Economics 1e

N. Gregory Mankiw, Harvard University
Mark P Taylor, University of Warwick
ISBN-13: 9781844801336
eISBN-13: 9781844808229
ISBN: 1844801330
eISBN: 184480822X
MARC Record [.mrc format]

Economics is the UK and European adaptation of Greg Mankiw's classic textbook, expertly adapted by Mark Taylor so as to be even more relevant to a UK and European audience. A major strength of the original - that the authors present economics from the viewpoint of a reader completely new to the subject - has been maintained. Research shows that the book appeals particularly well to the more applied, business-oriented courses. The conversational yet precise writing style is superb for presenting the politics and science of economic theories to tomorrow's decision-makers. The book stands out amongst all other principles texts by encouraging students to apply an economic way of thinking in their daily lives. Economics is written to provide students with a robust conceptual understanding of the subject using contemporary approaches to theory where possible. It follows the structure of the original book while reflecting European economic structures and institutions and adapting the language and cultural references for a European readership. In the first Part, the opening chapter sets out ten important principles, which are revisited throughout the text. The second chapter is an introduction to thinking like an economist and the third introduces interdependence and gains from trade. The following Parts cover microeconomics (19 chapters) and macroeconomics (15 chapters), with the latter Part preserving Mankiw's trademark long run-short run approach. Economics uses the euro as the basic currency referred to throughout the book. Case studies, examples, In The News and For Your Information features largely refer to the European and UK economies. Major changes in content are evident in Chapter 12 on the taxation system , Chapter 29 on the monetary and financial system and in a new Chapter on common currency areas and European Monetary Union (Chapter 36).

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Chapter Abstracts

• Ch. 1 Ten Principles of Economics
  Chapter One covers how interactions among people and trade can be mutually beneficial, how the government can potentially improve market outcomes if there is some market failure or if the market outcome is inequitable; how money growth is the ultimate source of inflation and how society faces a short-run trade-off between inflation and unemployment
• Ch. 2 Thinking Like an Economist
  Chapter Two covers microeconomics and macroeconomics; how the normative statements of economists acting more as policy advisors than scientists; how economists who advise policy makers offer conflicting advice either because of differences in scientific judgements or because of differences in values and how at other times, economists are united in the advice they offer, but policy makers may choose to ignore it
• Ch. 3 Interdependence and the Gains from Trade
  Chapter Three covers the two ways to compare the ability of two people in producing a good; how the gains from trade are based on comparative advantage, not absolute advantage; how trade makes everyone better off because it allows people to specialize in those activities in which they have a comparative advantage, how the principle of comparative advantage applies to countries as well as to people and how economists use the principle of comparative advantage to advocate free trade among countries
• Ch. 4 The Market Forces of Supply and Demand
  Chapter Four covers how the demand curve shows how the quantity of a good demanded depends on the price; how in addition to price, other determinants of how much producers want to sell include input prices, technology,expectations and the number of sellers; how the intersection of the supply and demand curves determines the market equilibrium; how the behaviour of buyers and sellers naturally drives markets toward their equilibrium; how to analyse how any event influences a market, using the supply and demand diagram to examine how the event affects the equilibrium price and quantity and how in market economies, prices are the signals that guide economic decisions and thereby allocate scarce resources
• Ch. 5 Elasticity and Its Application
  Chapter Five covers the tools of supply and demand in analysing many of the most important events and policies that shape the economy including elasticity and its application; the elasticity of demand; the elasticity of supply and three applications of supply, demand and elasticity
• Ch. 6 Supply, Demand, and Government Policies
  Chapter Six covers the laws of supply and demand and the laws enacted by governments and how these laws interact, price controls and taxes in various markets in the economy, their effects frequently debated in the press and among policy makers, how when analysing government policies, supply and demand are the first and most useful tools of analysis
• Ch. 7 Consumers, Producers, and the Efficiency of Markets
  Chapter Seven covers the basic tools of welfare economics - consumer and producer surplus - and the efficiency of free markets, the forces of supply and demand to allocate resources efficiently so that buyer and seller are led by an invisible hand to an equilibrium that maximizes the total benefits to buyers and sellers, how competition is sometimes far from perfect when a single buyer or seller may be able to control market prices, how market power can cause markets to be inefficient by keeping price and quantity away from the equilibrium of supply and demand, how welfare economics and market efficiency can be used to shed light on the effects of various government policies
