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Homework answers.

File 19 Questions for homework

1. Graph the following demand schedule. Complete the chart by first inserting the formula
    for the coefficient of price elasticity of demand. Calculate elasticity of demand and 
    show the three levels of price elasticity of demand on a graph.



 Ed = (Q2 -Q1) / [Q2 - Q1)/2] / (P2 - P1) / [(P2 - P1)/2]



ED = (200/900) / (10/25) = .56

ED = (200/700) / (10/35) = 1.00

ED = (200/500) / (10/45) = 1.80








2. Draw both a perfectly elastic and perfectly inelastic demand curve. Give an example of each
   and state the characteristics that determined their elasticity.

Examples: Agricultural: potatoes are close to perfectly elastic although both Maine and Idaho would like to convince us differently. Purdue did convince many his chickens are better.

Insulin is products is close to perfectly inelastic for diabetics.

          Characteristic              Elastic                  Inelastic
             product type                 luxury                   necessity
              % of budget                  high                        low   
                substitutes                  many                       none
                  eregency                   little                         lots


File 20 Questions for homework

1. Use the utility maximizing rule to determine how many of goods A, B, and C to purchase with a $22 budget. 
    List the order in which the goods would be purchased.

Good A costs $4.00

Good B costs $3.00

Good C costs $2.00

Qt.              MU           MU/$            Rank

Qt.             MU              MU/$           Rank

Qt.             MU                MU/$                 Rank

    1                   8             2.0                  1st

 1                 6                  2.0               1st

    1              2.0                1.0                      5th

    2                  6              1.5                 3rd 

2                   5                 1.67             2nd

    2              2.0                1.0                      5th

    3                 4              1.0                  5th

3                  4                 1.33              4th 

    3              1.5               0 .75

    4                 2              0.5

4                  3                  1.0               5th

    4              1.5                0.75

Three units of x, 2 units of y, and 2 units of z were purchased. 

2. Explain why most consumers receive a surplus when purchasing a product.

Goods are purchased at an equilibrium price. Buyers would be willing to pay more than the equilibrium price for quantities below the equilibrium quantity. Paying the lower equilibrium price is thought of as a surplus.

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3. Graph the following data and calculate the MRSXY.

Video Tapes 
Per Month
A Night 
On The Town
Marginal Rate of Substitution

1 13
2 9 4
3 6 3
4 4 2
6 3 .5
9 2 .33
13 1 .25

File 21 Questions for homework

1. Below each variable place its formula, finish the chart, and graph the results.

Total Fixed 
Total Variable Costs
Marginal Costs  Average Fixed Costs
Average Variable Costs
Average Total Costs 
Insert Formula            
0 400 0 400   Undefined    
1 400 200 600 NA 400 200 600
2 400 300 700 100 200 150 350
3 400 375 775 75 133 125 258
4 400 425 825 50 100 106 206
5 400 500 900 75 80 100 180
6 400 700 1,100 200 67 117 183
7 400 1,000 1,400 300 57 143 200
 Graphs are not depicted. There shape is similar to those depicted in file 21.

2. List examples of the types of costs incurred by the Music Emporium.

Fixed Costs   Variable Costs   Explicit Costs   Implicit Costs
rent  labor  all  Darin's time

fixed assets 

utilities accounting costs  Darin's capital
 property taxes advertising 

File 22 does not have homework questions.

File 23 Questions for homework

1. Use two graphs to depict the supply and demand relationship between a purely competitive industry and a firm within the 
    industry making a profit. Explain the likelihood of this situation continuing. 



Entry into this market is easy and many seeing the profit will enter the market.

Free international trade makes markets more competitive and lowers profit.


2. Use graphs to depict a purely competitive adjustment. Explain why the adjustment takes place.   
Suppose industry demand and supply yield an equilibrium price P at which a firm's economic profit is zero.

1. Step 1 indicates an increase in demand to D' causing economic profit.
2. Market entry is relatively easy and this profit draws in new
firms increasing supply to S'. Economic profit disappears.
3. This automatic purely competitive adjustment causes equilibrium long run economic profit for pure competition to be zero.

