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Flexibility for you and quality, engaging content for your students...
The sixth edition of this benchmark Australian text continues to offer students a comprehensive and relevant introduction to economics whilst now offering you, as the instructor, the ability to customise and deliver the content the way you wish to teach it!
Through extensive revision, the book gives students an even more streamlined approach to study and recognises the difficulties some may face in comprehending key concepts. The new edition leaves the more technical content and applications until later, allowing students to enjoy the more exciting policy material from the beginning and to engage with the content early.
Through compelling examples, clear explanations and the latest instructive on-line resources, the text draws students into the content and reinforces learning through practice and solving problems which are relevant to them. The authors train students to think about issues in the way real economists do, and learn how to explore difficult policy problems and make more informed decisions by offering a clear introduction to theory and applying the concepts to today's events, news, and research.
New To This Edition
Key content changes to the sixth edition
In addition to being thoroughly updated and revised to include the topics and features just described, the microeconomics chapters feature the following eight major changes:
1. Sequence of Chapters
Following an introduction that covers what economics is about, the economic problem, demand and supply, and elasticity, this new edition organises microeconomics in two parts: How Markets Work, and Decisions and Strategies in Markets. The first part opens with the chapter on efficiency and equity, which lays of the agenda for the remaining chapters in the part. Subsequent chapters apply the demand and supply model, along with the interpretation of the demand and supply curves as (respectively) marginal benefit and marginal costcurves, to study all the reasons for market failure and the policy responses to those failures. The second part contains the more technical material on the decisions that lie behind demand and supply.
2. Global Markets in Action (Chapter 7)
This chapter contains a new section on the effects of import quotas on an exporting country. The idea is to explain how, for example, US import quotas on Australian beef and other products impact producers and consumers in Australia.
3. Public Choices and Public Goods (Chapter 8)
This chapter, new to the sixth edition, has its origins in parts of Chapters 15, 16, and 17 of the fifth edition. The chapter explains the public choice approach to understanding the political market place, the challenge of providing efficient quantities of public goods and mixed goods, and the range of possible public choice outcomes. The chapter combines both public goods and mixed goods with external benefits. The explanation of the free-rider problem created by public goods has been reworked with fire protection as the running example. The analysis is illustrated with an application to the Victorian bushfires of 2009.
4. Economics of the Environment (Chapter 9)
Another new chapter to the sixth edition, with its origins in Chapters 16 and 17 of the fifth edition but with the material reworked to make it fit together. The chapter explains the main environmental issues-pollution/carbon emission and overuse of public resources-and features the Garnaut report and global warming. The Reading Between the Lines application examines emissions permit trading schemes.
5. Monopoly and its Regulation (Chapter 10)
To explain the problem of monopoly before a full technical chapter on cost curves required substantial revision of the monopoly chapter (Chapter 11 in the fifth edition). We explain the basic bits of the cost curves needed to understand monopoly, and we tie monopoly to Chapter 9 on the political marketplace by connecting rent seeking with lobbying and other political action. The chapter has an application on information-age natural monopolies. A new final section to this chapter explains monopoly policy and shows how price cap regulation that creates a shortage in a competitive market can help to achieve efficiency in a monopoly market.
6. Consumer Choices and Constraints (Chapter 12)
The chapter on consumer choice has a new application on consumer choices in the market for recorded music, in which digital downloads have almost driven out CD purchases. This massive substitution is used to illustrate the predictions of consumer theory. The chapter also includes an explanation of new behavioural economics and neuroeconomics approaches to understanding choice.
7. Monopolistic Competition (Chapter 15)
This chapter now covers only monopolistic competition and has new updated examples of advertising and market shares.
8. Oligopoly Games and Strategies (Chapter 16)
All the oligopoly models now appear in one chapter. The chapter provides new data on market shares and the prevalence of duopoly in Australia. The full chapter coverage on competition policy has been replaced with a shorter version at the end of this chapter.
The thoroughly updated coverage of macroeconomics is now organised in three parts:
1. Monitoring the macroeconomy
2. Understanding the macroeconomy
3. Macroeconomic policy.
This reorganisation provides flexible coverage of the material and supports either a course that focuses on the trends and long-run fundamentals or one that focuses on fluctuations and short-run departures from trend.
In addition to these organisational changes, the macroeconomics chapters feature the following eight major revisions.
1. Measuring GDP and Economic Growth (Chapter 18)
This chapter now includes a description and discussion of the recent history of real GDP growth and fluctuations found in the previous edition's introductory macro chapter. The explanation of the real GDP has been simplified and the calculation of real GDP using the chain volume measure is presented in a new Mathematical Note at the end of the chapter.
2. Monitoring Jobs and Inflation (Chapter 19)
This substantially revised chapter has a simplified coverage of the anatomy and types of unemployment but a more comprehensive explanation of the sources of unemployment. As today's unemployment is compared with that of the Great Depression, the empirical relationship between cyclical unemployment and the output gap is more clearly illustrated. The measurement of the price level and inflation is motivated with a discussion of inflation and why it is a problem. The chapter also includes new material on alternative price indexes including the GDP deflator and the chain price index of household final expenditure (HFCE), as well as the concept of core inflation and its measurement with the trimmed mean CPI. The chapter now concludes with a brief section on the general use of real variables in macroeconomics.
3. Economic Growth (Chapter 20)
The process of economic growth now begins with an explanation of what determines potential GDP (adapted from the previous edition's classical model chapter) and is followed by an explanation of what makes potential GDP grow. The sources of labour productivity growth are thoroughly explored.
