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(BQ) Part 2 book Issues in economics today has contents: Minimum wage, farm policy, the economics of crime, the economics of race and sex discrimination, the economics of crime, the economics of crime; natural resources, the environment, and climate change, international finance and exchange rates,...and other contents.
Find more at www.downloadslide.com Issues in Economics Today Eighth Edition 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 Slavin Economics, Microeconomics, and Macroeconomics Eleventh Edition ADVANCED ECONOMICS ECONOMICS OF SOCIAL ISSUES MONEY AND BANKING 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 Hilmer and Hilmer Practical Econometrics First Edition MANAGERIAL ECONOMICS Baye and Prince Managerial Economics and Business Strategy Ninth Edition Brickley, Smith, and Zimmerman Managerial Economics and Organizational Architecture Sixth Edition Karlan and Morduch Economics, Microeconomics, Macroeconomics Second Edition Thomas and Maurice Managerial Economics Twelfth Edition McConnell, Brue, and Flynn Economics, Microeconomics, Macroeconomics Twenty-First Edition Bernheim and Whinston Microeconomics Second 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 INTERMEDIATE ECONOMICS Dornbusch, Fischer, and Startz Macroeconomics Twelfth Edition Frank Microeconomics and Behavior Ninth Edition Romer Advanced Macroeconomics Fourth Edition 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 Ninth Edition Pugel International Economics Sixteenth Edition Issues in Economics Today Eighth Edition ROBERT C GUELL Indiana State University ISSUES IN ECONOMICS TODAY, EIGHTH 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 © 2015, 2012, and 2010 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 ISBN 978-1-259-74639-0 MHID 1-259-74639-9 Chief Product Officer, SVP Products & Markets: G Scott Virkler Vice President, General Manager, Products & Markets: Michael Ryan Vice President, Content Production & Technology Services: Betsy Whalen Managing Director: Susan Gouijnstook Executive Brand Manager: Katie Hoenicke Product Developer: Jamie Koch Editorial Coordinator: Christian Lyon 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: Melissa M Leick & Karen Jozefowicz Buyer: Catt Mattura, Jolyn Thomas, Abby Davis Design: Studio Montage, Inc Content Licensing Specialists: Beth Thole Cover Image: Cala Image/Glow Images Compositor: MPS Limited 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 Guell, Robert C., author Issues in economics today/Robert C Guell, Indiana State University Eighth edition | New York, NY : McGraw-Hill Education, [2018] LCCN 2017003633 | ISBN 9781259746390 (alk paper) LCSH: Economics LCC HB87 G83 2018 | DDC 330—dc23 LC record available at https://lccn.loc.gov/2017003633 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 To Susan, Katie, Manny, Angel, Matt, and Lilly About the Author Dr Robert C Guell (pronounced “Gill”) is a professor of economics at Indiana State University in Terre Haute, Indiana He earned a B.A in statistics and economics in 1986 and an M.S in economics one year later from the University of Missouri–Columbia In 1991, he earned a Ph.D from Syracuse University, where he discovered the thrill of teaching He has taught courses for freshmen, upper-division undergraduates, and graduate students from the principles level, through public finance, all the way to mathematical economics and econometrics Dr Guell has published numerous peer-reviewed articles in scholarly journals He has worked extensively in the area of pharmaceutical economics, suggesting that the private market’s patent system, while necessary for drug innovation, is unnecessary and inefficient for production In 1998, Dr Guell was the youngest faculty member ever to have been given Indiana State University’s Caleb Mills Distinguished Teaching Award His talent as a champion of quality teaching was recognized again in 2000 when he was named project manager for the Lilly Project to Transform the First-Year Experience, a Lilly Endowment–funded project to raise first-year persistence rates at Indiana State University He was ISU’s Coordinator of First-Year Programs until January 2008, when he happily stepped aside to rejoin his department full time Dr Guell’s passion for teaching economics led him to request an assignment with the largest impact The one-semester general education basic economics course became the vehicle to express that passion Unsatisfied with the books available for the course, he made it his calling to produce what you have before you today—an all-in-one readable issues-based text vi Brief Contents Preface xviii 17 International Trade: Does It