Resources
Einsteins
Great economists
- 1.3 History’s hockey stick: Growth in income: Adam Smith
- 2.5 Modelling a dynamic economy: Innovation and profit: Joseph Schumpeter
- 4.6 Public goods, free riding, and repeated interaction: Elinor Ostrom
- 4.13 Social interactions: Conflicts in the choice among Nash equilibria: John Nash
- 5.2 Evaluating institutions and outcomes: The Pareto criterion: Vilfredo Pareto
- 6.1 Firms, markets, and the division of labour: Herbert Simon
- 6.3 Other people’s labour: Karl Marx
- 6.9 Another kind of business organization: John Stuart Mill
- 7.10 Price-setting, competition, and market power: Augustin Cournot
- 8.2 The market and the equilibrium price: Alfred Marshall
- 8.8 The model of perfect competition: Léon Walras
- 11 Introduction: Friedrich Hayek
- 12.2 External effects and bargaining: Ronald Coase
- 12.3 External effects: Policies and income distribution: Arthur Pigou
- 14.6 Fiscal policy: How governments can dampen and amplify fluctuations: John Maynard Keynes
- 15.2 Inflation results from conflicting and inconsistent claims on output: Bill Phillips
- 17.8 Before the financial crisis: Households, banks, and the credit boom: Hyman Minsky
- 18.5 Specialization, factor endowments, and trade between countries: David Ricardo
- 22.5 Democracy as a political institution: Kenneth Arrow
- 22.7 A more realistic model of electoral competition: Albert O. Hirschman
How economists learn from facts
When economists disagree
Exercises
- 1.1 Income inequality: Exercise 1.1: Inequality in the fourteenth century
- 1.2 Measuring income and living standards: Exercise 1.3: What should we measure?
- 1.3 History’s hockey stick: Growth in income: Exercise 1.4: The advantages of ratio scales
- 1.5 The economy and the environment: Exercise 1.5: How much difference does a couple of degrees warmer or colder make?
- 1.6 Capitalism defined: Private property, markets, and firms: Exercise 1.6: The poorest man’s cottage
- 1.6 Capitalism defined: Private property, markets, and firms: Exercise 1.8: Capitalism
- 1.7 Capitalism as an economic system: Exercise 1.9: Firm or not?
- 1.8 The gains from specialization: Exercise 1.10: Apples and wheat
- 1.11 Economics and the economy: Exercise 1.11: Where and when would you choose to have been born?
- 2.2 Economic models: How to see more by looking at less: Exercise 2.1: Designing a model
- 2.3 Basic concepts: Prices, costs, and innovation rents: Exercise 2.2: Using ceteris paribus
- 2.4 Modelling a dynamic economy: Technology and costs: Exercise 2.3: Isocost lines
- 2.6 The British Industrial Revolution and incentives for new technologies: Exercise 2.4: Britain but not France
- 2.6 The British Industrial Revolution and incentives for new technologies: Exercise 2.5: Why did the Industrial Revolution not happen in Asia?
- 2.7 Malthusian economics: Diminishing average product of labour: Exercise 2.6: The farmers’ production function
- 2.8 Malthusian economics: Population grows when living standards rise: Exercise 2.7: Are people really like other animals?
- 2.8 Malthusian economics: Population grows when living standards rise: Exercise 2.8: Living standards in the Malthusian world
- 2.9 The Malthusian trap and long-term economic stagnation: Exercise 2.9: What would you add?
- 2.9 The Malthusian trap and long-term economic stagnation: Exercise 2.10: Defining economic progress
- 2.10 Escaping from Malthusian stagnation: Exercise 2.11: The basic institutions of capitalism
- 3.1 Labour and production: Exercise 3.1: Ceteris paribus assumptions
- 3.1 Labour and production: Exercise 3.2: Production functions
- 3.2 Preferences: Exercise 3.3: Why indifference curves never cross
- 3.2 Preferences: Exercise 3.4: Your marginal rate of substitution
- 3.3 Opportunity costs: Exercise 3.5: Opportunity costs
- 3.5 Decision making and scarcity: Exercise 3.6: Exploring scarcity
- 3.6 Hours of work and economic growth: Exercise 3.7: Your production function
- 3.8 Is this a good model?: Exercise 3.8: Another definition of economics
- 3.9 Explaining our working hours: Changes over time: Exercise 3.9: Scarcity and choice
- 3.10 Explaining our working hours: Differences between countries: Exercise 3.10: Preferences and culture
- 3.10 Explaining our working hours: Differences between countries: Exercise 3.11: Working hours across countries and time
- 4 Introduction: Exercise 4.1: Social dilemmas
- 4.3 The prisoners’ dilemma: Exercise 4.2: Political advertising
- 4.4 Social preferences: Altruism: Exercise 4.3: Altruism and selflessness
- 4.5 Altruistic preferences in the prisoners’ dilemma: Exercise 4.4: Amoral self-interest
- 4.8 Behavioural experiments in the lab and in the field: Exercise 4.5: Are lab experiments always valid?
- 4.8 Behavioural experiments in the lab and in the field: Exercise 4.6: Crowding out
- 4.10 Dividing a pie (or leaving it on the table): Exercise 4.7: Acceptable offers
- 4.11 Fair farmers, self-interested students?: Exercise 4.8: Social preferences
- 4.11 Fair farmers, self-interested students?: Exercise 4.9: Offers in the ultimatum game
- 4.11 Fair farmers, self-interested students?: Exercise 4.10: Strikes and the ultimatum game
- 4.12 Competition in the ultimatum game: Exercise 4.11: A sequential prisoners’ dilemma
- 4.13 Social interactions: Conflicts in the choice among Nash equilibria: Exercise 4.12: Conflict between Astrid and Bettina
- 4.13 Social interactions: Conflicts in the choice among Nash equilibria: Exercise 4.13: Conflict in business
- 4.13 Social interactions: Conflicts in the choice among Nash equilibria: Exercise 4.14: Nash equilibria and climate change
- 5.3 Evaluating institutions and outcomes: Fairness: Exercise 5.1: Substantive fairness
- 5.3 Evaluating institutions and outcomes: Fairness: Exercise 5.2: Procedural fairness
- 5.3 Evaluating institutions and outcomes: Fairness: Exercise 5.3: Splitting the profits in a partnership
- 5.4 A model of choice and conflict: Exercise 5.4: Using indifference curves
- 5.5 Technically feasible allocations: Exercise 5.5: Changing conditions for production
- 5.7 Economically feasible allocations and the surplus: Exercise 5.6: Biological and economic feasibility
- 5.7 Economically feasible allocations and the surplus: Exercise 5.7: Why Angela works for 8 hours
- 5.7 Economically feasible allocations and the surplus: Exercise 5.8: Take it or leave it?
