Preface
Joining Old and New |
Developing the Second Edition |
Key Text Revisions |
New Improved Boxes |
Enhanced Teaching and Learning |
Brief Tour |
Pedagogical Features |
Complete Package of Products
The goal of this book is to present modern economics in a
form that is intuitive, interesting, and useful for students
who have had no prior exposure to this fascinating subject.
When I took the introductory economics course in college way
back in the 1960s, I found the course and the textbook (Paul
Samuelson's) fascinating. People called 1960s-vintage
economics the "new economics," because many new ideas,
including those put forth by John Maynard Keynes, were being
applied for the first time in public policy. But during the
1970s, the 1980s, and the 1990s, economics underwent another
tremendous wave of change. Now at the end of the 20th
century, economics places much greater emphasis on
incentives, on expectations, on long-run fundamentals, on
the use of experiments, on rich surveys of individual
experiences, on the theory of institutions, and on the
importance of stable, predictable economic policies. These
new ideas are both interesting and of great relevance to
individuals, to firms, and to governments as we start the
21st century. The world economy has also changed radically
in the last thirty years with market economies now being the
preferred choice of virtually all countries around the world
and with billions of more people linked together through
international trade. With these changes economics is now
more fascinating and more relevant than ever.
Joining the Old with the New
My strategy in developing the first edition of the
textbook, published three years ago, was to give these
changes a prominent , clearly-explained place along-side the
older parts of economics and thereby to make modern
economics--with all its fascination and relevance--available
to beginning students. The enthusiastic reaction of teachers
and students to the first edition has validated this
strategy. Teachers who have successfully taught from the
first edition point to the clear demonstrations of how a
markets economy actually works, to the thorough explanation
of why markets are efficient when incentives are right and
inefficient when incentives are wrong, to the emphasis on
long-run fundamentals, to the lively analysis and discussion
of real-world public policy, and perhaps most crucial--and
certainly the most gratifying to me--to the clear, intuitive
explanation of basic economic principles through analogy,
example, and user-friendly graphs and illustrations.
Developing the Second
Edition
My strategy in developing the second edition of
Economics was to produce a streamlined version of the
first edition--more efficient exposition, better
organization, more visually-effective page layouts, and with
many new and updated real-world examples. Suggestions for
the revision came from students in the introductory course I
teach each year, from students and faculty who have used the
book at many colleges and universities, and from experts in
specialized areas--such as experimental economics or
international trade--whose advice we sought directly.
Armed with these suggestions we created a revised outline
for the second edition. I then revisited every line of text,
every graph, every box, every cartoon and every photo,
adding deleting, or rewriting to streamline, clarify, and
update. After faculty reviews of this draft, and, of course,
more editing, and rewriting, the manuscript moved into
production, during which layout--the size and placement of
text, tables and graphs on the page--became my paramount
concern. One of the advantages of modern computer
page-making techniques is that I could interact in real time
with the production editor, experimenting with different
layouts and making sure, for example, that the descriptions
of the graphs in the text were placed at the most helpful
positions relative to the graphs themselves. Though
most-time consuming, this interaction was invaluable for
making a user-friendly visually-efficient layout.
Key Text
Revisions: Streamlining, Updating, and Enhancing
Intuition
A few examples of the changes I made in the second
edition will show how the discussion was streamlined, made
more intuitive, and updated. A detailed account of all the
additions, deletions and modifications is found in the
transition guide in the Instructor's Resource Manual and on
the web site (see Economics at college.hmco.com.)
Major streamlining was achieved, for example, by
eliminating Chapter 14 which had previewed the role of
government and by integrating the material on public choice
into the chapter on public goods and externalities (now
Chapter 15). Other examples of improved organization in the
micro chapters include moving the material on the nature of
firms from Chapter 8 to Chapter 6 (the first chapter on the
theory of the firm) and moving some of the discussion of the
role of government to Chapter 10 on monopoly so that
instructors can discuss policy options before the more
detailed treatment of antitrust and regulation in Chapter
16.
