Economics – N. Gregory Mankiw, Mark P. Taylor – 2nd Edition


Economics is a study of mankind in the ordinary business of life.’ So wrote Alfred Marshall, the great 19th-century British economist, in his textbook, Principles of Economics. Although we have learned much about the economy since Marshall’s time, this definition of economics is as true today as it was in 1890, when the first edition of his text was published. Why should you, as a student of the 21st century, embark on the study of economics? Here are three good reasons.

The first reason to study economics is that it will help you understand the world in which you live. There are many questions about the economy that might spark your curiosity. Why do airlines charge less for a return ticket if the traveller stays over a Saturday night? Why is Julia Roberts paid so much to star in films? Why are living standards so meagre in many African countries? Why do some countries have high rates of inflation while others have stable prices? Why have some European countries adopted a common currency? These are just a few of the questions that a course in economics will help you answer.

The second reason to study economics is that it will make you a more astute participant in the economy As you go about your life, you make many economic decisions. While you are a student, you decide how many years to stay in fulltime education. Once you take a job, you decide how much of your income to spend, how much to save and how to invest your savings. One day you may find yourself running a small business or a large firm, and you will decide what prices to charge for your products. The insights developed in the coming chapters will give you a new perspective on how best to make these decisions. Studying economics will not by itself make you rich, but it will give you some tools that may help in that endeavour if that is what you desire. The third reason to study economics is that it will give you a better understanding of the potential and limits of economic policy. As a voter, you help choose the policies that guide the allocation of society’s resources. When deciding which policies to support, you may find yourself asking various questions about economics.

What are the burdens associated with alternative forms of taxation? What are the effects of free trade with other countries? What is the best way to protect the environment? How does the government budget deficit affect the economy? These and similar questions are always on the minds of policy makers. Thus the principles of economics can be applied in many of life’s situations. Whether the future finds you reading the newspaper, running a business or running the country, you will be glad that you studied economics.

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  • About the Authors xiii
    Preface xiv
    Walk Through Tour xx
    Supplements xxii
    Acknowledgements xxiv

    PART 1 Introduction 1
    1 Ten Principles of Economics 2
    2 Thinking Like an Economist 21
    3 Interdependence and the Gains from Trade 52

    PART 2 Supply and Demand I: How Markets Work 67
    4 The Market Forces of Supply and Demand 68
    5 Elasticity and Its Application 94
    6 Supply, Demand and Government Policies 117

    PART 3 Supply and Demand II: Markets and Welfare 137
    7 Consumers, Producers and the Efficiency of Markets 138
    8 Application: The Costs of Taxation 158
    9 Application: International Trade 174

    PART 4 The Economics of the Public Sector 197
    10 Externalities 198
    11 Public Goods and Common Resources 221
    12 The Design of the Tax System 237

    PART 5 Firm Behaviour and the Organization of Industry 263
    13 The Costs of Production 264
    14 Firms in Competitive Markets 287
    15 Monopoly 308
    16 Monopolistic Competition 338
    17 Oligopoly 355

    PART 6 The Economics of Labour Markets 381
    18 The Markets for the Factors of Production 382
    19 Earnings and Discrimination 403
    20 Income Inequality and Poverty 418

    PART 7 Topics for Further Study 437
    21 The Theory of Consumer Choice 438
    22 Frontiers of Microeconomics 466

    PART 8 The Data of Macroeconomics 485
    23 Measuring a Nation’s Income 486
    24 Measuring the Cost of Living 506

    PART 9 The Real Economy in the Long Run 523
    25 Production and Growth 524
    26 Saving, Investment and the Financial System 550
    27 The Basic Tools of Finance 572
    28 Unemployment 592

    PART 10 Money and Prices in the Long Run 615
    29 The Monetary System 616
    30 Money Growth and Inflation 641

    PART 11 The Macroeconomics of Open Economies 665
    31 Open-economy Macroeconomics: Basic Concepts 666
    32 A Macroeconomic Theory of the Open Economy 686

    PART 12 Short-run Economic Fluctuations 705
    33 Keynes and IS-LM Analysis 706
    34 Aggregate Demand and Aggregate Supply 726
    35 The Influence of Monetary and Fiscal Policy on Aggregate Demand 757
    36 The Short-run Trade-off Between Inflation and Unemployment 782

    PART 13 Topics in International Finance and Macroeconomics 815
    37 The Financial Crisis 816
    38 Common Currency Areas and European Monetary Union 840

    PART 14 Final Thoughts 867
    39 Five Debates over Macroeconomic Policy 868
    Glossary 883
    Index 891
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