- 5.12 Measuring economic inequality: Exercise 5.9: Comparing distributions of wealth
- 6.1 Firms, markets, and the division of labour: Exercise 6.1: The structure of an organization
- 6.3 Other people’s labour: Exercise 6.2: Incomplete contracts
- 6.5 Determinants of the employment rent: Exercise 6.3: Assumptions of the model
- 6.7 Wages, effort, and profits in the labour discipline model: Exercise 6.4: The employer sets the wage
- 6.8 Putting the model to work: Owners, employees, and the economy: Exercise 6.5: Effort and wages
- 6.8 Putting the model to work: Owners, employees, and the economy: Exercise 6.6: Lazear’s results
- 6.8 Putting the model to work: Owners, employees, and the economy: Exercise 6.7: Outsourcing comes home
- 6.9 Another kind of business organization: Exercise 6.8: A worker-owned cooperative
- 6.9 Another kind of business organization: Exercise 6.9: Was Mill wrong?
- 6.10 Principals and agents: Interactions under incomplete contracts: Exercise 6.10: Principal–agent relationships
- 7.1 Breakfast cereal: Choosing a price: Exercise 7.1: Changes in the market
- 7.3 Production: The cost function for Beautiful Cars: Exercise 7.2: The cost function for Apple-Cinnamon Cheerios
- 7.3 Production: The cost function for Beautiful Cars: Exercise 7.3: Cost functions for university education
- 7.4 Demand and isoprofit curves: Beautiful Cars: Exercise 7.4: Looking at isoprofit curves
- 7.7 Gains from trade: Exercise 7.5: Changing the rules of the game
- 7.9 Using demand elasticities in government policy: Exercise 7.6: Elasticity and expenditure
- 7.9 Using demand elasticities in government policy: Exercise 7.7: Food taxes and health
- 7.10 Price-setting, competition, and market power: Exercise 7.8: Multinationals or independent retailers?
- 8.1 Buying and selling: Demand and supply: Exercise 8.1: Selling strategies and reservation prices
- 8.2 The market and the equilibrium price: Exercise 8.2: Price-takers
- 8.5 Competitive equilibrium: Gains from trade, allocation, and distribution: Exercise 8.3: Maximizing the surplus
- 8.5 Competitive equilibrium: Gains from trade, allocation, and distribution: Exercise 8.4: Surplus and deadweight loss
- 8.6 Changes in supply and demand: Exercise 8.5: The market for quinoa
- 8.6 Changes in supply and demand: Exercise 8.6: Prices, shocks, and revolutions
- 8.7 The effects of taxes: Exercise 8.7: The deadweight loss of the butter tax
- 8.8 The model of perfect competition: Exercise 8.8: Price-fixing
- 8.9 Looking for competitive equilibria: Exercise 8.9: Price dispersion
- 8.9 Looking for competitive equilibria: Exercise 8.10: The Fulton Fish Market
- 9.2 Measuring the economy: Employment and unemployment: Exercise 9.1: Employment, unemployment, and participation
- 9.3 The wage-setting curve: Employment and real wages: Exercise 9.2: Shifts in the wage-setting curve
- 9.5 The price-setting curve: Wages and profits in the whole economy: Exercise 9.3: The price-setting curve
- 9.6 Wages, profits, and unemployment in the whole economy: Exercise 9.4: Is this really a Nash equilibrium?
- 9.7 How changes in demand for goods and services affect unemployment: Exercise 9.5: Wages and aggregate demand
- 9.9 Labour supply, labour demand, and bargaining power: Exercise 9.6: Immigration of entrepreneurs
- 10.3 Impatience and the diminishing marginal returns to consumption: Exercise 10.1: The consequences of pure impatience
- 10.4 Borrowing allows smoothing by bringing consumption to the present: Exercise 10.2: Income and substitution effects
- 10.6 Investing: Another way to move consumption to the future: Exercise 10.3: An increase in the interest rate
- 10.6 Investing: Another way to move consumption to the future: Exercise 10.4: Lifetime income
- 10.9 The central bank, the money market, and interest rates: Exercise 10.5: Interest rate markups
- 10.11 The central bank’s policy rate can affect spending: Exercise 10.6: Interest rates and consumption spending
- 10.12 Credit market constraints: A principal–agent problem: Exercise 10.7: Microfinance and lending to the poor
- 10.13 Inequality: Lenders, borrowers, and those excluded from credit markets: Exercise 10.8: Unpopular banks
- 10.13 Inequality: Lenders, borrowers, and those excluded from credit markets: Exercise 10.9: Limits on lending
- 11.1 How people changing prices to gain rents can lead to a market equilibrium: Exercise 11.1: A supply shock and adjustment to a new market
- 11.1 How people changing prices to gain rents can lead to a market equilibrium: Exercise 11.2: Cotton prices and the American Civil War
- 11.4 Prices, rent-seeking, and market dynamics at work: Oil prices: Exercise 11.3: The world market for oil
- 11.4 Prices, rent-seeking, and market dynamics at work: Oil prices: Exercise 11.4: The shale oil revolution
- 11.6 Changing supply and demand for financial assets: Exercise 11.5: Supply and demand curves
- 11.7 Asset market bubbles: Exercise 11.6: Markets for gems
- 11.8 Modelling bubbles and crashes: Exercise 11.7: What is the fundamental value of a Bitcoin?
- 11.8 Modelling bubbles and crashes: Exercise 11.8: The big ten asset price bubbles of the last 400 years
- 11.9 Non-clearing markets: Rationing, queuing, and secondary markets: Exercise 11.9: IOC policy
- 11.9 Non-clearing markets: Rationing, queuing, and secondary markets: Exercise 11.10: The price of a ticket
- 11.10 Markets with controlled prices: Exercise 11.11: Why not raise the price?