To many, zero long run economic profit represents an ideal economic model as all the company earns is a normal return on investment.

3.  Give an economic analysis of pure competition. 

     A. Competition is efficient.
         1. Price settles where long-run ATC is at its lowest point indicating goods are produced efficiently.
         2. P = MR = MC indicating that resources are allocated efficiently as the
            $'s spent by consumers (P) = the $'s received by producers (MR) = the
            $ cost of producers (MC) and economic profit is zero.
      B. Shortcomings
          1. Spillover costs (pollution) and benefits (education) aren't properly measured resulting in goods being 
              over and under produced.
              a. Government intervention was needed to lower automobile pollution.
              b. Governments supports education with grants and inexpensive loan problems to students and colleges.
          2. Monopoly power develops to negate Adam Smith's "invisible hand" of competition which is required 
              to assure that the purely competitive adjustment occurs.
          3. Eliminating economic profit makes it difficult for competitive firms to afford expensive R & D and technology.

File 24 Questions for homework

1. Contrast a monopoly making a profit with one trying to minimize its loss. What circumstances could cause a monopoly not to make a profit? 

A. ATC includes normal return on investment.
B. MC cuts ATC at lowest point.
C. Profit is maximized by producing a quantity and charging a price indicated by the intersection of MC and MR.
D. The resulting profit is not a payment for enterprise, it is economic rent.
E. High inelastic demand will result in a higher price, greater profit, and a more restricted (smaller) quantity.
A. Rising costs and shrinking demand may result in a monopoly not making a profit.  
B. When this happens, demand (average revenue) is always below the ATC and a loss results.

2. State the traditional reasons why a monopoly is not as efficient as a purely competitive firm.
    Why might this analysis be incorrect?

   Monopolies increase profits by restricting output to increase price.
   Demand is inelastic so total revenue increases. This analysis assumes
   a monopoly has the
  same average total costs as would the many firms
   that would replace it with a more competitive market.


File 25 Questions for homework


1. Draw a graph depicting a monopolistically competitive firm operating at a profit. Other things being equal, what will happen to this profit? Why? 

 Some believe economic profit tends toward zero as the number of firms adjust to varying profit levels.

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2. Contrast the economic efficiency of a purely competitive firm with one operating in a monopolistically competitive market. 

Because demand is not perfectly elastic for monopolistic,
it has a higher price and a lower quantity.

File 26 Questions for homework


2. What changes in this situation would result in the firm breaking even or even incurring a loss?
     A. A decrease in demand or an increase in cost could eliminate profit.
     B. A change
in consumer attitudes increased demand for foreign cars during the 1980's.
     C. OPEC price controls decreased supply and increased factor costs in the 1970's.


File 27 Questions for homework

1. Use the following data to calculate the optimum amount of resources to employ Labor costs $12 and capital costs $18.
    First calculate the
proportion of resources to use and then the absolute number to hire.

Quantity of Resources

1 2 3 4 5 6
 Marginal Revenue Product

    Labor                       $12

    Capital                     $18

42 36 30 24 19 12
54 36 24 18 14 12

2. Use the substitution effect and output effect to explain how the personal computer affected the supply and demand for office personnel.
    The substitution effect results in fewer workers being hired as companies purchase computers because of their high MRP per dollar. 
    This increase in output makes labor more productive increasing its MRP causing more labor to
be hired.

File 28 Questions for homework

1. Contrast a competitive market for labor with one that is monopsonistic. 

Monopsony pays a wage rate below MRC by 
paying the amount indicated by the individual supply curve.

2. Depict and contrast how craft and industrial unions try to affect the wages received by their members.

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Tried to shift supply of workers to the left with licensing, apprenticeships, child labor laws, etc. to increase wages. Try to control supply of workers and emphasized collective bargaining to increase wages.

3. Why might the monopolizing efforts of a monopsony and a union engaged in collective
 bargaining result in a price and quantity similar to that of a competitive market?