• Ch. 8 Application: The Costs of Taxation
  Chapter Eight covers tax and how high the price of civilized society can be, how when the government imposes taxes on buyers or sellers of a good, society loses some of the benefits of market efficiency and how taxes are costly to market participants not only because taxes transfer resources from those participants to the government, but also because they alter incentives and distort market outcomes
• Ch. 9 Application: International Trade
  Chapter Nine covers the effects of free trade, the effects and indications of a low domestic price and a high domestic price, the effect on producers and consumers when a country allows trade, how a tariff - a tax on imports - moves a market closer to the equilibrium that would exist without trade and, therefore, reduces the gains from trade, how an import quota - a limit on imports - has effects that are similar to those of a tariff, various arguments for restricting trade: protecting jobs, defending national security, helping infant industries, preventing unfair competition and responding to foreign trade restrictions
• Ch. 10 Externalities
  Chapter Ten covers how a transaction between a buyer and seller directly affects a third party, how negative externalities, such as pollution, cause the socially optimal quantity in a market to be less than the equilibrium quantity, how those affected by externalities can sometimes solve the problem privately including the Coase theorem, when private parties cannot adequately deal with external effects, such as pollution and how the government internalizes an externality using Pigovian taxes and the public policy to issue permits
• Ch. 11 Public Goods and Common Resources
  Chapter Eleven covers how goods differ in whether they are excludable or rival, how public goods are neither rival nor excludable and examples of public goods and how common resources are rival but not excludable and how governments try to limit the use of common resources
• Ch. 12 The Design of the Tax System
  Chapter Twelve covers how governments raises revenue using various taxes, how the efficiency of a tax system refers to the costs that it imposes on taxpayers, how the equity of a tax concerns whether the tax burden is distributed fairly among the population and how when considering changes in the tax laws, policy makers often face a trade-off between efficiency and equity
• Ch. 13 The Costs of Production
  Chapter Thirteen covers how the goal of firms is to maximize profit, how when analysing a firm's behaviour, it is important to include all the opportunity costs of production, how a firm's costs reflect its production process, how a firm's total costs can be divided between fixed costs and variable costs, how from a firm's total cost, two related measures of cost are derived, how when analysing firm behaviour, it is often useful to graph average total cost and marginal cost and how a firm's costs often depend on the time horizon being considered
• Ch. 14 Firms in Competitive Markets
  Chapter Fourteen covers how because a competitive firm is a price taker, its revenue is proportional to the amount of output it produces, how to maximize profit, a firm chooses a quantity of output such that marginal revenue equals marginal cost, how in the short run when a firm cannot recover its fixed costs, the firm will choose to shut down temporarily if the price of the good is less than average variable cost and how in the long run when the firm can recover both fixed and variable costs, it will choose to exit if the price is less than average total cost, how in a market with free entry and exit, profits are driven to zero in the long run and how changes in demand have different effects over different time horizons
• Ch. 15 Monopoly
  Chapter Fifteen covers how a monopoly is a firm that is the sole seller in its market and how because a monopoly is the sole producer in its market, it faces a downward sloping demand curve for its productm how like a competitive firm, a monopoly firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost, how a monopolist's profit-maximizing level of output is below the level that maximizes the sum of consumer and producer surplus, how policy makers can respond to the inefficiency of monopoly behaviour in four ways: competition law, more competitive industry, regulate the prices or turn the monopolist into a government-run enterprise, and how monopolists often can raise their profits by charging different prices for the same good based on a buyer's willingness to pay
• Ch. 16 Oligopoly
  Chapter Sixteen covers how oligopolists maximize their total profits by forming a cartel and acting like a monopolist, how a prisoners' dilemma shows that self-interest can prevent people from maintaining cooperation, even when cooperation is in their mutual interest and how policy makers use competition law to prevent oligopolies from engaging in behaviour that reduces competition
• Ch. 17 Monopolistic Competition
  Chapter Seventeen covers a monopolistically competitive market is characterized by three attributes: many firms, differentiated products and free entry, how the equilibrium in a monopolistically competitive market differs from that in a perfectly competitive market in two related ways: each firm in a monopolistically competitive market has excess capacity and each firm charges a price above marginal cost, how monopolistic competition does not have all the desirable properties of perfect competition and how the product differentiation inherent in monopolistic competition leads to the use of advertising and brand names
