Essentials of Economics

Book Preface

We are teachers of economics. That is what we do. We teach students of all majors and interest levels, and have done so for, well . . . a very long time.

The Mateer/Coppock Principles of Economics text, on which this book is based, has been a resounding success. It has been adopted widely because it is a book by teachers for teachers, and it has a strong student focus. The task of adapting this text for the survey level has followed the same recipe for success. The one-semester survey course presents unique challenges to instructors. For most students, this course is unrelated to their major. It will be the only economics course that they will ever take, and many approach it with trepidation, perhaps even genuine fear.

While this challenge is very real, there are also unique opportunities. Beyond this course, students will likely have no further formal education on many of the important issues that arise in this class, such as why the price of college keeps rising, why wages are stagnant, how monetary policy and fiscal policy affect them, and why credit-card debt can be a very serious problem. Economics and the economic way of thinking are extremely important for students, even if they don’t yet know that. Teaching this subject to non-business students is an opportunity to help them learn about topics that will affect their lives far beyond graduation.

Thus, the survey course is not the same thing as a principles course, mainly because it is terminal. It needs to be taught differently from the principles course, and a survey text needs to be fundamentally different from a principles text. When we reviewed the existing survey books, we found that most are slimmed-down versions of existing principles texts. While that approach to writing a survey text helps to ensure that relevant topics are covered, simply transferring material from a principles book is not an effective approach for helping students learn economics in the survey course.

Why? Simply condensing a principles textbook doesn’t take into account the areas that students consistently find problematic. Understanding cost curves is important for business and economics students, but survey students do not need to cover this topic in the same detail. They need to see graphs, but these graphs should be streamlined and easy to read, with no extraneous information. Similarly, while it is important for a business or economics major to know the minutiae of the market structure models, a basic knowledge of the differences between competition and monopoly is more than sufficient for students who are getting the broader picture that comes in the survey course—which is, after all, a survey of economics.

Our years of experience in the classroom—both the principles classroom and the survey classroom—have taught us an important lesson: when ideas resonate with students, and stick with them through reinforcement, students are more likely to carry the basic ideas of economics into their lives beyond the classroom. In transforming the Mateer/Coppock principles text into a survey text, we had one key goal in mind: to write a textbook that connects to students where they are. No other text that we know of uses the experiences of modern students to reinforce new terminology with examples from everyday life in everyday language. While they may not know it, students are key participants in the economy and their experiences should be the platform from which our instruction begins. Essentials of Economics uses examples that resonate in students’ lives (for instance, the market for cell phones, student-loan and credit-card payments, computing devices, ride-sharing).

So, ultimately, we wanted to develop a textbook that would engage students, one that is enjoyable to read week in and week out, a concise presentation of the discipline that encourages students to think about how economics affects their lives. As economists, we know that the “dismal science” isn’t really dismal at all; rather, it’s full of insights that help us better understand ourselves and the events going on around us. Essentials of Economics will help your students learn to think like economists by showing them how to make better choices in the workplace, their personal investments, their long-term planning, their voting—indeed, in all their critical choices. We hope that Essentials of Economics will be your partner in success in helping your students live more fulfilled and satisfying lives. What does this classroom-inspired, student-centered text look like?

BRIEF CONTENTS
PART I Introduction
1 Thinking Like an Economist 4
2 Economic Models and Gains from Trade 22
3 The Market at Work: Supply and Demand 50
4 Market Efficiency 94
PART II Microeconomics
5 Costs and Production: How Do Businesses Work? 130
6 Market Structures 158
7 Behavioral Economics and Game Theory 194
8 Labor Markets and Earnings 222
9 Government in the Economy 252
Part III Macroeconomics
10 What Is Macroeconomics? 280
11 Measuring the Macroeconomy, Unemployment, and Inflation 308
12 Aggregate Demand and Aggregate Supply 346
13 Economic Growth and the Wealth of Nations 382
14 Savings, Investment, and the Market for Loanable Funds 414
15 Money and the Federal Reserve 444
16 Monetary Policy 470
17 Fiscal Policy and Budget Deficits 494
18 International Economics 530
Appendix
19 Personal Finance 562