File 29 Questions for homework

1. Explain how the single-tax movement of the 19th century relates to the idea of changing the current structure of 
    property taxes in America's cities. 

           Socialist philosophers questioned whether pure economic rent should be paid.
            a. Originally free, owners of land receive pure economic rent which is a surplus. 
            b. Henry George wanted to tax rent away in 19th century America. 
                 1) Called the single-tax movement, he wanted to replace
                     all taxes with one tax on land. 
                 2) Three problems exist with this philosophy.
                      a)  Land is not free to current owners.
                      b) Capital improvements are necessary to make modern land useful.
                      c) Modern rent does perform a rationing function because land is of such differing quality.

2. Name some industries that have recently lost their economic rent. Was this rent deserved? Why did they lose the rent? 
Who was hurt? Who was helped?

Automobiles, steel, and other Rust Belt oligopolies lost much of their economic rent during the 1970's and 1980's. 
The market felt it was deserved. The primary causes were competition from overseas and an inability of company 
managers to adapt to a changing environment. People hurt included owners, managers, employees, suppliers, and 
their communities. Both industries recovered but President Bush found it necessary to increase tarrifs on imported 
steel in 2002.Some feel antitrust activity against Microsoft is an attempt to eliminate economic rent. In the short run, 
consumers and those who invested in competing companies were the primary beneficiaries. In the long run, the theory 
of creative destruction indicates a more efficient system will result, and 
all system participants will benefit. 

File 30 Questions for homework

1. What did Ronald Coase demonstrate concerning government involvement with the regulation of externalities? 
Give an example of the application of his theory.

Analysis by Ronald Coase revealed that government should not get involved with disputes over externality costs 
when property ownership is well-defined and the number of people involved is small. He demonstrated that 
individual maximizing behavior would correct these problems. The government should only be involved
when the 
number of participants is so large as to make bargaining costs prohibitive. For example, the government
should not get involved in a noise pollution problem
near an amusement park but should get involved with 
acid rain generated in the

Midwest and falling into New England.

2. Depict how rent-seekers may obtain a surplus at the expense of the public good.

Question involves special interest groups such as PAC's, whose activities are self- serving and often at the expense of others.

3. Explain the market system solution to the problem of too much pollution.

Supply and demand are used to determine the price and quantity of some tolerable level of pollution. Pollution is then considered a 
factor of production, and like any factor, it will be purchased based upon its marginal revenue product. 

File 31 Questions for homework


1. Explain how government subsidizes industry by regulating supply and demand.

A. Affecting demand

1. Tax credits, tax preferences, and loan programs for everything from agriculture to education increase taxpayers' demand by an amount related to the taxpayers' marginal tax rate.

2. Government also supports industries such as defense and agriculture with large purchases.

B. Affecting Supply

1. Supporting industries such as agriculture and education with subsidies (loans, inexpensive insurance) increases supply, lowers price, and increases quantity sold.

2. Organizations such as the Export-Import Bank of the United States,
which supports export industries, have similar effects.

2. What difficult market forces are encountered by the agriculture industry? How do these forces affect supply, demand, 
and the total revenue received
by farmers? Explain how some of these forces were caused by government actions; some 
of which succeeded, some of which failed.  

Farmers sell in an uncertain market 

B. Supply and Demand for agricultural products is inelastic.

          C. Increased supply causes revenue to drop.

1. Demand is very inelastic as people's physical needs are limited and lowering price will not substantially increase quantity sold.
2. Demand increases slowly for most agricultural products as many are
inferior goods for which quantity demanded decreases
 as income increases.
3. Supply is very inelastic in the short run as crops will only grow so fast
4. Supply is volatile because of the weather
5. Technology has caused supply to increase substantially
6. Annual supply fluctuations cause the prices farmers receive to fluctuate considerably. Fluctuating prices mean fluctuating profits.