Jeopardize American Jobs? 201 Required Theory Table xxx International Finance and Exchange Rates 213 Economics: The Study of Opportunity Cost 1 European Debt Crisis 222 Supply and Demand 19 NAFTA, CAFTA, GATT, TPP, WTO: Are Trade Agreements Good for Us? 238 Issues for Different Course Themes xxviii The Concept of Elasticity and Consumer and Producer Surplus 40 Firm Production, Cost, and Revenue 56 Economic Growth and Development 231 2 The Line between Legal and Illegal Goods 248 Perfect Competition, Monopoly, and Economic versus Normal Profit 68 Natural Resources, the Environment, and Climate Change 258 Every Macroeconomic Word You Ever Heard: Gross Domestic Product, Inflation, Unemployment, Recession, and Depression 79 Health Care 271 Interest Rates and Present Value 98 Government-Provided Health Insurance: Medicaid, Medicare, and the Children’s Health Insurance Program 283 The Economics of Prescription Drugs 296 Aggregate Demand and Aggregate Supply 107 Fiscal Policy 119 Monetary Policy 131 11 Federal Spending 145 Federal Deficits, Surpluses, and the National Debt 155 So You Want to Be a Lawyer: Economics and the Law 304 The Economics of Crime 310 Antitrust 319 The Economics of Race and Sex Discrimination 327 The Housing Bubble 168 Income and Wealth Inequality: What’s Fair? 339 The Recession of 2007–2009: Causes and Policy Responses 177 Farm Policy 349 Is Economic Stagnation the New Normal? 186 3 Minimum Wage 358 Ticket Brokers and Ticket Scalping 366 Is the (Fiscal) Sky Falling?: An Examination of Unfunded Social Security, Medicare, and State and Local Pension Liabilities 193 Rent Control 373 The Economics of K–12 Education 379 College and University Education: Why Is It So Expensive? 390 vii viii Brief Contents Poverty and Welfare 400 Unions 478 Head Start 411 Walmart: Always Low Prices (and Low Wages)—Always 488 Social Security 418 Personal Income Taxes 429 Energy Prices 440 If We Build It, Will They Come? And Other Sports Questions 455 4 The Stock Market and Crashes 467 The Economic Impact of Casino and Sports Gambling 494 The Economics of Terrorism 499 Index 505 Table of Contents Preface xviii What on God’s Green Earth Does This Have to Do with Economics? 18 Required Theory Table xxx Chapter Supply and Demand 19 Chapter Economics: The Study of Opportunity Cost 1 Supply and Demand Defined 20 Issues for Different Course Themes xxviii Economics and Opportunity Cost Economics Defined Choices Have Consequences Modeling Opportunity Cost Using the Production Possibilities Frontier The Intuition behind Our First Graph The Starting Point for a Production Possibilities Frontier Points between the Extremes of a Production Possibilities Frontier 3 Attributes of the Production Possibilities Frontier Increasing and Constant Opportunity Cost Economic Growth How Is Growth Modeled? Sources of Economic Growth The Big Picture Circular Flow Model: A Model That Shows the Interactions of All Economic Actors Thinking Economically Marginal Analysis Positive and Normative Analysis Economic Incentives Fallacy of Composition Correlation ≠ Causation 10 Kick It Up a Notch: Demonstrating Constant and Increasing Opportunity Cost on a Production Possibilities Frontier 10 Demonstrating Increasing Opportunity Cost 11 Demonstrating Constant Opportunity Cost 11 Summary 11 Appendix 1A Graphing: Yes, You Can. 15 Cartesian Coordinates 15 Please! Not Y = MX + B . . . Sorry. 16 Markets 20 Quantity Demanded and Quantity Supplied 20 Ceteris Paribus 22 Demand and Supply 22 The Supply and Demand Model 22 Demand 22 Supply 23 Equilibrium 24 Shortages and Surpluses 25 All about Demand 25 The Law of Demand 25 Why Does the Law of Demand Make Sense? 25 All about Supply 26 The Law of Supply 26 Why Does the Law of Supply Make Sense? 26 Determinants of Demand 27 Taste 28 Income 28 Price of Other Goods 28 Population of Potential Buyers 29 Expected Price 29 Excise Taxes 29 Subsidies 29 The Effect of Changes in the Determinants of Demand on the Supply and Demand Model 29 Determinants of Supply 31 Price of Inputs 31 Technology 32 Price of Other Potential Outputs 32 Number of Sellers 32 Expected Price 32 Excise Taxes 33 Subsidies 33 The Effect of Changes in the Determinants of Supply on the Supply and Demand Model 33 The Effect of Changes in Price Expectations on the Supply and Demand Model 35 ix 518 Index Obama, Barack and administration (continued ) and tax cuts, 116, 120, 435, 437 and tax increases, 433 and tax incentives, 435 and trade, 241 Obama stimulus plan, 10, 115, 116, 120, 124–127, 175, 182–184 and budget deficits, 159, 165 congressional votes for, 147–148 criticism’s of, 125 federal spending under, 146, 165 infrastructure projects in, 124 and recession of 2007–2009, 124 tax cuts