC FINANCE Rosen and Gayer Public Finance Tenth Edition ENVIRONMENTAL ECONOMICS Field and Field Environmental Economics: An Introduction Seventh Edition INTERNATIONAL ECONOMICS Appleyard and Field International Economics Eighth Edition Pugel International Economics Sixteenth Edition Third Editon Michael Mandel Chief Economic Strategist, Progressive Policy Institute Senior Fellow, Mack Institute for Innovation Management at The Wharton School of the University of Pennsylvania Former Chief Economist, BusinessWeek ECONOMICS: THE BASICS, THIRD EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2018 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous editions © 2012 and 2009 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper RMN 21 20 19 18 17 ISBN 978-0-07-802179-4 MHID 0-07-802179-0 Chief Product Officer, SVP Products & Markets:  G Scott Virkler Vice President, General Manager, Products & Markets:  Marty Lange Vice President, Content Design & Delivery:  Betsy Whalen Managing Director:  Susan Gouijnstook Brand Manager:  Katie Hoenicke Director, Product Development:  Rose Koos Product Developer:  Jamie Koch Lead Product Developer:  Michele Janicek Marketing Manager:  Virgil Lloyd Marketing Coordinator:  Brittany Bernholdt Director of Digital Content Development:  Douglas Ruby Director, Content Design & Delivery:  Linda Avenarius Program Manager:  Mark Christianson Content Project Managers:  Kathryn D Wright, Bruce Gin, and Karen Jozefowicz Buyer:  Sandy Ludovissy Design:  Matt Diamond Content Licensing Specialists:  Lori Slattery and Melissa Homer Cover Image: â maxkrasnov/Getty Images Compositor: Aptarađ, Inc Printer:  LSC Communications All credits appearing on page or at the end of the book are considered to be an extension of the copyright page Library of Congress Cataloging-in-Publication Data Names: Mandel, Michael J., author Title: Economics : the basics / Michael Mandel, Chief Economist, Visible   Economy LLC, Former Chief Economist, BusinessWeek, Senior Fellow, Mack   Center for Technological Innovation at The Wharton School of the University of Pennsylvania Description: Third Edition | Dubuque : McGraw-Hill/Education, 2018 |   Series: Mcgraw-Hill/Irwin series in economics | Revised edition of the   author’s Economics, 2012 Identifiers: LCCN 2016044887| ISBN 9780078021794 (alk paper) | ISBN   0078021790 (alk paper) Subjects: LCSH: Economics Classification: LCC HB171.5 M262 2018 | DDC 330 dc23 LC record available at  https://lccn.loc.gov/2016044887 The Internet addresses listed in the text were accurate at the time of publication The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites mheducation.com/highered DEDICATION To Elliot and Laura v ABOUT THE AUTHOR Michael Mandel Michael Mandel delights in translating complex economic concepts into understandable, relevant, and exciting examples for a broad audience He received his PhD in economics from Harvard University, where he studied the intricacies of game theory He is currently Senior Fellow at the Mack Institute for Innovation Management at The Wharton School of the University of Pennsylvania, as well as Chief Economic Strategist at the Progressive Policy Institute in Washington, DC He regularly testifies before Congress and writes about the policy implications of ­innovation, regulation, and growth, both domestically and internationally Previously, Mandel was Chief Economist of BusinessWeek (now Bloomberg Businessweek), where he regularly tackled such hot topics as the economics of immigration, the power of technological innovation to drive growth, the importance of foreign trade, and consequences of tax policy Mandel’s columns and cover stories have won numerous awards, including the Excellence in Economic Journalism Award from the Institute on Political Journalism, given to the writer “who has done the most to shape public opinion by giving the public a better understanding of economic theory and reality”; the Gerald Loeb Award, the most prestigious prize for economic and financial journalism; and the Economic Journalist of the Year Award from the World Leadership Forum He was also named one of the top 100 business journalists of the 20th century Mandel is the author of several books, including Rational Exuberance: Silencing the Enemies of Growth and Why the Future Is Better Than You Think and The High-Risk Society He also helped revise the 1995 edition of Paul Samuelson’s classic economics textbook His economics news blog, designed especially for intro-level economics students, can be found at economicsthebasics.com Mandel lives in Washington, DC, not far from the White House and the Capitol vi PREFACE When I started developing the first edition of this textbook, I had two goals First, I wanted to clearly explain basic economic principles, using the tools that I learned during my years as an economist and as an economic journalist Second, I aimed to provide an introduction to the forces of globalization, technology, and financial markets that are driving the vibrant, but increasingly perplexing economy that we all live in This edition adds an additional goal—to help provide an economic context for the Great Recession and the recovery that followed This event, or rather series of events, has had an enormous impact on everyone.  What you see here is the result of my effort to achieve these three goals The first half of the textbook, which includes the introduction and 11 core chapters, presents the essential economic concepts I designed this section to be accessible to people with a wide range of economic and mathematical backgrounds The second half of the textbook covers topics such as financial markets, globalization, technological change, health care, and environmental economics In this edition, I consistently use fresh examples from today’s global economy The textbook is intended to provide a window into what is happening in the economy right now, including globalization, innovation, and the aftermath of the financial crisis Fundamental Goals To summarize, I want to accomplish three goals with this textbook: • To help you acquire the basic tools of economics, enabling you to understand today’s world in a new way.  • To give you better insights into the forces of globalization, technology, and ­financial markets that are so important for today and our future • To provide an economic context for the Great Recession, and how it affected the economy for years afterward Distinguishing Features and Organization This textbook emphasizes the main forces shaping today’s economy: technological change, globalization, and the evolution of financial markets The basic tools of economics are presented in the first 12 chapters to lay a foundation for understanding how the economy evolves and changes vii viii Preface Current and Real Examples  Economic concepts and ideas are illustrated in re- cent newsworthy events to help you see that economics is in action everywhere around you Each chapter starts with a brief vignette that applies the concept to be learned to real-world events so you can see how the chapter concept relates back to everyday life Clear and Simple Graphs  This book’s simple, easy-to-follow graphs translate complex economic concepts into effective visual tools for the beginning student Historical Context  Economic Milestone boxes sprinkled throughout each chapter provide interesting historical facts and references that relate to the material at hand Assurance of Learning Ready  Many educational institutions today are focused on the notion of assurance of learning, an important element of many accreditation standards Economics: The Basics, 3/e is designed specifically to support your ­assurance of learning initiatives with a simple yet powerful solution Each chapter in the book begins with a list of numbered learning objectives, which appear throughout the chapter as well as in the end-of-chapter assignments Every Test Bank question for Economics: The Basics, 3/e maps to a specific chapter learning objective in the textbook as well as topic area, Bloom’s Taxonomy level, and AACSB skill area You can use our Test Bank software, TestGen, or Connect Economics to easily search for learning objectives that directly relate to the learning objectives for your course You can then use the reporting features of TestGen to aggregate student results in similar fashion, making the collection and presentation of assurance of learning data simple and easy AACSB Statement  McGraw-Hill/Irwin is a proud corporate member of AACSB I­nternational Understanding the importance and value of AACSB accreditation, Economics: The Basics, 3/e recognizes the curricula guidelines detailed in the AACSB standards for business accreditation by connecting selected questions in the Test Bank and end-of-chapter material to the general knowledge and skill guidelines in the AACSB standards The statements contained in Economics: The Basics, 3/e are provided only as a guide for the users of this textbook The AACSB leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty While Economics: The Basics, 3/e and the teaching package make no claim of any specific AACSB qualification or evaluation, we have, within Economics: The Basics, 3/e, labeled selected questions according to the six general knowledge and skills areas Changes in the Third Edition M Series  Mandel’s 3rd edition is now part of the M Series at McGraw-Hill These products are unified through a magazine-like layout, succinct coverage, studentfriendly examples, and innovative digital support M: Economics, The Basics is written specifically for the one semester survey course, designed to convey core concepts and principles at a level that is approachable for the widest possible audience.  