• Ch. 18 The Markets for the Factors of Production
  Chapter Eighteen covers the economy's income is distributed in the markets for the three factors of production, how the demand for factors, such as labour, is a derived demand that comes from firms that use the factors to produce goods and services, how the supply of labour arises from individuals' trade-off between work and leisure, how the price paid to each factor adjusts to balance the supply and demand for that factor and because factors of production are used together, the marginal product of any one factor depends on the quantities of all factors that are available
• Ch. 19 Earnings and Discrimination
  Chapter Nineteen covers how workers earn different wages for many reasons, how workers with more human capital get paid more than workers with less human capital, how although years of education, experience and job characteristics affect earnings as theory predicts, there is much variation in earnings that cannot be explained by things that economists can measure, how some economists have suggested that more educated workers earn higher wages not because education raises productivity but because workers with high natural ability use education as a way to signal their high ability to employers, how wages are sometimes pushed above the level that brings supply and demand into balance amd the three reasons for this, how some differences in earnings are attributable to discrimination on the basis of race, sex or other factors, how competitive markets tend to limit the impact of discrimination on wages
• Ch. 20 Income Inequality and Poverty
  Chapter Twenty covers how data on the distribution of income show wide disparity in industrialized economies, how because in-kind transfers, the economic life cycle, transitory income and economic mobility are so important for understanding variation in income, it is difficult to gauge the degree of inequality in our society using data on the distribution of income in a single year, why political philosophers differ in their views about the role of government in altering the distribution of income (John Stuart Mill, John Rawls and Robert Nozick), and how various policies aim to help the poor - minimum wage laws, social security, negative income taxes and in-kind transfers
• Ch. 21 The Theory of Consumer Choice
  Chapter Twenty One covers how a consumer's budget constraint shows the possible combinations of different goods he can buy given his income and the prices of the goods, how the consumer's indifference curves represent his preferences, how the consumer optimizes by choosing the point on his budget constraint that lies on the highest indifference curve, how when the price of a good falls, the impact on the consumer's choices can be broken down into an income effect and a substitution effect and how the theory of consumer choice can be applied in many situations
• Ch. 22 Frontiers of Microeconomics
  Chapter Twenty Two covers how in many economic transactions, information is asymmetric, how although government policy can sometimes improve market outcomes, governments are themselves imperfect institutions and how the study of psychology and economics reveals that human decision making is more complex than is assumed in conventional economic theory
• Ch. 23 Measuring a Nation's Income
  Chapter Twenty Three covers how because every transaction has a buyer and a seller, the total expenditure in the economy must equal the total income in the economy, how gross domestic product (GDP) measures an economy's total expenditure on newly produced goods and services and the total income earned from the production of these goods and services, how GDP is divided among four components of expenditure, how nominal GDP uses current prices to value the economy's production of goods and services, how GDP is a good measure of economic well-being because people prefer higher to lower incomes
• Ch. 24 Measuring the Cost of Living
  Chapter Twenty-Four covers how the consumer price index shows the cost of a basket of goods and services relative to the cost of the same basket in the base year, how the consumer price index is an imperfect measure of the cost of living for three reasons, how although the GDP deflator also measures the overall level of prices in the economy, it differs from the consumer price index because it includes goods and services produced rather than goods and services consumed, how money figures (e.g. in euros) from different points in time do not represent a valid comparison of purchasing power, how various laws and private contracts use price indices to correct for the effects of inflation and how a correction for inflation is especially important when looking at data on interest rates
• Ch. 25 Production and Growth
  Chapter Twenty Five covers how economic prosperity, as measured by GDP per person, varies substantially around the world, how the standard of living in an economy depends on the economy's ability to produce goods and services, how government policies can try to influence the economy's growth rate in many ways: by encouraging saving and investment, encouraging investment from abroad, fostering education, maintaining property rights and political stability, allowing free trade, promoting the research and development of new technologies, and controlling population growth, how the accumulation of capital is subject to diminishing returns: the more capital an economy has, the less additional output the economy gets from an extra unit of capital