- 12 Introduction: Exercise 12.1: Property rights and contracts in Madagascar
- 12.2 External effects and bargaining: Exercise 12.2: Bargaining power
- 12.2 External effects and bargaining: Exercise 12.3: A positive externality
- 12.3 External effects: Policies and income distribution: Exercise 12.4: Pigouvian subsidy
- 12.3 External effects: Policies and income distribution: Exercise 12.5: Comparing policies
- 12.4 Property rights, contracts, and market failures: Exercise 12.6: Incomplete contracts
- 12.5 Public goods: Exercise 12.7: Rivalry and excludability
- 12.6 Missing markets: Insurance and lemons: Exercise 12.8: Hidden attributes
- 12.8 The limits of markets: Exercise 12.9: Capitalism among consenting adults
- 12.9 Market failure and government policy: Exercise 12.10: Market failure
- 13 Introduction: Exercise 13.1: The OECD Better Life Index
- 13.1 Growth and fluctuations: Exercise 13.2: Defining recessions
- 13.2 Output growth and changes in unemployment: Exercise 13.3: Okun’s Law
- 13.4 Measuring the aggregate economy: The components of GDP: Exercise 13.4: How to use FRED
- 13.5 How households cope with fluctuations: Exercise 13.5: Health insurance
- 13.6 Why is consumption smooth?: Exercise 13.6: Changes in income, changes in consumption
- 13.7 Why is investment volatile?: Exercise 13.7: Consulting FRED
- 13.8 Measuring the economy: Inflation: Exercise 13.8: Measuring inflation
- 13.8 Measuring the economy: Inflation: Exercise 13.9: The CPI and the GDP deflator
- 14.3 Household target wealth, collateral, and consumption spending: Exercise 14.1: A household’s balance sheet
- 14.3 Household target wealth, collateral, and consumption spending: Exercise 14.2: Housing in France and Germany
- 14.5 The multiplier model: Including the government and net exports: Exercise 14.3: The multiplier model
- 14.6 Fiscal policy: How governments can dampen and amplify fluctuations: Exercise 14.4: Spending cuts in a recession
- 14.7 The multiplier and economic policymaking: Exercise 14.5: Methods to estimate the multiplier
- 14.7 The multiplier and economic policymaking: Exercise 14.6: Contributions to change in real gross domestic product over the business cycle
- 14.7 The multiplier and economic policymaking: Exercise 14.7: The fall of France
- 14.7 The multiplier and economic policymaking: Exercise 14.8: Stimulus without more debt
- 14.8 The government’s finances: Exercise 14.9: Efficiency and fairness
- 14.9 Fiscal policy and the rest of the world: Exercise 14.10: Coordinating a stimulus
- 15.3 Inflation, the business cycle, and the Phillips curve: Exercise 15.1: The bargaining gap in a recession
- 15.3 Inflation, the business cycle, and the Phillips curve: Exercise 15.2: Positive and negative shocks
- 15.4 Inflation and unemployment: Constraints and preferences: Exercise 15.3: The Phillips curve and the policymaker’s preferences
- 15.6 Expected inflation and the Phillips curve: Exercise 15.4: A negative aggregate demand shock with high unemployment
- 15.6 Expected inflation and the Phillips curve: Exercise 15.5: Inflation, expected inflation, and the bargaining gap
- 15.7 Supply shocks and inflation: Exercise 15.6: An oil shock
- 15.8 Monetary policy: Exercise 15.7: Fiscal or monetary policy?
- 15.9 The exchange rate channel of monetary policy: Exercise 15.8: Why bonds?
- 15.10 Demand shocks and demand-side policies: Exercise 15.9: A construction boom
- 16 Introduction: Exercise 16.1: Wealth and life satisfaction
- 16.2 The job creation and destruction process: Exercise 16.2: Schumpeter revisited
- 16.3 Job flows, worker flows, and the Beveridge curve: Exercise 16.3: Beveridge curves and the German labour market
- 16.4 Investment, firm entry, and the price-setting curve in the long run: Exercise 16.4: Measuring the conditions for investment
- 16.6 Technological change and income inequality: Exercise 16.5: Technological progress and inequality
- 16.8 Institutions and policies: Why do some countries do better than others?: Exercise 16.6: You are the policymaker
- 16.9 Technological change, labour markets, and trade unions: Exercise 16.7: Unemployment rates and labour market institutions
- 16.10 Changes in institutions and policies: Exercise 16.8: The labour market model
- 17.2 The Great Depression, positive feedbacks, and aggregate demand: Exercise 17.1: Farmers in the Great Depression
- 17.3 Policymakers in the Great Depression: Exercise 17.2: Advantages and disadvantages of fixed exchange rates
- 17.7 After stagflation: The fruits of a new policy regime: Exercise 17.3: Workers’ bargaining power
- 17.8 Before the financial crisis: Households, banks, and the credit boom: Exercise 17.4: Household wealth as a balance sheet
- 17.9 Modelling housing bubbles: Exercise 17.5: Differences between equilibrium and stability
- 17.10 The financial crisis and the great recession: Exercise 17.6: The crisis and the multiplier
- 17.11 The role of banks in the crisis: Exercise 17.7: How conventional wisdom on financial markets contributed to the global financial crisis
- 17.11 The role of banks in the crisis: Exercise 17.8: Behaviour in the financial crisis
- 17.12 The economy as teacher: Exercise 17.9: Banking regulations can help bring on financial crises
- 17.12 The economy as teacher: Exercise 17.10: Hoover’s balanced budget
- 17.12 The economy as teacher: Exercise 17.11: Austerity policy
- 18.1 Globalization and deglobalization in the long run: Exercise 18.1: Price gaps that did and didn’t fall
- 18.1 Globalization and deglobalization in the long run: Exercise 18.2: Learning more about tariffs
- 18.2 Globalization and investment: Exercise 18.3: International capital flows: Does capital flow from richer to poorer countries?
