Essentials of Economics: A Fundamental View

CHAPTER 1 Defining Economics: The Basics
The Economic Way of Thinking
Limited Resources
Natural Resources (Land)
Human Resources (Labor)
Machines and Tools Resources (Capital)
Six Core Economic Principles
The Importance of a Decision-Making Model
PACED Decision Model
Cost–Benefit Analysis Decision Model
Economic Thinking is Marginal Thinking
We Do Always Want More, but Eventually Will Want Less
Economic Pairs
Goods and Services
Wants and Needs
Microeconomics and Macroeconomics
Positive Economics and Normative Economics
Stock and Flow Measures
Absolute and Relative
Inputs and Outputs
Scarcity is Not a Shortage
Sunk Costs are Sunk Costs
Production Possibilities Curve: The World of Trade-offs
Point A: Full Use of the Resources
Point B: Inef­ficient Use of Resources
Point C: Impossible to Achieve or View of the Future
A Brief (Really Brief!) History of Economics

CHAPTER 2 The Power of Markets and Prices
The Beauty and Power of the Market
Markets
Markets are Defined by Economic Systems
Demand
Law of Demand
Demand Curves are not for Everyone, but They can Help
Determinants of Demand (Non-Price Factors)
A New Curve (New Story, New Curve) versus Along the Curve (Same Story, Same Curve, New Price)
Supply
Law of Supply
Supply Curves are not for Everyone Either, But They can Help
Determinants of Supply (Non-Price Factors)
Putting Demand and Supply Together
The Power of a Price
Market Conditions
Market Distortion: Price Discrimination
Brief Summary of Markets
Elasticity
Variables of Price Elasticity
Total Revenue Test

CHAPTER 3 Market Structures; Why Businesses Do What They Do
Inputs and Outputs
Variable Costs (VC) and Fixed Costs (FC)
Long Run and Short Run
Understanding Business Profitability
Relationship Between Average Cost (AC) and Marginal Cost (MC)
Marginal Product (MP) and Total Product (TP)
Maximizing Profits-Marginal Cost ∙ Marginal Revenue (MC ∙ MR)
Accounting Profit and Economic Profit
Market Structures
Perfect Competition
Monopoly
Monopolistic Competition
Oligopoly
Summary

CHAPTER 4 Public Goods, Taxes, Fiscal Policy
When Markets Do Not Function Efficiently—Public versus Private Markets
The Free Rider
Paying for Public Goods—Taxes
Direct and Indirect Taxes
Components of Every Tax
Tax Base
Tax Rate
Tax Structure
Characteristics of a “Good” Tax
Transparency
Efficiency
Simplicity
Consistency
Equity
Promotes Economic Growth
Market Neutral
When Government Decides to Intervene in a Market
Price Ceiling
Price Floor
Subsidy
Industry, Market Protectionism
When Government Decides to Influence the Macroeconomy
Fiscal Policy

CHAPTER 5 Circular Flow and Economic Systems
Circular Flow of Economic Activity
Criteria for a “Successful” Market Economy (Rules of the Game)
Private Ownership of Resources (Private Property Rights)
Creditable Court System and Rule of Law
Presence of Properly Instituted Incentives
The “Players” in an Economy
Individuals/Households (Consumers of Final Goods)
Businesses and Nonprofit Institutions
Entrepreneurship
Governments
Financial Institutions
Foreign Companies
The Role of Incentives and Interdependence
The Markets (“Playing Fields”) of Every Economy
Resource Market
Product Market
Financial Market
Foreign Market
Putting the Pieces Together: Circular Flow of Economic Activity
The Three Essential Economic Questions (3EEQ)
The Power of Who
Who Defines the Economic System
Market, Command, or Mixed? Identifying Economic Systems
Economics and Politics
Summary

CHAPTER 6 Three Goals of Every Economy
Business Cycle
Nominal versus Real
Full Employment
Types of Unemployment
Measuring Unemployment
Measuring the Unemployment Rate
Flaws of the Unemployment Rate
Positive Side to Unemployment
Tools for Measuring Unemployment
Price Stability
When Prices are not Stable
Measuring Price Stability
Economic Growth
Measuring Economic Growth
Economic Growth Measurements Based on GDP and GDI
An Economy in Equilibrium: A Very Simplified Model
Nominal GDP versus Real GDP
GDP Deflator
Per Capita GDP
Economic Indicators—The Measuring Sticks (And Media Favorites)
Leading, Lagging, and Coincident Economic Indicators
Measurement Criticisms of GDP, CPI, Unemployment Rate
Key Final Point: Credibility of Data

CHAPTER 7 Money and Financial Institutions
What is Money and Why Do We Need It
The Real Value of Money
Inflation and the Price of Money: Nominal versus Real Interest Rates
Money has Several Uses
Characteristics of Money
Financial Institutions
Banks
Savings & Loans, Savings Banks
Credit Unions
Fintechs
All the Rest

CHAPTER 8 Central Banks and Monetary Policy
Every Economy has a Central Bank
Federal Reserve System
Federal Reserve District Banks
Measuring the Money Supply
M1 and M2 Money Supply
When Monetary Supply Changes
Relationship between Money Supply and Inflation—Quantity Theory of Money
Tools of Monetary Policy
Reserve Requirement and Fractional Reserve Banking
Fractional Reserve Banking
Discount Rate
Open Market Operations
‘Temporary’ Monetary Tool
A New Kid on the Block? Modern Monetary Theory

CHAPTER 9 The Global Economy
What is Globalization?
Global Trade
Why Do Countries Need Each Other?
The Benefits of Trade
When Countries Choose Not to Trade
When Countries Interfere with Trade
Double Meaning for ‘Fair Trade’
What are the Main Tools of Protectionism?
Why Do Countries Believe Protectionism is Necessary?
Consequences of Protectionism
Who Sets the International Rules?
International Monetary Fund
World Bank
World Trade Organization
Bank of International Settlements
General Agreement on Tariffs and Trade
Exchange Rates
Which is Better, an Appreciated or Depreciated Currency?
Exchange Rate Systems
Pegged
Floating (Flexible)
Incompatibility of Exchange Rate Systems
Dollarization
Measuring Global Activity
Trade-to-GDP Ratio (also known as the Openness Index)
Balance of Payments

CONCLUSION Where Do We Go from Here?
Personal Economics
Difference Between Economic System and an Economic Market
Where do We Go from Here?

Bibliography

Glossary