in, 116, 120, 435, 437 tax incentives in, 435 Obamacare (Patient Protection and Affordable Care Act), 199, 273, 275, 277–279, 284, 285, 290, 291, 293, 397 Obstfeld, Maurice, 212, 247 OECD (Organization for Economic Cooperation and Development), 186 Off-budget, 156–157 Office of Management and Budget, 165 Office Suite, 325 Off-shoring, 207 Oil prices (see Energy prices) Oil reserves, 440, 441, 442, 451–452 Oligopolies, 71 gasoline industry as, 447 other market forms vs., 71–72 and textbook market, 393 Oligopolistic markets, 71 On-budget, 156 OPEC (Organization of Petroleum Exporting Countries), 73, 163, 441, 442, 443, 445–446, 449 Open-market operations, 132, 161 Operating budget, 159 Operating system market, 324 Operational lag (fiscal policy), 123 Opportunity cost, and absolute advantage, 204 of cleaner environment, 260 constant, 5–6, 11 and federal spending, 149 Head Start program, 416 increasing, 5–6, 11 made in developing countries, 236 production possibilities frontier model of, 5, 6, 11 and retirement savings, 421 Optimization assumption, Organization for Economic Cooperation and Development (OECD), 186 Organization of Petroleum Exporting Countries (OPEC), 73, 163, 441, 442, 443, 445–446, 449 Organs, sale of, 279 Origin, 15 Orphan drugs, 297 Output, 20 and diminishing returns, 58 measuring, 80–81 monopoly and, 320 potential, price of, 31, 32, 34 Outsourcing, 207, 489 P Palmer, Karen, 270 Palm Pilot, 324 Panama Canal treaty, 245 PATCO (Professional Air Traffic Controllers Organization), 484 Patents, 70, 241, 297, 299n, 305 Patient Protection and Affordable Care Act (PPACA), 199, 273, 275, 277–279, 284, 285, 290, 291, 293, 397 Paulson, Henry, 138, 182 Pay option adjustable rate mortgages, 172 Pay-as-you-go pensions, 419 Payroll taxes, 193, 195, 293, 419, 425 PCPs (primary care physicians), 273 Peace dividend, 158 Peak (business cycle), 92 Penn State University, 479 Pensions: Chicago, 198 county and municipal liabilities, 196–198 defined benefit, 194 defined contributions, 194 Employee Retirement Income Security Act of 1974 (ERISA), 194 Pension Guaranty Trust Corporation, 194 state and local government, 193–199 state liabilities, 196–199 Pentagon, damages, 499–500 Pepsi, 28, 71, 233 Per capita real GDP, 87, 187, 226, 232–234 Perfect competition, 68–69, 252, 464 in labor market, 478–479, 480, 486 markets meeting criteria for, 71–72 and maximization of profit, 64 monopoly vs., 319–321, 323, 367, 385, 445, 452–453 other market forms vs., 71–72 supply under, 73–76 Perfectly elastic demand, 45 Perfectly elastic supply, 47 Perfectly inelastic demand, 45 Perfectly inelastic supply, 47 Personal Consumption Expenditures (PCE) deflator, 85, 140, 168–169 Personal income taxes, 429–437 calculating, 430–434 debates over, 436–437 distribution of, 435–436 issues with, 434 payers of, 152, 435–436 surtax, 120n and willingness to work and save, 434–435 withholding of, 429–430 United States, 191 Peterson, Paul E., 389 Pew Charitable Trust, 189, 343 Pew Research Center, 416 Phelps, Charles, 282, 295 Philip Morris, 72 Pick-a-pay mortgages, 172 Index 519 Pinterest, 188 Pippen, 461 Plants, extinction of, 263–264 Plumbers and steamfitters, 480 Points, graphing, 15 Polasky, Stephen, 270 Political business cycle, 125 Political instability, 235 Politics: in federal spending, 147 and fiscal policy, 124–125 of income taxes, 434 Pollution, 51, 208, 258–268, 335, 420, 502 Population, home prices and, 169 Population of potential buyers, 27, 29 Porter, Michael E., 270 Portney, Paul R., 270 Positive analysis, Positive externalities, 412, 458 Poteba, James M., 270 Poverty, 208, 400–404 as “bad,” 408 causes of, 346 and crime, 312–313 gender differences in, 328 Head Start and, 411–412, 414 through history, 402–403 and living wage, 358 measuring, 400–404 and minimum wage, 358–359, 362 programs related to, 275, 284–285, 287, 293, 404–406, 411–416 (see also Welfare) in the U.S vs Europe, 404 and Walmart, 491 wealth vs., 403 Poverty gap, 401, 406 Poverty line, 275, 284–285, 287, 293, 401 Poverty rate, 245, 328, 401–402, 411 Pozen, Robert, 426, 428 PPACA (Patient Protection and Affordable Care Act), 284, 285, 291, 293, 397, 425 Pre-Civil War era, economic growth, 187 Preferred provider organizations (PPOs), 273 Prescription drugs, 296–302 and drug industry as monopoly, 297–298 FDA approval of, 301–302 liability for ill effects linked to, 307–308 under Medicare, 290–291 and perceptions of drug companies, 297 prices of, 299–301 Present value, 100–104, 161, 168, 170, 194–195, 197n, 198, 259, 262–263, 299, 307, 316, 380, 395–396, 422–423, 468–469, 471, 500 Head Start, 412 Price(s), 20 classical and Keynesian views of, 109–110 of college textbooks, 393–395 and elasticity, 42–43 