The narrative in all chapters has been completely evaluated and reworked where necessary Content and data updates to the figures, tables, and chapter narrative have been made throughout the book to reflect news events In addition, select Spotlight and How It Works boxes have been updated or replaced to provide scenarios from today’s economic landscape Additionally, all of the end-of-chapter problems are assignable through McGraw-Hill Connect, and select problems are available as algorithmic variations (for more information on Connect please refer to pages xiv–xv Chapter-by-chapter changes are as follows: Chapter Introduction was substantially revised to reflect the events of the Great Recession and the recovery that followed Figure 1.1 was updated, as were all of the figures and tables in the appendix (“The Basics of Graphs”) Problems were updated with new, real-world data.  Chapter Demand and Supply: The Basics of the Market Economy now uses updated examples and boxes, including the Spotlight “The Great Ethanol Boom.” New examples were added to the section on “New Markets.” Chapter Market Equilibrium and Shifts contains an updated chapter-opening vignette that details several economically significant events of April 2016 A box on highway construction was replaced by one on Atlantic City and excess supply of casinos More material was added on the recent changes in the housing market Figure 3.2 was updated, as were several problems.  Chapter How Businesses Work updates all the company examples in the text and in the boxes, such as the Spotlight boxes “Cut Your Tree, Mister?” and “Boeing’s Long-Term Decision.”   Chapter Competition and Market Power features data updates to the Spotlight boxes on the furniture and auto industries Additionally, the How It Works boxes on well-known brand names and performers as monopolistic competitors have been updated Problems were updated to include current data.  Chapter Government and the Economy was systematically updated, including boxes and problems Figures 6.1 and 6.2 were updated Coverage of government intervention in response to the Great Recession is now scattered throughout the chapter.  Chapter The First Step into Macroeconomics was revised to reflect the economy since the Great Recession Table 7.1 and Figures 7.1, 7.2, 7.3, and 7.4 were updated to the most recent data Boxes such as “Tracking the Global Corporation” were updated Problems were updated to include the most recent data.  Chapter Inflation has substantially revised data throughout to reflect changes in the economy Additionally, updates have been made to the How it Works boxes to accurately reflect changes in the economy to housing, air travel, and oil The Spotlight box “Which Movie Earned the Most Money” was updated to reflect 2015 hit movies such as Star Wars: The Force Awakens The problems were extensively revised to reflect new data.  Preface ix www.downloadslide.net GL-8 Glossary movement along a supply curve  The effect of a price change on the quantity supplied multinational  A business that operates in multiple countries multiplier effect  The short-term boost in economic activity that flows from the government’s spending increase (or tax cut) mutual funds  A financial intermediary that, for a fee, invests the money of customers in a group of stocks N nonmarket economy  The part of the economy where people perform productive work without getting paid Includes child-rearing and volunteer work nonprofit organizations  Enterprises that focus on providing useful services to society rather than maximizing profits nonrenewable energy  Sources of energy like fossil fuels that have only a limited supply nonresidential investment  The buildings, equipment, and software that businesses purchase to use in production national market  A market where buyers and sellers can be in different parts of a country normal good  A good whose demand rises more or less in step with income national savings  The sum of personal savings, government savings, and business savings nuclear power  An energy source using contained nuclear reactions to generate electricity natural barriers to trade  Obstacles to trade that include distance and differences in cultures natural monopoly  An industry in which it may make economic sense to have only one supplier natural rate of unemployment  The level of unemployment in the economy at which inflation is more or less stable Also called NAIRU O offshoring  The movement of manufacturing and service sector jobs to lower-wage countries negative externalities  An undesirable impact that an economic activity can have on others oil price shock  The events occurring in 1973 when the Organization of Petroleum Exporting Countries (OPEC) put an embargo on oil shipments to the United States and several European countries Skyrocketing oil prices followed, which helped trigger an era of high inflation negotiated price  A price that is determined on a case-bycase basis as a result of negotiation between individual buyers and sellers old-age dependency ratio  The ratio of the size of the older population (65 years and over) to the size of the workingage population (ages 20 through 64) net exports  The difference between exports and imports oligopoly  A situation where a market has only a small number of sellers producing similar products net worth  Total household assets minus liabilities network externality  How the decision of a person to use a network affects the value of that network to other people New Deal  A collection of public programs that President Franklin Roosevelt instituted to alleviate economic suffering during the Great Depression New Economy  The period between 1995 and 2007 when productivity growth rebounded almost to what it was during the Golden Age open market operations  The process by which the Federal Reserve affects short-term interest rates opportunity cost  The value or benefit of the next-best alternative use of money or time output gap  The difference between real and potential GDP output of government  The government’s purchases of goods and services Also called government consumption and investment outputs  The goods and services a business sells to customers new entrants  New businesses competing in an existing market, or existing businesses that are expanding into a new market outsourcing  Shift of labor to third parties to handle tasks once done by a firm’s own employees new markets  Markets with new products and services, or markets that include mostly new buyers and sellers overseas leakage  A situation where fiscal stimulus leads to increased imports rather than to faster growth at home nominal change  The increase or decrease in a monetary value over time without adjusting for inflation non-zero-sum economy  Occurs when an economy can produce more of one good or service without having to curtail production of another Nonaccelerating inflation rate of unemployment (NAIRU)  See natural rate of unemployment noncompeting labor markets  Occurs when the workers in one labor market not seek jobs in another P patent  A protection against copying granted by the U.S Patent and Trademark Office to inventors for their discoveries payroll tax  A tax collected on wage payments, paid by both employees and employers to fund Social Security and Medicare www.downloadslide.net Glossary GL-9 peak  The date a recession starts—the high point of an economy before its decline private sector  The economy outside of government, including privately owned businesses peak oil  The theory that global production of oil may be nearing its highest point privatization  The shifting of certain aspects of government programs, such as Social Security, to the private sector pegged exchange rate  Occurs when the government of one country manages its exchange rate to be fixed in relation to another currency product  A good or service perfect competition  A situation in which all buyers and sellers in a market are price takers perfectly inelastic supply  The quantity supplied does not change at all when the price changes personal consumption  The goods and services bought by households personal savings  What remains from household income after taxes and consumption spending are taken out personal savings rate  Savings by households as a share of disposable income pollution  One important negative externality from economic activity positive externality  A desirable impact that an economic activity can have on others potential GDP  The output of the economy along a smooth path of growth, assuming no strains on production or unused resources potential growth rate  The rate at which potential GDP increases; also the combination of the long-term growth rate of the labor force plus the long-term growth rate of productivity poverty line  An income level that is supposed to indicate the lowest acceptable living standard in an economy; it depends on the number of people in the household and is adjusted for inflation each year poverty rate  The percentage of people living in households that earn incomes below the poverty line pretax income distribution  The spread of incomes before taxes have been taken out price  The rate at which buyers and sellers exchange money for a good or service price appreciation  An increase in the price of a stock price elasticity of demand  The percentage change in quantity demanded that results from a percent change in price price elasticity of supply  The percentage change in quantity supplied, given a percent change in price price takers  Buyers and sellers who take the market price as given and make their buying and production decisions accordingly production  The process of turning inputs into outputs production function  The link between the inputs of a business and its outputs production possibility frontier (PPF)  All the combinations of different goods and services the economy is capable of producing at a particular time, assuming full use of all resources productivity  Economic output divided by the number of labor hours worked productivity slowdown  The period from 1973 to 1995 in which productivity grew at a much slower pace than in the Golden Age productivity-enhancing innovation  Technological change that provides more of the same product while holding inputs constant It has the effect of shifting the supply curve to the right profit  The difference