Learning Objectives

Parkin, Michael.  Economics, 8th edition, Pearson / Addison Wesley

ISBN# 0-3-2142300-3

 

Chapter 1:  What is Economics?

 

*         1.1 Define economics and distinguish between microeconomics and macroeconomics

*         1.2 Explain the two big questions of economics

*         1.3 Explain the key ideas that define the economic way of thinking

*         1.4 Explain how economists go about their work as social scientists

 

Chapter 1A:  Graphs in Economics

 

*         Make and interpret a time-series graph, a cross-section graph, and a scatter diagram

*         Distinguish between linear and nonlinear relationships and between relationships that have a maximum and a minimum

*         Define and calculate the slope of a line

*         Graph relationships between more than two variables

 

Chapter 2:  The Economic Problem

 

*         Define the production possibilities frontier and calculate opportunity cost

*         Distinguish between production possibilities and preferences and describe an efficient allocation of resources

*         Explain how current production choices expand future production possibilities

*         Explain how specialization and trade expand our production possibilities

*         Describe the economic institutions that coordinate decisions

 

Chapter 3:  Demand and Supply

 

*         Describe a competitive market and think about a price as an opportunity cost

*         Explain the influences on demand

*         Explain the influences on supply

*         Explain how demand and supply determine prices and quantities bought and sold

*         Use demand and supply to make predictions about changes in prices and quantities

 

Chapter 4:  Elasticity

 

*         Define, calculate, and explain the factors that influence the price elasticity of demand

*         Define, calculate, and explain the factors that influence the cross elasticity of demand and the income elasticity of demand

*         Define, calculate, and explain the factors that influence the elasticity of supply

 

Chapter 5:  Efficiency and Equity

 

*         Describe the alternative methods of allocating scarce resources

*         Explain the connection between demand and marginal benefit and define consumer surplus

*         Explain the connection between supply and marginal cost and define producer surplus

*         Explain the conditions under which markets move resources to their highest-value uses and the sources of inefficiency in our economy

*         Explain the main ideas about fairness and evaluate claims that markets result in unfair outcomes

 

Chapter 6:  Markets in Action

 

*         Explain how housing markets work and how price ceilings create housing shortages and inefficiency

*         Explain how labor markets work and how minimum wage laws create unemployment and inefficiency

*         Explain the effects of a tax

*         Explain why farm prices and revenues fluctuate and how production subsidies and quotas influence farm production, costs, and prices

*         Explain how markets for illegal goods work

 

Chapter 7:  Utility and Demand

 

*         Explain what limits a household’s consumption choices

*         Describe preferences using the concept of utility and distinguish between total utility and marginal utility

*         Explain the marginal utility theory of consumer choice

*         Use marginal utility theory to predict the effects of changing prices and incomes

*         Explain the paradox of value

 

Chapter 8:  Possibilities, Preferences, and Choices

 

*         Describe a household’s budget line and show how it changes when prices or income change

*         Make a map of preferences by using indifference curves and explain the principle of diminishing marginal rate of substitution

*         Predict the effects of changes in prices and income
on consumption choices

*         Predict the effects of changes in wage rates on
work-leisure choices

 

Chapter 8A:  Marginal Utility and Indifference Curves

 

*         Explain the connection between utility and indifference curves

*         Explain why maximizing utility is the same as choosing the best affordable point

*         Explain why utility exists

 

Chapter 9:  Organizing Production

 

*         Explain what a firm is and describe the economic problems that all firms face

*         Distinguish between technological efficiency and economic efficiency

*         Define and explain the principal-agent problem and describe how different types of business organizations cope with this problem

*         Describe and distinguish between different types of markets in which firms operate

*         Explain why markets coordinate some economic activities and firms coordinate others

 

Chapter 10:  Output and Costs

 

*         Distinguish between the short run and the long run

*         Explain the relationship between a firm’s output and labor employed in the short run

*         Explain the relationship between a firm’s output and costs in the short run and derive a firm’s short-run cost curves

*         Explain the relationship between a firm’s output and costs in the long run and derive a firm’s long-run average cost curve

 

Chapter 11:  Perfect Competition

 

*         Define perfect competition

*         Explain how firms make their supply decisions and why they sometimes shut down temporarily and lay off workers

