Economic Way of Thinking, The, 13th edition

Chapter 1 The Economic Way of Thinking

• Recognizing Order
• The Importance of Social Cooperation
• How Does It Happen?
• An Apparatus of the Mind–The Skill of the Economist
• Cooperation Through Mutual Adjustment
• Signals
• Rules of the Game
• Property Rights as Rules of the Game
• The Biases of Economic Theory: A Weakness or a Strength?
• Biases or Conclusions?
• The Skills of the Economist
• Questions for Discussion

Chapter 2 Efficiency, Exchange and Comparative Advantage

• Goods and Bads
• The Myth of Material Wealth
• Trade Creates Wealth
• Is It Worth It? Efficiency and Values
• Recognizing Trade-Offs: Comparing Opportunity Costs of Production
• The Gains from Specialization and Exchange
• Why Specialize?
• From Individual Trade to International Trade, and Back Again
• Transaction Costs
• Incentives to Reduce Transaction Costs: Middlemen
• Middlemen Create Information
• Markets as Discovery Processes
• The Big Picture: First Thoughts on Economic Growth
• Searching for an Explanation
• The Evolution of Rules That Encourage Specialization and Exchange
• Questions for Discussion

Chapter 3 Substitutes Everywhere: The Concept of Demand

• On the Notion of “Needs”
• Marginal Values
• Forks in the Road: Everyday Choices Are Marginal Choices
• The Demand Curve
• The Law of Demand
• Demand and Quantity Demanded
• Demand Itself Can Change
• Everything Depends on Everything Else
• Misperceptions Caused by Inflation
• Time Is on Our Side
• Price Elasticity of Demand
• Thinking About Elasticity
• Elasticity and Total Receipts
• The Myth of Vertical Demand
• What Role Should Demand Play?
• Is Money All That Matters? Money Costs, Other Costs, and Economic Calculation
• Questions for Discussion

Chapter 4 Cost and Choice: The Concept of Supply

• Refresher on Opportunity Costs
• Costs Are Tied to Actions, Not Things
• What Do I Do Now? The Irrelevance of “Sunk Costs”
• Producers’ Costs as Opportunity Costs
• Marginal Opportunity Costs
• Costs and Supply
• The Supply Curve
• Supply Itself Can Change
• Marginal and Average Costs
• The Cost of a Volunteer Military Force
• Price Elasticity of Supply
• Cost as Justification
• Questions for Discussion

Chapter 5 Supply and Demand: A Process of Coordination

• The Market Is a Process of Plan Coordination
• The Basic Process
• Competition, Cooperation, and Market Clearing
• Changing Market Conditions
• Learning from Free-Market Prices Central Planning and the Knowledge Problem
• Property Rights and Institutions
• Money: The General Medium of Exchange
• Money and Interest
• Time Preference
• Saving Creates Credit Opportunities
• The Risk Factor in Interest Rates
• Real and Nominal Interest Rates
• Questions for Discussion

Chapter 6 Unintended Consequences: More Applications of Supply and Demand

• Catastrophe and Confusion
• Catastrophe and Coordination
• The Urge to Fix Prices
• Competition When Prices Are Fixed
• Appropriate and Inappropriate Signals
• Looking for an Apartment in the City? Read the Obituary!
• Strong Booze, Stronger Drugs: Criminal Incentives
• Skim Milk, Whole Milk, and Gangster Milkmen
• Supports and Surpluses
• Supply, Demand, and the Minimum Wage
• Slavery Goes Global, Again
• High-Priced Sports, Low-Priced Poetry: Who’s to Blame?
• Do Costs Determine Prices?
• The Dropouts Release Their First CD
• “There’s Gold in Them Thar Hills!” So What?
• Even Butchers Don’t Have the Guts
• Why Does It Cost So Much to Change Bedpans?
• An Appendix: Framing Economic Questions Correctly
• Beware of Wrong Questions or Misleading Specifications of the Problem
• Beware of Data That Appear to Speak for Themselves
• The Graphic Case of Growing and Permanent Shortages
• Once Over Lightly
• Questions for Discussion

Chapter 7 Profit and Loss

• Wage, Rent, and Interest: Incomes Established in Advance by Contract
• Profit: Income That Can Be Positive or Negative
• Calculating Profit: What Should Be Included in Costs?
• Comparing Economic Profit and Accounting Profit
• Uncertainty: A Necessary Condition for Profit
• The Entrepreneur
• The Entrepreneur as Residual Claimant
• Not-for-Profit Institutions
• Entrepreneurship and the Market Process
• Mere Luck?
• Profit and Loss as Coordinating Signals: The Role of Monetary Calculation
• Beware of Experts
• An Appendix: Profiteering in Futures Markets
• Questions for Discussion

Chapter 8 Price Searching

• The Popular Theory of Price Setting
• Introducing Ed Sike
• The Basic Rule for Maximizing Net Revenue
• The Concept of Marginal Revenue
• Why Marginal Revenue Is Less Than Price
• Setting Marginal Revenue to Equal Marginal Cost
• What About Those Empty Seats?
• The Price Discriminator’s Dilemma
• The College as Price Searcher
• Some Strategies for Price Discrimination
• Ed Sike Finds a Way
• Resentment and Rationale
• Lunch and Dinner Prices
• Cost-Plus-Markup Reconsidered
• Questions for Discussion