between revenues and costs profit maximization  The main objective of a business in a market economy: finding a way to achieve the largest difference between revenue and costs profit-maximizing rule  A profit-maximizing business will increase production as long as marginal revenue exceeds marginal cost progressive tax  A tax that requires high-income households to pay a higher tax rate than low-income households property tax  A tax collected on the value of residential and commercial real estate protectionism  The use of tariffs, quotas, or other barriers to trade to protect domestic jobs and businesses public companies  Businesses that have sold shares of stock (also called equity) to the general public public debt  The total of government borrowing public goods  Goods and services that benefit many people in a city, region, or country public sector  The portion of the economy that includes the federal, state, and local levels of government pure price change  An increase in the price of a good with no change in its quality or characteristics Q principal  The sum of money in any loan that the lender gives the borrower quality-of-life innovation  Technological change that enhances the quality of life for you and those around you private return from innovative activities  The gain to an original company that devotes resources to innovative activities quantitative easing (QE)  The use by central banks of open market operations to bring down long-term interest rates, such as mortgage rates www.downloadslide.net GL-10 Glossary quantity demanded  The amount of a good or service that a buyer is willing to purchase at a given price quantity supplied  The amount of a good or service that a seller is willing to supply at a given price quintiles  20 percent of a group Used when considering income distribution quotas  Government-imposed disincentives to trade that include numerical limits on the number of imported products coming into a country R revealed preference  One way of putting a monetary value on the health impacts of pollution, based on analyzing the choices that people make in their daily lives to change their risk of death or injury Also used to assess the monetary value of harm to environmental amenities revenue  The amount of money companies get from selling their products or services risk  The possibility that something unexpected, either good or bad, will happen to an investment risk from innovative activities  The possibility that spending on innovative activities such as R&D will not pay off rational individual  A person who maximizes his or her utility, subject to a budget constraint risk of default  The possibility of not getting paid back on a loan real change  The change in a quantity adjusted for inflation See inflation-adjusted change risk-return principle  The concept that the only way to get higher expected returns over the long run is to take more risks real GDP  Gross domestic product, adjusted for inflation real GDP growth  The growth in gross domestic product adjusted for inflation Also known as economic growth real GDP per capita  Real GDP divided by the number of people in a country Serves as a measure of the standard of living recession  A significant decline in economic activity spread across the economy, lasting more than a few months redistribution  The transfer of money from high-income to low-income households rules  Regulations issued by various government agencies S safety net  Government programs that provide a measure of economic security for the poor, the sick, and the vulnerable sale price  A price intentionally set below the market price to stimulate purchases sales tax  A tax collected on retail sales regressive tax  A tax that requires high-income households to pay a lower tax rate than low-income households satiation  The point at which the value of additional consumption of a good or service goes to zero relative price shift  A situation where the inflation rate of a good or service is significantly higher or lower than the overall inflation rate sellers  Businesses or individuals who receive money in exchange for supplying goods and services renewable energy  Energy sources such as wind and solar power shift in tastes  A shift in the demand curve for a good or service based on a change in consumer preferences rent-seeking behavior  Occurs when businesses spend money trying to influence the government short-term aggregate supply curve  A curve that shows the short-term link between the average price level and the quantity of goods and services produced research and development (R&D)  Money and resources— particularly human resources—that economies or businesses devote to science and technology short-term cost function  The link between the output of a business and the cost of producing that output, assuming that fixed costs cannot be changed reserve requirement  The requirement that banks keep a portion of their deposits either in cash in their vaults or on reserve with the Federal Reserve short-term costs  See variable costs residential investment  The construction of new homes and the renovation of existing homes retirement poverty problem  The problem that poor people often don’t have enough income to save for retirement retirement uncertainty problem  The problem that individuals don’t know how long they will live after retirement return  The gain on your investment in a year, measured as a percentage of original investment return from innovative activities  The payback to spending on innovative activities such as R&D short-term growth  Economic growth over a single year short-term profit maximization  The process of running a business to achieve the greatest excess of revenues over costs, assuming that fixed costs cannot be changed shutdown decision  A business decision to keep operating or not, based on the level of profits single-payer system  A proposed health plan in which health care spending for everyone is paid for through the government smoothing out the business cycle  One key goal of the Federal Reserve, which tries to keep the economy from dropping into a steep recession www.downloadslide.net Social Security  The government program that provides income support to older citizens who have contributed during their working years Glossary GL-11 surplus  A situation where government revenues exceed government spending spending multiplier  The increase in GDP created by one additional dollar of government expenditures system of national accounts  All the statistics that feed into the process for estimating the quarterly and annual output of the U.S economy stagflation  A combination of slow economic growth and rapid inflation T standard of value  The use of monetary values to make comparisons between different items standardized products  Outputs that differ from each other in only a small number of easily identifiable features stated preference  One way of determining the monetary value of the damage done by pollution, based on surveys of individuals or other direct queries sticky wages  Wages that don’t change much in the short term in response to economic conditions stimulative  A government policy action, such as a tax cut, that pushes up output and reduces unemployment in the short run stock  A piece of ownership in a company Also called equity stock market  A market in which shares of stocks are bought and sold stock trade  The purchase or sale of a share of stock by an investor stockbrokers  The financial intermediaries that handle the buying and selling of shares between investors store of value  The property of money that it can be used for purchases in the future structural unemployment  A situation in which there is a mismatch between the skills of unemployed workers and the needs of employers with unfilled jobs substitute  Two inputs are substitutes if a business will use more of one when the price of the other rises superstar economy  Situations in which there is a widening gap in compensation between the top people and the merely competent suppliers of capital  The investors who provide the funds In the banking system, for example, the suppliers of capital are the depositors in the bank supply chain  The network of suppliers needed to make a particular product supply curve  A line on a graph showing the link between price and quantity supplied supply curve for innovative activities  Reports the quantity of innovative activities that are supplied, given their price supply schedule  The link between a seller’s quantity supplied and the market price supply shift  A change in the amount sellers produce at a given price supply-side economics  A school of economic thought that emphasizes the importance of low marginal tax rates tariffs  Extra charges or taxes levied on imports by a country tax incidence  The people or businesses who ultimately have to bear the burden of a tax tax multiplier  The increase in GDP from a $1 cut in taxes taxation  The main way the government raises revenue from individuals and businesses technological change  An improvement in knowledge that increases the quantity and range of goods and services an economy can deliver technological diffusion  The process by which new ideas spread from one person or business to other parts of the economy term  The length of a loan; the period of time during which a borrower repays principal back to a lender third party  In health care, an external organization that pays for health care services for an individual time value of money  The opportunity cost of not having one’s money available for use for some period total cost  The sum of costs for each of the inputs used in production total return  The total return on a share of stock is the change in the stock price, plus the dividend, divided by the original price tradable pollution permits  A government-endorsed “allowance” that gives a business the right to emit a particular amount of pollution These permits can be traded or sold among private businesses trade balance  The difference between exports and imports of