- 18.4 Specialization and the gains from trade among nations: Exercise 18.4: Assess some country production specialization patterns
- 18.5 Specialization, factor endowments, and trade between countries: Exercise 18.5: Comparative advantage
- 18.5 Specialization, factor endowments, and trade between countries: Exercise 18.6: Power and bargaining
- 18.6 Winners and losers from trade and specialization: Exercise 18.7: Winners and losers from specialization due to economies of scale
- 18.6 Winners and losers from trade and specialization: Exercise 18.8: The collapse of the Soviet Union
- 18.8 Migration: Globalization of labour: Exercise 18.9: The economic effects of immigration
- 18.9 Globalization and anti-globalization: Exercise 18.10: Rodrik’s Trilemma
- 18.9 Globalization and anti-globalization: Exercise 18.11: Examine the respective strengths and costs of economic independence, and interdependency
- 18.10 Trade and growth: Exercise 18.12: The effect of trade on growth
- 19 Introduction: Exercise 19.1: Income variation across and within countries
- 19.1 Inequality across the world and over time: Exercise 19.2: Inequalities among your classmates
- 19.1 Inequality across the world and over time: Exercise 19.3: Another way to interpret Gini coefficients
- 19.2. Accidents of birth: Another lens to study inequality: Exercise 19.4: How inequalities of birth persist between generations
- 19.3 What (if anything) is wrong with inequality?: Exercise 19.5: Estimated, ideal, and actual distributions of wealth
- 19.3 What (if anything) is wrong with inequality?: Exercise 19.6: A level playing field
- 19.5 Endowments, technology, and institutions: Exercise 19.7: Yichen, Renfu, Mark, and Stephanie
- 19.7 Putting the model to work: Explaining changes in inequality: Exercise 19.8: How automation affects employment
- 19.8 Predistribution: Exercise 19.9: Non-compete contracts in the labour market model
- 19.10 Redistribution: Taxes and transfers: Exercise 19.10: Regressive and progressive taxes
- 19.11 Equality and economic performance: Exercise 19.11: The U-turn countries
- 19.11 Equality and economic performance: Exercise 19.12: High and low performers
- 20.2 Climate change: Exercise 20.1: Assessing the economic impacts of global warming
- 20.2 Climate change: Exercise 20.2: Climate change causes and evidence
- 20.3 The abatement of environmental damages: Cost-benefit analysis: Exercise 20.3: Choosing abatement strategies
- 20.3 The abatement of environmental damages: Cost-benefit analysis: Exercise 20.4: Optimistic and pessimistic policies
- 20.5 Cap and trade environmental policies: Exercise 20.5: Assessing cap and trade policies
- 20.5 Cap and trade environmental policies: Exercise 20.6: A successful tradable emissions permit program
- 20.5 Cap and trade environmental policies: Exercise 20.7: Would a carbon tax reduce emissions more than regulation?
- 20.6 The measurement challenges of environmental policy: Exercise 20.8: Wealth and natural capital
- 20.7 Dynamic environmental policies: Future technologies and lifestyles: Exercise 20.9: Improvements in technology
- 20.7 Dynamic environmental policies: Future technologies and lifestyles: Exercise 20.10: The price elasticity of demand
- 20.8 Environmental dynamics: Exercise 20.11: Representing regime shifts
- 20.8 Environmental dynamics: Exercise 20.12: Self-reinforcing processes
- 20.9 Why is addressing climate change so difficult?: Exercise 20.13: Simulating different discount rates
- 20.10 Policy choices matter: Exercise 20.14: High and low performers
- 21 Introduction: Exercise 21.1: Patents and innovation in the pharmaceutical industry
- 21.1 The innovation process: Invention and diffusion: Exercise 21.2: The permanent technological revolution
- 21.2 Innovation systems: Exercise 21.3: Comparing innovation systems
- 21.3 External effects: Complements, substitutes, and coordination: Exercise 21.4: Complements
- 21.3 External effects: Complements, substitutes, and coordination: Exercise 21.5: Substitutes and complements
- 21.5 Matching (two-sided) markets: Exercise 21.6: Understanding matching markets
- 21.5 Matching (two-sided) markets: Exercise 21.7: Why do curves in the matching markets model slope upwards?
- 21.5 Matching (two-sided) markets: Exercise 21.8: Mismatched posters and seekers in a matching market model
- 21.5 Matching (two-sided) markets: Exercise 21.9: Chicken-and-egg
- 21.6 Intellectual property rights: Exercise 21.10: Thomas Jefferson
- 21.6 Intellectual property rights: Exercise 21.11: How copyright improved Italian opera, and how such protection should be limited
- 21.6 Intellectual property rights: Exercise 21.12: Intellectual property rights
- 21.7 Optimal patents: Balancing the objectives of invention and diffusion: Exercise 21.13: Optimal patents
- 21.8 Public funding of basic research, education, and information infrastructure: Exercise 21.14: Government-funded research
- 22.1 The government as an economic actor: Exercise 22.1: Building self-control into government
- 22.1 The government as an economic actor: Exercise 22.2: The relationship between economic development and size of government
- 22.3 Political competition affects how the government will act: Exercise 22.3: Comparing duration curves for governments and monopolistic firms
- 22.3 Political competition affects how the government will act: Exercise 22.4: Income and substitution effects
- 22.4 Why an erstwhile dictator might submit to political competition: Exercise 22.5: Effects of cost-saving improvements to public services
- 22.6 Political preferences and electoral competition: The median voter model: Exercise 22.6: Rock-paper-scissors politics
- 22.7 A more realistic model of electoral competition: Exercise 22.7: Nash equilibria in the median voter model
- 22.8 The advance of democracy: Exercise 22.8: Past influences on current government spending patterns
- 22.8 The advance of democracy: Exercise 22.9: Comparing government expenditures
- 22.9 Varieties of democracy: Exercise 22.10: How democracy helps protect the governed
- 22.10 Democracy makes a difference: Exercise 22.11: Work times and inequality in less democratic democracies
- 22.12 Economic infeasibility: Exercise 22.12: Economies succeed when national policies align with individual impulses
Videos
- Unit 1: In our ‘Economist in action’ video, Thomas Piketty and James Heckman explain why data is fundamental to their work.
- Unit 2: Lynne Kiesling, a historian of economic thought, discusses Joseph Schumpeter.
- Unit 2: In our ‘Economist in action’ video, economic historian Bob Allen addresses the question of why Britain industrialized when others did not.
- Unit 2: In our ‘Economist in action’ video, Suresh Naidu, an economic historian, explains how population growth, technological development, and political events interacted to produce the real wage hockey stick.
- Unit 3: In our ‘Economist in action’ video, Juliet Schor addresses the question of why we work so hard.