energy, 34, 122, 440–445, 447 farm, 349–351 of gasoline, 178, 259, 267–268, 446–447 of inputs, 31 measuring, 81–83 monopoly and, 319–320 of potential outputs, 31, 32 of prescription drugs, 299–301 setting, 63 stock, 468–470 of substitute/complement goods, 27, 28 Price ceiling, 36, 375 Price elasticity of demand, 41 Price elasticity of supply, 41, 46–47 Price expectations: changes in, 35 as determinant of demand, 29 as determinant of supply, 31, 32–33 Price floors, 36, 352–355 Price fixing, 322 Price gouging, 36 Price indexes, 82–85 chain-based index, 85 consumer price index, 80 core, 85 GDP deflator, 86 Producer Price Index, 85 Price of inputs, 31 Price of other potential output, 31, 32 Price of the market basket in the base year, 82 Price supports, for farm products, 351–355 Primary care physicians (PCPs), 273 Primary credit rate or discount rate, 133 Principal–agent problem, 474–475 Prison costs, 314 Private property, 304–305 Private schools, 387 Private-sector unions, 485 Procyclical (budget amendment), 164 Producer Price Index, 85 Producer surplus, 48–50, 51–52 and environment, 260 and farm price floors, 352–353, 356 with illegal goods/services, 249 and labor, 479, 481–482, 486 and market failure, 320 and minimum wage, 359–361, 364 and prescription drugs, 298 and trade, 206, 210 Producers, 20 Product Accounts, 81, 94–95 Production, 57–59 Production costs, 59–62 Production function, 57 Production possibilities frontier, 2–4 for international trade, 205–206 opportunity cost on, 11 Production rules, 64 Professional Air Traffic Controllers Organization (PATCO), 484 520 Index Profit, 56 maximizing, 57, 64–65, 74, 311, 314, 368–369, 447 normal vs economic, 73–75, 299, 333, 445, 453, 474 Progressive taxation, 123, 433 Property rights: enforcing, 305–306 and environmental problems, 262–263 intellectual property, 241, 305, 395 and natural resources, 262–263 negative consequences of, 306 to solve environmental problems, 265–266 Prospective payments, 289, 290 Prostitution, 250, 252, 254–255, 312, 420, 495 and sexual slavery, 250 Public employees, unionization of, 484, 485 Public goods, 51 Public schools, 385–386 Pucher, John, 55 Pull factor, Walmart and, 491 Purchasing power parity, 233 Purely private goods, 50 Purely public goods, 51 Q Quantitative easing (QE2), 93, 136, 355 Quantity demanded, 20–21, 22, 23, 24, 41, 376 Quantity supplied, 20–21, 22, 23, 24, 41, 376 Quotas, 240 for affirmative action, 335–336 cartel, 442, 445–446, 452–453 trade, 208–210, 240, 241 R R J Reynolds, 249–250 Racial inequalities: and affirmative action, 335–336 in automobile sales, 334 in crime statistics, 310–311, 330 in default on home loans, 331 in education, 330 in high school graduation rates, 383 in income, 328–329 in labor market, 330, 332–333 in poverty, 401–402 in real estate market, 333–334 in wages, 332–333 Ramo, Joshua Cooper, 144 Rational or statistical criminal model, 311–312, 502 Rational discrimination, 331 Rational terrorist hypothesis, 502–503 Rauh, Joshua, 197, 198 Reagan, Ronald and administration: and agriculture subsidies, 355 and deficits of 1980s, 157–158 EITC during, 362 federal spending during, 145 and Iran-contra, 442n and labor unions, 484 real growth rates under, 125 and student loans, 397 supply-side actions of, 115 trade agreements, 241 Real estate market, discrimination in, 333–334 Real gross domestic product (RGDP), 86 and aggregate demand, 108–109, 113, 120–122, 123, 128, 190, 232 and aggregate supply, 109–110, 114, 115, 120–122, 123, 128, 190, 232 in business cycle, 92, 178, 181 declining, 188 in depression, 94 growth in, 187, 199, 231 impact of interest rate effect on, 108 and monetary policy, 132–133, 139 and Obama stimulus plan, 127 problems with, 86–87, 307 as a result of austerity, 228 after September 11, 2001, 501 United States, 186, 188 Real-balances effect, 25–26, 108 Real interest rate, 99–100, 219, 292 Recession(s): defined, 92 fiscal policy counteracting, 120, 121, 122–124, 312 historic, 92–94, 123, 125, 126, 355, 428, 472, 475, 494 and monetary policy, 137–140 Recession of 2007–2009, 89, 91, 111, 123, 127, 132, 137, 146, 157, 166, 177–184, 187–188, 215, 220, 227–228, 243, 268, 329–330, 339, 364, 381–382, 402, 425, 441, 442 (see also Great Recession) beginning of, 87 crisis of confidence in, 181–182 Fed’s role in, 131 and housing bubble, 177–180 (see also Housing bubble) initial policy reactions to, 180–181 monetary stimulus, 183–184 and Obama stimulus plan, 127, 182–183 role of Federal Reserve in, 131 Recognition lag (fiscal policy), 123 Recovery (business cycle), 92 Rector, Robert, 403 Redmond, Washington, 479 Refiner Acquisition Cost of Imported Oil, 447–448 Refundable tax credits, 340 Regressions, in measuring