Essentials of Economics, Tenth Edition
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ABOUT THE AUTHORS
Bradley R. Schiller has over four decades of experience teaching introductory econom-
ics at American University, the University of California (Berkeley and Santa Cruz), the University of
Maryland, and the University of Nevada (Reno). He has given guest lectures at more than 300
colleges ranging from Fresno, California, to Istanbul, Turkey. Dr. Schiller’s unique contribution to
teaching is his ability to relate basic principles to current socioeconomic problems, institutions,
and public policy decisions. This perspective is evident throughout Essentials of Economics.
Dr. Schiller derives this policy focus from his extensive experience as a Washington con-
sultant. He has been a consultant to most major federal agencies, many congressional com-
mittees, and political candidates. In addition, he has evaluated scores of government
programs and helped design others. His studies of income inequality, poverty, discrimination,
training programs, tax reform, pensions, welfare, Social Security, and lifetime wage patterns
have appeared in both professional journals and popular media. Dr. Schiller is also a frequent
commentator on economic policy for television, radio, and newspapers.
Dr. Schiller received his PhD from Harvard and his BA degree, with great distinction, from
the University of California (Berkeley). When not teaching, writing, or consulting, Professor
Schiller is typically on a tennis court, schussing down a ski slope, or enjoying the crystal blue
waters of Lake Tahoe.
Karen Gebhardt is a faculty member in the Department of Economics at Colorado State
University (CSU). Dr. Gebhardt has a passion for teaching economics. She regularly instructs large
introductory courses in macro and microeconomics, small honors sections of these core princi-
ples courses, and upper division courses in Public Finance, Microeconomics, and International
Trade, as well as a graduate course in teaching methods. She is an early adopter of technology
in the classroom and advocates strongly for it because she sees the difference it makes in stu-
dent engagement and learning. Dr. Gebhardt has taught online consistently since 2005 and co-
ordinates the online program within the Department of Economics at CSU. She also supervises
and mentors the department’s graduate teaching assistants and adjunct instructors.
Dr. Gebhardt was the recipient of the Water Pik Excellence in Education Award in 2006
and was awarded the CSU Best Teacher Award in 2015.
Dr. Gebhardt’s research interests, publications, and presentations involve the economics
of human–wildlife interaction, economics education, and the economics of gender in the
United States economy. Before joining CSU, she worked as an Economist at the United States
Department of Agriculture/Animal and Plant Health Inspection Service/WildlifeServices/
National Wildlife Research Center conducting research on the interactions ofhumans and
wildlife, such as the economic effects of vampire bat-transmitted rabies inMexico; the potential
economic damage from the introduction of invasive species to theIslands of Hawaii; bioeco-
nomic modeling of the impacts of wildlife-transmitted disease; and others. In her free time,
Dr. Gebhardt enjoys learning about new teaching methods that integrate technology, as well
as rock climbing and camping in the Colorado Rockies and beyond.iii
Source:Bradley Schiller
Source:Karen Gebhardt
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iv Microeconomics
iv
PREFACE
Election campaigns bring out the best and the worst economic ideas. Virtually every can-
didate promises a “chicken in every pot,” without regard to the supply of chickens. They
will clean up the environment, fix our schools, put more police on the streets, build more
affordable housing, and, of course, guarantee every American access to quality health care.
And they’ll do this while cutting taxes, subsidizing alternative energy sources, and rebuild-
ing America’s infrastructure.
Don’t you wish you lived in such a utopia! I know I do. And our students overwhelm-
ingly embrace these promises.
The problem is, of course, that there is no such thing as a free lunch. Nor free health
care, free environmental protection, or free infrastructure development. As economists, we
know this; we know that resource scarcity requires us to make difficult choices about com-
peting uses of those resources. We know that politicians can’t place a chicken in every pot
without allocating more resources to poultry production—and fewer resources to the pro-
duction of other desired goods and services.
Our first task as instructors is to convince students of this basic fact of life—that
every decision about resource use entails opportunity costs. If we can establish that
beachhead early on, we have a decent chance of instilling in students a basic appreciation
of economic theory.
The other challenge for us as instructors is to instill in students a sense of
why
the eco-
nomic problems we analyze are important. We know that inflation and unemployment
cause serious hardships. But most of our students haven’t experienced the income losses
that accompany unemployment or seen their retirement savings decimated by inflation. We
have to explain and illustrate why the macro problems we seek to solve are politically, so-
cially, and economically important.
The same reference gap exists in micro. Formulas and graphs illustrating external-
ities or lost consumer surplus are meaningless abstractions to most students. If we
want them to appreciate these concepts, we have to illustrate them with real-world
examples (e.g., the death toll from second-hand smoke; the higher airfares that result
on monopoly airplane routes). For most students, this course is their first exposure to
economics. If we want them to understand the subject—maybe even pursue it
further—we have got to relate our concepts and theories to the world that they live in.
This has been the hallmark of
Essentials
from the beginning: introducing the core
concepts of economics in a reality-based,policy-driven context. This tenth edition
continues that tradition.
WHAT, HOW, FOR WHOM
The core theme that weaves through the entire text is the need to find the best possible
answers to the basic questions of WHAT, HOW, and FOR WHOM to produce. Students
are confronted early on with the reality that the economy doesn’t always operate optimally
at either the macro or micro level. In Chapter 1, they learn that markets sometimes fail to
generate optimal outcomes, but also that government interventions can fail to improve
economic performance. The policy challenge is to find the mix of market reliance and
government regulation that generates the best possible outcomes. Every chapter ends with
a Policy Perspectives feature that challenges students to apply the economic concepts they
have just encountered to real-world policy issues. In Chapter 1, the policy question is, “Is
‘Free’ Health Care Really Free”—a question that emphasizes the opportunity costs
associated with all economic activity. In Chapter 10, the issue is “Is Another Recession
Coming”—which challenges students to think about the causes and advance indicators of
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