Lecture Notes for Economics, 13th Edition

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PrefaceiiiPerspectiveMyLabEconomicsviiFlexibilityHow to Assemble Your CourseixPart 1IntroductionChapter 1What is Economics?1Chapter 2The Economic Problem11Part2How Markets WorkChapter 3Demand and Supply23Chapter 4Elasticity37Chapter 5Efficiency and Equity49Chapter 6Government Actions inMarkets61Chapter 7Global Markets in Action75Part3Households’ ChoiceChapter8Utility and Demand87Chapter9Possibilities, Preferences, and Choices99Part4Firms and MarketsChapter10Organizing Production109Chapter 11Output and Costs119Chapter 12Perfect Competition131Chapter 13Monopoly143Chapter 14Monopolistic Competition157Chapter 15Oligopoly165Part 5Market Failure and GovernmentChapter 16Public Choices,Public Goods, and Healthcare175Chapter 17Externalities185Part6Factor Markets, Inequality, and UncertaintyChapter 18Marketsfor Factors of Production195Chapter 19Economic Inequality209Chapter20Uncertainty and Information219T a b l e o f C o n t e n t s

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IntroductionAt no time in history has teaching the principles of economics been either more challenging or moreimportant. Your decision to adopt thethirteentheditionof my textbook brings to your task a set ofteaching and learning tools that are unmatched in their clarity, relevance, and currency. It is my hope thatwith the help of these tools, you will enable your students to become as excited about economics as youare.Whether you’re teaching the principles course for the first time or are an experienced teacher at thislevel, I hope you will find this manual helpful.Each chapter in the manual consists offiveparts:1.The Big Picture:This part provides a discussion of “Where we are going” and “Where we havebeen.” In other words it helps you fit this particular chapter into the context of what has comebefore and what will come later. This Big Picture information can help you provide the BigPicture to your students.2.New in theThirteenthEdition:Both the major and the minor changes in thisthirteenthedition ofthe textbook are described in this section. The changes noted are especially those that mightaffect your lecture, so if you are an experienced Parkin user, glance at these to see what’sdifferent in this edition of the textbook.3.Lecture Notes:We have created a set of ready-to-use lecture notes for each chapter. You will beable to glance over these notes before class, take them into class, and deliver from them yourpolished lecture. These notes have been heavilyrevisedfrom the last edition to reflect all thelatest changes.These notes provide:Concise (bullet point) statements of all the key materialTables and figures that differ from those in the book so that you can use new examples inyour lecturesKey terms in bold print and the definitions from the textbook so that you can be sure thatyou don’t confuse your students by defining a term differently than the bookHighlighted boxes with teaching suggestions that reinforce a key concept, provide anadditional anecdote, or suggest how to handlea difficult idea4.AdditionalProblems:We presentsome additional problemsthat reflect the problems in thetextbook. Some of these problems are carried over from thepreviousedition’sSolutionsManual;others are new for this edition.Solutions for all the additional problems are provided.5.Additional Discussion Questions:Additional discussion questions have been created for eachchapter. Some of these questions are suitable for essay exams; others, more open-ended, areprobably best used for classroom discussion. All of them are designed to make your studentsthink and use the material you have been teaching them.Do not forget that the answers and solutions to all the Review Quizzes and the Problems at the end ofeach chapter are provided in a separate book, the Solutions Manual. The Solutions Manual has both thequestions from the textbookandcomplete answers all in one handy source.You can use these answersP r e f a c e