discrimination, 331, 332, 333 Regulated monopolies, 321, 450–451 Reinsurance, 173, 502 Reliant Energy, 474 Renminbi (or yuan), 213, 215–220 Rent control, 373–377 consequences of, 375–377 in a free market, 373–374 reasons for, 374–375 Reservation wages, 461 Reserve clause (sports contracts), 462 Reserve ratio, 133 Index 521 Resources, Restless legs syndrome, 301 Retirement, 418–426 Retirement age (Social Security), 419–420 Retirement annuities, 334 Retrospective payment, 289 Revenue, 56, 62–63 from casino gambling, 495 marginal, 62–63 Revenue sharing, 462 Revolutionary War, economic growth and, 187 Revolving credit, 180 Reyes, Jessica, 318 RGDP (see Real gross domestic product) Richardson, J David, 212 The Rise and Fall of American Growth, 190 Risk, 104 Risk aversion, 104, 272 Risk neutrality, 272 Risk premium, 104 Rivalry, 50 Robotic spot welders, 188 Rockefeller, John D., 323, 325 Rodrik, Dani, 212 Roosevelt, Franklin, 418, 482 Rosen, Harvey, 428 Royalties (to authors), 394 Rudd, Jeremy, 86, 97 Rule of 72, 104 Rules of thumb, in hiring, 330 Russia, 21, 93, 209, 217, 362 Ruth, Babe, 463 S Safeway, 488, 490 Salary cap (sports), 462, 463 Sales taxes, 81, 490, 491 Sampson, Ralph, 462 SAT scores, 336, 383–384 Saudi Arabia, 21, 236, 345, 442, 445 Saving: and economic growth, 232 in monetary aggregates, 132 for retirement, 420–422 and tax rates, 435 Scalping tickets, 36, 366–371 Scarce resources, 1, 2, Schaller, Bruce, 55 Scherer, F M., 303 Schieber, Sylvester J., 426 Schiller, Robert J., 477 Schliefer, Andrei, 477 Schmalensee, Richard, 270, 326 School Lunch program, 380n, 405 School reform issues, 385–388 School vouchers, 387 Scientific method, 22 S-corporations, 469n Schott, Jeffery, 243 Schumpeter, Joseph, 245 Screen Actors’ Guild, 484 Seasonal unemployment, 90 Section apartments, 405 Securitization, 170, 173, 175 Sellers, number of, 31, 32, 33–34, 73, 75, 353 September 11, 2001 attacks, 126, 135, 140, 146, 147, 157, 325, 472, 499–503 aggregate-demand shock, 500–501 economic impact of, 499–500 modeling economic impact of, 500–502 oil price swings following, 446 and spending increases, 158 Sex discrimination, 327–328, 330–336 Sexual slavery, 250 Sheehan, Richard, 466 Sheiner, Louise, 130 Sherman Anti-Trust Act of 1890, 322–323, 465 Shocks, 121 aggregate demand, 121–122, 183, 500–501 aggregate supply, 122–123, 128, 501 Shogren, Jason F., 270 Short run, 74 barriers to entry, 71 consequences of rent control, 375–376 economic growth, 232 economic profit, 73–74, 75 elasticity of demand, 268, 363 elasticity of supply, 46 Short sale, 175 Shortages, 24–25, 35–36, 359, 370, 371, 442, 446 Shoven, John, 426 Siegfried, John, 466 Simple monopolies, 450–451 Simplifying assumption, 3, 71, 82, 260 Sindelar, Jody, 257 Single-payer system, 279–281 Sirius, 322–323 Skinner, Jonathan, 154, 167, 295 Slave labor, 208 Slemrod, Joel, 439 Slope, 16, 42–43, 60 Smartphone, economic growth and, 188 Smeeding, Timothy, 404, 406 Smoot-Hawley tariff law, 240 Soccer, 456–458 Social cost, 252–253, 261, 265 Social engineering, taxes for, 435, 437 Social insurance, 146, 423 Social Security, 418–426 benefits under, 283, 419 cost of living adjustment (COLA), 83 economic effects of, 421–422 fixing, 425–426 funding for, 193–199, 424–426 generational accounting of, 161 history of, 283–284, 418–419 need for, 420–421 spending on, 148, 149, 150, 151, 158, 160 522 Index Social Security (continued ) sustainability, 165 taxes for, 156–157, 273, 419, 437 temporary tax cut for, 419 and tobacco, 252 value of, 422–423 Social Security Trust Fund, 161, 195, 292, 424–426 Social welfare: deadweight loss as a measure of, 51, 298, 370 nonequivalence to RGDP, 86–87, 307 Socialist, 21–22 Software development, 244 Solar power, 261, 268, 449, 451 Solow Growth Model, 234 Somalia, lawlessness in, 306 South Korea, 21, 139, 236, 241 Sovaldi, 300 Southwest Airlines, 323 Sowell, Thomas, 338 Soybean prices, 350, 355 S&P 500, 468, 475 Spain: and central bank independence, 138 and debt to GDP, 220, 226, 227 and the euro, 223, 229 GDP growth, 223–224 and housing bubble, 223, 225 and long term interest rates, 225 per capita GDP, 223–224, 234 and soccer, 457, 464, 497 terrorism in, 503 and unemployment, 228 Spending: on crime control, 311–316 on education, 236, 381–385, 390–398 by federal government (see Federal spending) government, 81, 83–84, 87, 94, 108, 112, 114, 115, 120–128, 190, 228, 232, 355 on health care, 286, 288–289, 291, 301 on sports stadiums, 458 on welfare, 244, 404–408, 412 Sports, 455–465 city-based teams, 455–458 economics of, 461–465 labor market for, 461 relocation of NCAA, 457 relocation of teams, 455–457 return on investment in, 459–461 and sex discrimination, 330–331 spending on stadiums, 458 