• Ch. 26 Saving, Investment, and the Financial System
  Chapter Twenty Six covers how the financial system of an advanced economy is made up of many types of financial institutions, such as the bond market, the stock market, banks and investment funds, how the national income accounting identities reveal some important relationships among macroeconomic variables, how the interest rate is determined by the supply and demand for loanable funds, how the national saving equals private saving plus public saving
• Ch. 27 The Basic Tools of Finance
  Chapter Twenty Seven covers how because savings can earn interest, a sum of money today is more valuable than the same sum of money in the future, how because of diminishing marginal utility, most people are risk averse, how the value of an asset, such as a share of stock, equals the present value of the cash flows the owner of the share will receive, including the stream of dividends and the final sale price
• Ch. 28 Unemployment
  Chapter Twenty Eight covers how the unemployment rate is the percentage of those who would like to work who do not have jobs, how the unemployment rate is an imperfect measure of joblessness, how in many advanced economies, most people who become unemployed find work within a short period of time, one reason for unemployment being the time it takes for workers to search for jobs that best suit their tastes and skills, how a second reason is why an economy may always have some unemployment if there is a minimum wage that exceeds the wage that would balance supply and demand for the workers who are eligible for the minimum wage, how a third reason for unemployment is the market power of unions and how the fourth reason for unemployment is suggested by the theory of efficiency wages
• Ch. 29 The Monetary System
  Chapter Twenty Nine covers how the term money refers to assets that people regularly use to buy goods and services, how money serves three functions, how commodity money, such as gold, is money that has intrinsic value, how in an advanced economy, money takes the form of currency and various types of bank deposits, such as current accounts, how a central bank regulates the quantity of money in an economy, how the European Central Bank is the overall central bank for the 12 countries participating in European Monetary Union, how the UK central bank is the Bank of England and the the US central bank is the Federal Reserve, how the Central banks control the money supply primarily through the refinancing rate and the associated open-market operations, how the central bank can also use outright open-market operations to affect the money supply: a purchase of government bonds and other assets from the banking sector increases the money supply, and the sale of assets decreases the money supply, how when banks lend out some of their deposits, they increase the quantity of money in the economy and how a bank run occurs when depositors suspect that a bank may go bankrupt and, therefore, 'run' to the bank to withdraw their deposits
• Ch. 30 Money Growth and Inflation
  Chapter Thirty covers how the overall level of prices in an economy adjusts to bring money supply and money demand into balance, how the principle of monetary neutrality asserts that changes in the quantity of money influence nominal variables but not real variables, how a government can pay for some of its spending simply by printing money, how one application of the principle of monetary neutrality is the Fisher effect, how many people think that inflation makes them poorer because it raises the cost of what they buy and how economists have identified six costs of inflation
• Ch. 31 Open-Economy Macroeconomics: Basic Concepts
  Chapter Thirty One covers how net exports are the value of domestic goods and services sold abroad minus the value of foreign goods and services sold domestically, how an economy's saving can be used either to finance investment at home or to buy assets abroad, how the nominal exchange rate is the relative price of the currency of two countries, and the real exchange rate is the relative price of the goods and services of two countries, how when the nominal exchange rate changes so that each unit of domestic currency buys more foreign currency, the domestic currency is said to appreciate or strengthen and how according to the theory of purchasing power parity, a unit of currency should be able to buy the same quantity of goods in all countries
• Ch. 32 A Macroeconomic Theory of the Open Economy
  Chapter Thirty Two covers how to analyse the macroeconomics of open economies, two markets are central - the market for loanable funds and the market for foreign currency exchange, how a policy that reduces national saving, such as a government budget deficit, reduces the supply of loanable funds and drives up the interest rate, how although restrictive trade policies, such as tariffs or quotas on imports, are sometimes advocated as a way to alter the trade balance, they do not necessarily have that effect and how when investors change their attitudes about holding assets of a country, the ramifications for the country's economy can be profound
• Ch. 33 Aggregate Demand and Aggregate Supply