- Unit 4: A solution to the prisoners’ dilemma on the show Golden Balls
- Unit 4: In our ‘Economist in action’ video, Juan Camilo Cárdenas talks about his innovative use of experimental economics in real-life situations.
- Unit 6: In our ‘Economist in action’ video, Richard Freeman explains why you can’t outsource responsibility.
- Unit 8: In our ‘Economist in action’ video, Kathryn Graddy discusses fishing for perfect competition.
- Unit 10: Those seeking loans to purchase a car are often required to allow a device to be installed in the vehicle that is controlled by the bank, which will disable the ignition of the car if the loan payments are not made as required, as this New York Times video shows. The practice has not made lenders very popular.
- Unit 11: Watch our video in which Rajiv Sethi, one of the authors of this unit, demonstrates how orders are processed in a continuous double auction.
- Unit 12: Michael Sandel investigating the moral limits of his audience in his TED Talk ‘Why we shouldn’t trust markets with our civic life’.
- Unit 16: In our ‘Economist in action’ video, John Van Reenen uses the game of cricket to explain how the economy’s average productivity is affected by the survival of low productivity firms.
- Unit 16: (Repeat) In our ‘Economist in action’ video, Kathryn Graddy discusses fishing for perfect competition.
- Unit 16: (Repeat) In our ‘Economist in action’ video, Richard Freeman explains why you can’t outsource responsibility.
- Unit 17: In our ‘Economist in action’ video, Barry Eichengreen discusses pegged exchange rates.
- Unit 17: In our ‘Economist in action’ video, Joseph Stiglitz explains why the financial crisis was a market failure.
- Unit 17: The Crisis of Credit Visualized.
- Unit 17: In our ‘Economist in action’ video, Anat Admati talks about what’s wrong with banking (and what to do about it).
- Unit 18: The economic effects of immigration are widely debated among the public. This interview from 2006 with Christian Dustmann, an economic historian who specializes in the effects of migration, captures this debate—in particular the impact of migrant workers on the British town of Swindon.
- Unit 18: In our ‘Economist in action’ video, Dani Rodrik explains that economics is a science of trade-offs, and that we can have too much globalization. His ‘Globalization Trilemma’ shows that when economies are increasingly globalized, they must ‘give up some sovereignty or some democracy’.
- Unit 19: In our ‘Economist in action’ video, Thomas Piketty explains how he ‘tries to be useful’ by collecting long-run data on the distribution of wealth.
- Unit 19: In our ‘Economist in action’ video, Arin Dube describes his study that found that, on average, raising the minimum wage increased the income of poor workers.
- Unit 19: In our ‘Economist in action’ video, James Heckman describes why investing in the early years of disadvantaged children’s lives is both fair and efficient.
- Unit 21: In our ‘Economist in action’ video, F. M. Scherer, an economic historian who specializes in the effects of technological change, explains how patents support innovation in pharmaceuticals.
- Unit 21: In our ‘Economist in action’ video, Alvin Roth explains how matching markets work.
- Unit 21: In our ‘Economist in action’ video, Petra Moser discusses copyright protection for nineteenth century Italian operas.
- Unit 21: In this video, Marianna Mazzucato suggests that governments should start to take investment stakes in technology companies, so that they will earn a return on the funds they invest in research.
- Unit 22: (Repeat) In our ‘Economist in action’ video, John van Reenen uses the game of cricket to explain how the economy’s average productivity is affected by the survival of low productivity firms.
- Unit 22: In our ‘Economist in action’ video, Esther Duflo explains what happened when it was mandated that randomly selected villages elect a woman to head their local council.
- Unit 22: (Repeat) In our ‘Economist in action’ video, James Heckman explores the question of how schooling and preschool experience affects inequality.
Unit 1
Unit 2
Unit 3
Unit 4
Unit 5
Unit 6
Unit 7
Unit 8
Unit 9
Unit 10
- Figure 10.1: Wealth, income, depreciation, and consumption: The bathtub analogy.
- Figure 10.2: Borrowing, the interest rate, and the feasible set.
- Figure 10.3a: Consumption smoothing: Diminishing marginal returns to consumption.
- Figure 10.3b: Pure impatience.
- Figure 10.4: Moving consumption over time by borrowing.
- Figure 10.5: Reservation indifference curves and endowments.
- Figure 10.6: Smoothing consumption by storing and lending.
- Figure 10.7: Investing in a high-return project.
- Figure 10.8: Borrowing to invest in a high-return project.
- Figure 10.9: Storage, lending, investment, and borrowing provide Marco with many feasible sets.
- Figure 10.10: Options for the individual (Marco) who starts with assets.
- Figure 10.11: A balance sheet.
- Figure 10.12: Julia’s balance sheets.
- Figure 10.13a: Marco deposits $100 in Abacus Bank.
- Figure 10.13b: Marco pays $20 to Gino.
- Figure 10.13c: Bonus Bank gives Gino a loan of $100.
- Figure 10.13d: Gino pays Marco $10.
- Figure 10.13e: The total money in the banking system has grown.
- Figure 10.13f: Bonus Bank does not have enough base money to pay $50 to Abacus Bank.
- Figure 10.14: Banks, the central bank, borrowers, and savers.
- Figure 10.15: A simplified bank balance sheet.
- Figure 10.16: Barclays Bank’s balance sheet in 2006 (£m).
- Figure 10.17: Honda Motor Company’s balance sheet in 2013 (¥m).
- Figure 10.18: Interest rates and consumption spending.
- Figure 10.19: Principal–agent problems: The credit market and the labour market.
- Figure 10.20: Wealth, project quality, and credit.
- Figure 10.21: Inequality in a borrowing and lending economy. Note: The Gini coefficient when there are no borrowers excluded is 0.57; when 40 are excluded, it is 0.70.
Unit 11
Unit 12
Unit 13
Unit 14
Unit 15
Unit 16
Unit 17
Unit 18
Unit 19
- Figure 19.1: Inequality in wealth, earnings, and disposable income: US, Sweden, and Japan (2000s).
- Figure 19.2: Share of total wealth held by the richest 1% (1740–2011).
- Figure 19.3: The share of total income received by the top 1% (1913–2015).
- Figure 19.4: Declining share of the top 1% in some European economies and Japan (1900–2013).
