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Essentials of
ECONOMICS
4th edition
Stanley L. Brue
Pacific Lutheran University
Campbell R. McConnell
University of Nebraska at Lincoln
Sean M. Flynn
Scripps College
With the special assistance of
Randy R. Grant
Linfield College
Mc
Graw
Hill
Education
Contents
Preface xv Chapter One Appendix;
Reviewers xxv Graphs and Their Meaning 26
Construction of a Graph / Direct and Inverse Relationships /
%PART ONE Dependent and Independent Variables / Other Things
Slope of a Line / Slope of a Nonlinear Curve
Introduction Equal /
Appendix Summary
1 Limits, Alternatives, and Choices 3 Appendix Terms and Concepts
Appendix Questions
The Economic Perspective 4 Appendix Problems
Scarcity and Choice 2 The Market System and the Circular
llfustrating the Idea Did Zuckerberg, Seacrest, and Flow 33
Swift Make Bad Choices? 4
Purposeful Behavior / Marginalism: Comparing Economic Systems 34
Benefits and Costs 4 The Command System / The Market System
Applying the Analysis Fast-Food Lines 6 Characteristics of the Market System 35
Theories, Principles, and Models 6 Private Property / Freedom of Enterprise and Choice / Self-
Microeconomics and Macroeconomics 8 (nterest / Competition / Markets and Prices / Technology
Microeconomics / Macroeconomics and Capital Goods / Specialization / Use of Money / Active,
but Limited, Government
Individuais' Economic Problem 9 Four Fundamental Questions 41
Limited Income / Unlimited Wants / A Budget Line What Will Be Produced?
Society's Economic Problem 12 Applying the Analysis McHits and McMisses 42
Scarce Resources / Resource Categories How Will the Goods and Services Be Produced? / Who Will
Production Possibilities Model 14 Get the Output? / How Will the System Promote Progress?
Production Possibilities Table / Production Possibilities Applying the Analysis The "Invisible Hand" 44
Curve / Law of Increasing Opportunity Costs / Applying the Analysis The Demise of the Command
Optimal Allocation Systems 45
Applying the Analysis The Economics of War 1 8 The Circular Flow Model 46
Unemployment, Growth, and the Future 19 Households / Businesses / Product Market / Resource Market
AGrowing Economy Applying the Analysis Some Facts About U.S.
Applying the Analysis Information Technology Businesses 48
and Biotechnology 21 Applying the Analysis Some Facts About U.S.
Present Choices and Future Possibilities Households 50
Summary Summary
Terms and Concepts Terms and Concepts
Questions Questions
Problems Problems
vii
viii Contents
^PART TWO Applying the Analysis Price Elasticity of Demand
Price, Quantity, and Efficiency and College Tuition 96
Applying the Analysis Decriminalization of
Illegal Drugs 97
3 Demand, Supply, and Market Applying the Analysis Excise Taxes and Tax Revenue 97
Equilibrium 56 Applying the Analysis Fluctuating Farm Income 98
Demand 57 Price Elasticity of Supply 99
Law of Demand / The Demand Curve / Market Demand / Price Elasticity of Supply: The Market Period / Price Elasticity of
Changes in Demand / Changes in Quantity Demanded Supply: The Short Run / Price Elasticity of Supply: The Long Run
Supply 62 Applying the Analysis Antiques and Reproductions 102
Law of Supply / Market Supply / Determinants of Supply / Applying the Analysis Volatile Gold Prices 102
Changes in Supply / Changes in Quantity Supplied
Market Equilibrium 66 Income Elasticity of Demand 103
Equilibrium Price and Quantity / Rationing Function of Prices Normal Goods / Inferior Goods
Applying the Analysis Uber and Dynamic Pricing 68 Applying the Analysis Which Consumer Products Suffer
Changes in Demand, Supply, and Equilibrium 68 the Greatest Demand Decreases during Recessions? 103
Changes in Demand / Changes in Supply / Complex Cases Cross-Elasticity of Demand 104
Government-Set Prices 70 Substitute Goods / Complementary Goods /
Independent Goods
Applying the Analysis Price Ceilings on Gasoline 71 Applying the Analysis Using Cross-Elasticity to Make
Applying the Analysis Rent Controls 72 Business and Regulator/ Decisions 1 04