*         Explain how price and output in an industry are determined and why firms enter and leave the industry

*         Predict the effects of a change in demand and of a technological advance

*         Explain why perfect competition is efficient

 

Chapter 12:  Monopoly

 

*         Explain how monopoly arises and distinguish between single-price monopoly and price-discriminating monopoly

*         Explain how a single-price monopoly determines its output and price

*         Compare the performance and efficiency of single-price monopoly and competition

*         Explain how price discrimination increases profit

*         Explain how monopoly regulation influences output, price, economic profit, and efficiency

 

Chapter 13:  Oligopoly

*         Define and identify oligopoly

*         Explain two traditional oligopoly models

*         Use game theory to explain how price and output are determined in oligopoly

*         Use game theory to explain other strategic decisions

 

Chapter 13A:  Monopolistic Competition

 

*         Define and identify monopolistic competition

*         Explain how output and price are determined in a monopolistically competitive industry

*         Explain why advertising costs are high in a monopolistically competitive industry

 

Chapter 14:  Regulation and Antitrust Law

 

*         Explain the economic theory of government and how government activity arises from market failure and redistribution

*         Define regulation and antitrust law and distinguish between the social interest and capture theories of regulation

*         Explain how regulation and deregulation affect prices, outputs, profits, and the distribution of the gains from trade

*         Describe the antitrust laws and review three of today’s antitrust policy debates

 

Chapter 15:  Externalities

 

*         Explain how externalities arise

*         Explain why negative externalities lead to inefficient overproduction and how property rights, emission charges, marketable permits, and taxes can be used to achieve a more efficient outcome

*         Explain why positive externalities lead to inefficient underproduction and how public provision, subsidies, vouchers, and patents can increase economic efficiency

 

Chapter 16:  Public Goods and Common Resources

 

*         Distinguish among private goods, public goods, and common resources

*         Explain how the free-rider problem arises and how the quantity of public goods is determined

*         Explain the tragedy of the commons and its possible solutions

 

Chapter 17:  Markets for Factors of Production

 

*         Explain the link between a factor price and factor income

*         Explain what determines demand, supply, the wage rate, and employment in a competitive labor market

*         Explain why wage rates can be higher or lower than those in a competitive labor market

*         Explain what determines demand, supply, the interest rate, saving, and investment in the capital market

*         Explain what determines demand, supply, price, and the rate of use of a nonrenewable resource

*         Explain the concept of economic rent and distinguish between economic rent and opportunity cost

 

Chapter 17A:  Present Value and Discounting

 

*         Explain how to calculate the present value of a future amount of money

*         Explain how a firm uses a present value calculation to make an investment decision

*         Explain the relationship between present value and the interest rate

 

Chapter 18:  Economic Inequality

 

*         Describe the inequality in income and wealth in the United States and the trends in inequality

*         Explain the features of the labor market that contribute to economic inequality

*         Describe the scale of income redistribution by government

 

Chapter 19:  Uncertainty and Information

 

*         Explain how people make decisions when they are uncertain about the consequences

*         Explain why people buy insurance and how insurance companies make a profit

*         Explain why buyers search

*         Explain how markets cope with private information

*         Explain how people use financial markets to lower risk

*         Explain how the presence of uncertainty and incomplete information influence the ability of markets to achieve an efficient allocation of resources

 

Chapter 20:  A First Look at Macroeconomics

 

*         Describe the origins and issues of macroeconomics

*         Describe the trends and fluctuations in economic growth and explain the benefits and costs of economic growth

*         Describe the trends and fluctuations in unemployment and explain why unemployment is a problem

*         Describe the trends and fluctuations in inflation and the value of the dollar and explain why inflation is a problem

*         Describe the trends and fluctuations in surpluses, deficits, and debts and explain why they matter

*         Identify the macroeconomic policy challenges and list the tools available for meeting them

 

Chapter 21:  Measuring GDP and Economic Growth

 

*         Define GDP and use the circular flow model to explain why GDP equals aggregate expenditure and aggregate income

*         Explain the two methods used by the Bureau of Economic Analysis to measure U.S. GDP

*         Explain how the Bureau of Economic Analysis measures real GDP and the GDP deflator to separate economic growth from inflation