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i vP R E F A C Eand solutions to help you grade problems you have assigned to the students or else you can copy themand hand them out directly to the students.The Electronic ClassroomThe next Perspective features aspecial essaydesigned to assist your teaching in another waybydiscussingMyEconLab, an incredibly powerful Internet site that is a source of “one-stop shopping” forboth your students and you. Thisessaycan help you see all that is available to you—and your students!—on MyEconLab.AcknowledgmentsTeaching the principles of economics is a “work in progress.” As new insights are uncovered, as newknowledge emerges, the principles of economics course changes and evolves. So, too, are Parkin’sMicroeconomicsandMacroeconomicsalways changing and evolving to remain the best books availablefor you and your students’ use. Thus, it is with a great deal of pleasure that we acknowledge and thankseveral people who have helped us in shaping this edition of theInstructor’sManual.Mark Rush of the University of Florida edited (slightly!) theveryfinework of LauraWolff ofSouthernIllinois University Edwardsville, who adapted previous work and wrote the new material for this, thethirteenthedition of this instructor’s manual for Parkin’sMicroeconomics..Even with all this help, there remains room for improvement in the text and (says Mark) in thismanual. Any corrections, suggestions, or comments that you have will be greatly appreciated. Send yourcomments on this manual to Mark (Mark.Rush@cba.ufl.edu) and your comments on the text to me(michael.parkin@uwo.ca).Michael ParkinUniversity of Western Ontario

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IntroductionInstructors who have already used Michael Parkin’sMicroeconomicsare aware of its flexibility: Thereare many ways to teach from this book, depending on your preferences. Because there is no necessarilyright or wrong way to teach a principles of microeconomics class, the microeconomic part of the bookcan be used in a variety of ways. The most obvious one is the order in which the chapters are printed.Other paths are illustrated in Table 1.MicroeconomicsTable 1 presents the flexibility in the microeconomic chapters. This is organized according to the threebasic foundation chapters followed by a large selection of chapters you can next tackle. After finishingsome or all of these chapters, more choices are presented. You can move quickly or slowly to theexamining production and firms; quickly or slowly to efficiency and government policy in markets;quickly or slowly to consumer choice. The choice is up to you becauseyoucan shape the courseyouwant to teach.HOW TO ASSEMBLEYOUR COURSEF l e x i b i l i t y

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xH O WT OA S S E M B L EY O U RC O U R S ETable 1

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T h eB i gP i c t u r eWhere we are going:After completing Chapter 1, the student will have a good sense for the range of questionsthat economics addresses and will be on the path towards an economic way of thinking.Thestudentswill begin to think of cost as a forgone alternative—an opportunity cost—and alsoabout making choices bybalancing marginal costs and marginal benefits.Chapter 2 reinforces the central themes of Chapter 1 by laying outacore economic model,theproduction possibilities frontier (PPF), and using it to illustrate the concepts of tradeoffand opportunity cost. Chapter 2also provides adeeper explanation, again with a model, ofthe concepts of marginal cost and marginal benefit, beginning with theconcept of efficiency,and concluding with a review ofthe source of the gains from specialization and exchange.N e wi nt h eT h i r t e e n t hE d i t i o nA significant change to this chapter thatyou probably want tospend some time on is a newsectionthat presentsdata abouttheeconomics major and how wellit ranksin the incomespectrum of all majors. Most of the other content of this chapter remains the same short ofupdates to date sensitive items.There a minor reworking in the beginning of the math appendixthat added clarity to the topics discussed.Thisimportantchapteris not one to gloss over as it lays down an important foundation that canbe drawn from as you move through more specific applications later.Students relate well to thesection on self and social interestwhichcalls out issues of both efficiency and fairnessand isgreat for class discussion.Economics in the Newscovers some current issues with Facebook andMark Zuckerberg’s vision to have theInternetavailable to the whole world.1WHAT ISECONOMICS?C h a p t e r

