... amount of income—
$100,000 in our example—were fixed. But, in fact, it is not. Utilitarians reject com-
plete equalization of incomes because they accept one of the Ten Principles of
Economics ... the
form of goods and services rather than cash are called in-kind transfers. Standard
measurements of the degree of inequality do not take account of these in-kind
transfers....
... effect tends to make the consumer buy more pizza and more
Pepsi. Yet, at the same time, consumption of Pepsi has become less expensive rela-
tive to consumption of pizza. This substitution effect tends ... indifference curve. He is now better off than he was. As long as consump-
tion in both periods consists of normal goods, he tends to want to use this increase
in well-being to enjoy h...
... United States, his produc-
tion is part of U.S. GDP. When an American citizen owns a factory in Haiti, the
production at his factory is not part of U.S. GDP. (It is part of Haiti’s GDP.) Thus,
items ... regardless
of the nationality of the producer.
506 PART EIGHT THE DATA OF MACROECONOMICS
CASE STUDY
INTERNATIONAL DIFFERENCES IN GDP AND THE
QUALITY OF LIFE
One way to ga...
... honey.
P
RICE
Q
UANTITY
P
RICEOF
Q
UANTITY
Y
EAR OF
M
ILK OF
M
ILK
H
ONEY OF
H
ONEY
2001 $1 100 qts. $2 50 qts.
2002 $1 200 $2 100
2003 $2 200 $4 100
510 PART EIGHT THE DATA OF MACROECONOMICS
a. Compute ... index (CPI) is a measure of the overall cost of the goods and
services bought by a typical consumer. Each month the Bureau of Labor Statistics,
which is part of the Dep...
... at
her part- time job for some extra spending money.
scarcity
the limited nature of society’s
resources
economics
the study of how society manages its
scarce resources
CHAPTER 1 TEN PRINCIPLES OF ECONOMICS ... ideas. In the rest of this chapter, we look at Ten Principles of Economics.
These principles recur throughout this book and are introduced here to give you
an...
... studying the short-run and long-run ef-
fects of a change in the quantity of money.
ECONOMIC MODELS
High school biology teachers teach basic anatomy with plastic replicas of the hu-
man body. These ... they al-
low us to illustrate and evaluate economic theories of the present.
THE ROLE OF ASSUMPTIONS
If you ask a physicist how long it would take for a marble to fall from the top o...
... is not always straight-
forward. This tendency is rooted in one of the Ten Principles of Economics in Chap-
ter 1: People face tradeoffs. Economists are aware that tradeoffs are involved in
most ... less of the other. When the economy moves from
point A to point C, for instance, society produces more computers but at the ex-
pense of producing fewer cars.
Another of the Ten...
... that nominal and
real interest rates often do not
move together.
S
OURCE
: U.S. Department of Labor;
U.S. Department of Treasury.
524 PART EIGHT THE DATA OF MACROECONOMICS
changes in interest rates, ... raises the price of its cars. Because
Volvos are made in Sweden, the car is not part of U.S. GDP. But U.S. consumers
buy Volvos, and so the car is part of the typical consume...
... experienced more rapidly growing productivity.
Indeed, one of the Ten Principles of Economics in Chapter 1 is that a country’s stan-
dard of living depends on its ability to produce goods and services.
Hence, ... the quan-
tity of inputs used in production
and the quantity of output from
production. For example, sup-
pose Y denotes the quantity of
output, L the quantity of...