*         Explain the uses and limitations of real GDP

 

Chapter 22:  Monitoring and the Price Level

 

*         Define the unemployment rate, the labor force participation rate, the employment-to-population ratio, and aggregate hours

*         Describe the sources of unemployment, its duration, the groups most affected by it, and how it fluctuates over the business cycle

*         Explain how we measure the price level and the inflation rate using the CPI

 

Chapter 23:  At Full Employment:  The Classical Model

 

*         Explain the purpose of the classical model

*         Describe the relationship between the quantity of labor employed and real GDP

*         Explain what determines the full-employment level of employment and real wage rate and potential GDP

*         Explain what determines unemployment when the economy is at full employment

 

Chapter 24:  Economic Growth

 

*         Define and calculate the economic growth rate and explain the implications of sustained growth

*         Describe the economic growth trends in the United States and other countries and regions

*         Identify the main sources of economic growth

*         Explain how we measure the effects of the sources of economic growth and identify why growth rates fluctuate

*         Explain the main theories of economic growth

 

Chapter 25:  Money, The Price Level, and Inflation

 

*         Define money and describe its functions

*         Explain the economic functions of banks and other depository institutions

*         Describe the structure and function of the Federal Reserve System (the Fed)

*         Explain how the banking system creates money

*         Explain what determines the demand for money, the supply of money, and the nominal interest rate

*         Explain how the quantity of money influences the price level and inflation in the long run

 

Chapter 26:   The Exchange Rate and the Balance of Payments

 

*         Describe the foreign exchange market, define the exchange rate, and distinguish between the nominal exchange rate and the real exchange rate

*         Explain how an exchange rate is determined day by day

*         Explain the long-run trends in the exchange rate and explain interest rate parity and purchasing power parity

*         Describe the balance of payments accounts and explain what causes an international deficit

*         Describe the alternative exchange rate policies and explain their long-run effects.

 

Chapter 27:  Aggregate Supply and Aggregate Demand

 

*         Distinguish between the macroeconomic long run and short run

*         Explain what determines aggregate supply

*         Explain what determines aggregate demand

*         Explain how real GDP and the price level are determined and how changes in aggregate supply and aggregate demand bring economic growth, inflation, and the business cycle

*         Describe the main schools of thought in macroeconomics

 

Chapter 28:  Expenditure Multipliers:  They Keynesian Model

 

*         Explain how expenditure plans and real GDP are determined when the price level is fixed

*         Explain how real GDP is determined when the price level is fixed

*         Explain the expenditure multiplier when the price level is fixed

*         Explain the relationship between aggregate expenditure and aggregate demand and explain the multiplier when the price level changes

 

Chapter 29:  US Inflation, Unemployment, and Business Cycles

 

*         Describe the patterns in output and inflation in the evolving U.S. economy

*         Explain how demand-pull and cost-push forces bring cycles in inflation and output

*         Explain the short-run and long-run tradeoff between inflation and unemployment

*         Explain how the mainstream business cycle theory and real business cycle theory account for fluctuations in output and employment

 

Chapter 30:   Fiscal Policy

 

*         Describe the federal budget process and the recent history of outlays, tax revenues, deficits, and debts

*         Explain the The Supply-Side: Employment and Potential GDP on employment and potential GDP

*         Explain the effects of deficits on investment, saving, and economic growth

*         Explain how fiscal policy choices redistribute benefits and costs across generations

*         Explain how fiscal policy can be used to stabilize the business cycle

 

Chapter 31:   Monetary Policy

 

*         Describe the objectives of U.S. monetary policy and the framework for setting and achieving them

*         Explain how the Federal Reserve makes its interest rate decision and achieves its interest rate target

*         Explain the transmission channels through which the Federal Reserve influences the inflation rate

*         Explain and compare alternative monetary policy strategies

 

Chapter 32:   Trading with the World

 

*         Describe the trends and patterns in international trade

*         Explain comparative advantage and explain why all countries can gain from international trade

*         Explain why international trade restrictions reduce the volume of imports and exports and reduce our consumption possibilities

*         Explain the arguments that are used to justify international trade restrictions and show how they are flawed

*         Explain why we have international trade restrictions