MyEconLab PROVIDES THE POWER OF PRACTICE Optimize your study time with MyEconLab, the online assessment and tutorial system. When you take a sample test online, MyEconLab gives you targeted feedback and a personalized Study Plan to identify the topics you need to review. Study Plan The Study Plan consists of practice problems taken directly from the end-of- chapter Study Plan Problems and Applications in the textbook. Unlimited Practice As you work each exercise, instant feedback helps you understand and apply the concepts.
Many Study Plan exercises contain algorithmically generated values to ensure that you get as much practice as you need. Learning Resources Study Plan problems link to learning resources that further reinforce concepts you need to master. • Help Me Solve This learning aids help you break down a problem much the same way as an MyEconLab instructor would do during office hours. Help Me Solve This is available for select problems.
Find out more at www.com • Links to the eText promote reading of the text when you need to revisit a concept or explanation. • Animated graphs, with audio narration, appeal to a variety of learning styles. • A graphing tool enables you to build and manipulate graphs to better understand how concepts, numbers, and graphs connect. ESSENTIAL FOUNDATIONS OF ECONOMICS delivers a complete, hands-on learning system designed around active learning.
A Learning-by-Doing Approach The Checklist that begins each chapter highlights the key topics covered and the chapter is divided into sections that directly correlate to the Checklist. The Checkpoint that ends each section provides a full page of practice problems to encourage students to review the material Why did the price of coffee while it is fresh in their minds. soar in 2010 and 2011? Each chapter opens with a question about a central issue that sets the stage for the Demand and Supply 4 material. When you have completed your study of this chapter, CHAPTER CHECKLIST you will be able to 1 Distinguish between quantity demanded and demand, and explain what determines demand.
2 Distinguish between quantity supplied and supply, and explain what determines supply. 3 Explain how demand and supply determine price and quantity in a CHECKPOINT 4.1 MyEconLab market, and explain the effects of changes in demand and supply. You can work these problems in Study Plan 4.1 and get instant Distinguish between quantity demanded and demand, and explain feedback. what determines demand.
Practice Problems The following events occur one at a time in the market for cell phones: • The price of a cell phone falls. • Everyone believes that the price of a cell phone will fall next month. • The price of a call made from a cell phone falls.3 • The price of a call made from a land-line phone increases. • The introduction of camera phones makes cell phones more popular.
Changes in Demand MyEconLab Animation 1. Explain the effect of each event on the demand for cell phones. Use a graph to illustrate the effect of each event. A change in any influence on buying plans, other than a change in the price Price (dollars per bottle) 3.
Does any event (or events) illustrate the law of demand? of the good itself, changes demand 2.50 In the News and shifts the demand curve. Airlines, now flush, fear a downturn So far this year, airlines have been able to raise fares but still fill their planes. ??? When demand decreases, the Increase Source: The New York Times, June 10, 2011 demand curve shifts leftward from 2.00 in demand D thi li i l th t th l fd dd ’t k i th l D0 to D1. ??? When demand increases, the demand curve shifts rightward 1.50 Confidence-Building Graphs from D0 to D2.
use color to show the direction of shifts and 1.00 detailed, numbered captions guide students D2 step-by-step through the action.50 Decrease in demand D0 100% of the figures are animated in D1 MyEconLab, with step-by-step audio 0 6 8 10 12 14 narration. Quantity (millions of bottles per day) Real EYE on the PRICE OF COFFEE Applications Why Did the Price of Coffee Soar in 2010 and 2011? In January 2009, the price of coffee (the market for coffee, answers this question. and Vietnam, which decreased the kind that you get at Starbucks and simi- The demand curve D and the supply supply of coffee.The supply curve lar coffee shops called Arabica) was curve S09 determined the equilibrium shifted leftward to S11.The price Eye On Boxes apply theory to important $1.25 a pound (point A in Figure 1) and price and quantity in 2009 at $1.The by May 2011, it had risen to $3.00 a pound and 950 million pounds. quantity demanded and equilibrium issues and problems that shape our global pound (point B).Why did the price of Heavy rain led to exceptionally low quantity decreased to 800 million coffee soar? Figure 2, which shows the harvests in Colombia, Indonesia, Mexico, pounds.
society and individual decisions. Price of coffee (dollars per pound) Price (dollars per pound) 4.00 S11 A decrease S09 From January 2009 to in the supply Eye On boxes that build off the chapter May 2011, the price of coffee increased of coffee. by 140 percent opening question help students see the 3.00 B economics behind key issues facing our. raised the price.
and decreased world. the quantity of coffee demanded A A 1.00 D 0 Jan 09 Jun 09 Jan 10 Jun 10 Jan 11 Jun 11 0 600 700 800 900 1,000 1,100 1,200 Month/year Quantity (millions of pounds per year) Figure 1 The price of coffee Figure 2 The market for coffee Economics in the News MyEconLab To keep you informed about the latest economic news, each day the authors upload two relevant news articles: a microeconomic topic and a macroeconomic topic. Each article includes discussion questions, links to additional online resources, and references to related textbook chapters. Instructor Assignable Problems and Applications Your instructor can assign these problems as homework, a quiz, 1.
