Economics For Dummies, 3rd Edition

Sean Flynn, PhD, is an associate professor of economics at Scripps College in Claremont, California. A specialist in behavioral economics, Dr. Flynn has provided economic commentary for numerous news outlets, including NPR, ABC, FOX Business, and Forbes.

Introduction 1 About This Book 1 Foolish Assumptions 3 Icons Used in This Book 3 Beyond the Book 4 Where to Go from Here 4 Part 1: Economics: The Science of How People Deal With Scarcity 5 Chapter 1: What Economics is and Why You Should Care 7 Considering a Little Economic History 8 Pondering just how nasty, brutish, and short life used to be 8 Identifying the institutions that raise living standards 9 Looking toward the future 10 Framing Economics as the Science of Scarcity 10 Sending Microeconomics and Macroeconomics to Separate Corners 11 Getting up close and personal: Microeconomics 11 Zooming out: Macroeconomics and the big picture 14 Understanding How Economists Use Models and Graphs 16 Introducing your first model: The demand curve 17 Drawing your own demand curve 20 Chapter 2: Cookies Or Ice Cream? Exploring Consumer Choices 21 Describing Human Behavior with a Choice Model 22 Pursuing Personal Happiness 23 Using utility to measure happiness 23 Taking selfless actions into account 23 Self-interest can promote the common good 24 You Cant Have Everything: Examining Limitations 25 Resource constraints 25 Technology constraints 25 Time constraints 26 Opportunity cost: The unavoidable cost 26 Making Your Choice: Deciding What and How Much You Want 27 Exploring Violations and Limitations of the Economists Choice Model 29 Understanding uninformed decision-making 29 Making sense of irrationality 30 Chapter 3: Producing Stuff To Maximize Happiness 33 Figuring Out Whats Possible to Produce 34 Classifying resources 35 Clarifying human capital 35 Diminishing returns 36 Allocating resources 37 Graphing your production possibilities 38 Reaching new frontiers with better technology 41 Deciding What to Produce 42 Comparing market results and government interventions 43 Opting for a mixed economy 49 Promoting Technology and Innovation 52 Part 2: Microeconomics: The Science of Consumer and Firm Behavior 55 Chapter 4: Supply and Demand Made Easy 57 Deconstructing Demand 58 Prices and other stuff: Looking at what affects quantity demanded 59 Graphing the demand curve 60 Opportunity costs: Setting the slope of the demand curve 62 Elasticity: Looking at extreme demand cases 63 Sorting Out Supply 65 Graphing the supply curve 65 Using elasticity to understand extreme supply cases 69 Bringing Supply and Demand Together 70 Market equilibrium: Seeking a balance 71 Demonstrating the stability of the market equilibrium 72 Adjusting to new market equilibriums when supply or demand changes 74 Price Controls: Keeping Prices Away from Market Equilibrium 76 Setting upper limits with price ceilings 77 Propping up prices with price floors 79 Chapter 5: Introducing Homo Economicus, The Utility-Maximizing Consumer 83 Choosing by Ranking 84 Getting Less from More: Diminishing Marginal Utility 85 Choosing Among Many Options When Facing a Limited Budget 88 Trying to buy as much (marginal) utility as you can 88 Purchasing the best combination of two goods to maximize total utility 91 Aiming for equal marginal utility per dollar 93 Deriving Demand Curves from Diminishing Marginal Utility 95 Seeing how price changes affect quantities demanded 96 Graphing the price and quantity changes to form a demand curve 97 Chapter 6: The Core of Capitalism: The Profitmaximizing Firm 101 A Firms Goal: Maximizing Profits 102 Facing Competition 103 Listing the requirements for perfect competition 103 Taking prices but setting quantities 104 Distinguishing between accounting profits and economic profits 106 Analyzing a Firms Cost Structure 107 Focusing on costs per unit of output 108 Examining average variable costs 110 Watching average fixed costs fall 111 Tracking the movement of average total costs 111 Focusing on marginal costs 112 Noticing where marginal cost equals average cost 113