goods and services trade deficit  Occurs when a trade balance is negative so that imports exceed exports trade in goods  Exchanges that occur when sellers physically ship items to another country trade in services  Exchanges that occur when a person or a company in one country provides a service to a resident of a different country transfer payments  Government social benefits paid to individuals, including Social Security, Medicare, and unemployment benefits Treasury bills  Securities the federal government issues with terms as short as one month Treasury bonds  Securities the federal government issues each year to fund the budget deficit with terms as long as 10 years and 30 years www.downloadslide.net GL-12 Glossary trough  The date on which a recession ends and the economy starts heading up again V U value of a statistical life  A monetary value economists treat as the cost to society of an additional death—in this book, from pollution underemployed  Individuals who take jobs below their skill or education levels or who are working part-time involuntarily variable costs  Costs that managers can quickly raise or lower by decisions they make today underground economy  The portion of the economy that does not pay taxes or otherwise get reported by government venture capital  The funds provided to risky start-ups by venture capital firms unemployed  A description of individuals who not have jobs but are actively looking for work venture capital firms  Financial intermediaries that provide funds to risky start-ups unemployment rate  The percentage of the labor force that is unemployed vertical axis  A vertical reference line on a graph, usually labelled to show values unexpected inflation  The sudden acceleration of the rate of price increases above expected inflation volume discount  A price set below the market price to reward buyers who purchase a large quantity of items unfair competition  In global trade, cases in which a foreign country favors its own exporting industries by lowering their taxes or giving them some other subsidy W union  A group of workers who bargain collectively with employers for wages, benefits, and working conditions wage–price spiral  A situation that occurs when businesses and workers boost prices and wages to try to stay ahead of rising expected inflation upward-sloping  A graph where higher values on the horizontal axis are generally associated with higher values on the vertical axis upward-sloping supply curve  A supply curve that is consistent with the law of supply, so that an increase in price leads to an increase in quantity supplied As a result, the line slopes up when read from left to right users of capital  The eventual recipients, such as borrowers, of funds from a bank or other financial intermediary utility  A measure of the physical and emotional benefits a person gets from consumption utility function  The link between the goods and services a person consumes and his or her utility wealth effect  One reason aggregate quantity demanded falls as the average price level rises Also, the phenomenon in which higher wealth leads to more consumption Z zero price  Occurs when an additional unit of a good or service is offered at no cost to buyers zero-sum economy  When the only way an economy can produce more of something is to produce less of something else www.downloadslide.net INDEX Note: Page numbers followed by f refer to figures; page numbers followed by t refer to tables; page numbers followed by n refer to notes A A380 airplane, 66 Absolute advantage, 252–254 Accountants, 287–288 Acer, 78 Adaptation strategies, 349 Adjustable-rate mortgages, 209 Advance purchase discounts, 23 Advanced Research Projects Agency, 101 Adverse selection, 327, 330 Advertising, 79–80 AerCap, 55 Affordable Care Act, 330 See also Health care After-tax income distribution, 309 Age health care costs and, 326, 327 impact on labor, 285, 292 Aggregate demand, 218–219, 220f, 221–222 Aggregate equilibrium, 219 Aggregate production function, 155–158 Aggregate supply, 219, 220–221 AIG, 205 Air conditioning, 296 Air France, 264 Air pollution, 344, 347 Air travel, 3–4, 138 Airbnb, 234, 275t Airbus, 8, 66, 83, 252, 259, 277 Aircraft manufacturing, 66 Airline Deregulation Act of 1978, 96, 97 Airline pilots, 290, 295 Alzheimer’s disease, 271 Amazon, 78, 83, 227, 234, 248, 269 Amenities, environmental, 344 American Airlines, 71, 79 American Electric Power, 69 American Licorice Company, 61 American Recovery and Reinvestment Act “Buy American” rule, 188 key provisions, 186t measuring effects of, 187 purpose, 8, 185 stimulative effect, 190 Angry Birds game, 252 “The Anguish of Central Banking,” 209 Annual household income, Antigua and Barbuda, 250 Antitrust laws, 103t, 104 Apache, 54 App developers, 288 Apparel, 134t Apple, 5, 25, 54, 67, 79, 80, 83, 127, 131, 138, 227, 234, 248, 254, 256, 268, 275t, 276 Apple Music, 40 Apples, 46 Applied research, 272 Appreciating currencies, 260–261 Artificial intelligence, 288 Asplundh Tree Expert Company, 58 Assets, foreign ownership, 262 Associate degrees, 156 Asus, 77 AT&T, 83, 85, 104, 157, 272, 277 AT&T Picturephone, Athlete salaries, 146t, 302–303 Atlantic City, 36 Auto dealers, 80–81 Auto loans, 207–209 Automakers bailouts, 92, 175 market power shifts, 85 recessions’ impact, 174–175 regulation, 92, 341, 347 technological progress, 5–6, 288 Automatic stabilizers, 195 Automobile as technological change, 288 Automobile purchases, 123, 134t Average price level, 134–135 Average product, 59–60 Axes of graphs, 14 B Baby boom generation, 295 Bahamas, 349 Bailouts, 92, 175 Bank of America, 236 Bankruptcies, 175 Banks Fed lending to, 206, 211–212 as financial intermediaries, 232–234 reserve requirement, 206, 207, 212–213 Bar graphs, 14–15 Barriers to entry, 78 Barriers to trade See Trade barriers Baseball players, 290, 302–303 Baseball ticket prices, 146t Basic research, 102, 272 Basketball Hall of Fame, 184 BBC, 247 Bedell family, 126 Bell Labs, 272, 277 Benchmark Capital, 234 Benefit cuts, Social Security, 323–324 Benefits, 286 Bernanke, Ben, 173, 201, 203, 206, 210, 211, 214 Best Buy, 78 Big Three automakers, 85 Biofuels, 339t, 343t Biotechnology, 271 Bloomberg, Michael, 107 BMW, 254, 264 Board of Governors (Fed), 203 Boeing, 4, 6, 8, 55, 66, 67, 71, 83, 127, 243, 245, 252, 259, 264, 277, 289 Bolivia, hyperinflation in, 142 Bollywood, 290 Bond market, 238 Bondholders, 239 Borrowing, reasons for, 228–229 Borrowing by governments, 193–196, 240 Bradlee’s, 78 Brand names, 80 Branson, Richard, 273 Brazil, hyperinflation in, 141–142 Brazilian computer industry, 258 Brin, Sergey, 56, 267, 299 British Petroleum, 339 British thermal units, 336 Broadband networks, 103, 152 Bubbles, 240 Budget constraints, 109 Budget deficits, 193–196 Building codes, 159 Bulova, 271 Bureau of Economic Analysis, 10, 120, 153 Bureau of Engraving and Printing, 92 Bureau of Labor Statistics, 120, 134, 136 Burns, Arthur, 209 Bush, George W budget deficits, 120 Great Recession intervention, 8, 173, 183 tax cuts, 11, 190, 192, 194, 310 Business Cycle Dating Committee (NBER), 172 Business cycles, 172–173, 204, 214–215 See also Recessions Business know-how, 56, 60 Businesses achieving profit maximization, 64–67 cost principles, 60–63 production inputs and outputs, 55–60 rationale for borrowing, 228–229 recessions’ impact, 174–175 revenues, 63–64 role in economies, 54 Business-to-business transactions, 56 Butter market, 23 “Buy American” rule, 188 Buyers defined, 22 C CAFE standards, 341 Calhoun, Lee, 46 IN-1 www.downloadslide.net IN-2  Index Call centers, 60, 254 Candy Crush Saga, 252 Cap-and-trade systems, 348, 350 Cape Wind project, 344 Capital costs of, 60 as economic input, 55 impact on production function, 58–59 suppliers and users, 234 Capital gains taxes, 100t Car alarms, 105 Car dealers, 80–81 Car loans, 207–209 Car purchases, 123, 134t Carbon monoxide emissions, 347 Carbon taxes, 100t, 101, 350 Carter, Jimmy, Casinos, 36 Catalytic converters, 347 Catastrophic health insurance, 326 Caterpillar, 54 Cell phones, 270 Cellulosic ethanol, 343 Cement, 41–43 Census Bureau, 120, 156, 302 Central banks, 203, 204, 209 See also Federal Reserve Centrally planned economies, 7, CEO pay, 301, 303 Ceteris paribus, 24 Change in private inventories, 121, 122t, 126–127 Changing tastes, 46 Charles Schwab, 236 Checking accounts, 202 Cheese market, 23 Chernobyl nuclear disaster, 268 Chief executive officers, 54, 301, 303 China auto market, 30 average wages, 254, 255f cement demand, 41–43 economic growth, 152, 159, 163t economic transformation, furniture manufacture, 44–45, 79, 250 government role in economy, 96 lead paint use in, 265 move away from planned economy, WTO membership, 249 Chrysler, 8, 85, 92, 175 Cisco, 177, 234, 275t Clean Air Act, 347 Climate change, 348–351 Clinton, Bill, 11, 190, 310 Clinton, Hillary, 292 Clothing market, 40–41, 42f, 78, 134t Clustering, innovation, 275 CNN, 247 Coal, 339t, 344 Coca-Cola, 79, 80, 239 Coffee market, 138 Collective bargaining, 294 College education See Higher education Collusion, 82, 104 Color TV, 268 Comcast, 157 Command-and-control approach, 97–98, 341, 347–348 Commercial contracts, 103t Commodities, 75 Communication, international, 247–248 Communication expenses, 134t Community colleges, 156 Compact disks, 40, 41f, 42f Comparative advantage, 252–254 Competition basic elements, 7–8 benefits of, 73, 83–84 globalization’s impact, innovation’s benefits, 277 in labor market, 290 market structures for, 80–83 perfect, 74–80, 83–85 unfair, 258–259 Competitive advantage, 277 Complements, 112, 288 Compulsory attendance laws, 98 Computer programmer incomes, 146t Computers See also Information technology comparing, 74 impact on income distribution, 304 impact on labor, 288 long-run competition, 77–78 progress in, 268–269 reducing pollution from, 348 spending declines, 177 comScore, 88 Congestion pricing, 107 Congressional Budget Office, 187 Conservation of energy, 340–343 Conspicuous spending, 123 Construction materials, 185 Consumer choice, modeling, 108–111 