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Table of Contents

Part I. Introduction to Economics

Chapter 1 Foundations of Economics

• Scarcity: Its why you cant always get what you want.
• Specialization: It Brings You More of What You Want
• Opportunity Costs and the Production Possibilities Frontier

• The Shape of the Production Possibilities Frontier
• Economic Growth the Production Possibilities Frontier

• Q&A How do I know whether to make the PPF curved or straight?
• The Three Fundamental Economic Questions

• What to Produce
• How to Produce It
• For Whom to Produce

• Categories of Economics

• Positive and Normative Economics
• Microeconomics and Macroeconomics

• Summary
• Key Terms
• Problems for Review

Chapter 1A Understanding Graphs

• Coordinate Graphs

• Slopes
• Areas

• Other Types of Graphs

• Bar Charts
• Pie Charts
• Scatter Diagrams

• Summary
• Key Terms
• Problems for Review

Chapter 2 Markets and the Economy

• Factors of Production

• Land
• Labor
• Capital
• Entrepreneurship

• The Participants in an Economy

• Households
• Firms

• Q&A What is a nonprofit organization?

• Government

• The Circular Flow

• Government and the Circular Flow

• The Goal of Efficiency

• What Should Be Produced?
• For Whom Should It Be Produced?
• How Should It Be Produced?

• Economic Systems

• Traditional Economies
• Market Economies
• Command Economies
• Mixed Economies

• Summary
• Key Terms
• Problems for Review

Chapter 3 Demand

• The Demand Schedule

• Diminishing Marginal Utility

• The Demand Graph

• Smooth Demand Curves

• Q&A I buy more $60 Polo brand polo shirts than $15 Walmart brand polo shirts. Doesn

• Changes in Demand versus Movements along the Demand Curve

• Demand Shifters

• Tastes
• Expectations
• Income
• The Prices of Related Goods
• The Number of Consumers

• Consumer Surplus
• Steps to Solving Demand Problems
• Summary
• Key Terms
• Problems for Review

Chapter 4 Supply

• The Supply Schedule
• The Supply Graph

• The Rising Cost of Supplying One More
• Marginal Cost and Supply
• Changes in Supply versus Movements along the Supply Curve

• Q&A Stores sometimes offer lower prices when consumers buy a larger quantity. Does that contradict the law of supply?
• Supply Shifters

• Input costs
• Expectations
• Natural Disasters and Weather
  Prices of Related Goods and Services
• The Number of Firms

• Producer Surplus
• Steps to Solving Supply Problems
• Summary
• Key Terms
• Problems for Review

Chapter 5 Market Equilibrium

• Market Equilibrium
• Price Controls

• Price Ceilings

• Q&A Why are some things that we can

• Price Floors

• Shifts in Supply and Demand

• An Increase in Demand
• A Decrease in Demand
• An Increase in Supply
• A Decrease in Supply
• Double Shifts

• Key Terms
• Problems for Review

Chapter 6 Elasticity

• The Price Elasticity of Demand

• Elastic, Inelastic, and Unit-Elastic Demand
• Total Revenue and the Price Elasticity of Demand
• Perfectly Inelastic Demand
• Perfectly Elastic Demand

• The Price Elasticity of Supply
• Q&A Is the price elasticity of demand equal to the slope of a demand curve?
• The Cross-Price Elasticity of Demand
• Apply What You
• Summary
• Key Terms
• Problems for Review

Chapter 7 Consumer Behavior

• Marginal Utility and Total Utility
• Budget Constraints
• Q&A If I get more utility out of my first poster than out of my second or third, shouldn
• The Optimal Consumption Rule
• The Substitution Effect and the Income Effect
• Lessons from Behavioral Economics

• Consumers Want Balance
• Consumers Want Options, But Not Too Many
• Consumers Want Fairness
• Consumers Make Mistakes

• Summary
• Key Terms
• Problems for Review

Chapter 8 Production Costs

• Profit Maximization

• Accounting Profit and Economic Profit

• The Production Function

• Fixed Inputs and Variable Inputs
• Marginal Product
• Diminishing Marginal Product

• The Cost-Minimizing Combination of Inputs
• Q&A If I get more utility out of my first poster than out of my second or third, shouldn
• A Closer Look at Costs

