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- - - - If you redistribute this textbook in a digital format (including but not limited to PDF and HTML), then you must retain on every page the following attribution: “Access for free at openstax.org.” If you redistribute this textbook in a print format, then you must include on every physical page the f...
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For questions regarding this licensing, please contact support@openstax.org. Trademarks The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, OpenStax CNX logo, OpenStax Tutor name, Openstax Tutor logo, Connexions name, Connexions logo, Rice University name, and Rice University logo are not su...
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HARDCOVER BOOK ISBN-13 B&W PAPERBACK BOOK ISBN-13 DIGITAL VERSION ISBN-13 ORIGINAL PUBLICATION YEAR 1 2 3 4 5 6 7 8 9 10 JAY 22 978-1-711471-49-5 978-1-711471-50-1 978-1-951693-65-7 2022 OPENSTAX OpenStax provides free, peer-reviewed, openly licensed textbooks for introductory college and Advance...
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RICE UNIVERSITY OpenStax, OpenStax CNX, and OpenStax Tutor are initiatives of Rice University. As a leading research university with a distinctive commitment to undergraduate education, Rice University aspires to path-breaking research, unsurpassed teaching, and contributions to the betterment of our world...
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16 1.4 How To Organize Economies: An Overview of Economic Systems 18 Key Terms 24 Key Concepts and Summary 24 Self-Check Questions 25 Review Questions 25 Critical Thinking Questions 26 CHAPTER 2 Choice in a World of Scarcity Introduction to Choice in a World of Scarcity 27 27 2.1 How Individuals Make Ch...
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54 3.3 Changes in Equilibrium Price and Quantity: The Four-Step Process 64 3.4 Price Ceilings and Price Floors 3.5 Demand, Supply, and Efficiency 70 74 Key Terms 78 Key Concepts and Summary 79 Self-Check Questions 80 Review Questions 81 Critical Thinking Questions Problems 82 81 CHAPTER 4 Labor and Fi...
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112 5.2 Polar Cases of Elasticity and Constant Elasticity 117 5.3 Elasticity and Pricing 120 5.4 Elasticity in Areas Other Than Price 128 Key Terms 132 Key Concepts and Summary 132 Self-Check Questions 133 Review Questions 134 Critical Thinking Questions 135 Problems 135 CHAPTER 6 Consumer Choices In...
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157 157 7.1 Explicit and Implicit Costs, and Accounting and Economic Profit 159 7.2 Production in the Short Run 161 7.3 Costs in the Short Run 165 7.4 Production in the Long Run 172 7.5 Costs in the Long Run 174 Key Terms Key Concepts and Summary 182 182 Self-Check Questions 184 Review Questions 185 ...
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210 Review Questions 211 Critical Thinking Questions 212 Problems 213 CHAPTER 9 Monopoly Introduction to a Monopoly 9.1 How Monopolies Form: Barriers to Entry 215 215 217 9.2 How a Profit-Maximizing Monopoly Chooses Output and Price 221 Key Terms 232 Key Concepts and Summary 232 Self-Check Questions 2...
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259 259 11.1 Corporate Mergers 260 11.2 Regulating Anticompetitive Behavior 266 11.3 Regulating Natural Monopolies 268 11.4 The Great Deregulation Experiment 271 Key Terms 274 Key Concepts and Summary 274 Self-Check Questions 275 Review Questions 276 Critical Thinking Questions 277 Problems 278 CH...
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294 Key Terms 297 Key Concepts and Summary 297 Self-Check Questions 298 Review Questions 303 Critical Thinking Questions 303 Problems 304 CHAPTER 13 Positive Externalities and Public Goods Introduction to Positive Externalities and Public Goods 307 307 13.1 Investments in Innovation 308 13.2 How Gover...
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335 342 14.4 Bilateral Monopoly 14.5 Employment Discrimination 343 14.6 Immigration 350 Key Terms 353 Key Concepts and Summary 353 Self-Check Questions 354 Review Questions 356 Critical Thinking Questions 357 CHAPTER 15 Poverty and Economic Inequality Introduction to Poverty and Economic Inequality 359 ...
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387 387 16.1 The Problem of Imperfect Information and Asymmetric Information 388 16.2 Insurance and Imperfect Information 394 Key Terms 403 Key Concepts and Summary 403 Self-Check Questions 404 Review Questions 404 Critical Thinking Questions 405 Problems 405 CHAPTER 17 Financial Markets Introduction ...
