1 Human Misery: The Most Important Issue of Them All 1 // World Poverty and Economics 2 // Our Insatiable Wants 3 // Our Limited Means 3 // The Capacity of the Economy to Produce 4 // Assessing Well-Being Using GDP 10 // Causes of Poverty and Requisites of Economic Growth 18 // Can Governments Help? 20 // Governments of LDCs 20 // Governments of DCs 22 // Summary 22 // 2 Economic Systems, Resource // Allocation, and Social Well-Being: // Lessons from the Fall of the // Soviet Union 27 // Economic Systems 29 // Pure Market Economy 29 // Pure Command Economy 30 // Mixed Systems 30 // Resource Allocation in a Market Economy 31 // Market Structure 31 // Market Forces 33 // Competitive Market Equilibrium and Social Well-Being 42 // Resource Allocation in a Command Economy 46 // The Soviet Model 46 // Social Well-Being: Market Versus Command 48 // Market Economy Reaction to Changing Demand 48 // Command Economy Reaction to Changing Demand 50 // The Problems and Promise of Transition 53 // Summary 54 // 3 Economics of Higher Education: // Who Benefits and Who Pays // the Bills? 59 // Problems in Higher Education 60 // What Kinds of Services? 61 // How Much Service? 61 // What Institutional Structure? 61 // Who Should Pay? 62 // The Economic Basis of the Problems 62 // The "Product" of Higher Education 62 // Investment in Human Capital 63 // Direct Consumption 63 // Social Spillovers 64 // The Incidence of the Benefits 65 // Economic Concept of Costs 66 // The Opportunity Cost Principle Revisited 66 // Explicit and Implicit Costs 68 // The Costs of Higher Educational Services 69 // The Explicit Costs 69 // The Implicit Costs 70 // Sources of Support 70 // The Incidence of the Costs 71 // Economic Evaluation of the Problems 73 // What Kinds of Services? 73 // How Much Service? 79 // Who Should Pay? 81 // An Alternative Institutional Structure 85 // Summary 86 //
A Economics of Crime and Its Prevention: How Much Is Too Much? 91 // What Is Crime? 93 // xii Contents // Immorality? 93 // Illegality? 94 // Classification of Criminal Acts 94 // The Costs of Crime 95 // Individually and Collectively // Consumed Goods 97 // Individually Consumed Goods 98 // Collectively Consumed Goods 98 // Semicollectively Consumed Goods 98 // The "Free-Rider" Problem 99 // Government Production of Collectively // Consumed Items 99 // The Economics of Crime Prevention // Activities 100 // The "Optimal" Level 100 // Allocation of the Crime Prevention Budget 103 // Changing the Legal Status of Goods and Services 105 // Causes of Criminal Activity 108 // Summary 111 // Pollution Problems: Must We Foul Our Own Nests? 115 // What Is Pollution? 117 // The Environment and Its Services 117 // Recycling of Wastes and the // Concept of Pollution 117 // Common Forms of Pollution 118 // Markets, Resource Allocation, and Social Well-Being: A Recap and Extension 121 // Demand, Marginal Private Benefit, and Marginal Social Benefit 122 // Supply, Marginal Profit Cost, and // Marginal Social Cost 123 // The Market and Social Well-Being 124 // Economics of Pollution 125 // Why Polluters Pollute 125 // Pollution and Resource Allocation 126 // Indirect Controls 134 // Creation of Pollution Rights Markets 137 // Summary 138 // 6 Discrimination: The High // Cost of Prejudice 141 // What is Discrimination? 143 // The Public View 143 // A Working Definition 143 // Economic Analysis of Discrimination 143 // Sources of Market Discrimination 143 // Labor Market Discrimination 144 // Product Market Discrimination 156 //Economic Costs of Discrimination 157 // Nonmarket Discrimination 159 // Social Discrimination 159 // Educational Discrimination 160 // What Can Be Done About Discrimination? 160 // Reduce Tastes for Discrimination 160 //