  Chapter Thirty Three covers how all societies experience short-run economic fluctuations around long-run trends, how economists analyse short-run economic fluctuations using the model of aggregate demand and aggregate supply, how the aggregate demand curve slopes downward for three reasons, how any event or policy that raises consumption, investment, government purchases or net exports at a given price level increases aggregate demand, how the long-run aggregate supply curve is vertical, how three theories have been proposed to explain the upward slope of the short-run aggregate supply curve, how events that alter the economy's ability to produce output, such as changes in labour, capital, natural resources or technology, shift the short-run aggregate supply curve (and may shift the long-run aggregate supply curve as well), how one possible cause of economic fluctuations is a shift in aggregate demand, how over time, as a change in the expected price level causes wages, prices and perceptions to adjust, the short-run aggregate supply curve shifts to the right, and the economy returns to its natural rate of output at a new, lower price level and how a second possible cause of economic fluctuations is a shift in aggregate supply
• Ch. 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand
  Chapter Thirty Four covers how in developing a theory of short-run economic fluctuations, Keynes proposed the theory of liquidity preference to explain the determinants of the interest rate, how an increase in the price level raises money demand and increases the interest rate that brings the money market into equilibrium, how policymakers can influence aggregate demand with monetary policy, how policymakers can also influence aggregate demand with fiscal policy, how when the government alters spending or taxes, the resulting shift in aggregate demand can be larger or smaller than the fiscal change and how because monetary and fiscal policy can influence aggregate demand, the government sometimes uses these policy instruments in an attempt to stabilize the economy
• Ch. 35 The Short-Run Tradeoff between Inflation and Unemployment
  Chapter Thirty Five covers how the Phillips curve describes a negative relationship between inflation and unemployment, how the trade-off between inflation and unemployment described by the Phillips curve holds only in the short run, how the short-run Phillips curve also shifts because of shocks to aggregate supply and how when the central bank contracts growth in the money supply to reduce inflation, it moves the economy along the short-run Phillips curve, which results in temporarily high unemployment
• Ch. 36 Common Currency Areas and European Monetary Union
  Chapter Thirty Six covers how a common currency area (a.k.a. currency union or monetary union) is a geographical area through which one currency circulates and is accepted as the medium of exchange, how the formation of a common currency area can bring significant benefits to the members of the currency union, particularly if there is already a high degree of international trade among them (i.e. a high level of trade integration), how there are, however, costs of joining a currency union, namely the loss of independent monetary policy and also of the exchange rate as a means of macroeconomic adjustment, how these adjustment costs will be lower the greater is the degree of real wage flexibility, labour mobility and capital market integration across the currency union, and also the less the members of the currency union suffer from asymmetric demand shocks, how a group of countries with a high level of trade integration, high labour mobility and real wage flexibility, a high level of capital market integration and that does not suffer asymmetric demand shocks across the different members of the group, is termed an optimum currency area (OCA), how an OCA is most likely to benefit from currency union, how while the current euro area displays, overall, a high degree of trade integration and does not appear to be plagued by asymmetric demand shocks, real wage flexibility and labour mobility both appear to be low, how the problems of adjustment within a currency union that is not an OCA may be alleviated by fiscal federalism - a common fiscal budget and a system of taxes and fiscal transfers across member countries. In practice, however, fiscal federalism may be difficult to implement for political reasons and how the national fiscal policies of the countries making up a currency union may be subject to a free rider problem, whereby one country issues a large amount of government debt and pays a lower interest rate on it than it might otherwise have paid, but also leads to other member countries having to pay higher interest rates
• Ch. 37 Five Debates Over Macroeconomic Policy
  Chapter Thirty Seven covers how advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand to offset the inherent instability, how advocates of rules for monetary policy argue that discretionary policy can suffer from incompetence, abuse of power and time-inconsistency, how advocates of a balanced government budget argue that budget deficits impose an unjustifiable burden on future generations by raising their taxes and lowering their incomes, how advocates of tax incentives for saving point out that society discourages saving in many ways, such as by heavily taxing the income from capital and by reducing benefits for those who have accumulated wealth, how advocates of UK membership of EMU emphasize the reduction in transaction costs in international trade that would follow from adopting the euro