Test bank for Economics 4th Edition by Paul Krugman
Test bank for Economics 4th Edition by Paul Krugman
Written for the one-semester survey of economics course, Paul Krugman and Robin Wells’ Essentials of Economics reflects the authors’ strong belief that economics students learn best from a resource that offers: Compelling Real World Stories and ExamplesEssentials of Economics is built around narratives and stories, many of them pulled from real life. In every chapter real-world examples are used to teach core concepts and motivate student learning. Global FocusEssentials of Economics is unrivaled in its worldwide perspective, which is deeply integrated into the narrative, and featured in many of the applications, cases, and stories, as well as in the data-based Global Comparison boxed features.
Additional ISBNs
1464186650, 1319287905, 9781464186653, 9781319287900
Table of Contents
Cover
Title
Copyright
About the Authors
Preface
Acknowledgments
Brief Contents
Contents
Credits
Part 1 WHAT IS ECONOMICS?
Chapter 1 First Principles
Common Ground
The Ordinary Business of Life
My Benefit, Your Cost
Good Times, Bad Times
Onward and Upward
Principles That Underlie Individual Choice: The Core of Economics
Principle #1: Choices Are Necessary Because Resources Are Scarce
Principle #2: The True Cost of Something Is Its Opportunity Cost
Principle #3: “How Much” Is a Decision at the Margin
Principle #4: People Usually Respond to Incentives, Exploiting Opportunities to Make Themselves Better Off
ECONOMICS IN ACTION Boy or Girl? It Depends on the Cost
Interaction: How Economies Work
Principle #5: There Are Gains from Trade
Principle #6: Markets Move Toward Equilibrium
Principle #7: Resources Should Be Used Efficiently to Achieve Society’s Goals
Principle #8: Markets Usually Lead to Efficiency
Principle #9: When Markets Don’t Achieve Efficiency, Government Intervention Can Improve Society’s Welfare
ECONOMICS IN ACTION Restoring Equilibrium on the Freeways
Economy-Wide Interactions
Principle #10: One Person’s Spending Is Another Person’s Income
Principle #11: Overall Spending Sometimes Gets Out of Line with the Economy’s Productive Capacity
Principle #12: Government Policies Can Change Spending
ECONOMICS IN ACTION Adventures in Babysitting
Chapter 2 Economic Models: Trade-offs and Trade
From Kitty Hawk to Dreamliner
Models in Economics: Some Important Examples
Trade-offs: The Production Possibility Frontier
Comparative Advantage and Gains from Trade
Comparative Advantage and International Trade, in Reality
Global Comparison Pajama Republics
Transactions: The Circular-Flow Diagram
ECONOMICS IN ACTION Rich Nation, Poor Nation
Using Models
Positive versus Normative Economics
When and Why Economists Disagree
ECONOMICS IN ACTION Economists, Beyond the Ivory Tower
Solved Problem Heavy Metal and High Protein
Chapter 2 Appendix: Graphs in Economics
Getting the Picture
Graphs, Variables, and Economic Models
How Graphs Work
Two-Variable Graphs
Curves on a Graph
A Key Concept: The Slope of a Curve
The Slope of a Linear Curve
Horizontal and Vertical Curves and Their Slopes
The Slope of a Nonlinear Curve
Calculating the Slope Along a Nonlinear Curve
Maximum and Minimum Points
Calculating the Area Below or Above a Curve
Graphs That Depict Numerical Information
Types of Numerical Graphs
Problems in Interpreting Numerical Graphs
Solved Problem Working with Graphs
Part 1 BUSINESS CASES
How Priceline.com Revolutionized the Travel Industry
Efficiency, Opportunity Cost, and the Logic of Lean Production
Part 2 SUPPLY AND DEMAND
Chapter 3 Supply and Demand
A Natural Gas Boom
Supply and Demand: A Model of a Competitive Market
The Demand Curve
The Demand Schedule and the Demand Curve
Shifts of the Demand Curve
Global Comparison Pay More, Pump Less
Understanding Shifts of the Demand Curve
ECONOMICS IN ACTION Beating the Traffic
The Supply Curve
The Supply Schedule and the Supply Curve
Shifts of the Supply Curve
Understanding Shifts of the Supply Curve
ECONOMICS IN ACTION Only Creatures Small and Pampered
Supply, Demand, and Equilibrium
Finding the Equilibrium Price and Quantity
Why Do All Sales and Purchases in a Market Take Place at the Same Price?