If after heavy rain and low production, the weather improves and coffee or a test in MyEconLab. growers enjoy bumper crops, how does • The demand for coffee change? • The supply of coffee change? • The price of coffee change? Illustrate your answer with a graphical analysis. What is the effect on the equilibrium price and equilibrium quantity of orange juice if the price of apple juice decreases and the wage rate paid to orange grove workers increases? Practice and 3. What is the effect on the equilibrium in the orange juice market if orange juice becomes more popular and a cheaper robot is used to pick oranges? Learning Aids in MyEconLab An end-of-chapter problem based on the chapter-opening issue gives students further practice.
All of the Checkpoint problems are in MyEconLab and available for self- assessment or instructor assignment. Immediate feedback and problem specific learning aids give students support when they need it most. This page intentionally left blank Essential Foundations of ECONOMICS Robin Bade Michael Parkin University of Western Ontario SIXTH EDITION Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Editor in Chief: Donna Battista Image Permission Manager: Rachel Youdelman Executive Acquisitions Editor: Adrienne Photo Researcher: Amy Dunleavy D’Ambrosio Art Director, Cover: Jonathan Boylan Editorial Project Manager: Sarah Dumouchelle Cover Image: Elwynn/Dreamstime.com Editorial Assistant: Elissa Senra-Sargent Copyeditor: Catherine Baum Executive Marketing Manager: Lori DeShazo Technical Illustrator: Richard Parkin Senior Managing Editor: Nancy Fenton Project Management, Page Makeup, Production Project Manager: Nancy Freihofer Design: Integra Media Publisher: Denise Clinton Printer/Binder: Courier/Kendallville Content Lead for MyEconLab: Noel Lotz Cover Printer: Courier/Kendallville Senior Media Producer: Melissa Honig Text Font: 10/12, Palatino-Roman Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text and on pages C-1–C-2. Copyright © 2013, 2011, 2009, 2007, 2004 by Pearson Education, Inc., publishing as Addison-Wesley.
All rights reserved. Manufactured in the United States of America.This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduc- tion, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax your request to 201-236-3290. Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks.Where those designations appear in this book, and the publisher was aware of a trade- mark claim, the designations have been printed in initial caps or all caps. Library of Congress Cataloging-in-Publication Data Bade, Robin.
Essentials of economics/Robin Bade, Michael Parkin. Parkin, Michael, 1939– II.B155 2013 330—dc23 2011045330 10 9 8 7 6 5 4 3 2 1 ISBN 10: 0-13-283311-5 ISBN 13: 978-0-13-283311-0 To Erin, Tessa, Jack, Abby, and Sophie This page intentionally left blank About the Authors Robin Bade was an undergraduate at the University of Queensland, Australia, where she earned degrees in mathematics and economics. After a spell teaching high school math and physics, she enrolled in the Ph. program at the Australian National University, from which she graduated in 1970.
She has held faculty appointments at the University of Edinburgh in Scotland, at Bond University in Australia, and at the Universities of Manitoba, Toronto, and Western Ontario in Canada. Her research on international capital flows appears in the International Economic Review and the Economic Record. Robin first taught the principles of economics course in 1970 and has taught it (alongside intermediate macroeconomics and international trade and finance) most years since then. She developed many of the ideas found in this text while conducting tutorials with her students at the University of Western Ontario.
Michael Parkin studied economics in England and began his univer- sity teaching career immediately after graduating with a B. from the University of Leicester. He learned the subject on the job at the University of Essex, England’s most exciting new university of the 1960s, and at the age of 30 became one of the youngest full professors. He is a past president of the Canadian Economics Association and has served on the editorial boards of the American Economic Review and the Journal of Monetary Economics.
His research on macroeco- nomics, monetary economics, and international economics has resulted in more than 160 publications in journals and edited volumes, including the American Economic Review, the Journal of Political Economy, the Review of Economic Studies, the Journal of Monetary Economics, and the Journal of Money, Credit, and Banking. He is author of the best-selling textbook, Economics (Addison-Wesley), now in its Ninth Edition. Robin and Michael are a wife-and-husband team. Their most notable joint research created the Bade-Parkin Index of central bank independence and spawned a vast amount of research on that topic.
They don’t claim credit for the independence of the new European Central Bank, but its constitution and the movement toward greater independence of central banks around the world were aided by their pioneering work. Their joint textbooks include Macroeconomics (Prentice-Hall), Modern Macroeconomics (Pearson Education Canada), and Economics: Canada in the Global Environment, the Canadian adapta- tion of Parkin, Economics (Addison-Wesley). They are dedicated to the challenge of explaining economics ever more clearly to an ever-growing body of students. Music, the theater, art, walking on the beach, and five fast-growing grand- children provide their relaxation and fun.
ix This page intentionally left blank ECONOMICS Brief Contents PART 1 INTRODUCTION 1 Getting Started, 1 2 The U.