winning vs profiting of teams, 459–460 SSI (Supplemental Security Income), 274, 284, 405, 408 St Louis, Missouri, 456, 459, 460 St Petersburg, Florida, 456 Standard and Poor’s 500 (S&P 500), 468, 475 Standard deduction (income tax), 430, 431, 433 Standard Oil, 322, 323–324 Staples, 491 State budgets, 164, 275, 381 State College, Pennsylvania, 479 State Farm, 474, 502n States: budgets of, 125, 126, 164, 175 civil liability, 306–307 collective bargaining of public employees in, 387–388 education spending by, 149, 379–385, 392–395 and the environment, 264, 267 gambling in, 494–497 Medicaid programs of, 272, 275, 284–287, 293, 300 minimum wages set by, 360, 363–364 Obama stimulus plan aid from, 126–127, 183–184 pension issues of, 193–199 refinery locations by, 450 ticket scalping laws in, 370–371 taxes of, 253 tobacco settlement with, 254 welfare spending by, 404–408 Statistical discrimination, 331 Steiger, Douglas, 144 Steuerle, C Eugene, 422 Stevens, Ted, 147 Stiglitz, Joseph, 477 Stock, James H., 144 Stock indexes, 470 Stock market, 467–476 in 1990s, 158, 342–343 in 2006–2007, 475–476 in 2008–2009, 475–476 and accounting scandals, 472–475 crashes of, 139–140, 470–472 efficient, 470 function of, 469–470 stock price determination, 468–469 Stock options, 474 Stock prices, 139, 468–469, 470, 471, 474, 475 Stone, Kenneth E., 493 Strategic trade policies, 240 Strikes: in history of unions, 483–485 in sports, 463–464 “Strong dollar,” 111–112 Structural deficit, 159–160 Structural unemployment, 90 Stubhub, 371 Student loans, 148, 149, 151, 306, 346, 396, 397 Subsidies: agricultural, 353–355 corrective, 50, 435 as determinant of demand, 29–31 as determinant of supply, 31–34 educational, 380 government, 27, 29, 30, 31, 33, 34, 126–127, 240, 276 Medicare, 291, 293 in-kind, 404 of nonsmokers by smokers, 251n, 252 in PPACA, 275 for public universities, 391–392, 397 (see also Price supports) renewable energy, 350 Index 523 Substitutes, 27, 28, 30 and elasticity, 44, 46, 363, 370, 375, 395, 451 and market form, 70–72 number and closeness of, 41, 43, 44 and price changes, 25, 81–82, 84, 351 Substitution effect, 25, 434–435 terrorism, 503 Summers, Lawrence H., 477 Sun Microsystems, 324, 325 “Super” stores, 489, 490, 491 Supplemental Security Income (SSI), 274, 284, 405, 408 Supply, 20–34 aggregate (see Aggregate supply) determinants of, 31–34 elasticity of, 46–48 excess, 25 law of, 26–27 under perfect competition, 73–76 price elasticity of (see Elasticity of supply) quantity supplied vs., 20–21, 22 Supply and demand model, 19, 22–25 and ceteris paribus, 22 and changes in oil prices, 446–447 and changes in price expectations, 35 demand schedule, 22–23 determinants of demand, 27–31 determinants of supply, 31–34 and education, 380, 392 equilibrium, 24 and equilibrium changes, 35–36 and farm products, 349–355 and foreign exchange markets, 213–219 for health care, 274–275, 285–286 for illegal goods and services, 249–255 for international trade, 206 law of demand, 25–26 law of supply, 26–27 markets, 20 and labor, 359–364, 479–481 for prescription drugs, 297–301 quantity demanded and quantity supplied, 20–21 shortages and surpluses, 25, 36 supply schedule, 23–24 Supply curve, 20, 26–27, 29–31 decriminalization of illegal goods/services, 254–255 and law of supply, 26 movements in, 33–34 for ticket scalping, 370 Supply schedule, 23–24 Supply-side economics, 115 Supply-side macroeconomics, 115–116 Surpluses, 24, 25, 35–36 budget, 149, 156, 157, 158, 160, 161, 162, 163, 164, 165 (see also Federal budget) consumer (see Consumer surplus) producer (see Producer surplus) trade, 203 Survivor benefits (Social Security), 419–420 Swartz, Katherine, 274 T Taco Bell, 71 Taft-Hartley Act, 483 Takata, 308 Tampa Bay area, Florida, 456 TANF (Temporary Assistance to Needy Families), 149, 284, 285, 405, 406, 408, 414 Target, 473, 475, 488, 490 Tariffs, 208–209, 210, 240, 241, 244 TARP (Troubled Asset Relief Program), 10, 124, 146, 159, 160, 164, 174, 175, 182, 227, 241 Taste, 27, 28, 30 Tax cuts, 119–120 by Bush, 115–116, 126, 157, 158, 162, 166, 180, 437 impacts of, 124 in Obama stimulus plan, 126, 159, 182–184, 437 political debates on, 151–152, 190, 433, 436–437 sources of money for, 124 by Reagan, 115 Tax tables, 430, 431–432 Taxable income, 158, 430, 431, 432, 433, 436 Taxes capital gains, 340–341, 345 and casino gambling, 494–495 and circular flow diagram, 7,8 corrective, 50, 249, 253–255, 265 and discretionary fiscal policy, 122–125, 128 as an economic incentive, 9, 190, 191, 232–233, 408 for education, 380, 385–388, 392, 397 EITC, 362, 405 and elasticity, 46 on emissions, 267–268 excise, 27, 29, 30, 31, 33, 34 federal revenue from, 151, 158–159, 162–163, 165, 189, 340, 430, 