Why Does the Market Price Fall If It Is Above the Equilibrium Price?
Why Does the Market Price Rise If It Is Below the Equilibrium Price?
Using Equilibrium to Describe Markets
ECONOMICS IN ACTION The Price of Admission
Changes in Supply and Demand
What Happens When the Demand Curve Shifts
What Happens When the Supply Curve Shifts
Simultaneous Shifts of Supply and Demand Curves
ECONOMICS IN ACTION The Cotton Panic and Crash of 2011
Competitive Markets—and Others
Solved Problem Sugar, Sugar
Chapter 4 Price Controls and Quotas: Meddling with Markets
Big City, Not-So-Bright Ideas
Consumer Surplus and the Demand Curve
Willingness to Pay and the Demand Curve
Willingness to Pay and Consumer Surplus
Producer Surplus and the Supply Curve
Cost and Producer Surplus
The Gains from Trade
ECONOMICS IN ACTION Take the Keys, Please
Why Governments Control Prices
Price Ceilings
Modeling a Price Ceiling
How a Price Ceiling Causes Inefficiency
So Why Are There Price Ceilings?
ECONOMICS IN ACTION Price Controls in Venezuela: “You Buy What They Have”
Price Floors
How a Price Floor Causes Inefficiency
So Why Are There Price Floors?
Global Comparison Check Out Our Low, Low Wages!
ECONOMICS IN ACTION The Rise and Fall of the Unpaid Intern
Controlling Quantities
The Anatomy of Quantity Controls
The Costs of Quantity Controls
ECONOMICS IN ACTION Crabbing, Quotas, and Saving Lives in Alaska
Solved Problem The World’s Second Most Expensive City
Chapter 5 Elasticity and Taxation
Taken for a Ride
Defining and Measuring Elasticity
Calculating the Price Elasticity of Demand
An Alternative Way to Calculate Elasticities: The Midpoint Method
ECONOMICS IN ACTION Estimating Elasticities
Interpreting the Price Elasticity of Demand
How Elastic Is Elastic?
Price Elasticity Along the Demand Curve
What Factors Determine the Price Elasticity of Demand?
ECONOMICS IN ACTION Responding to Your Tuition Bill
Other Demand Elasticities
The Cross-Price Elasticity of Demand
The Income Elasticity of Demand
Global Comparison Food’s Bite in World Budgets
ECONOMICS IN ACTION Spending It
The Price Elasticity of Supply
Measuring the Price Elasticity of Supply
What Factors Determine the Price Elasticity of Supply?
ECONOMICS IN ACTION European Farm Surpluses
An Elasticity Menagerie
The Benefits and Costs of Taxation
The Revenue from an Excise Tax
Tax Rates and Revenue
The Costs of Taxation
Elasticities and the Deadweight Loss of a Tax
ECONOMICS IN ACTION Taxing the Marlboro Man
Solved Problem Drive We Must
Part 2 BUSINESS CASES
An Uber Way to Get a Ride
Medallion Financial: Cruising Right Along
The Airline Industry: Fly Less, Charge More
Part 3 THE PRODUCTION DECISION
Chapter 6 Behind the Supply Curve: Inputs and Costs
The Farmer’s Margin
The Production Function
Inputs and Output
Global Comparison Wheat Yields Around the World
From the Production Function to Cost Curves
ECONOMICS IN ACTION The Mythical Man-Month
Two Key Concepts: Marginal Cost and Average Cost
Marginal Cost
Average Total Cost
Minimum Average Total Cost
Does the Marginal Cost Curve Always Slope Upward?