File 32 Questions for homework

2. Why and how was government regulation redirected during the 1980's?
    A. In the 1980's, government regulation was redirecting away from maintaining competition toward social regulation. 
        Government regulation of industry
changed direction because:
        1. International competition requires companies work together in developing high-cost technology and share in its high cost
        2. Many feel government should foster cooperation among competitors with an industrial policy while others feel the market
            system should be left to determine factor allocations
   B. Regulations protecting individuals have become more prominent.
a. Environmental Protection Agency (EPA) protects individuals from pollution (air, water, noise).
             b. Consumer Protection and Safety Commission (CPSC) protects consumers from unsafe products.
             c. Food and Drug Administration (FDA) protects consumers from dangerous food, drugs, cosmetics, etc.
             d. Federal Trade Commission (FTC) protects the consumer from unfair trade practices such as deceptive advertising.
             e. Occupational Safety and Health Administration (OSHA) protects people while at work.
             f. Equal Employment Opportunity Commission (EEOC) attempts to eliminate workplace prejudice.
             g. National Labor Relations Board (NLRB) regulates activities between business and unions.

3. Explain the concept of prosecuting conduct and not bigness
         Rule of reason expressed the concept prosecuting conduct and not bigness.
          1. Applied by the Supreme Court in a 1911 antitrust case against Standard Oil of New Jersey and the American 
              Tobacco Company
          2. Court stated that behavior must be unreasonable in a competitive sense and anti-competitive effects must be
          3. Both companies were found guilty. 

4. Compare horizontal and vertical mergers.
     A. Horizontal integration results from a merger of competing companies. US Steel was formed by the merger
          of competing steel companies.
     B. Vertical integration involves companies that have supply dealings. Standard Oil combined refineries and oil
          transportation systems.

File 33 Questions for homework

2. Using the data from file 23, calculate the percentage increase in poverty-level income for 
a family of four and the percentage increase in median family income received by couples with
 the wife not working. Comment on the results.

  Family of Four 
Poverty Income
% Increase Median Family Income, Couples (wife not in paid labor force)   
1959 $2,973      
1970 $3,968 23 $9,304  
1980 $8,414 112 $18,972 104
1990 $13,359 59 $30,265 59

Appendix A Questions for homework

1. Complete this chart and related questions.


Hours to Produce


Computers TV's
U.S. 4 3 1,200 300 400
JAPAN 3 2 600 200 300

A. Which country has an absolute advantage in TV's?   U.S.

                                                                  in computers?   Japan

B. Draw a linear production possibility frontier for each country putting TV's on the x-axis.

C. Calculate the opportunity costs for each product and each country.

United States:   Computers = 400/300 = 1.33         TV's = 300/400 = .75

Japan:               Computers = 300/200 = 1.5           TV"s = 200/300 = .67

D. Which country has a comparative advantage in which products?  Why?

The United States has a lower opportunity cost in computer and therefore has a comparative advantage in making computers.

Japan has a lower opportunity cost in TV's and therefore has a comparative advantage in making TV's.

E. Which country should specialize in which product? Why?

The United States should specialize in computers and Japan should specialize in TV's.
Total production of both products will increase and this increase can be distributed through trade.