Examples of more intuitive explanations include the use
of a new extended example of a student-run firm to derive
the supply curve in Chapter 6. And by highlighting the
analogy between the consumer decision in Chapter 5, and the
firm decision in Chapter 6, the trio of Chapters 5, 6, and 7
(about which many faculty have been especially enthusiastic)
now works better than ever. To make the double auction
market demonstration more useful to instructors (who may not
have time to conduct experiments in class) we produced a
short video to illustrate how experimental markets work.
Streamlining also occurred within the macro section of
the book. The macroeconomic overview chapter (Chapter 19)
now focuses more on a review of the key macroeconomic facts
and less on previewing the theory. I also shortened the
appendix on growth accounting accompanying Chapter 23,
"Technology and Economic Growth," and moved some of the
explanatory material on growth accounting into a new box in
Chapter 23. The chapter on economic growth around the world
(Chapter 25 in the first edition) was moved toward the end
of the book leaving four chapters on long-run fundamentals
and economic growth and the same number of chapters on
economic fluctuations. The description of the Fed was moved
into the long-run oriented chapter on the monetary system
(Chapter 24), with the later chapter on monetary policy
(Chapter 30) now focusing more on monetary independence. The
chapters that develop the model of the recovery of the
economy after a recession were consolidated into a single
chapter (27) in order to better exploit the analogy with
supply and demand curves; Chapter 28, "Toward Recovery and
Expansion," uses the model developed in Chapter 27 to
illustrate the path the economy takes toward recovery after
a recession A streamlined description of the Fed's behavior
in response to inflation is contained in Chapter 27 while
the more detailed description of different policies is
covered in Chapter 30. I also increased the number of
teaching options by making it possible for instructors to
skip Chapter 26, "The Uncertain Multiplier," which
discusses the multiplier calculations using the Keynesian
Cross.
Examples of new material added to this edition include
discussions of the 1996 welfare reform Act, the Federal
Trade Commission analysis of the proposed merger of Office
Depot and Staples, the new chain weighted real GDP measures,
the CPI bias problem, the world savings shortage, the new
line-item veto authority used by President Clinton for the
first time in 1997, pre-emptive monetary strikes, and of
course all the new macroeconomic data and developments from
the last three years.
New, Improved
Boxes
As we revised, added, or updated boxes we gave many of
them special designations --"Reading the News about..." or
"Using Economics to Explain..." -- in order to help students
use the material more effectively. Among the many new or
revised boxes you'll find coverage of experimental results
on the theory of taxation (Chapter 7) and the model of
monopoly (Chapter 10), helpful hints for drafting costs
curves (Chapter 8) and forecasting with econometric models
(Chapter 25); you'll also find Reading the News boxes about
price floors, (Chapter 3), labor supply decisions in the
household (Chapter 11), stock price changes (Chapter 13,)
GDP each month (Chapter 20), the Fed (Chapter 27), and Big
Mac Purchasing Power Parity (Chapter 31), among many others.
Enhanced
Teaching and Learning Package
The package of teaching and learning aids (described
below) has been completely revised with several new options.
The teaching software has been expanded to match each
chapter of the text A web page is now available to provide
additional help and information to both students and
instructors. And a new series of teaching videos has been
produced.
A Brief Tour
Economics is designed for a two-term course. Parts
1 through 3 cover microeconomics, and Parts 4 through 7
cover macroeconomics. I recognize that teachers use a great
variety of sequences and syllabi, and I have therefore taken
great pains to allow for alternative plans of coverage.
Furthermore, the text is available in two self-contained
volumes, Principles of Microeconomics and Principles of
Macroeconomics. International economic issues are considered
throughout the text, with separate chapters on international
economic policy.
The basic workings of markets and the reasons they
improve people's lives are the subjects of Part 1. Chapter 1
introduces the field of economics through a case study
showing how economists observe and explain economic puzzles.