Reduce Market Imperfections 161 // Reduce Discrimination in Development of Human Capital 162 // Reduce Occupational Segregation 162 Continuing Controversies 163 // Affirmative Action Programs 163 // Comparable Worth 165 // Summary 166 // Poverty Problems: Is Poverty Necessary? 171 // Poverty in Terms of Absolute Income // Levels 174 // What Is Poverty? 175 // Who Are the Poor? 176 // The Upward Struggle of the Poor 176 // Poverty in Terms of Income Distribution 178 // Income Equality 178 // Income Inequality 178 // The Economic Causes of Poverty 180 // Determinants of Resource Prices and Employment 180 // Determination of Individual or Family Income 182 // Determinants of Income Distribution 182 // Causes of Differences in Labor Resource Ownership 183 // Causes of Differences in Capital Resource // Ownership 183 // Summary of the Causes of Poverty 184 // Government Attempts to Alleviate Poverty 184 // The Old Federal Welfare System 185 // Problems with the Old Welfare System 187 // Welfare Reform and the New System 189 // Using Tax Policy to Fight Poverty 193 // The Earned Income Tax Credit 193 // The Negative Income Tax Proposal 196 // Price Floors and Ceilings 198 // Minimum Wages 199 // Rent Controls 202 // Summary 207 // The Economics of Professional Sports: What Is the // Real Score? 243 // The Professional Sports Business 244 // Organizational Structure 245 // Teams and Players 246 // Economic Analysis and Professional Sports 247 // The Product Market 247 // Cooperation Among Teams 247 // Cartels 248 // Coordinated Behavior 250 // Pricing and Output for Broadcast Rights 251 // The Number and Location of Teams 254 // The Resource Market 256 // The Employment of Players 256 // Monopsony 257 // Wages and Employment in a Monopsony 258 // Free Agency 261 // Labor Disputes 262 // Do Professional Athletes Earn Their Pay? 264 // Summary 265 //
8 The Economics of Big Business: Who Does What to Whom? 212 // The Economics of Monopoly Power 214 // What Is Monopoly Power? 214 // Outputs and Prices 216 // Entry Restrictions 226 // Nonprice Competition 229 // Should We Fear Bigness? 230 // Bigness and Monopoly Power // Outputs and Prices 231 // Entry Restrictions and Resource // Allocation 232 // 230 // Nonprice Competition 233 // The Peculiar Case of Natural Monopoly 233 // When Should Government // Regulate Business? 236 // Protectionism Versus Free // Trade: Can We Restrict // Ourselves into Prosperity? // 269 // The Controversy over International Trade 271 // The Protectionist Viewpoint 271 // The Free Trade Viewpoint 272 // The Economics of International Trade 272 // How Trade Takes Place 273 // Production and Consumption Possibilities 273 // The Principle of Comparative Advantage 277 // How International Trade Is Financed 278 // International Trade Restrictions 282 // Analysis of the Controversy 287 // Protection from Cheap Foreign Goods 287 // Payments Problems 288 // Protection of Key and Infant Industries 290 // Summary 239 // Today’s International Trade Environment 290// The World Trade Organization 291 // Common Markets 292 // Summary 296 // Unemployment Issues: // Why Do We Waste Our // Labor Resources? 300 // Costs of Unemployment 301 // Economic Costs 301 // Noneconomic Costs 302 // What Is Unemployment? 302 // The Labor Force 303 // Unemployment in a Market Economy 304 // Analysis of the Unemployment Problem 304 // Types of Unemployment 304 // Further Dimensions of the Unemployment Problem 306 // What Causes People to Lose Their Jobs? 308 // Circular Flow of Economic Activity 308 // Aggregate Demand 310 // Aggregate Supply 314 // Aggregate Demand and Supply 314 // Reasons for Deficient Aggregate Demand 315 // Reasons for Weak Aggregate Supply 318 // Combating Unemployment 319 //
Aggregate Demand Policies 319 // Aggregate Supply Policies and the Economy // in the 1980s 320 // The Decade of the 90s: Recession, Recovery, and Expansion 322 // Summary 324 // Inflation: How to Gain // and Lose at the Same Time // 328 // Meaning and Measurement of Inflation 330 // Inflation Defined 330 // Further Aspects of Inflation 330 // Measurement of Inflation 330 // Rate of Inflation 332 // Economic Effects of Inflation 333 // Equity Effects 334 // Efficiency Effects 335 // Output Effects 335 // What Is Money? 336 // Functions of Money 336 // The Money Supply (Ml and M2) 337 // The Process of Creating Money 339 // Commercial Banks 339 // Other Depository Institutions 339 // Balance Sheet of a Bank 340 // The Fractional Reserve Banking System 341 // Demand Deposit Creation 341 // The Issue of Control 343 // The Federal Reserve System 343 // Federal Reserve Controls 344 // Federal Reserve Targets 345 // Inflationary Causes and Cures 346 // Quantity Theory of Money 346 // Demand-Pull Inflation 348 // Cures for Demand-Pull Inflation 349 // Cost-Push Inflation 350 // Demand-Pull and Then Cost-Push Inflation 352 // Is There a Cure for Cost-Push Inflation? 