ECONOMICS IN ACTION Smart Grid Economics
Short-Run versus Long-Run Costs
Returns to Scale
Summing Up Costs: The Short and Long of It
ECONOMICS IN ACTION There’s No Business Like Snow Business
Solved Problem Production Challenges for Tesla: The Model X
Chapter 7 Perfect Competition and the Supply Curve
Deck the Halls
Perfect Competition
Defining Perfect Competition
Two Necessary Conditions for Perfect Competition
Free Entry and Exit
ECONOMICS IN ACTION Paid to Delay
Production and Profits
Using Marginal Analysis to Choose the Profit-Maximizing Quantity of Output
When Is Production Profitable?
The Short-Run Production Decision
Changing Fixed Cost
Summing Up: The Perfectly Competitive Firm’s Profitability and Production Conditions
ECONOMICS IN ACTION Farmers Move Up Their Supply Curves
The Industry Supply Curve
The Short-Run Industry Supply Curve
The Long-Run Industry Supply Curve
The Cost of Production and Efficiency in Long-Run Equilibrium
ECONOMICS IN ACTION From Global Wine Glut to Shortage
Solved Problem Is There a Catch?
Part 3 BUSINESS CASES
Kiva Systems’ Robots versus Humans: The Challenge of Holiday Order Fulfillment
Shopping Apps, Showrooming, and the Challenges Facing Brick-and-Mortar Retailers
Part 4 BEYOND PERFECT COMPETITION
Chapter 8 Monopoly
Everybody Must Get Stones
Types of Market Structure
The Meaning of Monopoly
Monopoly: Our First Departure from Perfect Competition
What Monopolists Do
Why Do Monopolies Exist?
ECONOMICS IN ACTION Newly Emerging Markets: A Diamond Monopolist’s Best Friend
How a Monopolist Maximizes Profit
The Monopolist’s Demand Curve and Marginal Revenue
The Monopolist’s Profit-Maximizing Output and Price
Monopoly versus Perfect Competition
Monopoly: The General Picture
ECONOMICS IN ACTION Shocked by the High Price of Electricity
Monopoly and Public Policy
Welfare Effects of Monopoly
Preventing Monopoly
Dealing with Natural Monopoly
ECONOMICS IN ACTION Why Is Your Broadband So Slow? And Why Does It Cost So Much?
Price Discrimination
The Logic of Price Discrimination
Perfect Price Discrimination
ECONOMICS IN ACTION Sales, Factory Outlets, and Ghost Cities
Solved Problem Painkiller Pricing
Chapter 9 Oligopoly and Monopolistic Competition
Caught in the Act
The Meaning of Oligopoly
Understanding Oligopoly
Oligopoly in Practice
ECONOMICS IN ACTION Bitter Chocolate?
Games Oligopolists Play
The Prisoners’ Dilemma
Repeated Interaction and Tacit Collusion
ECONOMICS IN ACTION The Rise and Fall and Rise of OPEC
The Meaning of Monopolistic Competition
Large Numbers
Free Entry and Exit in the Long Run
Differentiated Products
ECONOMICS IN ACTION Any Color, So Long as It’s Black
Solved Problem The Ups (and Downs) of Oil Prices
Part 4 BUSINESS CASES
Amazon and Hachette Go to War
Virgin Atlantic Blows the Whistle . . . or Blows It?
Part 5 MICROECONOMICS AND PUBLIC POLICY
Chapter 10 Externalities and Public Goods
The Great Stink
Externalities
Pollution: An External Cost
The Socially Optimal Quantity of Pollution
Why a Market Economy Produces Too Much Pollution
Private Solutions to Externalities
ECONOMICS IN ACTION How Much Does Your Electricity Really Cost?