Chapter 9 Competition and Government Policy

• Competition as a Process
• The Pressures of Competition
• Controlling Competition
• Restrictions on Competition
• Competition for the Key Resource: The $1,000,000 Taxi License
• Competition and Property Rights
• The Ambivalence of Government Policies
• Selling Below Cost
• What Is the Appropriate Cost?
• “Predators” and Competition
• Regulating Prices
• “Antitrust” Policy
• Interpretations and Applications
• Vertical Restraints: Competitive or Anticompetitive
• The Range of Opinion
• Toward Evaluation
• Once Over Lightly
• Questions for Discussion

Chapter 10 Externalities and Conflicting Rights

• Externalities, Negative and Positive
• Perfection Is Unattainable
• Negotiation
• Reducing Externalities Through Adjudication
• The Case of the Complaining Homeowner
• The Importance of Precedents
• The Problem of Radical Change
• Reducing Externalities Through Legislation
• Minimizing Costs
• Another Approach: Taxing Emissions
• Licenses to Pollute?
• Efficiency and Fairness
• The Bubble Concept
• Rights and the Social Problem of Pollution
• Traffic Congestion as an Externality
• Once Over Lightly
• Questions for Discussion

Chapter 11 Markets and Government

• Private Versus Public?
• Competition and Individualism
• Economic Theory and Government Action
• The Right to Use Coercion
• Is Government Necessary?
• Excluding Nonpayers
• The Free-Rider Problem
• Positive Externalities and Free Riders
• Law and Order
• National Defense
• Roads and Schools
• Income Redistribution
• The Regulation of Voluntary Exchange
• Government and the Public Interest
• Information and Democratic Governments
• The Interests of Elected Officials
• Concentrated Benefits, Dispersed Costs
• Positive Externalities and Government Policies
• How Do People Identify the Public Interest?
• The Prisoners’ Dilemma
• The Limits of Political Institutions
• Once Over Lightly
• Questions for Discussion

Chapter 12 the Distribution of Income

• Suppliers and Demanders
• Capital and Human Resources
• Human Capital and Investment
• Property Rights and Income
• Actual, Legal, and Moral Rights
• Expectations and Investment
• People or Machines?
• The Derived Demand for Productive Services
• Who Competes Against Whom?
• Unions and Competition
• Poverty and Inequality
• Why Inequality Is Increasing
• Are the Rich Getting Richer and the Poor Getting Poorer?
• Redistributing Income
• Changing Rules and Social Cooperation
• Once Over Lightly

Chapter 13 Measuring the Overall Performance of Economic Systems

• Gross Domestic Product
• GDP or GNP?
• GDP as Total Income Created in the Domestic Economy
• GDP Is Not a Measure of All Purchases in the Economy
• GDP as Total Value Added
• Is Value Added Always Positive?
• Loose Ends: Unsold Inventories and Used Goods
• Aggregate Fluctuations
• Unemployment and Nonemployment
• Employed, Not Employed, and Unemployed
• Labor-Market Decisions
• Unemployment and Recessions
• Inflation
• Recession and Inflation Since 1960
• What Causes Aggregate Fluctuations?

Chapter 14 Money

• The Evolution of Money
• The Myth of Fiat Money
• The Nature of Money Today
• So How Much Money Is Out There?
• Credibility and Confidence
• Banks Under Regulation: Legal Reserve Requirements
• Deposit Expansion and the Creation of Money
• The Fed as Monitor and Rule Enforcer
• The Tools Used by the Fed
• The Discount Rate
• Open Market Operations
• Monetary Equilibrium
• But Who Is Really in Charge?
• An Appendix: What About Gold?
• Once Over Lightly

Chapter 15 Economic Performance and Real-World Politics

• The Great Depression
• What Really Happens in a Recession?
• A Cluster of Errors
• Credit and Coordination: Savings and Investment in the Free Market
• Credit and Discoordination: The Unsustainable Boom
• The Recession is the Correction
• When Is Monetary Policy Effective?
• The Case for Fiscal Policy
• The Necessity of Good Timing
• The Federal Budget as a Policy Tool
• Time Horizons and Politics
• Deficits Unlimited
• Why Not Government at All Levels?
• Who Is at the Controls?
• Understanding Recent Experience
• Once Over Lightly

Chapter 16 The Wealth of Nations: Globalization and Economic Growth

• Who Is Rich, Who Is Poor?
• The Historical Record
• Sources of Economic Growth
• Foreign Investment
• Human Capital
• Oil Comes from Our Minds
• Economic Freedom Index
• The Developmental Power of Private Property Rights
• The Asian Record
• Outside of Asia
• The Difficulties of International GDP Comparisons
• Globalization and Its Discontents
• The Power of Popular Opinion
• The Power of Special Interests
• The Outsourcing Controversy: Soundbytes vs. Analysis
• Once Over Lightly