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18.3 Flaws in the Democratic System of Government 442 Key Terms 446 Key Concepts and Summary 446 Self-Check Questions 446 Review Questions 447 Critical Thinking Questions 447 Problems 448 CHAPTER 19 International Trade Introduction to International Trade 449 449 19.1 Absolute and Comparative Advantage ...
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472 20.2 International Trade and Its Effects on Jobs, Wages, and Working Conditions 479 20.3 Arguments in Support of Restricting Imports 482 20.4 How Governments Enact Trade Policy: Globally, Regionally, and Nationally 488 20.5 The Tradeoffs of Trade Policy 492 Key Terms 495 Key Concepts and Summary 495 Se...
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book page on OpenStax.org. Subject matter experts review all errata suggestions. OpenStax is committed to remaining transparent about all updates, so you will also find a list of past and pending errata changes on your book page on OpenStax.org. Format You can access this textbook for free in web view or PDF throug...
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background in diverse contributors and their impacts on economic thought and analysis. Coverage and scope In response to faculty feedback and to ease transition to a new edition, Principles of Microeconomics 3e retains the organization of the previous editions. The book covers the breadth of economics topics and als...
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economics–supply, demand, and equilibrium–before showing applications in the markets for labor and finance. • The Fundamentals of Microeconomic Theory, Chapters 5 through 10, begins the microeconomics portion of the text, presenting the theories of consumer behavior, production and costs, and the different models o...
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• International Economics, Chapters 19 and 20, introduces the international dimensions of economics, including international trade and protectionism. Changes to the third edition The revision process incorporated extensive feedback from faculty who have used the book in their courses. They advised that the third e...
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relationships, and balanced analysis of policies and opinions. Diverse perspectives and contributors: The third edition highlights the research and views of a broader group of economists. These include people from across the spectrum of economic thought, with a particular focus on those who take what are often consi...
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• Chapter 14: William A. Darity Jr. on employment discrimination and market forces; Phyllis Ann Wallace and the EEOC. Relevance and engagement: In order to show the importance and application of economics in students’ lives and careers, the third edition directly addresses and expands topics likely to connect to var...
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financial literacy. Finally, the COVID-19 pandemic is referenced frequently to demonstrate its deep and evolving impacts on financial data, employment, and other aspects of the economy. FRED Data and Graphs: As in previous editions, the authors have included and referenced data from the Federal Reserve Economic Data...
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of Labor Statistics, U.S. Census Bureau, and World Bank, usually include links in the captions or credits; instructors and students can also explore those sites for more detailed investigations of the topics at hand. Updated art Principles of Microeconomics 3eincludes updated and redesigned art to clarify concepts a...
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inquiry and explorations, including: • Bring It Home: These explorations include a brief case study, specific to each chapter, which connects the chapter’s main topic to the real world. It is broken up into two parts: the first at the beginning of the chapter (in the Intro module) and the second at chapter’s end, wh...
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Questions for each level of learning Principles of Microeconomics 3eoffers flexibility in practice and assessment, and provides a range of opportunities to check understanding and encourage deeper thinking and application. • Self-Checks are analytical self-assessment questions that appear at the end of each module. ...
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through the problem. • Review Question are simple recall questions from the chapter and are in open-response format (not multiple choice or true/false). The answers can be looked up in the text. • Critical Thinking Questions are higher-level, conceptual questions ask students to demonstrate their understanding by a...
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of Michigan, and an MA as well as a PhD in Economics from Princeton University. He began his academic career at Ohio State University in 1971, and moved to Penn State in 1980. His early research focused on women and youth in the United States labor market. Following a 1978-79 stint as a Fulbright professor at the Un...
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Bernardino. He earned his BA in mathematics and economics from Seton Hall University in 2007 and his economics PhD from the University of Massachusetts Amherst in 2013. Macdonald conducts economic research in labor economics, public policy (housing), and the economic history of the U.S. Consulting. He is also the au...
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economics pedagogy and instructional technology, published in the Journal of Economic Education, the International Review of Economic Education, and other outlets. He wrote the module on Quantitative Writing for Starting Point: Teaching and Learning Economics, the web portal on best practices in teaching economics. S...