Chapter 1 defines key terms and ideas and Chapter 2 outlines
the basic unifying themes of economics: scarcity, choice,
and the production possibilities curve. The role of prices,
the inherent international aspect of economics, the
importance of property rights and incentives, the difference
between central planning and markets are some of the key
ideas in these chapters. Chapters 3 and 4 cover the basic
supply and demand model. I have tried to explain these basic
ideas as fully and as clearly as I can, adding the extra
sentence of clarification whenever it might help in
understanding. The goal is to show how to use the supply and
demand model and to learn to "think like an economist." A
trio of chapters--5, 6, and 7--has the aim of explaining why
competitive markets are efficient, perhaps the most
important idea in economics. The parallel exposition of
utility maximization (Chapter 5) and profit maximization
(Chapter 6) culminates in a detailed description of why
competitive markets are efficient (Chapter 7). The latest
results from experimental economics have a dual role: to
illustrate how well models work and to make the discussion
of these important topics less abstract. This text provides
a complete, self-contained analysis of competitive markets
in these first seven chapters before going on to develop
more difficult concepts such as long-run versus short-run
cost curves or monopolist competition. This approach enables
the student to learn, appreciate, and use important concepts
such as efficiency and deadweight loss early in the course.
A modern market economy is not static; rather it grows
and changes over time as firms add new and better machines
and as people add to their skills and training. Part 2
describes how firms and markets grow and change over time.
This part also shows how economists model the behavior of
firms that are not perfectly competitive, such as
monopolies. The models of dynamic behavior and imperfect
competition developed here are used to explain the rise and
fall of real world firms and industries. Part 2 also delves
into the special characteristics of labor markets.
Different countries have taken widely different
approaches to the economy. The policy of some countries has
been to directly intervene in virtually every economic
decision; other countries have followed more hands-off
policies. Part 3, therefore, is devoted to the role of
government in the economy. Tax policy, welfare reform,
environmental policy, international trade policy, the
regulation of industry, and the role of government in
producing public goods are analyzed. The problem of
government failure is analyzed using models of government
behavior. International trade theory and policy are explored
in Chapters 17 and 18.
Part 4 begins the study of macroeconomics. Chapter 19 is
an overview of the facts emphasizing that macroeconomics is
concerned with the growth and the fluctuations in the
economy as a whole. Chapter 20 shows how GDP and other
variables are measured.
Response to the first edition's treatment of long-run
issues before developing the theory of economic fluctuations
was overwhelmingly positive, and the second edition takes
that approach one step further by streamlining the coverage
of economic growth from five to four chapters so as to allow
for a speedier introduction to fluctuations. Part 5 thus
begins with an analysis of how the level of unemployment in
the economy as a whole is determined and goes on to explore
the accumulation of capital and technological progress.
Labor, capital, and technology are presented here as the
fundamental determinants of the economy's growth path. One
clear advantage of this approach is that it allows students
to focus first on issues about which there is general
agreement among economists and in which many of the deep
policy problems facing us at the start of the 21st century
lie: long-term growth. Moreover, this ordering helps the
student better understand short-term economic fluctuations.
As shown in the four chapters of Part 6, the economy does
fluctuate as it grows over time. Declines in production and
increases in unemployment (characteristics of the recessions
of the early 1980s and early 1990s) have not vanished from
the landscape as the problems of long-term growth have come
to the fore. Part 6 , delves into the causes of these
fluctuations and an analysis of why they end. It begins by
explaining why shifts in aggregate demand may cause the
economy to fluctuate, and ends by showing that price
adjustment plays a significant role in the end of
recessions.
Countries have tried a variety of approaches to deal with
economic growth and economic fluctuations. Part 7 examines
these approaches to policy, about which there are many
differing opinions. I have tried to explain these as clearly
and as objectively as I can; there are also areas of
agreement, which are stressed.
Pedagogical features
The following pedagogical features are designed to help
the student learn economics.