Policies Toward Pollution
Environmental Standards
Emissions Taxes
Global Comparison Economic Growth and Greenhouse Gases in Six Countries
Tradable Emissions Permits
Comparing Environmental Policies with an Example
ECONOMICS IN ACTION Cap and Trade
Positive Externalities
Preserved Farmland: An External Benefit
Positive Externalities in Today’s Economy
ECONOMICS IN ACTION The Impeccable Economic Logic of Early-Childhood Intervention Programs
Public Goods
Characteristics of Goods
Why Markets Can Supply Only Private Goods Efficiently
Providing Public Goods
How Much of a Public Good Should Be Provided?
Cost-Benefit Analysis
ECONOMICS IN ACTION Old Man River
Solved Problem The Not So Sweet Smell of Success
Chapter 11 Poverty, Inequality, and the Welfare State
The Coming of Obamacare
Poverty, Inequality, and Public Policy
The Logic of the Welfare State
The Problem of Poverty
Economic Inequality
Global Comparison Income, Redistribution, and Inequality in Rich Countries
Economic Insecurity
ECONOMICS IN ACTION Long-term Trends in Income Inequality in the United States
The U.S. Welfare State
Means-Tested Programs
Social Security and Unemployment Insurance
The Effects of the Welfare State on Poverty and Inequality
ECONOMICS IN ACTION Welfare State Programs and Poverty Rates in the Great Recession, 2007–2010
The Economics of Health Care
The Need for Health Insurance
Government Health Insurance
Health Care in Other Countries
The Affordable Care Act
ECONOMICS IN ACTION What Medicaid Does
The Debate over the Welfare State
Problems with the Welfare State
The Politics of the Welfare State
ECONOMICS IN ACTION French Family Values
Part 5 BUSINESS CASES
Hunting Endangered Animals to Save Them
Welfare State Entrepreneurs
Part 6 INTRODUCTION TO MACROECONOMICS
Chapter 12 Macroeconomics: The Big Picture
The Pain in Spain
The Nature of Macroeconomics
Macroeconomic Questions
Macroeconomics: The Whole Is Greater Than the Sum of Its Parts
Macroeconomics: Theory and Policy
ECONOMICS IN ACTION Fending Off Depression
The Business Cycle
Charting the Business Cycle
The Pain of Recession
Taming the Business Cycle
ECONOMICS IN ACTION Comparing Recessions
Long-Run Economic Growth
ECONOMICS IN ACTION A Tale of Two Countries
Inflation and Deflation
The Causes of Inflation and Deflation
The Pain of Inflation and Deflation
ECONOMICS IN ACTION A Fast (Food) Measure of Inflation
International Imbalances
ECONOMICS IN ACTION Spain’s Costly Surplus
Chapter 13 GDP and the CPI: Tracking the Macroeconomy
The New #2
Measuring the Macroeconomy
Gross Domestic Product
Calculating GDP
What GDP Tells Us
ECONOMICS IN ACTION Creating the National Accounts
Real GDP: A Measure of Aggregate Output
Calculating Real GDP
What Real GDP Doesn’t Measure
ECONOMICS IN ACTION Miracle in Venezuela?
Price Indexes and the Aggregate Price Level
Market Baskets and Price Indexes
The Consumer Price Index
Other Price Measures
ECONOMICS IN ACTION Indexing to the CPI
Solved Problem A Change in Fortune?
Chapter 14 Unemployment and Inflation
Hitting the Braking Point
The Unemployment Rate
Defining and Measuring Unemployment
The Significance of the Unemployment Rate
Growth and Unemployment
ECONOMICS IN ACTION Failure to Launch
The Natural Rate of Unemployment
Job Creation and Job Destruction
Frictional Unemployment
Structural Unemployment
The Natural Rate of Unemployment
Changes in the Natural Rate of Unemployment
ECONOMICS IN ACTION Structural Unemployment in East Germany
Inflation and Deflation
The Level of Prices Doesn’t Matter . . .