Consumer Financial Protection Bureau, 92 Consumer price index basis for, 135 furniture prices versus, 251f globalization’s impact, 255 inflation rate based on, 136 long-run trend, 135f major contributors, 134t medical care, 134t, 327 Consumer Product Safety Commission, 92, 93 Consumer protection regulation, 103t Consumers, globalization’s benefits for, 255 Consumption annual household, as GDP component, 121, 122–123 income effects, 46–48 marginal propensity, 187–188 Contractionary effects, 191 Cooks, 290 Copy machines, 112–113 Core inflation, 136–137 Corn grades, 74 Corn prices, 28 Corning, 240 Corporate income taxes, 190t, 191 Corporate profits taxes, 100t Corruption, 99 Corruptions Perception Index, 99 Cosmetologists, 286 Cost function, 61–62, 111, 113, 345–346 Cost-of-living adjustments, 143 Costs basic principles, 60–63 defined, 54 higher education, 291–292 minimizing, 111–113 of transactions, 143 Credit cards, 209 Credit scores, 233 Crest, 79 Crop damage, 344, 345 Crowding out, 195 Crude oil production, 251–252, 253, 338–339 Cruzados, 142 Cruzeiros, 142 Currency, 202, 259–261 Customer support, 60 Cyclical unemployment, 170 D Daimler, George, 338 The Dark Knight (movie), 174 Data, graphing, 15–17 Data centers, 157 DDT, 347 Debt in U.S households, 228 Decaffeinated coffee, Deepwater Horizon disaster, 339 Default risk defined, 231, 235 estimating, 233 by governments, 240 influences on, 232 Defense Department (U.S.), 101 Defense spending, 126, 259 Deficits, 193–196, 261–263, 322 Defined benefit plans, 320, 321 Defined contribution plans, 320, 321, 324 Deflation, 133, 143, 204 Dell, 77 Demand aggregate, 218–219, 220f, 221–222 elasticity, 48 impact of price on, 23–27 income effects, 46–48 law of, 24–25 matching with supply, 36–37 price elasticity, 110–111, 114 recessions’ impact, 174–175 Demand curves aggregate, 218–219, 220f for innovative activity, 273, 276–278 labor, 285–287 for loans, 229–230 movements along, 43 Demand schedules defined, 24 graphing, 26–27, 38, 39 modeling consumer decisions, 108–111 recessions’ impact, 174–175 Demand shifts, 40, 41–43, 176–177 Demographic change, 327 Deng Xiaoping, 9, 159 Department of Justice (U.S.), 104 www.downloadslide.net Index  Department stores, 78, 83 Deposit insurance, 92, 234 Deposits, loans from, 233 Depp, Johnny, 290 Depreciating currencies, 260–261 Deregulation, 8–9, 95–96, 97 Derivatives, 240 Developing countries energy use, 336, 340 greenhouse gas emissions, 350–351 growth of market-based systems, 8, 159 impact on global labor supply, 289 impact of trade on, 245, 258 new markets in, 30 production shifts to, 137–138 Development, 272 Differentiation, 79–80 Diminishing marginal product, 58 Diminishing marginal utility, 109 Direct lending, 211–212 Discount rate, 211 Discount window, 211–212 Discounts, 23 Discretionary intervention, 214 Discrimination, 311–312 Disinflation, 143 Disney, Walt, Disposable income, 191 Disruptive trade, 258 Distance, as natural trade barrier, 247 Diversification, 237, 239 Dividends, 236 Dodd-Frank Act, 106, 206, 240–241 Dollar, 259, 260f Dot-com bubble, 240 Dot-com companies, 177 Dow Jones Industrial Average, 237 Downward-sloping curves, 17, 27 Drake, 81 Dreamliner airplane, 66, 127 Driverless vehicles, 288 Drones, 104, 267 Dropbox, 234 Drug development, 67, 276 DuPont, 270 E Earned income tax credit, 11 eBay, 22, 275t Ecological damage, 344 E-commerce, 269 Economic competition, 7–8 See also Competition Economic data gathering, 102 Economic growth determinants, 155–158 government and, 158–159 impact on living standards, 150, 152, 154–155 importance, 150–152 long-run trend, 149 measuring, 152–154 productivity and, 159–161 Economic Stimulus Act, 186t Economics, elements of, 9–11 Economies businesses’ basic role, 54 competition’s benefits, 73, 83–84 governments’ role, 7–9 key forces, 4–7 need for measures, 120–122 response to interest rate changes, 208–209 top 10 GDPs, 10f Edison, Thomas, 277 Education benefits to labor, 156, 288, 290–292 in consumer price index, 134t economic forces affecting, 285 government role, 92, 98, 102–103 to increase human capital, 156–157 inflation-adjusted spending, 140 labor market discrimination and, 311–312 legal requirements, 159 Education policies, 11 Education premium, 291, 304 Education spending, 47 Effective tax rates, 309 Efficiency, government’s lack, 99 Eight-hour day, 293 80/20 ratio, 304 Eisenhower, Dwight, 93 Elastic demand, 48, 110, 111 Elastic supply, 48, 113 Elasticity, 48 Electricity, 270 Electronic Arts, 275t Employer health insurance plans, 328–329 Employer retirement plans, 319, 320–321 Employment See also Labor market globalization’s impact, 255–257 by governments, 94f health care, 326 minimum wage impact, 293 recent U.S growth, tracking job creation, 187 Energy prices determinants of, 339–340 impact on aggregate supply, 221 impact on recessions, 176 omitted from core inflation, 137 sustainability and, 340–343 wage–price spirals and, 142 Energy resources conservation, 340–343 consumption and supply, 336–339 negative externalities, 344 oil production, 82, 251–252, 253, 288, 338–339 sustainable, 340–343 Energy technologies, 5–6 Energy use labels, 74 Engineers, 274 Enron, 231 Entertainment industry, 174 Environmental amenities, 344 Environmental economics global climate change, 348–351 pollution, 98, 104, 105, 343–348 Environmental Protection Agency, 95, 98, 345, 347 Equal Employment Opportunity Commission, 95, 311 IN-3 Equilibrium, aggregate, 219 Equilibrium price, 37, 39 Equilibrium supply, 37 Equipment, knowledge represented by, 56 Equity, 236 Estate taxes, 100t Ethanol, 28, 337, 342–343 Ethnicity, labor market discrimination and, 311–312 Euro, 259 European Central Bank, 204 Event risk, 235 Excess demand, 36, 37 Excess supply, 36, 37 Exchange rates, 259–261 Excise taxes, 100t, 101, 190t Executive compensation, 303 Expansion, 172 Expected inflation, 141–143 Expected return, 235 Expedia, 301 Experience, benefits to labor, 292 Exported goods and services from China, defined, 246 exchange rates and, 260 as GDP component, 121, 122t, 127 globalization’s impact, Externalities basic principles, 104–105 government measures to avoid, 342 pollution as, 104, 105, 342, 343–346 of quality-of-life innovations, 271 Extraction, marginal cost, 337, 340 ExxonMobil, 22, 337 F Facebook, 7, 83, 105, 187, 227, 234, 236, 237, 248, 254, 275, 275t, 279, 301 FaceTime, Fairness, income inequality and, 307 Fast food, Fast-food cooks, 290 Fed funds rate changing to address crises, 210 current levels, 213 defined, 206 impact on loan rates, 207–209 impact on prices, 209 Federal Aviation Administration, 8, 104 Federal Deposit Insurance Corporation, 92, 93, 234 Federal Express, 234 Federal Open Market Committee, 206–207 Federal Reserve goals and tools, 203–206 inflation-fighting efforts, 178 mistakes of, 213 money stock measures, 202 origins, 203 regulation, 92 response to Great Recession, 8, 173, 201 short-term interest rate control, 206–210 statistics from, 120 www.downloadslide.net IN-4  Index Federal spending, 184 See also Government spending Federal Trade Commission, 74, 92, 104 Fiber-optic cable, 240 Fiji, 349 Film industry, 252 Final goods and services, 121 Finance, average pay, 146t Financial crisis of 2007–2009 See Financial markets; Great Recession Financial intermediaries, 233–234 Financial markets as cause of market shifts, 45 as cause of recessions, 176 crises, 7, 203, 240–241 economic impacts, 6–7 intermediaries, 232–234, 238–240 markets for loans, 228–232 regulation, 103t risk and return in, 235–238 Financial Services Modernization Act, 106 Financial stability, policies to maintain, 204–205 Financing gap in Social Security, 322–323 Fiscal policy See also Government spending defined, 183 government borrowing and, 193–196 limitations, 188–190 monetary versus, 213–214 short-term effects, 183–188 taxation and, 190–193 Fiscal stimulus defined, 185 estimating effects, 187–188 limitations, 188–190 programs for, 186t shrinking multiplier, 188 Fixed costs, 63 Fixed-income securities, 239 Fixed-rate mortgages, 209 Flammable Fabrics Act, 92, 93 Flat-panel TVs, 252, 253 Flexibility, governments’ lack, 99 Flight attendants, 295 Flight engineers, 290 Floating exchange rates, 259 Flowers, 251, 253 Food, 110, 134t, 137 Food and Drug Administration, 8, 104 Food stamps, 11, 186 Ford, Henry, 44, 267 Ford Motor Company, 8, 67, 80, 85, 207, 237 Foreclosure, 231 Foreign trade See Globalization; International trade Fort Madison (IA) factory, 249 Fossil fuels, 337, 338, 339, 350 Four-legged stool of retirement income, 319 401(k) plans, 320 Fracking, 337, 338 Free-rider problem, 102 Frictional unemployment, 169–170 Friedman, Milton, 172 Frosch, Dan, 102n Fuel cells, 343t Fuel efficiency standards, 341 Fukushima nuclear disaster, 104–105, 268, 338, 339 Fuller, Ida May, 322 Furniture impact of imports on jobs, 257f manufacturing in China, 44–45, 79, 250 price decline, 250, 251f Future-oriented activities, 228 G Gains from trade, 250–252 Gambling casinos, 36 Games, 252 Gasoline, lead removal from, 347 Gasoline market demand elasticity, 110, 111 forces of conservation, 340–343 Hurricane Katrina’s effects, 43 impact on consumer price index, 134t price determinants, 339–340 Gasoline rationing, 95–96 Gates, Bill, 269, 299 GDP per capita, 129 Gender discrimination, 311–312 General Agreement on Tariffs and Trade, 248–249 General Electric, 56, 127 General Motors, 8, 80, 85, 92, 175, 207, 242, 320 Genetic research, 271 German hyperinflation, 141 Global catch-up, 307f Global climate change, 348–351 Global Crossing, 234 Global market economy, Global markets, 22, 252 Globalization See also International trade as cause of market shifts, 44–45 continuing growth, 245 economic impacts, impact on competition, 75 impact on income distribution, 305 impact on inflation rate, 137–138 impact on labor, 288–290, 295 impact on monopolies, 83 impact on productivity, 161 impact on tax revenues, 191 Go-karts, 38–39, 40f Golden Age of productivity growth, 160 Goldman Sachs, 227, 236, 289 Goods, trade in, 246 Google, 56, 80, 83, 88, 127, 