- Figure 19.5: Global and between-country income inequality (1952–2015).
- Figure 19.6: The missing middle in the US (2014–24): Occupations forecast to undergo job changes of 10,000 employees or more.
- Figure 19.7: The missing middle in the US (2014–24): Job growth is highest in the top fifth and bottom fifth of occupations in the US, by mean annual earnings.
- Figure 19.8: Categorical inequality: Schooling and lifetime earnings for men and women in the US.
- Figure 19.9: Categorical inequality: Average years of schooling, girls relative to boys (1970–2010).
- Figure 19.10: Intergenerational inequality in earnings: The US and Denmark.
- Figure 19.11: Intergenerational and cross-sectional inequality.
- Figure 19.12: Inequality is one of the main problems that students think economics should address.
- Figure 19.13: Ideal, estimated, and actual distribution of wealth for people in the US.
- Figure 19.14: How beliefs about what it takes to get ahead predict whether people in the US support or oppose government programs to redistribute income to the poor.
- Figure 19.15: Choosing between feasible income distributions.
- Figure 19.16: The causal relationships between technology, institutions and policies, endowments, and inequality.
- Figure 19.17: Inequality: Endowments, reservation options, conflicts, institutions, and technologies.
- Figure 19.18: Economic inequality over time. The red arrows show that economic inequality in one period has effects on technologies, institutions and policies, and differences in endowments in the future.
- Figure 19.19: The credit and labour markets shape the relationships between groups with different endowments.
- Figure 19.20: The effect of a more educated workforce on inequality among employers, employees, and the unemployed: The economy-wide labour market and the Lorenz curve.
- Figure 19.21: The effect of labour market segmentation.
- Figure 19.22: The effect of robots on inequality: polarization of the labour market.
- Figure 19.23: Predistribution policies that can reduce inequality in market incomes.
- Figure 19.24: Using economic models to explain trends in inequality in market income.
- Figure 19.25: The ‘world’ as a unified capitalist economy with a segmented labour market. The red segment shows the impact of globalization increasing inequality by reducing wages in the rich countries relative to their employers while the green part shows the effects of greater incomes among poor employees in ‘China’.
- Figure 19.26: Different income concepts.
- Figure 19.27: Gini coefficients for market income, disposable income, and final income.
- Figure 19.28: Average household market and disposable income of households with primary earners in different age groups.
- Figure 19.29a: Distribution of taxation and public spending (average pesos per person). Deciles of households ordered by per capita net market income, Mexico 2014.
- Figure 19.29b: Distribution of taxation and public spending as a share of market income. Deciles of households ordered by per capita net market income, Mexico 2014.
- Figure 19.30a: The cost of inequality: Inequality and growth in living standards among rich countries.
- Figure 19.30b: The cost of inequality: Inequality and growth in living standards among catch-up countries.
- Figure 19.30c: The cost of inequality: Economic disparity and the fraction of workers employed as guards.
Unit 20
Unit 21
Unit 22
The Economy
- Home
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Preface
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A note to instructors
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Producing The Economy
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Table of contents
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List of resources
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Einsteins
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Great economists
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How economists learn from facts
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When economists disagree
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Exercises
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Videos
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Figures
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1—The capitalist revolution
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Introduction
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1.1 Income inequality
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1.2 Measuring income and living standards
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1.3 History’s hockey stick: Growth in income
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1.4 The permanent technological revolution
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1.5 The economy and the environment
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1.6 Capitalism defined: Private property, markets, and firms
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1.7 Capitalism as an economic system
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1.8 The gains from specialization
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1.9 Capitalism, causation and history’s hockey stick
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1.10 Varieties of capitalism: Institutions, government, and the economy
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1.11 Economics and the economy
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1.12 Conclusion
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1.13 References
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2—Technology, population, and growth
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Introduction
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2.1 Economists, historians, and the Industrial Revolution
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2.2 Economic models: How to see more by looking at less
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2.3 Basic concepts: Prices, costs, and innovation rents
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2.4 Modelling a dynamic economy: Technology and costs
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2.5 Modelling a dynamic economy: Innovation and profit
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2.6 The British Industrial Revolution and incentives for new technologies
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2.7 Malthusian economics: Diminishing average product of labour
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2.8 Malthusian economics: Population grows when living standards rise
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2.9 The Malthusian trap and long-term economic stagnation
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2.10 Escaping from Malthusian stagnation
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2.11 Conclusion
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2.12 References
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3—Scarcity, work, and choice
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Introduction
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3.1 Labour and production
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3.2 Preferences
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3.3 Opportunity costs
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3.4 The feasible set
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3.5 Decision making and scarcity
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3.6 Hours of work and economic growth
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3.7 Income and substitution effects on hours of work and free time
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3.8 Is this a good model?
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3.9 Explaining our working hours: Changes over time
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3.10 Explaining our working hours: Differences between countries
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3.11 Conclusion
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3.12 References
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4—Social interactions
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Introduction
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4.1 Social interactions: Game theory
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4.2 Equilibrium in the invisible hand game
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4.3 The prisoners’ dilemma
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4.4 Social preferences: Altruism
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4.5 Altruistic preferences in the prisoners’ dilemma
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4.6 Public goods, free riding, and repeated interaction
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4.7 Public good contributions and peer punishment
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4.8 Behavioural experiments in the lab and in the field
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4.9 Cooperation, negotiation, conflicts of interest, and social norms
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4.10 Dividing a pie (or leaving it on the table)
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4.11 Fair farmers, self-interested students?