. . . But the Rate of Change of Prices Does
Winners and Losers from Inflation
Inflation Is Easy; Disinflation Is Hard
ECONOMICS IN ACTION Israel’s Experience with Inflation
Solved Problem The Current Population Survey
Part 6 BUSINESS CASES
The Business Cycle and the Decline of Montgomery Ward
Getting a Jump on GDP
Day Labor in the Information Age
Part 7 ECONOMIC GROWTH AND FLUCTUATIONS
Chapter 15 Long-Run Economic Growth
Airpocalypse Now
Comparing Economies Across Time and Space
Real GDP per Capita
Growth Rates
ECONOMICS IN ACTION India Takes Off
The Sources of Long-Run Growth
The Crucial Importance of Productivity
Explaining Growth in Productivity
Accounting for Growth: The Aggregate Production Function
What About Natural Resources?
ECONOMICS IN ACTION Is the End of Economic Growth in Sight?
Why Growth Rates Differ
Explaining Differences in Growth Rates
Global Comparison What’s the Matter with Italy?
The Role of Government in Promoting Economic Growth
ECONOMICS IN ACTION Why Did Britain Fall Behind?
Success, Disappointment, and Failure
East Asia’s Miracle
Latin America’s Disappointment
Africa’s Troubles and Promise
ECONOMICS IN ACTION Are Economies Converging?
Is World Growth Sustainable?
Natural Resources and Growth, Revisited
Economic Growth and the Environment
ECONOMICS IN ACTION The Cost of Limiting Carbon
Solved Problem Tracking India’s Economic Growth
Chapter 16 Aggregate Demand and Aggregate Supply
What Kind of Shock?
Aggregate Demand
Why Is the Aggregate Demand Curve Downward Sloping?
Shifts of the Aggregate Demand Curve
Government Policies and Aggregate Demand
ECONOMICS IN ACTION Moving Along the Aggregate Demand Curve, 1979–1980
Aggregate Supply
The Short-Run Aggregate Supply Curve
Shifts of the Short-Run Aggregate Supply Curve
The Long-Run Aggregate Supply Curve
From the Short Run to the Long Run
ECONOMICS IN ACTION Sticky Wages in the Great Recession
The AD–AS Model
Short-Run Macroeconomic Equilibrium
Shifts of Aggregate Demand: Short-Run Effects
Shifts of the SRAS Curve
Global Comparison Supply Shocks of the Twenty-first Century
Long-Run Macroeconomic Equilibrium
ECONOMICS IN ACTION Supply Shocks versus Demand Shocks in Practice
Macroeconomic Policy
Policy in the Face of Demand Shocks
Responding to Supply Shocks
ECONOMICS IN ACTION Is Stabilization Policy Stabilizing?
Solved Problem A Shocking Analysis
Part 7 BUSINESS CASES
How Boeing Got Better
Slow Steaming
Part 8 STABILIZATION POLICY
Chapter 17 Fiscal Policy
How Big Is Big Enough?
Fiscal Policy: The Basics
Taxes, Purchases of Goods and Services, Government Transfers, and Borrowing
The Government Budget and Total Spending
Expansionary and Contractionary Fiscal Policy
Can Expansionary Fiscal Policy Actually Work?
A Cautionary Note: Lags in Fiscal Policy
ECONOMICS IN ACTION What Was in the Recovery Act?
Fiscal Policy and the Multiplier
Multiplier Effects of an Increase in Government Purchases of Goods and Services
Multiplier Effects of Changes in Government Transfers and Taxes
How Taxes Affect the Multiplier
ECONOMICS IN ACTION Austerity and the Multiplier
The Budget Balance
The Budget Balance as a Measure of Fiscal Policy
The Business Cycle and the Cyclically Adjusted Budget Balance
Should the Budget Be Balanced?
ECONOMICS IN ACTION Europe’s Search for a Fiscal Rule
Long-Run Implications of Fiscal Policy
Deficits, Surpluses, and Debt
Global Comparison The American Way of Debt
Problems Posed by Rising Government Debt
Deficits and Debt in Practice
Implicit Liabilities
ECONOMICS IN ACTION Are We Greece?