157, 227, 234, 236, 248, 254, 267, 270, 271, 275, 275t, 288, 299 Government borrowing, 193–196, 240 Government intervention advantages and disadvantages, 97–101 as cause of market shifts, 45–46 for energy conservation, 341–342, 343 finding right role, 101–105 during Great Recession, 8, 92, 173, 175, 183 in health care debated, 331 history in U.S., 92–96 impact on aggregate demand, 222 impact on economic growth, 158–159 in income distribution, 105, 306–311 overview, 8–9 political debate, 11, 91–92 to reduce pollution, 347–348 Government spending See also Fiscal policy on basic research, 272 consumption and investment, 121, 122t, 125–126 cost-of-living adjustments, 143 deficits, 193–196 inflation-adjusted, 140 limitations, 188–190 magnitude, 184 main types compared, 126f productivity and, 160 safety net programs, 9–11, 125 short-term effects, 184–188 Governments’ basic role in economies, 7–9 Graduate schools, 285 Graphical user interface, 276 Graphs, 14–17, 26–27, 38 Great Depression Fed mistakes, 213 impact on government role in economy, 92–93 origin of economic indicators in, 120 preventing recurrence, 167 recovery from, Great Recession causes, 176 Fed’s response, 8, 173, 201, 211–212 government bailouts, 92, 175 government programs to address, 8, 183 impact on federal budget, 194 market turbulence, 167 output gap, 168 recovery from, start and end dates, 172–173 unemployment rate, 169 Great Society programs, 94 Green GDP, 347 Greenhouse gases, 344, 348, 349, 350–351 Greenspan, Alan, 143, 203, 204, 210, 214 Gross domestic product components of, 121–127 defined, 9, 10, 121 exclusions, 127–128 government spending as percentage, 96 “green,” 347 as growth measure, 152–154 health care as percentage, 325f international comparisons, 128–129 potential versus real, 168–169 short-term effects of government spending, 185 taxes as percentage, 190, 191f Gross domestic purchases, 127 Growth See Economic growth Growth rate of productivity, 160 H Hafner, Katie, 25n Hairdressers, 286 Hankook Tire, 263 Hawaiian hoary bat, 345 www.downloadslide.net Index  Head Start, 94 Health care average pay, 146t economic forces affecting, 324–327 federal law, 4, 11, 91, 317–318, 330 government involvement, 91 historic improvements, 4, 271 imported and exported services, 246–247 recession resistance, 174 reform efforts, 328–331 regulation, 103t rising costs, 327–328 Health care uncertainty problem, 326, 329 Health impacts of pollution, 344 Health Insurance Portability and Accountability Act, 106 Heilmeier, George, 253 Hepatitis C, Hewlett-Packard, 275t Higgins, Adrian, 46n High school education, 98 Higher education benefits to labor, 290–292 in China, 159 economic forces affecting, 285 percentage of U.S workforce with, 158f public funding, 92 two-year, 157 varying opinions on, 11 High-risk borrowers, 232 Hoary bats, 345 Home construction, 124, 125f Home Depot, 63, 237 Honda, 8, 259 Horizontal axes, 14, 16–17 Hospitals, average pay, 146t Households, 302 Housing costs, 134t, 135 Housing market, 9, 205f, 209, 240 Human capital, 155, 156 Humphrey-Hawkins Act, 203 Hurricane Katrina, 43, 177 Hurricanes, 177 Hussein, Saddam, 176 Hybrid cars, 67 Hydraulic fracturing, 337, 338 Hydropower, 339t, 343t Hyperinflation, 141–142 I IBM, 80, 127, 268–269, 272, 320 Ideas, global sharing, 252 Imitation, 81, 278 Immigration labor market impact, 296 as political issue, 91, 159 of scientists and engineers, 274, 275f Implicit collusion, 82 Imported goods and services defined, 246 exchange rates and, 260 globalization’s impact, impact on GDP, 127 as percentage of purchases, 188 Incentive effects, 192, 308 Incentive problem, 99, 331 Incidence of taxation, 114 Income annual household, disposable, 191 effects on demand, 46–48 median U.S household, 139 redistribution, 105, 308–311 Income distribution economic growth and, 151–152 forces of change, 304–306 labor market discrimination and, 311–312 measuring, 302–304 political debate, 306–308 redistribution, 105, 308–311 U.S disparities, 301 Income gap See Income distribution Income inequality See also Income distribution debated, 306–308 forces of change, 304–306 labor market discrimination and, 311–312 measuring, 303–304 redistribution, 105, 308–311 Income mobility, 308 Income taxes, 100t, 101, 190–191 Indeed.com, 284 Indexes, stock, 237–238 India, 73, 152, 254 Individual mandate, 330 Indoor plumbing, 150 Industrial equipment, 123–124 Industries, 103t, 146t Inefficiency of taxation, 99 Inelastic demand, 48, 110, 111, 114 Inelastic supply, 48, 113, 114 Inequality in incomes See Income inequality Infant industry argument, 258 Infant mortality, 150 Inferior goods, 47–48 Inflation See also Prices adjusting for, 139–141 defined, 135 economic growth versus, 152–154 effects of government spending, 189 elements of, 133 expectations and, 141–143 impact of fed funds rate, 209 indexing benefits to, 321 policies to control, 204, 214 prevention efforts causing recession, 177–178 recent Fed responses, 209–210 relative price shifts and, 137–139 taxation’s effects, 191–192 unemployment versus, 171–172 Inflation rate, 135–136 See also Inflation Inflation risk, 235 Inflation targeting, 214 Inflation-adjusted change, 139 Information revolution, 161, 221, 222, 269, 271 Information technology See also Technological change average pay, 146t impact on productivity, 161, 221, 270, 271 as percentage of nonresidential investment, 124f progress in, 268–269 spending declines, 177 IN-5 Initial public offerings, 236 Innovation activities producing, 271–273 competition’s influence, demand-side forces, 276–278 globalization and, 256 government measures to promote, 342 governments’ lack, 99 major types, 270–271 relation to technological change, 268 supply-side forces, 273–275 Innovation clusters, 275 Inputs, 54, 55–56 Instagram, 234, 275t Insurance average pay in, 146t on bank deposits, 92, 234 health care, 91, 286, 318, 326–327, 328–330 New Deal programs, 93, 94t regulation, 106 unemployment, 125, 186t, 194 volume discounts, 23 Intel, 4, 6, 60, 127, 234, 268, 269, 275, 275t Intellectual property protection, 276–277 Intensity of competition, 277 Interest payments on federal debt, 195 Interest rate effect, 219 Interest rates as cause of market shifts, 45 ceilings, 96 credit scores’ effect, 233t effects of government spending, 195f factors affecting, 231–232 Fed control, 206–210, 214 impact on borrowing, 229–230 as price of loans, 228 on reserves, 212 Intermediaries, 232–234, 238–240 Intermediate inputs costs of, 60 defined, 55–56 omitted from GDP, 121–122, 124 Internal combustion engine, 338 International comparisons of government role in economy, 96, 97f International trade See also Globalization absolute versus comparative advantage, 252–254 balance, 261–263 continuing growth, 245 exchange rates, 259–261 falling barriers, 247–250 gains from, 250–252 impact on income distribution, 305 impact on individual workers, 254–259 overview, 246–247 Internet creation of, 101 e-commerce, 269 gambling via, 250 impact on job searches, 284 impact on telecommunications services, 44 innovations, 270 physical investments in, 157 Interstate highway program, 93 www.downloadslide.net IN-6  Index Intuit, 275t Inventories, 121, 122t, 126–127 Inventors, 277 See also Innovation Investment by governments, 122t nonresidential, 121, 122t, 123–124 residential, 121, 122t, 124, 125f Investment banks, 236 Invisible hand, 36–37 iPad, 30 iPhone, 5, 25, 79, 127, 255, 269 iPod, 138–139, 252 Island countries, 349 J Japan, 164t, 250 Jet fuel costs, 71, 352 JetBlue, 229 Job Corps, 188 Job market decisions, 285 Job multipliers, 186 Job search websites, 284 Jobs See Employment; Labor market Jobs, Steve, 25, 268 Johnson, Lyndon B., 94–95, 188, 189, 328 JPMorgan Chase, 227 K Katrina, Hurricane, 43, 177 Kawamoto, H., 253n Kennedy, John F., 93–94 Keynes, John Maynard, 185 Keynesian approach, 185 Khan, Shah Rukh, 290 Khosrowshahi, Dara, 301 King Digital Entertainment, 252 Kiribati, 349 Kleiner Perkins, 234 Knowledge in aggregate production function, 155, 158 costs of accumulating, 60 as economic input, 56 Krona, 265 Kuwait invasion, 176 Kuznets, Simon, 120 L Labor in aggregate production function, 155, 156 costs of, 60 as economic input, 55 marginal product, 57–59, 285 recessions’ impact, 173, 174f unpaid, 127–128 Labor force benefits of education, 156, 288, 290–292 defined, 156, 169, 284 immigration’s impact, 296 role in potential GDP growth, 168 Labor force participation rate, 284, 285 Labor market discrimination, 311–312 equilibrium forces, 287–290 global manufacturing wages compared, 255f globalization’s impact, 255–257 innovation’s benefits in, 278 job creation tracking, 187 law of supply, 29 new jobs in, 30 regulation, 292–295 short-term effects of government spending, 185 supply and demand curves, 284–287 variety in, 290–292 workers as sellers, 22 Labor pool effect of globalization, 289, 290, 305 Labor unions, 171, 294–295 Lady Gaga, 131 Lags, 189–190, 209 Laissez-faire economies, Land, 55, 60, 155 Law of demand, 24–25, 229–230 Law of supply, 28–29, 66 Laws, defined, 158 LCD TVs, 252, 253 Lead in gasoline, 347 Lead paint, 265 Legal barriers to trade, 247 Legos, 21 Lehman Brothers, 173, 205 Lenders, 142–143, 205 Levels of government, 184 Licensed professions, 293–294 Licensing inventions, 277 Life cycle approach to health care spending, 325–327 Life cycle theory of retirement, 318–319 Life expectancy, 329 Linden Lab, 275t Line graphs, 15 Lipitor, 328 Living standards globalization’s impact, 255 relation to economic growth, 150, 152, 154–155 in U.S economic model, Loans common types, 229t from Federal Reserve, 206, 211–212 impact of fed funds rate, 207–209 intermediaries, 232–234 market forces, 228–232 Lobbying, 99 Local markets, 22 Local unemployment, 171 Location, impact on labor, 296–297 Long-term aggregate supply curve, 219, 220f Long-term cost function, 63 Long-term costs, 63 Long-term growth, 155 Long-term interest rates, 211 Long-term labor supply, 295–297 Long-term profit maximization, 66–67 Low-income households, 11 Luxury goods, 47, 327 LZR Racer swimsuit, 