The Core Economics website team Economy, Society, and Public Policy
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Economy, Society, and Public Policy
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Preface
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A note to instructors
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Producing Economy, Society, and Public Policy
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Praise for Economy, Society, and Public Policy
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Table of contents
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List of resources
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Doing Economics Empirical Projects
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How economists learn from data
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When economists disagree
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Exercises
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Videos
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Great economists
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Find out more
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Figures
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1—Capitalism and democracy: Affluence, inequality, and the environment
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1.1 Introduction
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1.2 Affluence and income inequality
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1.3 How did we get here? The hockey stick in real incomes
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1.4 Economic growth
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1.5 The permanent technological revolution: Engine of growth
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1.6 Another engine of growth: More machines and tools per worker
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1.7 The capitalist revolution
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1.8 Capitalism and growth: Cause and effect?
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1.9 Varieties of capitalism: Institutions and growth
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1.10 Varieties of capitalism: Growth and stagnation
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1.11 Capitalism, inequality, and democracy
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1.12 Capitalism, growth and environmental sustainability
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1.13 Conclusion
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1.14 Doing Economics: Measuring climate change
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1.15 References
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2—Social interactions and economic outcomes
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2.1 Introduction
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2.2 Two types of social interaction
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2.3 Resolving social dilemmas
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2.4 Social interactions as games
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2.5 When self-interest works: The invisible hand
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2.6 When self-interest doesn’t work: The prisoners’ dilemma
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2.7 Free riding and the provision of public goods
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2.8 Social preferences and the public good
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2.9 Sustaining cooperation by punishing free riding
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2.10 How three kinds of social preferences address social dilemmas
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2.11 Predicting economic outcomes: A Nash equilibrium
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2.12 Which Nash equilibrium? Conflicts of interest and bargaining
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2.13 Conflicts of interest in the global climate change problem
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2.14 The economy and economics
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2.15 Conclusion
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2.16 Doing Economics: Collecting and analysing data from experiments
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2.17 References
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3—Public policy for fairness and efficiency
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3.1 Introduction
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3.2 Goals of public policy
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3.3 Fairness and efficiency in the ultimatum game
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3.4 Evaluating an outcome: Is it efficient?
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3.5 Adding the option of transferring payoffs between players.
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3.6 Evaluating an outcome: Is it fair?
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3.7 Why are (some) economic inequalities unfair? Procedural and substantive judgements
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3.8 Implementing public policies
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3.9 Unintended consequences of a redistributive tax
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3.10 Unintended consequences: Policies affect preferences
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3.11 How do we find out if a policy will work?
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3.12 Conclusion
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3.13 Doing Economics: Measuring the effect of a sugar tax
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3.14 References
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4—Work, wellbeing, and scarcity
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4.1 Introduction
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4.2 Economic models: How to see more by looking at less
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4.3 Decision making, trade-offs, and opportunity costs
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4.4 Making decisions when there are trade-offs
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4.5 Preferences
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4.6 The feasible set
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4.7 Decision making and scarcity
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4.8 Hours of work and economic growth
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4.9 Applying the model: Explaining changes in working hours
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4.10 Applying the model: Explaining differences between countries
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4.11 Is this a good model? Does it matter that people (mostly) do not really optimize?
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4.12 Extending the model: The influence of culture and politics
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4.13 Extending the model: Women, men, and the gender division of labour
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4.14 Work and wellbeing as a social dilemma
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4.15 Conclusion
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4.16 Doing Economics: Measuring wellbeing
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4.17 References
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5—Institutions, power, and inequality
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5.1 Introduction
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5.2 Institutions: The rules of the game
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5.3 Production and distribution: Using a model
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5.4 The rule of force: Bruno appears and has unlimited power over Angela
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5.5 Property rights and the rule of law
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5.6 Efficiency and conflicts over the distribution of the surplus
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5.7 Property rights, the rule of law, and the right to vote
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5.8 The lessons from Angela and Bruno’s story
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5.9 Measuring economic inequality
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5.10 Comparing inequality across the world
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5.11 Conclusion
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5.12 Doing Economics: Measuring inequality: Lorenz curves and Gini coefficients
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5.13 References
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6—The firm: Employees, managers, and owners
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6.1 Introduction
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6.2 Firms, markets, and the division of labour
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6.3 Power relations within the firm
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6.4 Other people’s money: The separation of ownership and control
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6.5 Other people’s labour: The employment relationship
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6.6 Why do a good day’s work? Consider the alternative!
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6.7 Employment rents
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6.8 Work effort and wages: The labour discipline model
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6.9 The employer sets the wage to minimize the cost per unit of effort
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6.10 Why there is always involuntary unemployment
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6.11 Putting the model to work: Owners, employees, and public policy
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6.12 Why do employers pay employment rents to their workers?