352 // Summary 353 // Government Expenditure and Tax Issues: Who Wins and Who Loses? 357 // What Are People Afraid Of? 358 // Size of Government 358 // Tax Inequities 359 // The Problem of Size 360 // Government Expenditures 360 // Government Receipts 361 // Economic Analysis of the Problem of Size 362 // An Efficient Level of Government // Expenditures 363 // Pure Public Goods 364 // External Benefits and Costs 365 // Income Distribution 366 // Summary 367 // Tax Principles and Analysis 367 // Tax Equity 367 // Tax Efficiency 369 // Principles of Shifting and Incidence 369 // The American Tax System 372 // Federal Tax System 373 // Recent Federal Tax Changes 374 // The 1986 Tax Reform Act 375 //
Tax Increases in 1991 376 // The 1993 Federal Budget Reduction Act 377 // The 1993-1999 Fiscal Year Period: // A New Era? 378 // Summary 379 // Social Security and Medicare: // How Secure Is Our Safety Net // for the Elderly? 384 // Social Insurance 386 // Social Security 387 // A Brief History of Social Security 387 // The Current Status of Social Security 390 // The Economic Effects of Social Security 393 // Income 393 // Labor Supply 395 // Saving and Investment 396 // The Future of Social Security 398 // The Financial Dilemma 398 // Possible Solutions 399 // Medicare 402 // The Market for Health Care: A Brief // Overview 402 // The Medicare Program 405 // Coverage 407 // Financing 407 // Provider Payments 407 // The Economic Effects of Medicare 408 // The Future off Medicare 410 // The Financial Dilemma 410 // Possible Solutions 410 // Expanding Access to Medicare 411 // Summary 412 // The Big National Debt: // Is It Bad? 416 // The Course of the National Debt 417 // The Growth in the Federal Debt Held by // the Public 418 // The Absolute Growth in the Federal Debt Held by // the Public 418 // Public-Held Federal Debt as a Percentage of the GDP 419 // Federal Debt Held by the Public as a // Percentage of Total Credit Market Debt 420 // What Is the National Debt? 422 // Types of Federal Securities 422 // Who Owns the National Debt? 423 // Problems with a Large National Debt 423 // The Views of the Public 423 // The Concern of Economists 424 // Summary in Regard to National Debt // Problems 426 // Economic Analysis of National // Debt Financing 426 // Methods of Finance 427 // Economic Effects of Government Debt // Financing 429 // Differing Effects of Tax and Debt Financing 430 // Managing a Large National Debt 430 // Debt Management Policy 431 // Debt Management Principles 431 // When Should the Government Borrow? 433 // Public Investments 433 //
to Medicare 411 // Summary 412 // The Big National Debt: // Is It Bad? 416 // The Course of the National Debt 417 // The Growth in the Federal Debt Held by // the Public 418 // The Absolute Growth in the Federal Debt Held by // the Public 418 // Public-Held Federal Debt as a Percentage of the GDP 419 // Federal Debt Held by the Public as a // Percentage of Total Credit Market Debt 420 // What Is the National Debt? 422 // Types of Federal Securities 422 // Who Owns the National Debt? 423 // Problems with a Large National Debt 423 // The Views of the Public 423 // The Concern of Economists 424 // Summary in Regard to National Debt // Problems 426 // Economic Analysis of National // Debt Financing 426 // Methods of Finance 427 // Economic Effects of Government Debt // Financing 429 // Differing Effects of Tax and Debt Financing 430 // Managing a Large National Debt 430 // Debt Management Policy 431 // Debt Management Principles 431 // When Should the Government Borrow? 433 // Public Investments 433 // Economic Instability 433 // Is Government Debt Accumulation // Necessary During Wartime? 434 // A Budget Proposal 434 // A Final Comment on the Budget Deficit // Issue 436 // Summary 437 // xvi Contents // Economic Growth: Why Is It // So Important? 441 // The Concept of Economic Growth 443 // What Is Economic Growth? 443 // The Rate of Growth 445 // Short-Run Fluctuations in Economic // Growth 446 // What Are Business Cycles? 448 // Theories of the Business Cycle 450 // The Determinants of Economic Growth 453 // Availability of Economic Resources 453 // Productivity Factors 457 // The Recent Slowdown in Growth 459 // Contributing Factors 459 // Where Do We Go from Here? 462 // Summary 465 // Glossary 470