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2C H A P T E R1L e c t u r eN o t e sWhat Is Economics?I.Definition of EconomicsEconomic questions arise because we always want more than we can get, so we facescarcity, theinability to satisfy all our wants. Everyone faces scarcity because no one can satisfyallof his or herwants.Scarcity forces us to make choices over the available alternative. The choices we make depend onincentives, a reward that encourages a choice or a penalty that discourages a choice.Forbeslists Bill Gates and Warren Buffetamong some of thewealthiest Americans. Do these two men facescarcity? According toTheWall Street Journal, both men are ardent bridge players, yet they have neverwononeof the many national bridge tournaments they have entered as a team. These two men can easilyafford the best bridge coaches in the world and but other duties keep them from practicing as much asthey would need to in order to win. So even the wealthiest two Americans face scarcity (of time) and mustchoose how to spend their time.EconomicsEconomicsis the social science that studies thechoicesthat individuals, businesses, governmentsand entire societies make when they cope withscarcityand theincentivesthat influence andreconcile those choices.Economists work to understand when the pursuit of self-interest advances the social interestEconomics is divided into microeconomics and macroeconomics:Microeconomicsis the study of the choices that individuals and businesses make, the waythese choices interact in markets, and the influence of governments.Macroeconomicsis the study of the performance of the national economy and the globaleconomy.On the first day do a “pop quiz.”Have your students write on paper the answer to “What is Economics?”Reassure them that this is their opinion since it is the first day.You will find most of the answers focusedaround money and/or business.Stress that Economics is asocialscience, a study ofhumanbehaviorgiven the scarcity problem. All too often first-time students (especially business students) think thatEconomics is just about making money. Certainly, the discipline can and does outline reasons why workerswork longer hours to increase their wage earnings, or why firms seek profit as their incentive. ButEconomics also explains why a terminally ill cancer patient might opt for pain medication as opposed tocontinued chemotherapy/radiation, or why someone no longer in the workforce wants to go to college andattain a Bachelor’s degree, in their sheer pleasure of learning and understanding.Stressing thesocialpartof our science now will help later when relating details to the overall bigger picture (especially when timelater in the semester seems scarce, no pun intended!).The definition in the text: “Economicsis the social science that studies the choices that individuals,businesses, governments, and societies make as they cope with scarcity and the incentives that influenceand reconcile these choices,” is a modern language version ofLionel Robbinsfamous definition,“Economics is the science which studies human behavior as a relationship between ends and scarce meansthat have alternative uses.”Other definitions include those of Keynes and Marshall:John Maynard Keynes:“The theory of economics does not furnish a body of settled conclusionsimmediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, atechnique of thinking, which helps it possessors to draw correct conclusions.”

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W H A TI SE C O N O M I C S ?3Alfred Marshall:“Economics is a study of mankind in the ordinary business of life; it examines thatpart of individual and social action which is most closely connected with the attainment and with the useof the material requisites of wellbeing.”A “shorthand” definition that resonates with students is:“Economics is the study of trying to satisfyunlimited wants with limited resources.” Students can—and do—easily abbreviate this definition to“unlimited wants and limited resources,” which captures an essential economic insight.II.Two Big Economic QuestionsHow do choices wind up determiningwhat, how, and for whomgoods and services are produced?What, How and For Whom?Goods and servicesare the objects that people value and produce to satisfy human wants. Whatwe produce changes over time—today we produce moreMP3sandCDsthan 5 years ago.Goods and services are produced using the productive resources calledfactors of production.These areland(the “gifts of nature”, natural resources),labor(the work time and work effortpeople devote to production),capital(the tools, instruments, machines, buildings, and otherconstructions now used to produce goods and services), andentrepreneurship(the humanresource that organizes labor, land, and capital).The quality of labor depends onhuman capital,which is the knowledge and skill that peopleobtain from education, work experience, and on-the-job training.Ownersofthe factorsof production earn income by selling the services of their factors.Land earnsrent, labor earnswages, capital earnsinterest,and entrepreneurshipearnsprofit.Do Choices Made in the Pursuit of Self-Interest alsopromote thesocialinterest?You make a choice in your self-interestif you think that choice is the best one available foryou.An outcome is in thesocial interestif itis best for society as a whole.A major question economists explore is “Could it be possible that when each of us makes choices inour self-interest, these choices are in the social interest?’The Two Big Economic QuestionsDon’t skip the questions in a rush to get to the economic way of thinking. Open your students’ eyes toeconomic in the world around them. Ask them to bring a newspaper to class and to identify headlines thatdeal with stories aboutWhat,How, andFor Whom. UseEconomics in the News Todayon your Parkin Website for a current news item and for an archive of past items (with questions).Pose questionsbut hold offon the answers letting them know that “we can have a much more fruitful discussion when our toolbox isfull.” Remind them that this course is about learningsimpleeconomic models that provide tools toseekanswers to complex issues.Students (and others!) often take the answers to the what, how, and for whom questions for granted. Forinstance, most of the time we do not bother to wonder “How does our economy determine how many lightbulbs, automobiles, and pizzas to produce?” (what),or “Why does harvesting wheat from a plot of land inIndia occur with hundreds of laborers toiling with oxen pulling threshing machines, while in the UnitedStates, a single farmer listening to a Garth Brooks CD and sitting in an air-conditioned cab of a $500,000machine harvests the same quantity of wheat from the same sized plot of land?” (how), or “Why is theannual income of an inspiring and effective grade school teacher muchlessthan that of an average major-league baseball player?” (for whom). Explaining the answers to these types of questions and determiningwhether the answers are in the social interest is a major part of microeconomics.Figure 1.1in the textbook“What Three Countries Produce” ties in nicely with Chapter 2’s later discussionon thePPF. Figure 1.1 also links the three questions of what, how and for whom nicely to the component