431 foreign, 214 and fiscal policy lags, 123–124 on gasoline, 448, 449 and GDP accounting, 81, 94–95 and generational accounting, 161 and Greece, 226, 228, 229 income, 86, 87, 111, 120, 157n, 158, 429–437 and inflation, 114, 115 inheritance, 342, 345 Medicare/Medicaid, 272–274, 283–293 and nondiscretionary fiscal policy, 121–122, 128 in Obama stimulus plan, 115, 120, 126 under PPACA, 275, 277–278 and purely public goods, 51 property, 170, 174, 431 under Reagan, 157, 158 during Revolutionary War, 156 sales, 81, 490–491 and shift in aggregate demand, 112–114 for Social Security, 156–157, 193, 195, 199, 419–420, 422, 423–426 under socialism, 21 supply-side impact of, 114 524 Index Taxes (continued ) tariffs, 208, 209, 240 on tobacco and alcohol, 253–254 Taylor, John B., 125, 127, 165 Teachers: Head Start, 413–414 K–12, 194, 198, 199, 328, 331, 379–388 university, 198, 390–398 Teaching, 379–388, 390–398, 479 Teamsters, 243, 484, 485 Technology: as determinant of supply, 313 economic output and, 187–188 and used textbook sales, 396 “Techno-optimists,” 190 Temporary Assistance to Needy Families (TANF), 149, 284, 285, 405, 406, 408, 414 Tenure, for teachers, 386 Term papers, sale of, 32 Terms of trade, 205, 206, 207 Terre Haute, Indiana, 494, 495 Terrorism: aggregate-demand shock, 500–501 economic impact of September 11 attacks, 499–502 (see also September 11, 2001 attacks) insurance aspects of, 500, 501–502 from the perspective of terrorist, 502–503 reinsurance, 502 substitution effect, 503 Texas, 197 and affirmative action, 336 housing in, 168–169 prisons in, 315 oil in, 203, 443, 447 TANF standards, 285 Texas Motor Speedway, 465 Texas Rangers, 459 Textbooks: cost of, 391, 393–395 electronic, 395–396 market of, 393–395 renting, 393–395, 396 Third-party payers, 276–277, 288 Thomas, Duncan, 415 Thorton, Mark, 257 Ticket brokers/scalping, 366–371 Ticket master, 371 Time, elasticity and, 44 Tobacco, 72, 248–254, 278–279, 354 Topel, Robert, 410 Total cost, 59–62, 480 Total cost function, 60, 61 Total expenditure rule, 44 Total revenue (TR), 60, 63, 65, 74 to universities, 392–393 Toxic substances, 244 Toyota, 308 TPP (Trans-Pacific Partnership), 238, 244 TR (total revenue), 60, 63, 65, 74 to universities, 392–393 Trade (see International trade) Trade agreements benefits of, 239 economic and political impacts, 243–244 economists favoring, reasons, 245 Mexico, 239, 241–243, 244 need of, 239–241 quota, 240 special interests, 240 strategic trade policies, 240 tariff, 240 United States, 238–241, 243, 244 Trade barriers, 207–208, 240, 241, 243, 344 Trade protection, 208, 210 Trademarks, 305 Traditional mortgages, 170–172 Training, federal spending on, 148–149 Trans-Pacific Partnership (TPP), 238, 244 Triest, Robert, 410 Troubled Asset Relief Program (TARP), 10, 124, 146, 159, 160, 164, 174, 175, 182, 227, 241 Trough (business cycle), 92, 94 Truman, Harry, 125, 483 Trump, Donald, 244, 344 Trust, 323 Trust funds, 156, 162 Medicare, 161, 195, 284, 292–293 Social Security, 161, 195, 424–426 Tschirhart, John, 270 Tuition tax credit, 433 Twitter, 51, 188 U Unattainable production level, 4–5 Underemployment, 89–90, 335 Underground economy, 233, 376 Unemployment, 89–90 and aggregate supply, 109–110 benefits under the Obama stimulus plan, 120, 126, 127 and the business cycle, 92, 163 classical and Keynesian views of, 109–110, 228 and crime, 314 during depressions, 94 effects of trade on, 245 in European countries, 228 insurance, 31, 500 measuring, 87–90 and the minimum wage, 361, 363 and monetary policy, 134 and production possibilities frontier, 4–5 and racial disparities, 330 in recession of 2001, 158 in recession of 2007–2009, 89, 158–159, 164, 182–183 seasonal adjustment of, 91–92 types of, 90 Unemployment rates, 87, 89–92, 94, 139, 182, 228, 312, 330, 361, 418 Uninsured persons, 274, 278, 300 Index 525 Unions, 478–486, 502 future of, 485–486 history of, 345, 482–485 as monopolies, 481–482 public vs private employees in, 483, 484 reasons for, 478–481 in sports, 463–464 for teachers, 386, 387, 388 and trade, 207, 240, 245 Unitary elastic, 42, 45 United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada, 480n United Auto Workers, 48, 481, 484 United Automobile, Aerospace, and Agricultural Workers of America, 481n United Kingdom (see Great Britain) United Mine Workers of America, 481n United Nations Intergovernmental Panel on Climate Change, 261 United Parcel Service (UPS), 320, 484–485 United States: antipoverty spending in, 404–406 and Arab–Israeli wars, 441 balance of payments for, 214 business cycle of, 94, 111, 119, 177–184 crime in, 310–311, 314 as debtor nation, 215 debt-to-GDP ratio for, 160 deficits and debt of, 155–166 drug prices in, 301 