281 M M1, 202 M2, 202 Macroeconomics, 119 Major league baseball players, 290, 302–303 Manicurists, 294 Manufacturing “buy American” rules, 188 cement, 43 China’s focus on, 245, 257 clothing, 40, 41f, 78 cost function and marginal cost, 61–62, 75–77 furniture, 44–45, 79, 250 globalization’s impact, 6, 54, 250–251, 256, 262 inventories, 126–127 investment trends, 123 job losses, 170, 254, 256, 257f, 305 long-term planning, 66 offshoring, 60, 78, 254, 289 pollution from, 344, 348 regulations, 92 wages, 146t, 254, 255f Margin requirement, 212–213 Marginal cost elements of, 62 fossil fuel extraction, 337, 340 of labor, 286 in perfect competition, 75 in profit-maximizing rule, 64 Marginal product of labor, 57–59, 285 Marginal propensity to consume, 187–188 Marginal revenue defined, 64 of labor, 285, 286–287 with monopolistic competition, 80–81 with perfect competition, 75 in profit-maximizing rule, 66, 286–287 Marginal tax rates, 192, 193f Marginal utility, 109 Marine Mammal Commission, 184 Market basket (BLS), 134–135 Market demand schedules, 24, 38, 39 Market economies basic elements, 22–23 businesses’ basic role, 54 common market structures, 80–83 competition’s benefits, 73, 83–84 defined, 21 developing countries’ adoption, 8, 159 equilibrium supply and demand, 37–39 excess supply and demand, 36–37 impact of price on demand, 23–27 impact of price on supply, 27–30 new markets, 30 perfect competition, 74–80 shifts, 40–46 Market equilibrium factors in, 37–39 in perfect competition, 76–77 shifts in, 40–46 Market expansion effect of globalization, 289, 305 Market mechanism, 37 Market power, 84–85 www.downloadslide.net Index  Market prices, 22–23, 74, 236 Market regulation, 103–104 See also Regulations Market shifts, 40–46 Market structures, 80–83 Market supply schedule, 28, 29–30, 38, 39 Market transactions, Market wages, 286 Market-based approaches to energy conservation, 341–342 Market-based approaches to pollution, 348 Markets, basic features, Marshall Field’s, 78 Massachusetts Institute of Technology, 280 Material damage, 344, 345 Mattress flammability, 92, 93 McDonald’s, 5, 8, 61, 131, 237 Median household income, 139 Medicaid, 11, 94, 328 Medical spending See also Health care in consumer price index, 134t, 327 economic forces affecting, 324–327 as personal consumption, 123 rising costs, 327–328 Medical tourism, 247 Medicare, 94, 191, 328–329 Memory chips, 75 Mercedes-Benz, 254, 338 Merck, 298 Merrill Lynch, 236 Microprocessors, 4, 5, 268, 269, 271 Microsoft, 50, 80, 83, 88, 157, 235, 237, 264, 269, 276, 299 Military spending, 186 Milk market, 23 The Millionaire (TV show), 139 Minimum wage, 292–293, 306 Mishkin, Frederic, 205 Mitigation strategies, 349–350 Mixed economies, 96 MLB ticket prices, 146t Mobile games, 252 Mobile phones, 79 Model T, 44 Mondale, Walter, 292 Monetary policy See also Federal Reserve defined, 201 goals and tools, 203–206 issues in applying, 213–215 quantitative easing, 210 short-term interest rate control, 206–210 Money, functions of, 202–203 Money illusion, 139, 140 Money stock, 202 Money supply, 206 Monopolies, 82–83 Monopolistic competition, 80–82 Monster Board, 284 Monster.com, 284 Moore, Gordon, 269, 275 Moore’s law, 269, 279 Mortgages financial crisis and, 240 financial market for, 6, 238 impact of fed funds rate, 209 subprime, 211 tax advantages, IN-7 Motor vehicles, 5–6 See also Automakers Movements, shifts versus, 43–44 Movies, 252, 290 MTV, 248 Multinationals, 22 Multiplier effect, 186–188, 192 Municipal governments, 184 Music streaming services, 40 Musicians, 81 Non-zero-sum economies, 151–152 Nordhaus, W., 269n Normal goods, 47 Noyce, Bob, 275 NSFNET, 101 Nuclear power, 6, 268, 338, 339, 343t Nylon, 268, 270 N Obama, Barack criticized for deficits, 120 Dodd-Frank Act signing, 240 efforts to track job creation, 187 fuel economy rules under, 341 Great Recession intervention, 8, 173, 183, 185, 222 health care reform, 4, 11, 91, 317, 330 tax increases, 191, 310 Occupational licensing, 293–294 Occupational Safety and Health Administration, 95 Offshoring, 6, 138, 254 Oil prices impact on aggregate supply, 176, 221 shock of 1973, 95, 142, 176, 213 wage–price spirals and, 142 Oil production absolute advantage in, 253 access to resources for, 251–252 global shifts, 338–339, 340 oligopolies, 82 reserves, 338, 340 technological development, 288 Old-age dependency ratio, 322 Old-age-related health care costs, 326 Oligopolies, 82 Omidyar, Pierre, 22 “One-child” policy, OPEC, 82, 95 Open Market Committee (Fed), 206–207 Opportunity cost, 26, 284, 292 Oracle, 275t Organization of Petroleum Exporting Countries, 82, 95 Otto, Nicholas, 338 Output gap, 168–169 Outputs, 54, 125–126 Outsourcing, 59–60 See also Globalization; International trade Overseas leakage, 188 Overseas travel, 150 Overtime pay, 293 Owners’ equivalent rent, 134, 135 NAIRU, 172, 178 Nantucket Sound, 344 NASDAQ, 236, 238 National Basketball Association, 82–83 National Bureau of Economic Research, 172 National Confectioners Association, 61 National defense spending, 126 National Education Association, 294 National Endowment for the Arts, 94–95 National Endowment for the Humanities, 94–95 National Highway Traffic Safety Administration, 92, 103 National Labor Relations Act, 294 National Labor Relations Board, 294 National markets, 22 National Maximum Speed Law, 341 National Public Radio, 95 National Science Foundation, 101 National security industries, 259 Natural barriers to trade, 247–248 Natural gas, 338, 339t Natural monopolies, 83 Natural rate of unemployment, 172 Natural resources, 251–252, 337, 344 Negative demand shifts, 176–177 Negative externalities, 104–105, 271, 342 Negative supply shifts, 176 Negotiated prices, 23 Net exports, 121, 122t, 127 Net worth, 318 Netflix, 236 Network externalities, 105 New car loans, 207–209 New Deal, 93, 94t New Economy, 214 New entrants, 77 New goods and services, 270 New markets, 30 New York Stock Exchange, 236, 238 Niantic, 252 Nintendo, 264 Niobium, 252 Nixon, Richard, 95 Noise pollution, 346, 348 Nominal change in money value, 139, 140 Nonaccelerating inflation rate of unemployment (NAIRU), 172, 178 Noncash benefits, 306, 308 Noncompeting labor markets, 290 Nonmarket economy, 127–128 Nonparticipation in retirement plans, 320 Nonprofit organizations, 54 Nonrenewable resources, 337 Nonresidential investment, 121, 122t, 123–124 O P Packet switching, 101 Page, Larry, 56, 267, 299 Panics, financial, 203 Participation in retirement plans, 320 Patents, 276–277 Pay gaps, 311–312 Payroll taxes changes over time, 191 economic impacts, 100t www.downloadslide.net IN-8  Index Payroll taxes (cont.) formula, 321 future trends, 296, 324 sources, 190t Peak in business cycle, 172, 173f Pebble Beach Golf Club, 262 Pegged exchange rates, 259 Penzias, Arno A., 272 People Express, 97 Per-capita GDP, 129 Per-capita health care spending, 325f Perfect competition elements of, 74–75 long run, 77–80 market power versus, 83–85 profit maximization in, 75–77 Perfectly inelastic supply, 113 Performers, 81 Personal computers, 268–269 See also Computers Personal consumption, 121, 122–123 Personal savings rate, 323 Pets.com, 234 Pfizer, 127 Pharmaceutical development, 67, 276 Philbin, Regis, 139 Physical capital, 155, 157 Pilots, 290, 295 Pirates of the Caribbean movies, 290 Planned economies, 7, Playstation game consoles, 50 Plumbing, 150 Pokemon Go, 252 Pollution controlling, 98, 346–348 as negative externality, 104, 105, 343–346 reductions, 271 Pollution permits, 348, 350 Population shifts, 296–297 Positive externalities, 105, 271 Potential GDP, 168–169, 171, 219 Potential growth rate, 168 Pound, 259 Poverty health care and, 326, 329 levels in U.S., 301, 306 in retirement, 318 taxation and, 310–311 PPF, 151 Preferences, revealed and stated, 345 Prepaid tuition, 24 Pretax income distribution, 309 Price appreciation, 237 Price elasticity of demand, 110–111, 114 Price elasticity of supply, 113, 114 Price takers, 74 Prices See also Inflation average level, 134–135 of common stock, 236–237 defined, 22 impact of fed funds rate, 209 impact on demand, 23–27 impact on supply, 27–30, 43 invisible hand effects, 36–37 market, 22–23 under monopolies and oligopolies, 82 under monopolistic competition, 80–81 perfect competition’s effect, 77–78 trade benefits, 250–251 Principal defined, 228 Prius car, 67 Private sector defined, 91 Private space travel, 273 Private toll roads, 102 Privatization of Social Security, 324 Procter & Gamble, 242 Producer decisions, modeling, 111–113 Production See also Manufacturing cost principles, 60–63 defined, 54 inputs and outputs, 55–60 Production function, 56–60, 155–158 Production possibility frontier, 151 Productivity overview, 159–161 role in potential GDP growth, 168 slowdown, 160–161 technology’s impact, 161, 221, 270, 271 Products, standardized, 74 Products defined, 22 Professional licenses, 293–294 Profit maximization achieving, 64–67, 286–287 defined, 54 with monopolistic competition, 80–81 in perfect competition, 75–77 Profit-maximizing rule, 64 Profits defined, 54 Progressive taxation, 309, 310 Propensity to consume, 187–188 Property taxes, 100t, 190t Prosperity, measuring, Protectionism, 257–259 Public Broadcasting Service, 95 Public companies, 236 Public debt, 193 Public education, 98 See also Education Public goods, 101–103 Public sector defined, 92 Public transportation, 47–48 Pure price changes, 138 Q Quality improvements, 138–139 Quality-of-life innovations, 270–271 Quantitative easing, 205–206 Quantity demanded See also Demand as aggregate demand, 218 defined, 23 effect of taxes, 99–101 impact of price on, 23–27, 110–111 Quantity supplied defined, 27 effect of taxes, 99–101 impact of price on, 27–30, 43, 113 Quintiles, 302–303 Quotas, 248, 249–250 R Race discrimination, 311–312 Rational individuals, 109 Raw materials, 46, 155, 158 RCA, 253 Reagan, Ronald age at election, 292 antigovernment policies, 96 tax cuts, 190, 192, 194, 308, 310 Real change in money value, 139 Real dollars, 140–141 Real GDP GDP versus, 153–154 Japan statistics, 164t per capita, 154–155, 