Case Studies within the text. This feature
uses real world situations to help motivate economic ideas
and models. Examples include health care in Chapter 1, a
recent drought in the U.S. peanut market in Chapter 3, and
setting national park fees in Chapter 4.
Interesting economic puzzles to stimulate interest in
economic models. Most chapters begin with a
description of real world phenomena which economics can help
to explain. Examples include: the opportunity costs of
college for Tiger Woods in Chapter 1 and the sharp rise in
oil prices during the Persian Gulf War in Chapter 4.
Integrating modern economic concepts in the
context of substantive economic problems rather than in
separate chapters. This approach demonstrates the relevance
of the new ideas and keeps the text to a manageable size.
For example, time inconsistency is described in the context
of particular economic policy problems. To give instructors
flexibility, this newer material is frequently placed near
the end of chapters.
Use of experimental economics to help explain key
ideas in ways that are helpful even to those who do not
do such experiments. Details on how to set up and run 18
experiments are provided in an optional Experimental
Economics Lab Manual. The double-oral auction, described in
Chapter 7, is one of the experiments featured in this manual
and is also the subject of one of the video segments in the
Economics Video series.
Brief reviews at the end of each major section
(about four per chapter) summarize the key points in
abbreviated form as the chapter evolves; these reviews are
useful for preliminary skim reading as well as for review.
Boxes to give both current-event and historical
perspectives. Many of the text's boxes explain how
to decipher recent news stories about economic policy.
Others examine the contributions of the great economists
such as Adam Smith and Alfred Marshall, the history of great
ideas, and key historical events.
Functional use of full color to distinguish
between curves and to show how the curves shift dynamically
over time. An example of the effective use of multiple
colors can be found in the discussion of increasing
opportunity costs in Chapter 2.
Complete captions and small conversation boxes in
graphs. The captions and the small yellow-shaded
conversation boxes, such as in the graph in the margin, make
many of the figures completely self-contained. In some
graphs, sequential numbering of these conversation boxes
stresses the dynamic nature of the curves.
Use of photos and cartoons to illustrate abstract
ideas. Special care has gone into the search for
and selection of photos to illustrate difficult economic
ideas such as inelastic supply curves or opportunity costs.
Each text photo (many consisting of two or three parts) has
a short title and caption to explain its relevance to the
text discussion.
Key term definitions in the margin and a listing
of the terms at the end of every chapter and appendix. There
is also an alphabetized glossary at the end of the book.
Questions for review at the end of every chapter.
These are tests of recall and require only short answers;
they can be used for oral review or as a quick self-check.
Problems, an essential tool in learning economics,
have been carefully selected and tested. An ample supply of
these appear in every chapter and appendix. Some of these
problems ask the reader to work out examples that are
slightly different from the ones in the text; others require
a more critical thinking approach. A second set of problems
which parallels those at the end of each chapter has been
developed for the second edition. Included in the
accompanying test bank, this problem set is also available
to instructors via the web site.
A COMPLETE PACKAGE OF TEACHING AND LEARNING AIDS
The highly effective teaching and learning package
prepared to accompany the text has been completely revised,
updated, and expanded. It provides a full range of support
for instructors and students.
Micro and Macro Study Guides. David Papell of
the University of Houston, John Solow of the University of
Iowa, and Wm. Stewart Mounts, Jr. of Mercer University have
prepared the study guides for the text. In my view, these
study guides provide a wonderful learning opportunity that
many students will value. Each chapter contains an overview,
informal chapter reviews, and a section called Zeroing
In, which harnesses student intuition to explain the
chapter's most important concepts. The study guides also
provide ample means for practice in using the economic ideas
and graphs introduced in each text chapter. There is a mix
of question types, including many graph-based questions and
problems as well as a twenty-question multiple-choice
practice test. A section called Working it Out
provides worked problems that take the student step by step
through the analytical process needed to solve real-world
applications of core concepts covered in the chapter. These
are followed by practice problems that require students to
use the same analytical tools. Detailed answers are provided
for all review and practice questions. End-of-part quizzes
offer the student one last chance to test their retention of
material before taking in-class exams.