• Fixed Cost and Variable Cost
• Average Total Cost
• Marginal Cost
• Summarizing Costs with Tables and Curves
• The Irrelevance of Sunk Costs

• Economies and Diseconomies of Scale
• Summary
• Key Terms
• Problems for Review

Chapter 9 Perfect Competition

• How Competition Affects Markets

• Many Buyers and Seller
• A Standardized Product
• Full Information
• Easy Entry and Exit for Firms

• Prices and Profits in Perfectly Competitive Markets

• Firms as Price Takers
• Demand and Marginal Revenue

• Profit Maximization

• Choosing the Optimal Quantity of Output
• Short-Run Profit or Loss
• Long-Run Equilibrium

• Q&A Why would firms remain in a market in which they earn no profit?
• The Shutdown Decision

• The Firm

• The Efficiency of Perfect Competition
• Summary
• Key Terms
• Problems for Review

Chapter 10 Market Power

• Sources of Market Power

• Legal Barriers to Entry
• Control of Resources
• Strategic Barriers
• Economies of Scale

• Monopolies

• A Monpolist
• Efficiency and Market Power
• Price Discrimination

• Q&A How exactly do perfect price discriminators determine the highest price customers are willing to pay? And how, as a customer, can I avoid paying too much?
• Oligopolies

• Games Oligopolists Play

• Cartels
• Monopolistic Competition
• Summary
• Key Terms
• Problems for Review

Chapter 11 Factor Markets

• The Derived Demand for Factors of Production

• A Firm
• A Market

• The Supply of Labor

• An individual
• A Market

• Equilibrium in the Labor Market
• Why Wage Rates Differ

• Compensating Wage Differentials
• Employment Discrimination

• Income Inequality and Ways to Reduce It

• Minimum Wage Laws

• Q&A Aside from minimum wages, what are some of the other programs designed to help poor workers and their families?
• Markets for Other Factors
• Summary
• Key Terms
• Problems for Review

Chapter 12 Market Failure and Government Failure

• Market Failure: Sources and Remedies

• Positive Externalities
• Negative Externalities

• Q&A How exactly does the government put limits on things such as pollution and fishing?

• Imperfect Information
• A Lack of Competition
• Free Riders

• Government Failure: Sources and Remedies

• Imperfect Information
• Different Goals and Perspectives
• Bureaucratic Inefficiencies
• Remedies for Government Failure

• Summary
• Key Terms
• Problems for Review

Chapter 13 Measuring an Economy

• Measures of Economic Progress

• Gross Domestic Product

• Q&A When a good is made this year and sold next year, when is it included in GDP?

• GDP and the Quality of Life
• Alternative Measures to GDP

• Unemployment

• The Unemployment Rate
• Types of Unemployment
• Full Employment and the Natural Rate of Unemployment

• Inflation and Its Effects
• Nominal Values versus Real Values
• The Consumer Price Index
• Summary
• Key Terms
• Problems for Review

Chapter 14 Aggregate Demand and Aggregate Supply

• Aggregate Demand

• Why the Aggregate Demand Curve Slopes Downward
• Factors that Shift the Aggregate Demand Curve

• Q&A Increases in consumption, investment, and net exports were discussed as reasons for movements along the aggregate demand curve. Now they
• Multiplier Effects and Aggregate Demand

• The Marginal Propensities to Consume and Save
• The Spending Multiplier
• The Balanced Budget Multiplier
• Leakages

• Short-Run Aggregate Supply

• The Shape of the Short-Run Aggregate Supply Curve
• Factors that Shift the Short-Run Aggregate Supply Curve

• Macroeconomic Equilibrium
• Long-Run Aggregate Supply and Economic Growth
• Summary
• Key Terms
• Problems for Review

Chapter 15 Fiscal Policy

• Government Expenditures, Revenues, and Taxes

• Budget Surpluses, Deficits, and the Federal Debt

• Schools of Economic Thought

• Classical Theory
• Keynesian Theory
• Monetarist Theory

• Areas of Consensus and Disagreement
• Q&A What caused the Great Recession?
• Types of Fiscal Policy and Their Effects

• Expansionary Fiscal Policy
• Contractionary Fiscal Policy
• Automatic Stabilizers

• Potential Problems with Fiscal Policy

• Timing
• Politics
• Crowding Out

• Supply-Side Fiscal Policy
• Summary
• Key Terms
• Problems for Review

Chapter 16 Money and Banking

• The Functions of Money

• Medium of Exchange
• Store of Value
• Unit of Account

• What Makes Something Money?