Solved Problem Mind the Gap
Chapter 18 Money, Banking, and the Federal Reserve System
Funny Money
The Meaning of Money
What Is Money?
Roles of Money
Global Comparison The Big Moneys
Types of Money
Measuring the Money Supply
ECONOMICS IN ACTION The History of the Dollar
The Monetary Role of Banks
What Banks Do
The Problem of Bank Runs
Bank Regulation
ECONOMICS IN ACTION It’s a Wonderful Banking System
Determining the Money Supply
How Banks Create Money
Reserves, Bank Deposits, and the Money Multiplier
The Money Multiplier in Reality
ECONOMICS IN ACTION Multiplying Money Down
The Federal Reserve System
The Structure of the Fed
What the Fed Does: Reserve Requirements and the Discount Rate
Open-Market Operations
The European Central Bank
ECONOMICS IN ACTION The Fed’s Balance Sheet, Normal and Abnormal
The Evolution of the American Banking System
The Crisis in American Banking in the Early Twentieth Century
Responding to Banking Crises: The Creation of the Federal Reserve
The Savings and Loan Crisis of the 1980s
Back to the Future: The Financial Crisis of 2008
ECONOMICS IN ACTION Regulation After the Crisis
Solved Problem Multiplying Money
Chapter 19 Monetary Policy
The Most Powerful Person in Government
The Demand for Money
The Opportunity Cost of Holding Money
The Money Demand Curve
Shifts of the Money Demand Curve
ECONOMICS IN ACTION A Yen for Cash
Money and Interest Rates
The Equilibrium Interest Rate
Monetary Policy and the Interest Rate
Long-Term Interest Rates
ECONOMICS IN ACTION The Fed Reverses Course
Monetary Policy and Aggregate Demand
Expansionary and Contractionary Monetary Policy
Monetary Policy in Practice
The Taylor Rule Method of Setting Monetary Policy
Inflation Targeting
Global Comparison Inflation Targets
The Zero Lower Bound Problem
ECONOMICS IN ACTION What the Fed Wants, the Fed Gets
Money, Output, and Prices in the Long Run
Short-Run and Long-Run Effects of an Increase in the Money Supply
Monetary Neutrality
Changes in the Money Supply and the Interest Rate in the Long Run
ECONOMICS IN ACTION International Evidence of Monetary Neutrality
Solved Problem The Great Mistake of 1937
Part 8 BUSINESS CASES
Here Comes the Sun
The Perfect Gift: Cash or a Gift Card?
PIMCO Bets on Cheap Money
Part 9 THE INTERNATIONAL ECONOMY
Chapter 20 International Trade, Capital Flows, and Exchange Rates
The Everywhere Phone
Comparative Advantage and International Trade
Production Possibilities and Comparative Advantage, Revisited
The Gains from International Trade
Comparative Advantage versus Absolute Advantage
Global Comparison Productivity and Wages Around the World
Sources of Comparative Advantage
ECONOMICS IN ACTION How Hong Kong Lost Its Shirts
Supply, Demand, and International Trade
The Effects of Imports
The Effects of Exports
International Trade and Wages
ECONOMICS IN ACTION Trade, Wages, and Land Prices in the Nineteenth Century
The Effects of Trade Protection
The Effects of a Tariff
The Effects of an Import Quota
ECONOMICS IN ACTION Trade Protection in the United States
Capital Flows and the Balance of Payments
Balance of Payments Accounts
Underlying Determinants of International Capital Flows
Global Comparison Big Surpluses
Two-Way Capital Flows
ECONOMICS IN ACTION The Golden Age of Capital Flows
The Role of the Exchange Rate
Understanding Exchange Rates
The Equilibrium Exchange Rate
Inflation and Real Exchange Rates
Purchasing Power Parity
ECONOMICS IN ACTION Low-Cost America
Solved Problem Trade Is Sweet
Part 9 BUSINESS CASE
Li & Fung: From Guangzhou to You
Solutions to Check Your Understanding Questions
Glossary
Index
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