Reasonably Simple Economics.pdf

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For your convenience Apress has placed some of the front
matter material after the index. Please use the Bookmarks
and Contents at a Glance links to access them.
Contents
about the author
ix
acknowledgments xi
Preface
xiii
Chapter 1:
Chapter 2:
Chapter 3:
Chapter 4:
Chapter 5:
Chapter 6:
Chapter 7:
Chapter 8:
Chapter 9:
Introduction
1
supply and demand, Considered separately
15
supply and demand, Considered together
33
the economics of Information or knowledge
61
Public and Private decision Making
95
Who Makes how Much, and Why
125
the Middleman and the entrepreneur
153
time and risk
171
the entrepreneur and some economics of the Future
181
Chapter 10: the things only Government Can do
213
Chapter 11: Macroeconomics: the Big, often Blurry Picture
241
Chapter 12: Macroeconomics: stabilizing the economy, or Not
265
Chapter 13: Macroeconomics: the short and the long runs
289
Index
309
CHAPTER
1
Introduction
The Value of Economics in Daily Life
You may be reading this because you have enrolled in an economic principles
class, or you may be simply curious about basic economics. In buying it, you
probably thought you were signing up for a discussion of inflation, unemployment,
interest rates, whether the standard of living is going up or down, outsourcing,
the gyrations of the stock market, and other topics that seem somehow to be
related to “economics” and often find their way into the news.
All in good time. But before gaining any further understanding on these
matters, we have to start from the foundation of the economic way of thinking.
For that is what economics is—not a list of specific topics, but a systematic
way of
thinking
about all topics. The list of concepts to which the economic
way of thinking can be applied vastly exceeds the short list just mentioned.
To tackle those things without mastering the economic way of thinking about
them is to put the cart before the horse. This way of thinking has taken
several centuries to develop and has proven its usefulness in addressing one
social problem after another. But it is not the only way to think about society
and how it works. As you read this, try to fit what you learn about economics
into what else you have learned about the world and how to think about
it—history, philosophy, psychology, and even literature all have useful things
to say about human decision making and the society that results from it.
2
Chapter 1 | Introduction
The Foundation of Modern Economics:
The Idea of Scarcity
Consider the following questions, which might seem far removed from the
seemingly “core” economic topics in the first paragraph:
•
Q1.1
Look at a photograph of a public scene—on a
street, in a baseball stadium—or a private one like
this
party for college freshmen
1
at Rice University in the early
1970s. In addition to somewhat different standards of
dress, one thing obvious from the party picture is that
people were much thinner then. Why have people in the
United States gotten so much heavier over the years?
Before you answer, realize that this is a phenomenon that
is occurring not just in the U.S. but in countries all over
the world.
•
Q1.2
Much commentary in recent years has focused
on rising inequality of income in the U.S. Despite that,
a phenomenon associated with previous centuries of
inequality has almost disappeared: the personal servant.
Noble families in Europe might easily have had dozens of
household servants. Yet even the wealthiest now get by
with relatively few; it is hard to imagine Bill Gates having
the kind of massive household staff that the typical English
manor in the mid-1800s might have. What changed? (See
Arnold Kling’s blog post
“Where Are the Servants?”
2
for
a few suggestions.)
•
Q1.3
Why are people in small towns generally friendlier
than people in big cities?
•
Q1.4
The last 50 years have seen the introduction of an
incredible wave of time-saving machinery, plus an increase
in wealth that allows almost everyone in prosperous
countries such as the U.S. to obtain what used to be
considered the basic necessities of life. And yet, according
to survey data, people report that they are pressed for time
and money. (You may feel the same way, despite having
much more disposable income than your grandparents
did.) Why?
1
http://ricehistorycorner.files.wordpress.com/2012/01/1972-freshman-
reception-3.jpg
2
http://econlog.econlib.org/archives/2011/10/where_are_the_s.html

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