Applying the Analysis Price Floors on Wheat 73 Summary
Summary Terms and Concepts
Terms and Concepts Questions
Questions Problems
Problems
5 Market Failures: Public Goods
Chapter Three Appendix: Additional and Externalities 108
Examples of Supply and Demand 79 Market Failures in Competitive Markets 109
Changes in Supply and Demand / Preset Prices Demand-Side Market Failures / Supply-Side Market Failures
Appendix Summary Efficiently Functioning Markets 110
Appendix Questions Private and Public Goods 110
Appendix Problems Private Goods Characteristics / Profitable Provision /
Public Goods Characteristics
4 Elasticity of Demand and Supply 87 lllustrating the Idea Art for Art's Sake 113
Comparing Marginal Benefitand Marginal Cost
Price Elasticity of Demand 88 Applying the Analysis Cost-Benefit Analysis 115
The Price-Elasticity Coefficient and Formula /
Interpretations of E Externalities 116
d
lllustrating the Idea A Bit of a Stretch 91 Negative Externalities / Positive Externalities
The Total-Revenue Test / Price Elasticity Along a lllustrating the Idea Beekeepers and the Coase
Linear Demand Curve / Determinants of Price Theorem 119
Elasticity of Demand Government Intervention
Contents ix
Applying the Analysis Lojack: A Case of Positive Applying the Analysis Aircraft Assembly Plants versus
Externalities 122 Concrete Plants 160
Applying the Analysis Reducing Greenhouse Gases 1 23 Summary
Society's Optimal Amount of Externality Reduction Terms and Concepts
Financing the Public Sector: Taxation 1 25 Questions
Apportioning the Tax Bürden / Benefits Received versus Problems
Ability to Pay/ Progressive, Proportional, and Regressive
Taxes / Tax Progressivity in the United States 7 Pure Competition 164
Government's Role in the Economy 129 Four Market Models 165
Summary Pure Competition: Characteristics and
Terms and Concepts Occurrence 166
Questions Demand as Seen by a Purely Competitive Seiler 167
Problems Perfectly Elastic Demand / Average, Total,
and Marginal Revenue
M Profit Maximization in the Short Run 169
PART THREE Profit Maximization / Loss Minimization and Shutdown
Product Markets Applying the Analysis The Still There Motel 174
6 Businesses and Their Costs 136 Marginal Cost and Short-Run Supply 175
Generalized Depiction / Firm and Industry: Equilibrium Price
The Business Population 137 Profit Maximization in the Long Run 178
Advantages of Corporations / The Principal-Agent Problem Assumptions / Goal of Our Analysis / Long-Run Equilibrium
Applying the Analysis Unprincipled Agents 139 Applying the Analysis The Exit of Farmers from U.S.
Economic Costs 139 Agriculture 182
Explicit and Implicit Costs / Accounting Profit and Normal Long-Run Supply for a Constant-Cost Industry / Long-Run
Profit / Economic Profit / Short Run and Long Run Supply for an Increasing-Cost Industry / Long-Run Supply for
Short-Run Production Relationships 144 a Decreasing-Cost Industry
Law of Diminishing Returns / Relevancy for Firms Pure Competition and Efficiency 185
lllustrating the Idea Diminishing Returns Productive Efficiency: P= Minimum ATC / Allocative
from Study 145 Efficiency: P = MC
Tabularand Graphical Representations Summary
lllustrating the Idea Exam Scores 148 Terms and Concepts
Questions
Short-Run Production Costs 148 Problems
Fixed, Variable, and Total Costs
Applying the Analysis Sunk Costs 150 8 Pure Monopoly 191
Per-Unit, or Average, Costs / Marginal Cost An Introduction to Pure Monopoly 192
Applying the Analysis Rising Gasoline Prices 1 53 Barners to Entry 192
Long Run Production Costs 153 Economies of Scale / Legal Barriers to Entry: Patents and
Firm Size and Costs/ The Long-Run Cost Curve / Economies Licenses / Ownership or Control of Essential Resources /
and Diseconomies of Scale Pricing and Other Strategie Barriers to Entry
Applying the Analysis The Verson Stemping Monopoly Demand 194
Machine 1 58 Marginal Revenue Is Less than Price / The Monopolist Is a
Minimum Efficient Scale and Industry Structure Price Maker
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