Instructor’s Resource Manual Mark Rush, University of Florida
Economics 14e
Michael Parkin
Table of Contents
Preface Perspective Flexibility Part 1 Chapter 1 Chapter 2 Part 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Part 3 Chapter 8 Chapter 9 Part 4 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Part 5 Chapter 16 Chapter 17 Part 6 Chapter 18 Chapter 19 Chapter 20 Part 6 Chapter 21 Chapter 22
MyLab Economics How to Assemble Your Course
v vii ix
Introduction What is Economics? The Economic Problem
1 9
How Markets Work Demand and Supply Elasticity Efficiency and Equity Government Actions in Markets Global Markets in Action
21 35 45 57 69
Households’ Choice Utility and Demand Possibilities, Preferences, and Choices
81 93
Firms and Markets Organizing Production Output and Costs Perfect Competition Monopoly Monopolistic Competition Oligopoly
103 113 125 137 151 159
Market Failure and Government Public Choices, Public Goods, and Healthcare Externalities
169 179
Factor Markets, Inequality, and Uncertainty Markets for Factors of Production Economic Inequality Uncertainty and Information
189 203 213
Monitoring Macroeconomic Performance Measuring the Value of Production: GDP Monitoring Jobs and Inflation
© 2023 Pearson Education, Inc.
221 233
6
Part 7 Chapter 23 Chapter 24 Chapter 25 Chapter 26 Part 8 Chapter 27 Chapter 28 Chapter 29 Part 9 Chapter 30 Chapter 31
Macroeconomic Trends Economic Growth Finance, Saving, and Investment Money, the Price Level, and Inflation The Exchange Rate and the Balance of Payments
243 253 261 273
Macroeconomic Fluctuations Aggregate Supply and Aggregate Demand Expenditure Multipliers The Business Cycle, Inflation, and Deflation
285 297 307
Macroeconomic Policy Fiscal Policy Monetary Policy
319 329
C h a p t e r
1
WHAT IS ECONOMICS?
The Big Picture Where we are going: After completing Chapter 1, the student will have a good sense for the range of questions that economics addresses and will be on the path towards an economic way of thinking. The students will begin to think of cost as a forgone alternative—an opportunity cost—and also about making choices by balancing marginal costs and marginal benefits. Chapter 2 reinforces the central themes of Chapter 1 by laying out a core economic model, the production possibilities frontier (PPF), and using it to illustrate the concepts of tradeoff and opportunity cost. Chapter 2 also provides a deeper explanation, again with a model, of the concepts of marginal cost and marginal benefit, beginning with the concept of efficiency, and concluding with a review of the source of the gains from specialization and exchange.
New in the Fourteenth Edition When discussing the social interest and four major issues, the issue of financial instability has been replaced with a discussion of social interest issues surrounding the COVID pandemic. The emphasis in this discussion is that often self-interested decisions are not in the social interest (for example, whether to socially distance) so that rules governing behavior may need to be established. The last topic, dealing with Economists in the Economy, now includes a section covering the diversity challenge in economics. It points out that fewer women and minorities receive bachelor’s PhD degrees in economics than in STEM majors in general. It also discusses efforts being made to overcome this lack of diversity. The Economics in the News presenting Mark Zuckerberg’s vision to have the Internet available to the whole world has been eliminated to make room for the coverage of diversity in the profession. This important chapter is not one to gloss over as it lays down an important foundation that can be drawn from as you move through more specific applications later. Students relate well to the section on self and social interest which calls out issues of both efficiency and fairness and is great for class discussion.
© 2023 Pearson Education, Inc.
CHAPTER 1
2
Lecture Notes
What Is Economics? I.
Definition of Economics
Economic questions arise because we always want more than we can get, so we face scarcity, the inability to satisfy all our wants. Everyone faces scarcity because no one can satisfy all of his or her wants. Scarcity forces us to make choices over the available alternative. The choices we make depend on incentives, a reward that encourages a choice or a penalty that discourages a choice.
Forbes lists Bill Gates and Warren Buffet among some of the wealthiest Americans. Do these two men face scarcity? According to The Wall Street Journal, both men are ardent bridge players, yet they have never won one of the many national bridge tournaments they have entered as a team. These two men can easily afford the best bridge coaches in the world and but other duties keep them from practicing as much as they would need to in order to win. So even the wealthiest two Americans face scarcity (of time) and must choose how to spend their time. Economics Economics is the social science that studies the choices that individuals, businesses, governments and entire societies make when they cope with scarcity and the incentives that influence and reconcile those choices. Economists work to understand when the pursuit of self-interest advances the social interest Economics is divided into microeconomics and macroeconomics: Microeconomics is the study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments. Macroeconomics is the study of the performance of the national economy and the global economy. On the first day do a “pop quiz.” Have your students write on paper the answer to “What is Economics?” Reassure them that this is their opinion since it is the first day. You will find most of the answers focused around money and/or business. Stress that Economics is a social science, a study of human behavior given the scarcity problem. All too often first-time students (especially business students) think that Economics is just about making money. Certainly, the discipline can and does outline reasons why workers work longer hours to increase their wage earnings, or why firms seek profit as their incentive. But Economics also explains why a terminally ill cancer patient might opt for pain medication as opposed to continued chemotherapy/radiation, or why someone no longer in the workforce wants to go to college and attain a Bachelor’s degree, in their sheer pleasure of learning and understanding. Stressing the social part of our science now will help later when relating details to the overall bigger picture (especially when time later in the semester seems scarce, no pun intended!). The definition in the text: “Economics is the social science that studies the choices that individuals, businesses, governments, and societies make as they cope with scarcity and the incentives that influence and reconcile these choices,” is a modern language version of Lionel Robbins famous definition, “Economics is the science which studies human behavior as a relationship between ends and scarce means that have alternative uses.” Other definitions include those of Keynes and Marshall: John Maynard Keynes: “The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps it possessors to draw correct conclusions.” Alfred Marshall: “Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing.” A “shorthand” definition that resonates with students is: “Economics is the study of trying to satisfy unlimited wants with limited resources.” Students can—and do—easily abbreviate this definition to “unlimited wants and limited resources,” which captures an essential economic insight.
© 2023 Pearson Education, Inc.