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Reviewers Bryan Aguiar, Northwest Arkansas Community College 6 Preface Basil Al Hashimi, Mesa Community College Jennifer Ball, Washburn University Emil Berendt, Mount St. Mary's University Zena Buser, Adams State University Douglas Campbell, The University of Memphis Sanjukta Chaudhuri, University of Wisconsin-...
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Carlos Liard-Muriente, Central Connecticut State University Heather Luea, Kansas State University Charles Meyrick, Housatonic Community College William Mosher, Nashua Community College Michael Netta, Hudson County Community College Nick Noble, Miami University Joe Nowakowski, Muskingum University Shawn Osell, Un...
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Additional Resources Student and instructor resources We’ve compiled additional resources for both students and instructors, including Getting Started Guides, an instructor’s manual, test bank, and image slides. Instructor resources require a verified instructor account, which you can apply for when you log in or c...
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provided for D2L, Canvas, and Blackboard, and may require support from campus instructional technology or related teams to import and integrate. Access for free at openstax.org Preface 7 • Enhanced Lecture PowerPoint Slides: These lecture slides include selected graphics from the text, key concepts and definitions...
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problems and exercises within the textbook. • Video Guide: This video guide is a collection of videos recommended by instructors and grouped topically by OpenStax textbook chapters. • Polling Questions: Spark discussion and support in-class learning and engagement using this set of polling questions. Survey student...
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experience. We realize that students benefit when academic integrity ground rules are established early in the course. To that end, OpenStax has created an interactive to aid with academic integrity discussions in your course. Visit our academic integrity slider (https://view.genial.ly/61e08a7af6db870d591078c1/inter...
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https://academicintegrity.org/ (https://academicintegrity.org/). Community hubs OpenStax partners with the Institute for the Study of Knowledge Management in Education (ISKME) to offer Community Hubs on OER Commons—a platform for instructors to share community-created resources that support OpenStax books, free of ...
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(http://www.oercommons.org/hubs/openstax). Technology partners As allies in making high-quality learning materials accessible, our technology partners offer optional low-cost 8 Preface tools that are integrated with OpenStax books. To access the technology options for your text, visit your book page on OpenStax.or...
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• Microeconomics and Macroeconomics • How Economists Use Theories and Models to Understand Economic Issues • How Economies Can Be Organized: An Overview of Economic Systems Introduction BRING IT HOME Information Overload in the Information Age To post or not to post? Every day we are faced with a myriad of decisio...
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lack of perfect information, we still make hundreds of decisions a day. Streams, sponsors, and social media are altering the process by which we make choices, how we spend our time, which movies we see, which products we buy, and more. Whether they read the reviews or just check the ratings, it's unlikely for Americ...
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This leads us to the topic of this chapter, an introduction to the world of making decisions, processing information, 10 1 • Welcome to Economics! and understanding behavior in markets —the world of economics. Each chapter in this book will start with a discussion about current (or sometimes past) events and revisit...
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business. It is not mathematics. What is it then? It is both a subject area and a way of viewing the world. 1.1 What Is Economics, and Why Is It Important? LEARNING OBJECTIVES By the end of this section, you will be able to: • Discuss the importance of studying economics • Explain the relationship between producti...
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services we want but they exist in limited supply. Of course, the ultimate scarce resource is time- everyone, rich or poor, has just 24 expendable hours in the day to earn income to acquire goods and services, for leisure time, or for sleep. At any point in time, there is only a finite amount of resources available. ...
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infinite, and you can see why scarcity is a problem. Introduction to FRED Data is very important in economics because it describes and measures the issues and problems that economics seek to understand. A variety of government agencies publish economic and social data. For this course, we will generally use data fro...
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• National Accounts (Gross Domestic Product & its components), Flow of Funds, and International Accounts • Production & Business Activity (including Business Cycles) • Prices & Inflation (including the Consumer Price Index, the Producer Price Index, and the Employment Cost Index) • International Data from other na...
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If you still do not believe that scarcity is a problem, consider the following: Does everyone require food to eat? Does everyone need a decent place to live? Does everyone have access to healthcare? In every country in the world, there are people who are hungry, homeless (for example, those who call park benches thei...
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things you buy? You work for pay. If you do not, someone else does on your behalf. Yet most of us never have enough income to buy all the things we want. This is because of scarcity. So how do we solve it? LINK IT UP Visit this website (http://openstax.org/l/drought) to read about how the United States is dealing wi...