4. Finance, Saving, and Investment (Chapter 21)
An entirely new chapter provides a thorough and extensive explanation of financial markets and institutions. These markets are the link between the money economy and the real economy, and they play a crucial role in providing the funds for investment- an engine of economic growth. The circular flow model of Chapter 18 is extended to include the flows in the market for loanable funds that finance investment. The chapter explains the role of government in the market for loanable funds and explains crowding out and the role of debt and the government budget deficit. The chapter also includes a discussion of borrowing and lending in the global loanable funds market. The credit crisis of 2008 is a central example used to illustrate the working of this vital macroeconomic market.
5. Money, the Price Level, and Inflation (Chapter 22)
This chapter is heavily revised to simplify the explanation of the money creation process. A Mathematical Note at the end of the chapter provides a more comprehensive analysis of this process. The chapter includes an explanation of the role and functions of the Reserve Bank. It also includes coverage of the Reserve Bank's and the U.S. Federal Reserve's roles in the 2008 credit crisis.
6. The Exchange Rate and the Balance of Payments (Chapter 23)
This chapter is heavily revised to incorporate an explanation of the determination of the balance of payments, found in the international trade chapter of the previous edition. The chapter also looks at the dramatic rise in the Australian dollar from 2002 to 2008 and the equally dramatic fall that started in July 2008.
7. Aggregate Demand and Aggregate Supply (Chapter 24)
This chapter is a streamlined version of the previous edition's content, but with a new and more detailed explanation and illustration of the Australian business cycle. The added clarity and focus of this chapter reflects the tone and goals of the sixth edition.
8. Fiscal Policy (Chapter 27) and Monetary Policy (Chapter 28)
These chapters are revised to incorporate the policy responses to the ongoing slowdown and recession triggered by the global financial crisis. They describe and analyse the Commonwealth government's fiscal stimulus packages and the Reserve Bank's interest rate actions in 2008 and the first quarter of 2009. Chapter 28 contains a new feature on the influences on Reserve Bank decisions and compare its cash rate decisions with the Taylor Rule. The chapter also explains the extraordinary policies that have been adopted to cope with the unusual economic and financial crisis.
Features and Benefits
* Choose your own structure. The flexible chapter organisation and sequence have been designed to satisfy a wide range of instructor organisational preferences. The preface includes a 'Flexibility Chart' and 'Alternative Sequence' tables. These provide guidelines for chapter organisation and sequence.
* Modern economics made accessible. Economics places topics such as the principal-agent problem, public choice theory, and the economics of uncertainty and incomplete information within the grasp of the principles student. The text also achieves a serious yet accessible synthesis of the traditional Keynesian and monetarist theories with the new macroeconomics that emerged from the Lucas revolution.
* NEW! News stories about today's major economic events tie each chapter together, from new chapter-opening vignettes and photos to end-of-chapter problems and online practice. Students learn to use economic tools to analyse their own daily decisions and recent real-world events and issues.
* NEW! The end-of-chapter problems have been expanded to become Problems and Applications. Each chapter has approximately 10 new additional problems tied to recent news and current events.
* Each chapter includes a discussion of a critical issue of our time to demonstrate how economic theory can be applied to explore a particular debate or question. Issues of central importance include:
o Gains and tensions from globalization, the rise of Asia, and the changing structure of the global economy in Chapters 2, 7, and 20
o High and rising cost of food in Chapters 2 and 3
o Fluctuations in petrol and oil prices and the effects of high petrol prices on car sales in Chapters 3 and 4
o Climate change in Chapter 9
o Efficient use of natural resources and today's tragedies of the commons in Chapter 9
o Changing patterns of consumption in the information age in Chapter 12
o Reserve Bank and government response to the global financial crisis in Chapters 22, 27, and 28
o Financial instability of 2008 in Chapter 21
o Currency fluctuations in Chapter 23
o Recession of 2008-2009 in Chapters 18, 19, 21, 22, 24, 25, 27, and 28
* McTaggart's diagrams show the action. McTaggart sets the standard for clear and meticulous diagrams. With a consistent and meaningful use of colour, each and every figure has been designed with the study and review needs of students in mind.
* MyEconLab, an online suite of tools for students and instructors, helps students study and saves instructors time. It contains:
o Study plans customised to each student
o Self-assessment tests and graded homework assignments
o Interactive eText with animated graphs and figures
o Weekly news updates
o Email help from the author, and
o Full integration within the text.
Visit http://www.myeconlab.com/mctaggart to register for MyEconLab
Table of Contents
Part 1: INTRODUCTION
1. What is Economics?
2. The Economic Problem
3. Demand and Supply
Part 2: HOW MARKETS WORK
5. Efficiency and Equity
6. Government Actions in Markets
7. Global Markets in Action
8. Public Choices and Public Goods
9. Economics of the Environment
10. Monopoly and its Regulation
11. Economic Inequality
Part 3: DECISIONS AND STRATEGIES IN MARKETS
12. Consumer Choices and Constraints
13. Producer Choices and Constraints
14. Perfect Competition
15. Monopolistic Competition
16. Oligopoly Games and Strategy
17. Decisions in Factor Markets
Part 4: MONITORING THE MACROECONOMY
18. Measuring GDP and Economic Growth
19. Monitoring Jobs and Inflation
Part 5: UNDERSTANDING THE MACROECONOMY
20. Economic Growth
21. Finance, Saving, and Investment
22. Money, the Price Level, and Inflation
23. The Exchange Rate and the Balance of Payments
24. Aggregate Demand and Aggregate Supply
25. Expenditure Multipliers: The Keynesian Model
26. Australian Macroeconomic Fluctuations
Part 6: MACROECONOMIC POLICY
27. Fiscal Policy
28. Monetary Policy