164t potential versus, 168–169 recessions, 172–173 Real wages, 140–141 Rebates, tax, 192 Recessions basic features, 172–175 causes, 175–178 effects of government spending, 189 effects of tax cuts, 192 official dates, 172 Recreation, 134t Red Delicious apples, 46 Redistribution of income, 105, 308–311 Regressive taxation, 309, 310, 350 Regulation of money, 202–203 Regulations See also Government intervention basic functions, 8, 103–104, 105 current examples, 92, 93 deficiencies, 240 labor, 292–295 Relative price shifts, 137–139 Renewable energy sources, 6, 337, 339, 344 Rent-seeking behavior, 99, 308, 331 Repossession, 231 Research and development, 60, 272, 276 Research as public good, 102 Reserve requirement, 206, 207, 212–213 Reserves, fossil fuel, 338, 340 Residential investment, 121, 122t, 124, 125f Residential mortgage market, Restaurants, 80 Retailing, average pay in, 146t Retirement, 318–324 Retirement age, 324 Retirement uncertainty problem, 319, 321 Return on investment, 235, 276 Revealed preferences, 345 Revenues, 54, 63–64 See also Marginal revenue Ridley, Daisy, 290 Right-to-work laws, 294 Risk default, 231, 232, 233, 235 defined, 235 in financial system, 205, 235–236 from innovative activities, 276 in stock market, 236–238 Risk–return principle, 235, 236–238 Rockefeller Center, 262 Roosevelt, Franklin, 93 www.downloadslide.net Index  Rovio, 252 Royalties, 277 Rules, defined, 158 Rules-based intervention, 214 Rural counties, 297 S Safety nets, 9–11 Sale prices, 23 Sales taxes, 100t, 190t, 309, 310f S&P 500 Stock Index, 237, 238 Sarbanes–Oxley Act, 287–288 Satellites, 102 Satiation, 25 Savannah River nuclear weapons site, 187 Saving for retirement, 318–319, 323 Savings accounts, 235 Schools, public spending on, 98 See also Education Schwarzenegger, Arnold, 290 Scientists, 274 Sea level rise, 349 Search engines, 270 Self-employment, 299 Sellers, 22 Sequoia Capital, 234 Services globalization, 6, 138 India’s focus on, 257–258 trade in, 246–247 787 Dreamliner, 66, 127 Shampoo, 79–80 Shamrock Farms, 23 Shareholder rights, 236 Shifts in market economies, 40–46 Shifts in tastes, 46 Shipping containers, 247, 248 Short-term aggregate supply curve, 219, 220f Short-term cost function, 63 Short-term costs, 63 Short-term growth, 155 Short-term interest rates, 206–210 Short-term profit maximization, 66 Shutdown decisions, 78–79 Siemens AG, 249, 254 Silicon Valley, 275 Simmons, Andrea, 228 Single-payer systems, 330 Skills, improving, 156–157 Skype, Smartphones, 270 Snapchat, 234 Social return from innovation, 276 Social Security challenges to, 321–324 cost-of-living adjustments, 143 New Deal origins, 93, 321 retirement income from, 319, 321 tax rate, 191 Software, 124, 253 Solar power, 337, 340, 343t Solow, Robert, 271 Sony, 50 Sony Walkman, 138–139 Space program, 94, 268 Space tourism, 273 SpaceShipOne, 273 Speed limit law, 97, 341 Speedo, 281 Spending multipliers, 186–187 Spotify, 40 SRI International, 273 Stability, financial, 204–205 Stagflation, 176, 221 Standardized products, 74 Star Wars movies, 140, 252, 290 Starbucks, 22, 63, 69 Start-up firms, 234 State governments, 184 Stated preferences, 345 State-owned enterprises, 96 Statistical life, value of, 345 Stem cells, 271, 277 Stern’s, 78 Sticky wages, 170–171 Stimulative actions, 189–190, 192f, 194–195 Stock indexes, 237–238 Stock market financial crisis impact, 205f foreign participation, 262 margin requirement, 212 as part of financial system, risk–return principle, 7, 236–238 Stockbrokers, 236 Strikes, 295 Structural unemployment, 170 Stumberg, Justin, 339 Subprime mortgages, 211 Subsidies, 259 Substitutes, 82–83, 112, 288 Sulfur dioxide, 348 Sun, 177 Superstar economy, 305 Suppliers of capital, 234 Supply aggregate, 219, 220–221 elasticity, 48 impact of price on, 27–30, 43 law of, 28–29, 66 matching with demand, 36–37 price elasticity, 113, 114 Supply chains, global, 127 Supply curves aggregate, 219, 220f defined, 30 for innovative activity, 273–275 labor, 284–285, 295–297 for loans, 230–231 movements along, 43–44 Supply schedules defined, 27–28 graphing, 29–30, 38, 39 Supply shifts, 40–41, 176 Supply-demand diagram, 38 Supply-side economics, 192, 308 Surgeons, 290 Surpluses (budget), 193 Surveys, 27 Sustainable energy resources, 340–343 Swift, Taylor, 81 IN-9 Synthetic fibers, 270 System of national accounts, 121 T Taft-Hartley Act, 294 Target, 78 Tariffs, 248–249 Tastes, 46 Tax credits, 11 Tax cuts direct impacts, 191–192 fairness argument for, 307 impact on deficits, 194 political influences, 190–191, 214 during recessions, 183, 190, 192 Tax deductions, 328 Tax incidence, 114 Tax multipliers, 192 Tax policies, 11 See also Taxation Tax rates, 192, 193f Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, 186t Tax return data, 304 Taxation changes over time, 190–191 defined, 184 direct impacts, 191–192 effects of lowering, 192 inefficiencies, 99–101 paying burden of, 114, 296 to promote energy conservation, 342, 343 for public goods, 102 redistribution through, 105, 308–311 to reduce pollution, 348, 350 top rates, 193f types, 190 Taylor, Jeff, 284 TCP/IP standard, 101 T.D Ameritrade, 236 Tech bust, 210, 240 Technological change See also Information technology activities producing, 271–273 as cause of market shifts, 44 creating new markets, 30 demand-side forces, 276–278 government measures to promote, 342 impact on aggregate production function, 158 impact on health care costs, 328 impact on inflation rate, 137, 138–139 impact on labor, 288 impact on monopolies, 83 as key economic force, 5–6 in oil and gas production, 337, 338 overview, 268–269 regulation, 104 supply-side forces, 273–275 types of innovations, 270–271 Technological diffusion, 278 Telep, David, 228 Telephone service, increasing competition, 83 Television as innovation, 270, 271 Television networks, 247–248 www.downloadslide.net IN-10  Index Teradyne, 237 Term of a loan, 228 Terrorism, 176, 210, 211 Third-party medical payments, 328 Three Mile Island nuclear incident, 268 Ticket prices, 146t Tide, 79 Time value of money, 231 TIROS-1, 102 T-Mobile, 104 Toll roads, 102 Tootsie Roll Industries, 61 Toshiba, 252 Total cost of production, 60–61 Total return on stocks, 237 Tourism, 150, 247, 273 Tournament effect, 303 Toy Story (movie), 174 Toyota, 8, 67, 80, 85, 131, 264, 270 Toyota Camry, Tradable pollution permits, 348, 350 Trade See International trade Trade balances, 261–263 Trade barriers arguments for, 257–259 legal, 247, 248–250 natural, 247–248 Trade deficits, 261–263 Trade in goods, 246 Trade in services, 246–247 Trade policies, 103t Trade surpluses, 262 Training, 156–157 Transaction costs, 143 Transfer payments, 125, 184 Transistors, 277 Transparency International, 99 Transportation, technological progress, 5–6 Travel (overseas), 150 Treasury bills, 240 Treasury bonds, 240, 321, 322–323 Tree-trimming, 58 Trickling Springs Creamery, 23 Trillions, 122 Troubled Asset Relief Program, 8, 186t Troughs (business cycle), 172, 173f Trump, Donald, 36, 292 Trust fund, Social Security, 321, 322 Trust in value of money, 202–203 Tsunamis, 339 Tuition, prepaid, 24 Twitter, 234, 275t “Two-child” policy, 2008 recession See Great Recession Two-year colleges, 156 Tyson, Mike, 36 U Uber, 234, 275t Underemployed workers, 169 Underground economy, 128 Unemployment average period of, 284 education and, 291t efforts to reduce, 188, 214 inflation versus, 171–172 overview, 169–171 post-2008 recovery, recessions’ impact, 173, 174f short-term effects of government spending, 185 Unemployment rate, 169, 170f Unexpected inflation, 142–143 Unfair competition, 258–259 Uniform Commercial Code, 103 Unions, 171, 294–295 Unit elasticity, 110 Unpaid work, 127–128 Upward-sloping line graphs, 16 Upward-sloping supply curves, 30 U.S economic model, U.S Patent and Trademark Office, 277 U.S Trade Representative, 98 Users of capital, 234 Utility companies, 83 Utility function, 108–109 Utility maximization, 110 V Value of money, 202 Value of a statistical life, 345 Variable costs, 63 Venture capital availability, 274–275 as part of financial system, 6, 7, 234 risk and return, 235 Vertical axes, 14, 16–17 Video telephones, Virgin Galactic, 273 Visual pollution, 344 Voice mail, 288 Volcker, Paul, 178, 204, 209–210 Volume discounts, 23 W Wage–price freezes, 95 Wage–price spirals, 141, 142 Wages among noncompeting workers, 290 cost-of-living adjustments, 143 effects of government spending, 189 equilibrium forces, 287–290 global manufacturers compared, 255f immigration’s impact, 296 impact on labor supply, 29 impact of union membership, 294f, 295 market level, 286 minimum, 292–293, 306 real versus nominal, 140–141 sticky, 170–171, 219 Walkman player, 138–139 Walmart, 6, 56, 63, 67, 78, 125 Walt Disney, 239, 248 Walton, Sam, 56 Warriors in Transition Barracks, 187 Washington, DC, employment, 187 Water pollution, 344 Watt, James, 267 Wealth effect, 219 Wealth taxes, 100t Weather observation, 102 Web design, 30 Webvan, 234 Wendy’s, Who Wants to Be a Millionaire (TV show), 139 Wii game machine, 264 Wilson, Robert W., 272 Wilson, Woodrow, 155 Wind turbines, 249, 343t, 344 Woellert, Lorraine, 250n Working-age population trends, 295–296 Works Progress Administration, 93 Workweek length, 293 World Trade Center attacks, 210, 211 World Trade Organization, 249, 250 World War II, 120 Worldcom, 177 Wozniak, Steve, 268 X X-axis, 14 Xbox, 50 Xerox, 276 Y Y2K bug, 177 Yager, Sarah, 46n Yahoo! 88, 234, 275, 275t Y-axis, 14 Yellen, Janet, 201, 203, 213, 214 Yen, 259 Youth, innovation’s benefits for, 278 YouTube, 236, 269, 275, 275t Yuan, 259, 260f Z Zero price, 25–26 Zero-sum economies, 151–152 Zuckerberg, Mark, 187, 301 ... for the users of this textbook The AACSB leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty While Economics: The Basics,... at the end of the book are considered to be an extension of the copyright page Library of Congress Cataloging-in-Publication Data Names: Mandel, Michael J., author Title: Economics : the basics... does not guarantee the 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