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4.12 Competition in the ultimatum game
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4.13 Social interactions: Conflicts in the choice among Nash equilibria
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4.14 Conclusion
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4.15 References
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5—Property and power: Mutual gains and conflict
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Introduction
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5.1 Institutions and power
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5.2 Evaluating institutions and outcomes: The Pareto criterion
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5.3 Evaluating institutions and outcomes: Fairness
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5.4 A model of choice and conflict
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5.5 Technically feasible allocations
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5.6 Allocations imposed by force
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5.7 Economically feasible allocations and the surplus
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5.8 The Pareto efficiency curve and the distribution of the surplus
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5.9 Politics: Sharing the surplus
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5.10 Bargaining to a Pareto-efficient sharing of the surplus
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5.11 Angela and Bruno: The moral of the story
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5.12 Measuring economic inequality
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5.13 A policy to redistribute the surplus and raise efficiency
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5.14 Conclusion
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5.15 References
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6—The firm: Owners, managers, and employees
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Introduction
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6.1 Firms, markets, and the division of labour
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6.2 Other people’s money: The separation of ownership and control
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6.3 Other people’s labour
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6.4 Employment rents
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6.5 Determinants of the employment rent
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6.6 Work and wages: The labour discipline model
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6.7 Wages, effort, and profits in the labour discipline model
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6.8 Putting the model to work: Owners, employees, and the economy
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6.9 Another kind of business organization
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6.10 Principals and agents: Interactions under incomplete contracts
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6.11 Conclusion
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6.12 References
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7—The firm and its customers
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Introduction
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7.1 Breakfast cereal: Choosing a price
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7.2 Economies of scale and the cost advantages of large-scale production
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7.3 Production: The cost function for Beautiful Cars
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7.4 Demand and isoprofit curves: Beautiful Cars
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7.5 Setting price and quantity to maximize profit
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7.6 Look at profit maximization as marginal revenue and marginal cost
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7.7 Gains from trade
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7.8 The elasticity of demand
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7.9 Using demand elasticities in government policy
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7.10 Price-setting, competition, and market power
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7.11 Product selection, innovation, and advertising
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7.12 Prices, costs, and market failure
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7.13 Conclusion
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7.14 References
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8—Supply and demand: Price-taking and competitive markets
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Introduction
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8.1 Buying and selling: Demand and supply
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8.2 The market and the equilibrium price
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8.3 Price-taking firms
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8.4 Market supply and equilibrium
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8.5 Competitive equilibrium: Gains from trade, allocation, and distribution
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8.6 Changes in supply and demand
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8.7 The effects of taxes
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8.8 The model of perfect competition
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8.9 Looking for competitive equilibria
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8.10 Price-setting and price-taking firms
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8.11 Conclusion
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8.12 References
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9—The labour market: Wages, profits, and unemployment
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Introduction
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9.1 The wage-setting curve, the price-setting curve, and the labour market
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9.2 Measuring the economy: Employment and unemployment
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9.3 The wage-setting curve: Employment and real wages
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9.4. The firm’s hiring decision
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9.5. The price-setting curve: Wages and profits in the whole economy
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9.6 Wages, profits, and unemployment in the whole economy
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9.7 How changes in demand for goods and services affect unemployment
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9.8. Labour market equilibrium and the distribution of income
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9.9. Labour supply, labour demand, and bargaining power
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9.10. Labour unions: Bargained wages and the union voice effect
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9.11 Labour market policies to address unemployment and inequality
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9.12. Looking backward: Baristas and bread markets
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9.13 Conclusion
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9.14 References
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10—Banks, money, and the credit market
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Introduction
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10.1 Money and wealth
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10.2 Borrowing: Bringing consumption forward in time
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10.3 Impatience and the diminishing marginal returns to consumption
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10.4 Borrowing allows smoothing by bringing consumption to the present
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10.5 Lending and storing: Smoothing and moving consumption to the future
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10.6 Investing: Another way to move consumption to the future
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10.7 Assets, liabilities, and net worth
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10.8 Banks, money, and the central bank
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10.9 The central bank, the money market, and interest rates
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10.10 The business of banking and bank balance sheets
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10.11 The central bank’s policy rate can affect spending
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10.12 Credit market constraints: A principal–agent problem
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10.13 Inequality: Lenders, borrowers, and those excluded from credit markets
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10.14 Conclusion
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10.15 References
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11—Rent-seeking, price-setting, and market dynamics
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Introduction
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11.1 How people changing prices to gain rents can lead to a market equilibrium
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11.2 How market organization can influence prices
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11.3 Short-run and long-run equilibria
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11.4 Prices, rent-seeking, and market dynamics at work: Oil prices
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11.5 The value of an asset: Basics
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11.6 Changing supply and demand for financial assets
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11.7 Asset market bubbles
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11.8 Modelling bubbles and crashes
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11.9 Non-clearing markets: Rationing, queuing, and secondary markets
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11.10 Markets with controlled prices
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11.11 The role of economic rents
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11.12 Conclusion
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11.13 References
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12—Markets, efficiency, and public policy
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Introduction
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12.1 Market failure: External effects of pollution
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12.2 External effects and bargaining
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12.3 External effects: Policies and income distribution
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12.4 Property rights, contracts, and market failures
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12.5 Public goods
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12.6 Missing markets: Insurance and lemons
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12.7 Incomplete contracts and external effects in credit markets
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12.8 The limits of markets
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12.9 Market failure and government policy
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12.10 Conclusion
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12.11 References
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13—Economic fluctuations and unemployment
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Introduction
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13.1 Growth and fluctuations
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13.2 Output growth and changes in unemployment
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13.3 Measuring the aggregate economy
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13.4 Measuring the aggregate economy: The components of GDP
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13.5 How households cope with fluctuations
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13.6 Why is consumption smooth?
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13.7 Why is investment volatile?
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13.8 Measuring the economy: Inflation
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13.9 Conclusion
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13.10 References
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14—Unemployment and fiscal policy
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Introduction
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14.1 The transmission of shocks: The multiplier process
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14.2 The multiplier model
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14.3 Household target wealth, collateral, and consumption spending
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14.4 Investment spending
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14.5 The multiplier model: Including the government and net exports
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14.6 Fiscal policy: How governments can dampen and amplify fluctuations
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14.7 The multiplier and economic policymaking
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14.8 The government’s finances
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14.9 Fiscal policy and the rest of the world
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14.10 Aggregate demand and unemployment
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14.11 Conclusion
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14.12 References
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15—Inflation, unemployment, and monetary policy
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Introduction
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15.1 What’s wrong with inflation?
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15.2 Inflation results from conflicting and inconsistent claims on output
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15.3 Inflation, the business cycle, and the Phillips curve
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15.4 Inflation and unemployment: Constraints and preferences
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15.5 What happened to the Phillips curve?