economic freedom, 21 economic stagnation and, 186 entertainment industry, 241–242 exchange rates of, 216–218 federal spending in, 145–152 fiscal policy in, 123–128 free trade, 238–239 gross domestic product, 80 health care compared to other countries, 279–280 health care system of, 271–293 housing bubble of, 168–175 income and wealth inequality in, 339–347 income taxes in (see personal income taxes) monetary policy in, 132–142 poverty in, 403–405 production of workers, 239 real GDP growth, 186 trade of, 201–203, 238–245 United Steelworkers of America, 484 University education, 390–398 UPS (see United Parcel Service) Uruguay Round, 241, 242 USA Patriot Act, 502 U.S Department of Labor, 243 V Van der Linde, Claas, 270 Variable costs, 50, 52, 59, 62, 64, 260, 352, 356, 393, 394, 450 Variable inputs, 57, 449–450 Verizon Wireless, 71 Vermont, 147, 197, 353 Vertical equity (income taxes), 434 Veterans’ benefits, federal spending on, 148–149, 272, 397 Vig, 496–497 Vivitrol, 300 W Wachovia, 182 Wages: and circular flow diagram, 7, and deflation, 93 in developed vs developing countries, 235 and economic growth, 187 gender differences in, 328 impact on Medicare Trust Fund, 292 impact of trade on, 207, 243–245 inflation indexing, 425–426 Medicare tax on, 273 minimum wage, 36, 51, 88, 155, 311–312, 346, 353, 359–364, 408, 463 under monopsony, 480 and perfect competition, 479, 481 racial inequalities in, 332–333 reservation, 461–462 for sports players, 463–464 and taxes, 430, 434–435 technology and trade impact on, 344–345 and unemployment, 90 union control of, 481–483, 485 at Walmart, 489, 491 and World War II controls on, 272n Wagner Act, 482–483 Waldfogel, Jane, 338 The Wall Street Journal, 21 Walmart Supercenters, 48, 488, 490 War, costs of veteran’s benefits, 149 Wastewater treatment, 244, 264 Water pollution, 244, 264 Watson, Mark W., 144 Wealth: and deflation, 93 gender differences in, 328, 334 Greek taxes on, 229 and home ownership, 173, 403 means testing using, 284–285, 293, 426 and Medicaid rules, 287 mobility of, 346 and poverty, 403, 405 and real-balances effect, 108 and self-employment, 478 socialism’s counter to, 21 Wealth inequality, 244, 306, 323 causes of, 344–345 measurements of, 342–343 Weather, changes in, 264–265 Wegmans, 489 526 Index Weitzman, Martin, 270 Welfare, 400, 404–408 education’s impact on, 380 federal spending on, 122, 148–151, 159, 163 and Head Start, 412, 414 and incentives, and nondiscretionary fiscal policy, 120, 123, 128 in Obama stimulus plan, 126, 182–184 reform of, 287, 407–408 results of, 406–408 social safety net, 94 spending on, 406 types of programs, 274, 404–405 Welfare dependency, 407, 408 Wells Fargo, 182 Wendy’s, 71 Weyant, John P., 270 White, Eugene N., 477 WIC (Women, Infants and Children), 405–406, 414, 490 Wildlife, extinction of, 263, 264, 265 Williamson, Jeffrey G., 212 Wilson, Woodrow, 482 Windows, 70, 241, 324–325 Windows 95, 241, 324 Windows Office Suite, 325 Wind power, 261, 268, 449, 451 Winkler, Anne, 338 Wisconsin, 69, 196–197, 285, 353, 387–388, 403 Withholding, tax, 120, 124, 340–341, 429–431 Wolff, Edward, 410 Women: and affirmative action, 335–336 and athletics, 368, 457, 462 and crime, 312 economic status of, 327–328 fertility rate of, 195, 424 and Head Start families, 414 health care for, 278 Labor Force Participation Rate, 7, 88–89, 187–188, 190, 345 life expectancy of, 425 and Medicaid, 284 poverty among, 402–403, 405–407 sex discrimination, 330–331, 333–335 in teaching, 386 Women, Infants and Children (WIC), 405–406, 414, 490 Wood, Adrian, 212 WordPerfect Suite, 325 Work effort: effect of Social Security on, 421 and minimum wage, 363 tax incentives for, 435 Workforce, 89, 188, 190, 233, 244, 478, 491 Work stoppages, 484 Worker productivity, economic growth and, 232–233 WorldCom, 475 World Trade Center (WTC), 472, 499–500, 503 World Trade Organization (WTO), 238, 242 WTC (World Trade Center), 499–500 WTO (World Trade Organization), 238, 242 X X-axis, 15–16, 18 Xerox, 475 X-intercept, 16 XM radio, 322–323 Y Y-axis, 15–16, 18 Yield curve, 104, 141 Yinger, John, 338 Y-intercept, 16 Z Zimbalist, Andrew, 466 ... Transactions 21 3 Foreign Exchange Markets 21 5 Alternative Foreign Exchange Systems 21 7 Determinants of Exchange Rates 21 9 Summary 22 0 Chapter 19 European Debt Crisis 22 2 In the Beginning There... Sense? 26 Determinants of Demand 27 Taste 28 Income 28 Price of Other Goods 28 Population of Potential Buyers 29 Expected Price 29 Excise Taxes 29 Subsidies 29 The Effect of Changes in the... in 17 Countries 22 2 The Effect of the Euro 22 3 Why Couldn’t They Pull Themselves Out? The United States Did 22 6 Is It Too Late to Leave the Euro? 22 8 Where Should Europe Go from Here? 22 9