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to do everything. How do we use our limited resources the best way possible, that is, to obtain the most goods and services we can? There are a couple of options. First, we could each produce everything we each consume. Alternatively, we could each produce some of what we want to consume, and “trade” for the rest of ...
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something called the division and specialization of labor, a production innovation first put forth by Adam Smith (Figure 1.3) in his book, The Wealth of Nations. 12 1 • Welcome to Economics! FIGURE 1.3 Adam Smith Adam Smith introduced the idea of dividing labor into discrete tasks. (Credit: "Adam Smith" by Cadell a...
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labor, which means that the way one produces a good or service is divided into a number of tasks that different workers perform, instead of all the tasks being done by the same person. To illustrate division of labor, Smith counted how many tasks went into making a pin: drawing out a piece of wire, cutting it to the...
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tables, a greeter at the door, janitors to clean up, and a business manager to handle paychecks and bills—not to mention the economic connections a restaurant has with suppliers of food, furniture, kitchen equipment, and the building where it is located. A complex business like a large manufacturing factory, such as ...
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can produce a greater quantity of output. In his observations of pin factories, Smith noticed that one worker alone might make 20 pins in a day, but that a small business of 10 workers (some of whom would need to complete two or three of the 18 tasks involved with pin-making), could make 48,000 pins in a day. How can...
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The particular advantages may be based on educational choices, which are in turn shaped by interests and talents. Only those with medical degrees qualify to become doctors, for instance. For some goods, geography affects specialization. For example, it is easier to be a wheat farmer in North Dakota than in Florida, b...
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which they are not. Second, workers who specialize in certain tasks often learn to produce more quickly and with higher quality. This pattern holds true for many workers, including assembly line laborers who build cars, stylists who cut hair, and doctors who perform heart surgery. In fact, specialized workers often ...
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example, if a factory produces only 100 cars per year, each car will be quite expensive to make on average. However, if a factory produces 50,000 cars each year, then it can set up an assembly line with huge machines and workers performing specialized tasks, and the average cost of production per car will be lower. T...
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purchase the other goods and services that they need. In short, specialization requires trade. You do not have to know anything about electronics or sound systems to play music—you just buy an iPod or MP3 player, download the music, and listen. You do not have to know anything about artificial fibers or the construc...
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goods and services you need or want. This is how our modern society has evolved into a strong economy. 14 1 • Welcome to Economics! Why Study Economics? FIGURE 1.5 Esther Duflo, Abhijit Banerjee, and Michael Kremer Esther Duflo, Abhijit Banerjee (both from Massachusetts Institute of Technology), and Michael Kremer ...
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Economics is not primarily a collection of facts to memorize, although there are plenty of important concepts to learn. Instead, think of economics as a collection of questions to answer or puzzles to work. Most importantly, economics provides the tools to solve those puzzles. Consider the complex and critical issue...
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as they were before the intervention. Why is that the case? In 2019, three economists—Esther Duflo, Abhijit Banerjee, and Michael Kremer—were awarded the Nobel Prize for their work to answer those questions. They worked diligently to break the widespread problems into smaller pieces, and experimented with small inte...
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learning that it fostered in governments has led to real improvement in the lives of hundreds of millions of poor people.” As you can see, economics affects far more than business. For example: • Virtually every major problem facing the world today, from global warming, to world poverty, to the conflicts in Syria, ...
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• A basic understanding of economics makes you a well-rounded thinker. When you read articles about economic issues, you will understand and be able to evaluate the writer’s argument. When you hear Access for free at openstax.org 1.2 • Microeconomics and Macroeconomics 15 classmates, co-workers, or political candid...
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• Describe macroeconomics • Contrast monetary policy and fiscal policy Economics is concerned with the well-being of allpeople, including those with jobs and those without jobs, as well as those with high incomes and those with low incomes. Economics acknowledges that production of useful goods and services can cre...
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and regulations affect decisions about production and consumption. It should be clear by now that economics covers considerable ground. We can divide that ground into two parts: Microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses. Macroeconomics loo...
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studying a biological ecosystem like a lake. One person who sets out to study the lake might focus on specific topics: certain kinds of algae or plant life; the characteristics of particular fish or snails; or the trees surrounding the lake. Another person might take an overall view and instead consider the lake's ec...
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food chain, while the macro insights about the overall food chain help to explain the environment in which individual plants and animals live. In economics, the micro decisions of individual businesses are influenced by whether the macroeconomy is healthy. For example, firms will be more likely to hire workers if th...