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15.6 Expected inflation and the Phillips curve
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15.7 Supply shocks and inflation
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15.8 Monetary policy
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15.9 The exchange rate channel of monetary policy
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15.10 Demand shocks and demand-side policies
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15.11 Macroeconomic policy before the global financial crisis: Inflation-targeting policy
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15.12 Another reason for rising inflation at low unemployment
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15.13 Conclusion
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15.14 References
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16—Technological progress, employment, and living standards in the long run
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Introduction
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16.1 Technological progress and living standards
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16.2 The job creation and destruction process
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16.3 Job flows, worker flows, and the Beveridge curve
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16.4 Investment, firm entry, and the price-setting curve in the long run
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16.5 New technology, wages, and unemployment in the long run
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16.6 Technological change and income inequality
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16.7 How long does it take for labour markets to adjust to shocks?
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16.8 Institutions and policies: Why do some countries do better than others?
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16.9 Technological change, labour markets, and trade unions
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16.10 Changes in institutions and policies
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16.11 Slower productivity growth in services, and the changing nature of work
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16.12 Wages and unemployment in the long run
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16.13 Conclusion
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16.14 References
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17—Capstone: The Great Depression, golden age, and global financial crisis
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Introduction
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17.1 Three economic epochs
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17.2 The Great Depression, positive feedbacks, and aggregate demand
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17.3 Policymakers in the Great Depression
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17.4 The golden age of high growth and low unemployment
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17.5 Workers and employers in the golden age
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17.6 The end of the golden age
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17.7 After stagflation: The fruits of a new policy regime
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17.8 Before the financial crisis: Households, banks, and the credit boom
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17.9 Modelling housing bubbles
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17.10 The financial crisis and the great recession
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17.11 The role of banks in the crisis
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17.12 The economy as teacher
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17.13 Conclusion
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17.14 References
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18—Capstone: The nation and the world economy
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Introduction
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18.1 Globalization and deglobalization in the long run
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18.2 Globalization and investment
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18.3 Globalization and migration
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18.4 Specialization and the gains from trade among nations
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18.5 Specialization, factor endowments, and trade between countries
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18.6 Winners and losers from trade and specialization
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18.7 Winners and losers in the very long run and along the way
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18.8 Migration: Globalization of labour
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18.9 Globalization and anti-globalization
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18.10 Trade and growth
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18.11 Conclusion
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18.12 References
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19—Capstone: Economic inequality
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Introduction
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19.1 Inequality across the world and over time
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19.2. Accidents of birth: Another lens to study inequality
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19.3 What (if anything) is wrong with inequality?
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19.4 How much inequality is too much (or too little)?
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19.5 Endowments, technology, and institutions
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19.6 Inequality, endowments, and principal–agent relationships
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19.7 Putting the model to work: Explaining changes in inequality
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19.8 Predistribution
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19.9 Explaining recent trends in inequality in market income
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19.10 Redistribution: Taxes and transfers
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19.11 Equality and economic performance
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19.12 Conclusion
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19.13 References
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20—Capstone: Economics of the environment
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Introduction
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20.1 Recap: External effects, incomplete contracts, and missing markets
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20.2 Climate change
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20.3 The abatement of environmental damages: Cost-benefit analysis
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20.4 Conflicts of interest: Bargaining over wages, pollution, and jobs
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20.5 Cap and trade environmental policies
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20.6 The measurement challenges of environmental policy
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20.7 Dynamic environmental policies: Future technologies and lifestyles
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20.8 Environmental dynamics
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20.9 Why is addressing climate change so difficult?
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20.10 Policy choices matter
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20.11 Conclusion
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20.12 References
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21—Capstone: Innovation, information, and the networked economy
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Introduction
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21.1 The innovation process: Invention and diffusion
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21.2 Innovation systems
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21.3 External effects: Complements, substitutes, and coordination
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21.4 Economies of scale and winner-take-all competition
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21.5 Matching (two-sided) markets
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21.6 Intellectual property rights
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21.7 Optimal patents: Balancing the objectives of invention and diffusion
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21.8 Public funding of basic research, education, and information infrastructure
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21.9 Conclusion
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21.10 References
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22—Capstone: Economics, politics, and public policy
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Introduction
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22.1 The government as an economic actor
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22.2 Government acting as a monopolist
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22.3 Political competition affects how the government will act
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22.4 Why an erstwhile dictator might submit to political competition
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22.5 Democracy as a political institution
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22.6 Political preferences and electoral competition: The median voter model
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22.7 A more realistic model of electoral competition
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22.8 The advance of democracy
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22.9 Varieties of democracy
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22.10 Democracy makes a difference
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22.11 A puzzle: The persistence of unfairness and market failures in democracies
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22.12 Economic infeasibility
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22.13 Administrative infeasibility
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22.14 Special interests
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22.15 Policy matters and economics works
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22.16 Conclusion
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22.17 References
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Looking forward to economics after Core Economics website
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Glossary
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Bibliography
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Leibnizes
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2.2.1 Introducing the Leibnizes
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2.7.1 The production function
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3.1.1 Average and marginal productivity
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3.1.2 Diminishing marginal productivity
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3.1.3 Concave and convex functions
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3.2.1 Indifference curves and the marginal rate of substitution
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3.4.1 Marginal rate of transformation
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3.5.1 Optimal allocation of free time: MRT meets MRS
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3.6.1 Modelling technological change
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3.7.1 Mathematics of income and substitution effects
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4.4.1 Altruistic preferences: Finding the optimal distribution
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5.4.1 Quasi-linear preferences
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5.4.2 Angela’s choice of working hours
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5.7.1 Angela’s choice of working hours when she pays rent
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5.8.1 The Pareto efficiency curve
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6.6.1 The worker’s best response function
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6.7.1 Profit, wages, and effort
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7.3.1 Average and marginal cost functions
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7.4.1 Isoprofit curves and their slopes
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7.5.1 The profit-maximizing price
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7.6.1 Marginal revenue and marginal cost
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7.8.1 The elasticity of demand
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8.4.1 The firm and market supply curves
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8.4.2 Market equilibrium
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8.5.1 Gains from trade
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8.6.1 Shifts in demand and supply
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11.8.1 Price bubbles
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12.1.1 External effects of pollution
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12.3.1 Pigouvian taxes
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22.2.1 Expected duration of the dictator or governing elite
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22.2.2 How the monopolist sets the rent-maximizing level of taxes
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22.3.1 The income and substitution effect of an increase in political competition
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Copyright acknowledgements