Taylor Tutorial and Simulation Software. A
flexible, interactive computerized tutorial is available for
students to review basic concepts covered in the text. A
tutorial for each chapter in the text provides a second
opportunity for students to review concepts and models and
then to test themselves on what they've learned. A glossary
and context-sensitive help are always available. The
simulation component of the software includes more than 60
years of data on more than twenty key economic indicators,
allowing students to graph and compare various measurement
instruments and print out their results.
Micro and Macro Test Banks. A reliable test
bank is the most important resource for efficient and
effective learning and teaching. Micro and Macro Test Banks
to go along with the text have been prepared by Stuart
Glosser of the University of Wisconsin, Whitewater and
myself. They contains more than 5,000 test
questions--including multiple choice, true/false, short
answer, and problems--many of which are based on graphs. The
questions are coded for correct answer, question type, level
of difficulty, and text topic. At the end of each test bank
chapter is a set of problems that parallels the
end-of-chapter problems from the text. The test bank is
available in both printed and computerized form.
Computerized Testing Program. A sophisticated
and user-friendly program called ESA Test is available so
that instructors can quickly create tests according to
various selection criteria, including random selection. The
program prints graphs as well as the text part of each
question. Instructors can scramble the answer choices, edit
questions, add their own questions to the pool, and
customize their exams in various other ways. The program is
available in Windows and Mac versions.
Instructor's Resource Manual. Prepared by Wm.
Stewart Mounts, Jr. of Mercer University, Denise Hixson of
Midlands Technical College, Columbia, SC, and myself. The
Instructor's Resource Manual provides both first-time and
experienced instructors with a variety of additional
resources for use with the text. Each chapter contains a
brief overview, teaching objectives, key terms from the
text, a section that orients instructors to the text's
unique approach, and a suggested lecture outline with
teaching tips that provide additional examples not found in
the text and hints for teaching more difficult material.
Discussion topics and solutions to end-of-chapter text
problems are also provided.
Overhead Transparencies. A set of full-color
transparencies for all the numbered figures used to describe
the economic models or theories in the text are available
for those who are using the text. I usually use two overhead
projectors in class so that more than one figure or table
can be shown simultaneously.
Power Presentation Manager. This
Windows-based software developed by Houghton Mifflin allows
instructors to create customized lecture presentations that
can be displayed on computer-based projection systems. The
software, which includes a run-time version of Microsoft
PowerPoint, makes available the figures, tables, and key
equations from the text and also allows for access to laser
disc sequences, instructors' own PowerPoint sets, and
screens from other Windows-based software. With the Power
Presentation Manager, instructors can quickly and easily
integrate all these components--and create their own screens
as well--to prepare a seamless classroom presentation with
minimal in-class tinkering.
Experimental Economics Lab Manual. As I
mentioned previously, the text makes use of results from
experimental economics to test models and to explain how
markets work. I have regularly used experiments in my
introductory economics classes--both small sections and
large lectures--to illustrate how markets work, and it seems
that more and more instructors are incorporating experiments
into their classroom teaching. For those instructors who
would like to do similar experiments, a lab manual has been
prepared by Greg Delemeester of Marietta College and John
Neral of Frostburg State University. Written with the
first-time user in mind, the lab manual includes a set of
experiments including the double auction experiment
described in Chapter 7 of the text. For each experiment
there is an overview of the experiment and detailed
step-by-step instructions for conducting the experiment and
expected results.
Economics Video Series. This exciting teaching
tool --which combines footage from my own classroom,
animated charts and graphs, and additional narration
--brings key economic ideas from the text to life. The video
segments can be used as lecture launchers or as a review of
material both inside and outside the classroom. The videos
also serve as an introduction to some of the concepts that
are unique to my text ñ such as the experimental
auction or the development of the aggregate demand and price
adjustment graph.
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