• The Ideal Characteristics of Money

• Types of Money

• Commodity Money
• Paper Money and the Gold Standard
• Fiat Money
• New Forms of Money
• What Isn

• Q&A Will digital alternatives replace cash entirely?
• The Time Value of Money
• Measures of the Money Supply

• M1
• M2

• Banks and Thrifts

• The Role of Commercial Banks in the Economy
• Related Financial Institutions
• Bank and Thrift Failures

• How Banking Creates Money
• Summary
• Key Terms
• Problems for Review

Chapter 17 Monetary Policy

• The Federal Reserve System
• Tools of Monetary Policy

• Open Market Operations
• The Discount Rate
• Reserve Requirements
• Strengths and Limitations
• New Tools for Severe Problems

• Q&A Who pays for the Fed
• The Quantity Theory of Money
• The Market for Money

• Money Demand
• Money Supply and Equilibrium
• The Effects of Monetary Policy

• Summary
• Key Terms
• Problems for Review

Chapter 18 Economic Growth and Development

• Economic Growth and Development

• Global Comparisons
• Economic Growth and the Production Possibilities Frontier
• Potential Output

• Strategies for Achieving Economic Growth

• More Physical Capital
• More Human Capital
• More Money
• More Research and Development
• More Foreign Involvement

• Q&A What is a "banana republic"?

• More Domestic Loans

• Challenges for Developing Countries

• Crime and Corruption
• Geography
• Weak Institutions
• Unfit Leadership
• Governance

• Progress in Economic Development [LO needed]
• Summary
• Key Terms
• Problems for Review

Chapter 19 International Trade and Finance

• The Benefits of an Open Economy

• Comparative Advantage
• Absolute Advantage
• Mutually Beneficial Trade

• The Balance of Payments
• Q&A How can I identify the terms of trade that would make both sides better off from trade?

• The Balance of Trade
• Trade Deficits

• Barriers to Trade

• Tariffs
• Quotas

• Foreign Exchange Markets

• Equilibrium in a Foreign Exchange Market
• Why Currencies Appreciate and Depreciate

• Summary
• Key Terms
• Problems for Review

Authors

David Anderson

David Anderson is the Paul G. Blazer Professor of Economics at Centre College. He received his BA in economics from the University of Michigan and his MA and PhD in economics from Duke University. Anderson has been involved in the AP® Economics program since 1994. For five years he led the grading of one or both of the AP® Economics exams, and he speaks regularly at AP® conferences and workshops. He has authored dozens of scholarly articles and 15 books, including Survey of Economics, Explorations in Economics, Cracking the AP® Economics Exam, Economics by Example, Favorite Ways to Learn Economics, and Environmental Economics and Natural Resource Management. His research is primarily on economic education, environmental economics, law and economics, and labor economics. Anderson loves teaching introductory economics and has won awards for excellence and innovation in the classroom. His favorite hobby is running, and he competes in marathons and triathlons. His family resides in Danville, Kentucky.

David A. Anderson

David Anderson is the Paul G. Blazer Professor of Economics at Centre College. He received his BA in economics from the University of Michigan and his MA and PhD in economics from Duke University. Anderson has been involved in the AP® Economics programs for more than two decades. For five years he led the grading of one or both of the AP® Economics exams, and he speaks regularly at AP® conferences and workshops. He has authored dozens of scholarly articles and 15 books, including Explorations in Economics, Survey of Economics, Cracking the AP® Economics Exam, Economics by Example, Favorite Ways to Learn Economics, and Environmental Economics and Natural Resource Management . His research is primarily on economic education, environmental economics, law and economics, and labor economics. Anderson loves teaching introductory economics and has won awards for excellence and innovation in the classroom. His favorite hobby is running, and he competes in marathons and triathlons. He lives in Danville, Kentucky, with his wife and two children.

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