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whether to work, and if so, whether to work full time or part time? How do people decide how much to save for the future, or whether they should borrow to spend beyond their current means? What determines the products, and how many of each, a firm will produce and sell? What determines the 16 1 • Welcome to Economic...
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properly. Macroeconomics What determines the level of economic activity in a society? In other words, what determines how many goods and services a nation actually produces? What determines how many jobs are available in an economy? What determines a nation’s standard of living? What causes the economy to speed up ...
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States, this is the Federal Reserve. A nation's legislative body determines fiscal policy, which involves government spending and taxes. For the United States, this is the Congress and the executive branch, which originates the federal budget. These are the government's main tools. Americans tend to expect that gove...
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• Describe goods and services markets and labor markets FIGURE 1.6 John Maynard Keynes One of the most influential economists in modern times was John Maynard Keynes. (Credit: “John Maynard Keynes” by IMF/Wikimedia Commons, Public Domain) John Maynard Keynes (1883–1946), one of the greatest economists of the twentie...
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Access for free at openstax.org 1.3 • How Economists Use Theories and Models to Understand Economic Issues 17 Economists see the world through a different lens than anthropologists, biologists, classicists, or practitioners of any other discipline. They analyze issues and problems using economic theories that are ba...
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it. A good theory is simple enough to understand, while complex enough to capture the key features of the object or situation you are studying. Sometimes economists use the term model instead of theory. Strictly speaking, a theory is a more abstract representation, while a model is a more applied or empirical repres...
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demonstrate how the new product will work. A good model to start with in economics is the circular flow diagram (Figure 1.7). It pictures the economy as consisting of two groups—households and firms—that interact in two markets: the goods and services market in which firms sell and households buy and the labor marke...
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provide labor and receive payment from firms through wages, salaries, and benefits. Firms produce and sell goods and services to households in the market for goods and services (or product market). Arrow “A” indicates this. Households pay for goods and services, which becomes the revenues to firms. Arrow “B” indicat...
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factor market. Of course, in the real world, there are many different markets for goods and services and markets for many different types of labor. The circular flow diagram simplifies this to make the picture easier to grasp. In the diagram, firms produce goods and services, which they sell to households in return ...
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how the product and labor markets work in the economy. We could easily add details to this basic model if we wanted to introduce more real-world elements, like financial markets, governments, and interactions with the rest of the globe (imports and exports). Economists carry a set of theories in their heads like a c...
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use the graph of the theory to help them figure out the answer. Although at the introductory level, you can sometimes figure out the right answer without applying a model, if you keep studying economics, before too long you will run into issues and problems that you will need to graph to solve. We explain both micro ...
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• Assess the importance and effects of globalization Think about what a complex system a modern economy is. It includes all production of goods and services, all buying and selling, all employment. The economic life of every individual is interrelated, at least to a small extent, with the economic lives of thousands...
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the oldest economic system and is used in parts of Asia, Africa, and South America. Traditional economies organize their economic affairs the way they have always done (i.e., tradition). Occupations stay in the family. Most families are farmers who grow the crops using traditional methods. What you produce is what yo...
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down from a ruler or ruling class. Ancient Egypt was a good example: a large part of economic life was devoted to building pyramids, like those in Figure 1.8, for the pharaohs. Medieval manor life is another example: the lord provided the land for growing crops and protection in the event of war. In return, vassals p...
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Korea have command economies. FIGURE 1.9 A Market Economy Nothing says “market” more than The New York Stock Exchange. (Credit: work by Erik Drost/Flickr Creative Commons, CC BY 2.0) Although command economies have a very centralized structure for economic decisions, market economies have a very decentralized struc...
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and services based on demand. (In a command economy, by contrast, the government owns resources and businesses.) Supply of goods and services depends on what the demands are. A person’s income is based on their ability to convert resources (especially labor) into something that society values. The more society values...
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involvement in economic decisions than the U.S. economy. China and Russia, while over the past several decades have moved more in the direction of having a market-oriented system, remain closer to the command economy end of the spectrum. The Heritage Foundation provides perspective on countries’ economic freedom, as...
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countries around the world. They give each nation a score based on the extent of economic freedom in each category. Note that while the Heritage Foundation/WSJ index is widely cited by an array of scholars and publications, it should be regarded as only one viewpoint. Some experts indicate that the index’s category c...
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