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6.13 Another kind of business organization: Cooperative firms
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6.14 Another kind of business organization: The gig economy
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6.15 Principals and agents: Interactions under incomplete contracts
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6.16 Conclusion
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6.17 Doing Economics: Measuring management practices
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6.18 References
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7—Firms and markets for goods and services
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7.1 Introduction
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7.2 Economies of scale and the cost advantages of large-scale production
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7.3 The demand curve and willingness to pay
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7.4 Profits, costs, and the isoprofit curve
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7.5 The isoprofit curves and the demand curve
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7.6 Gains from trade
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7.7 Price-setting, market power, and public policy
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7.8 Product selection, innovation, and advertising
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7.9 Buying and selling: Demand and supply in a competitive market
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7.10 Demand and supply in a competitive market: Bakeries
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7.11 Competitive equilibrium: Gains from trade, allocation, and distribution
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7.12 Changes in supply and demand
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7.13 The world oil market
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7.14 Conclusion
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7.15 Doing Economics: Supply and demand
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7.16 References
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8—The labour market and the product market: Unemployment and inequality
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8.1 Introduction
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8.2 Measuring the economy: Employment and unemployment
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8.3 The labour market, the product market and the aggregate economy: The WS/PS model
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8.4 The labour market and the wage-setting curve (firms and workers)
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8.5 The product market and the price-setting curve (firms and customers)
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8.6 Wages, profits, and unemployment in the aggregate economy
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8.7 Unemployment as a characteristic of equilibrium
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8.8 Why was unemployment higher in Spain than in Germany?
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8.9 Declining competition and increasing inequality in the US
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8.10 The labour and product market model and inequality: Using the Lorenz curve and Gini coefficient
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8.11 Labour unions: Bargained wages and the union voice effect
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8.12 Rising markups and profit share, weaker trade unions, and rising inequality
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8.13 Labour market policies to address unemployment and inequality
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8.14 Labour market policies: Shifting the Nash equilibrium
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8.15 Looking backward: Baristas and bread markets
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8.16 Structural and cyclical unemployment: The role of demand
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8.17 Conclusion
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8.18 Doing Economics: Measuring the non-monetary cost of unemployment
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8.19 References
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9—The credit market: Borrowers, lenders, and the rate of interest
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9.1 Introduction
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9.2 Income, consumption, and wealth
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9.3 Borrowing: Bringing consumption forward in time
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9.4 Reasons to borrow: Smoothing and impatience
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9.5 Borrowing allows smoothing by bringing consumption to the present
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9.6 Storing or lending allows smoothing and moving consumption to the future
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9.7 Mutual gains and conflicts over their distribution in the credit market
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9.8 Borrowing may allow investing: Julia’s best hope
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9.9 Balance sheets: Assets and liabilities
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9.10 Credit market constraints: Another principal–agent problem
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9.11 Inequality: Lenders, borrowers, and those excluded from credit markets
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9.12 The credit market and the labour market
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9.13 Conclusion
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9.14 Doing Economics: Credit-excluded households in a developing country
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9.15 References
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10—Banks, money, housing, and financial assets
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10.1 Introduction
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10.2 Assets, money, banks, and the financial system
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10.3 Money and banks
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10.4 Banks, profits, and the creation of money
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10.5 The central bank, banks, and interest rates
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10.6 The business of banking and bank balance sheets
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10.7 How key economic actors use and create money: A summary so far
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10.8 The value of an asset: Expected return and risk
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10.9 Changing supply and demand for a financial asset
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10.10 Asset market bubbles
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10.11 Housing as an asset, collateral, and house price bubbles
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10.12 Banks, housing, and the global financial crisis
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10.13 The role of banks in the crisis
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10.14 Banking, markets, and morals
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10.15 Conclusion
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10.16 Doing Economics: Characteristics of banking systems around the world
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10.17 References
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11—Market successes and failures
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11.1 Introduction
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11.2 The market and other institutions
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11.3 Markets, specialization, and the division of labour
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11.4 The ‘magic of the market’: Prices are messages plus motivation
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11.5 Prices as messages
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11.6 Putting motivation behind the price message
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11.7 Market failure: External effects of pollution
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11.8 External effects and private bargaining
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11.9 External effects: Government policies and income distribution
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11.10 Property rights, contracts, and market failures
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11.11 Public goods, common pool resources, and market failure
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11.12 Missing markets: Insurance and lemons
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11.13 Market failure and government policy
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11.14 Conclusion
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11.15 Doing Economics: Measuring willingness to pay for climate change mitigation
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11.16 References
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12—Governments and markets in a democratic society
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12.1 Introduction
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12.2 The limits of markets: Repugnant markets and merit goods
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12.3 The government as an economic actor
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12.4 The government as a rent-seeking monopolist
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12.5 Competition can limit political rent-seeking
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12.6 Political monopoly and competition compared.
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12.7 Spending by democratic governments: Priorities of a nation
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12.8 The feasibility of economic policies
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12.9 Administrative feasibility: Information and capacities
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12.10 Political feasibility
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12.11 Policy matters
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12.12 The distributional impact of public policies: Early childhood education
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12.13 Free tuition in higher education: Can it be fair to non-students?
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12.14 The distributional impact of public policies: Rent control
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12.15 Conclusion
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12.16 Doing Economics: Government policies and popularity: Hong Kong cash handout
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12.17 References
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Glossary
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Bibliography
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Copyright acknowledgements