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Appendix III Bibliography


1. The Age of Diminishing Expectation, Paul Krugman, The MIT Press, 1990.

2. America in the Global 90's, Austin H. Kiplinger and Knight A. Kiplinger, Kiplinger Books, 1989.

3. Apocalypse on Wall Street, David McClain, Dow-Jones Irwin, 1988.

4. The Bankruptcy of America, Stephen Wilson, Rindge Mills Press, 1992.

5. Business Almanac, Louis Rukeyser, Editor-In-Chief, Simon and Schuster, 1988.

6. Day of Reckoning, Benjamin M. Friedman, Random House, 1988.

7. Dollars and Dreams, Frank Levy, W.W. Norton and Company, 1988.

8. The Economic Future of American Families, Frank Levy and Richard C. Michel, The Urban Institute Press, 1991.

9. The End of the American Century, Steven Schlossstein, Congdon and Wood Inc., 1989.

10. The First Universal Nation, Ben J. Wattenberg, The Free Press, 1991.

11. Free to Choose, Milton and Rose Friedman, Harcourt Brace Jovanovich, 1979.

12. Generations, William Strauss and Neil Howe, William Morrow and Company, 1991.

13. The Great Crash of 1929, John Kenneth Gailbraith, Houghton Mifflin, 1988.

14. The Great Depression of 1990, Ravi Batra, Simon and Schuster, 1985.

15. Interest Rates, The Markets, and the New Financial World, Henry Kaufman, Times Books, 1986.

16. Head To Head, Lester Thurow, William Morrow and Company, 1992.

17. Made in America, The MIT Commission on Industrial Productivity,

The MIT Press, 1989.

18. The New Realities, Peter F. Drucker, Harper & Row, 1989.

19. The Next Economy, Paul Hawken, Ballantine Books, 1983.

20. The Overworked American, Juliet B. Schor, Basic Books, 1991.

21. The Politics of Rich and Poor, Kevin Phillips, Random House, 1990.

22. The Rise and Fall of the Great Powers, Paul Kennedy, Vintage Books, 1987.

23. The Roaring 80's, Adam Smith, Summit Books, 1987.

Appendix IV The Author's Favorite Questions


The following questions relate to the concept of creative destruction (p.5):

Creative destruction of 20th century economist Joseph Schumpeter

was an important addition to the idea of capitalism.

1. Change involves the creation of improved economic structures

and the destruction of inefficient economic structures.

2. Capitalism allows this destruction to take place.

p.6-1. How is the concept of creative destruction currently affecting the

United States economy?

p.6-2. Explain how the concept of creative destruction has affected European politics in the recent past and how it may affect European politics in the near future.

p.23-1. What structural changes (changes in the variables affecting economic

activity) are occurring as the 20th century comes to an end?


p.23-2. How do the structural changes discussed in Question #1 compare with

those of earlier periods?

p.48-1. Have Americans lost their willingness to take economic risks?

p.48-2. How will demographic factors affect economic activity over the next decade or two?

p.52-1. How much should the citizens of the United States invest for the

future? How should this investment be allocated between public and private investments? Who should make these investment decisions?

p.92-2. Bob Gates, founder, developer, and primary owner of Microsoft Corporation, is said to be worth about 7 billion dollars. Discuss in "positive economic terms" (see page 1) this accumulation of wealth (see Question #3).


p.92-3. Discuss Question #2 in normative economic terms.

p.115-4. Has the federal government helped those hurt in the past by the creative destruction caused by economic change such as the current

increase in international competition? Should more be done to help those now being adversely affected by this international competition?

Questions that relate to college students' expected earnings:

p.10-2. How would you expect government involvement in the market for college graduates to affect their market price? Has this happened?

p.78-3. What is your college community doing and what could they do to enhance

product diversification?

p.84-2. Use the concepts explained in this chapter to analyze what college students can do to increase the amount they will earn upon graduation.

p.110-2. Why do you feel the Lorenz Curve for college graduates has

been depicting an increase in income inequality?

Interesting tax question:

p.14-2. Is the benefit received by citizens from government economic activity linear in relation to income? That is, does a person earning $100,000 annually receive approximately twice the benefit received by someone earning $50,000?

If not, what does a graph of the relationship look like?





Absolute advantage 113

Accounting profit 11, 63

Aggregate demand (AD)

25, 26, 28, 31-32, 37, 39, 41, 42, 45, 51

Aggregate supply (AS) 26, 28, 45

Aid to Families with Dependent

Children (AFDC) 108

American Federation of Labor (AFL) 87

Antitrust laws 12, 103, 104

Automatic stabilizers 39

Average product of labor 63

Average Propensity to Consume (APC) 31

Average Propensity to Save (APS) 31

Average tax rate 16

Baby boomers 48, 52

Baighe book 36

Balance of payments 39

Banks 35, 36

Barter 7

Budget Accord of 1990 47

Budget deficit 49

Budget lines 60

Budget philosophies:

Annually balanced 49

Cyclically balanced 49

Functional finance 49

Business cycle 21, 39

Business population 15

Capital gains taxes 39

Capitalism 5, 11, 12

Celler-Kefauver Antimerger Act of 1950 103

Ceteris Paribus 1

Circular Flow of Money 5


Equilibrium 28

Range 26

Clayton Act of 1914 103

Closed shop 86

Coase Theorem 95

Collusive pricing 79

Commodity money 35

Communism 6

Comparative advantage 113

Competition 12, 73


Market System 5

Model 85

Supply 73

Complements 7, 83

Concentration ratios 103

Conglomerates 103

Congress of Industrial

Organizations (CIO) 87

Consumer credit controls 42

Consumer Price Index (CPI) 20, 22, 50

Consumer Protection and Safety

Commission (CPSC) 104

Consumer surplus 59

Consumption 19, 25, 31, 39

Corporate income taxes 16

Corporate raiders 103

Corporation 15, 16

Cost-of-living increases 22

Cost-push inflation 22


Explicit 63, 90

Fixed 63

Implicit 63, 90

Long run 69

Marginal 63, 64

Variable 63, 68

Creative Destruction 5, 113

Demand 7, 9, 67, 81

Demand-pull inflation 22

Demand schedule 7, 55

Demand theory 59

Democratic socialism 6

Determinants of growth 51

Diminishing marginal rate of substitution 60

Diminishing return 63

Discount rate 42

Disposable income 19, 31, 60

Durable goods 21

Economic growth 51

Economic models 1

Economic policy 1

Economic Recovery Tax Act of 1981 47


Profit 11, 63, 90

Rent 89

Theory 1


Classical 27, 37, 49

Descriptive 1

Normative 1

Planned 6

Positive 1

Economies of scale 69

Elasticity 55, 56, 57, 67, 83

Employment Act of 1946 39

Environmental Protection Agency (EPA) 104

Equal Employment Opportunity

Commission (EEOC) 104

Equation of exchange 37

Equilibrium price 8

Equitable distribution of income 12

Excise taxes 16, 47

Exports 19, 25, 31, 49, 99, 113

Externalities 12, 95

Factor Allocations 81, 82

Factor markets 72


Factors of production 2

Family income 15

Featherbedding 86

Federal Aviation Administration (FAA) 104

Federal budget 17

Federal Communications

Commission (FCC) 104

Federal debt 49, 50

Federal funds rate 42

Federal Reserve System 35, 36, 41, 47, 90

Federal Trade Commission Act of 1914 103

Fiat 35


Fiscal policy 21, 39, 40

Food and Drug Administration (FDA) 104

Food stamps 108

Friedman, Milton 37

Full employment 22, 27, 28

General Theory of Employment,

Interest and Money 27

George, Henry 89


Inferior 7, 57

Superior 7, 57

Government spending 25, 31, 39

Government subsidies 99, 100

Great Depression 27

Green movement 52

Gross Domestic Product (GDP)

19-21, 26, 32, 41, 49, 50

Gross National Product (GNP) 19, 49-51

Humphrey-Hawkins Act of 1978 39

Imports 25

Income effect 7


Curves 60

Map 60

Industrial Revolution 83

Inelastic demand 55, 56

Inflation 22, 41, 45-47

Inflationary gap 32, 39

Inflationary psychology 46

Innovation cycle 21

Interest rate 25, 90

Intermediate range 26

International trade 113, 114

Interstate Commerce Commission (ICC) 104

Inventory recession 21

Investment 25, 31

Investment tax credit 39

Invisible hand 11

Jawboning 42

Junk Bonds 103

Keynes, John Maynard 27, 32, 37


Economics 27, 31, 37, 39, 45, 47-49

Equilibrium 28

Range 26


Kinked demand curve 79

Labor 83

Laffer, Arthur 47

Laffer Curve 47

Laissez-faire capitalism 5, 27

Law of:

Demand 7, 59

Diminishing Marginal Utility 59

Increasing Costs 3

Supply 8

Leading indicator 22

Leakage 27, 35

Leverage buyouts 103

Liquidity Preference:

Precautionary 27

Speculative 27

Transactionary 27

Logrolling 96

Lorenz Curve 107

Macroeconomics 1

Macro equilibrium 25, 27

Mandatory breakdown 17


Physical Product (MPP) 81

Product of Labor 63

Propensity to Consume (MPC) 31, 33

Propensity to Save 31

Rate 16

Rate of Substitution 60

Requirements 42

Resource Cost (MRC) 85

Revenue (MR) 67

Revenue Product (MRP) 81, 89

Utility 59, 60

Market failures 12

Marketplace 7

Market systems 11, 15

Marx, Carl 6

Maximizing profit 68

Medicaid 108

Medicare 108


Horizontal 103

Vertical 103

Microeconomics 1, 54

Middle-class tax entitlements 12

Minimum wage 87

Misery Index 46

Mixed Economies 6

Monetarists 37

Monetary multiplier 36

Monetary policy 21, 41, 42

Money 20, 35-37, 41

Monopoly 72, 75-77, 81, 85-87, 103

Monopsony 85-87

Moral suasion 42

Multiplier 32

National income 19

National Labor Relations Board 86, 104

Neo Keynesian Economics 28

Net National Product 19

Noncyclical Fluctuations 21

Long-Term Secular Trends 21

Seasonal 21

Normal profit 11

Occupational Safety and Health

Administration (EEOC) 104

Okun's Law 22

Old Age, Survivors, Disability Health

Insurance 108

Oligopoly 72, 79, 80

Oligopsony 86

OPEC 46, 79

Open market operations 42

Open shop 86

Opportunity costs 2, 3, 63, 113

Parity pricing 100

Partnership 15, 16

Payroll taxes 16

Personal income 19

Personal income tax 16, 39

Phillips, A. W. 45

Phillips Curve 45

Planned economy 6


Action Committees (PACs) 96

Business cycle 40

Events 21

Poverty 108, 109

President's Council of Economic

Advisors 39


Ceilings 9

Elasticity 55, 57

Floors 9

Index 20

Levels 25, 28

Supports 100

Price-Wage Flexibility 27

Prime rate 42

Producer Price Index (PPI) 20

Product markets 54, 72

Production Possibility Curve 2

Profit 11, 67

Protectionism 114

Public sector activity 95

Rational expectations 37

Reaganomics 47, 48

Real balance effect 25

Receipts 16

Recessionary gap 32

Rent-seekers 96

Required rate of return 90

Reserve ratio 42

Resource demand 81-83

Robinson-Patnum Act of 1936 103

Rolling recession 21



Nominal 20

Real 20

Savings 19, 31

Say's Law 27

Schumpeter, Joseph 5

Sherman Antitrust Act of 1890 103

Shifting tax incidence 17

Smith, Adam 5, 27

Socialism 6

Social security 16, 17, 108

Sole proprietorship 15, 16

Spill-overs 12

Stagflation 45-47

Standard industrial classification 103

Static equilibrium 26

Static model 2

Substitutes 7, 83

Substitution effect 7

Supply 8, 9

Supply schedule 8

Supply-side economics 45-48

Taft-Hartley Act of 1947 86

Tax incidence 17

Taxation philosophies 17

Tax rates:

Progressive 16, 17

Proportional 17

Regressive 17

Tax Reform Act of 1986 47

Terms of trade 114

Token money 35

Total economic activity 19

Total Product of Labor 63

Total revenue 55-57

Trade deficit 48

Traditional economy 6

Transfer payments 12

Trusts 103

U.S. banking system 35

Underground economy 19

Unemployment: 21, 45, 46

Compensation 108

Cyclical 21

Frictional 21

Structural 21

Union model 85, 86

Union shop 86

User taxes 17

Utility maximizing rule 59

Velocity of money 37, 42

Wage determination 85

Wagner Act of 1935 86

Wealth of Nations 5, 27

Wheeler-Lea Act of 1938 103