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4C H A P T E R1parts of those questions:goods and services, factors of production (land, labor, capital, entrepreneurship),and incomes economic agents earn (rent, wages, interest and profit).We can examine whether the self-interested choices serve the social interest for a variety topics:Globalization:Buying an iPod allows workers overseas to earn a wage and provide for familyInformation-AgeMonopolies:A firm producing popular software leads to format standardsClimate Change: Carbon dioxide emissions led to higher global temperatures and climatechangeFinancialInstability:Bank bailouts with the intent of social interest may cause more risky loansto be made in the future by banks serving their own self-interests.III.Economic Way of ThinkingScarcity requires choices and choices create tradeoffs.What is thedifference betweenscarcity and poverty?Ask the students why they haven’t yet attained all of their personal goals. One reason will be that they lacksufficient money. Ask them if they could attain all of their goals if they were as rich as Bill Gates. Theyquickly realize that time is a big constraint—and the great leveler: we all have only 24 hours in a day. Theyhave stumbled on the fact that scarcity, which even Bill Gates faces, is not poverty.A Choice is a TradeoffAtradeoffis an exchange—giving up one thing to get another.Whatever choice you make, you could have chosen something else.Virtually every choice that can be thought of involves a tradeoff. Presenting a few of the following asexamples can help your class better appreciate this key point:Consumption and savings:If someone decides to save more of his or her income, savings can befunneled through the financial system to finance businesses new capital purchases. As a society, wetrade off current consumption for economic growth and higher future consumption.Education and training:A student remaining in school for another two years to complete a degreewill need to forgo a significant amount of leisure time. But by doing so, he or she will be bettereducated and will be more productive. As a society, we trade off current production for greater futureproduction.Research and development:Factory automation brings greater productivity in the future, but meanssmaller current production. As a society, we trade off current production for greater futureproduction.Making a Rational ChoiceArational choiceis one that compares costs and benefits and achieves the greatest benefit overcost for the person making the choice.But how do people choose rationally? Why do more people choose an iPhonerather than aWindows phone? Why has the U.S. government chosen to build an interstate highway system andnot an interstate high-speed railroad system? The answers turn on comparing benefits and costs.Benefit: What you GainThebenefitof something is the gain or pleasure that it brings and is determined bypreferences—by what a person likes and dislikes and the intensity of those feelings.Some benefits are large and easy to identify, such as the benefit that you get from being in school.Muchof that benefit is theadditionalgoods and services that you will be able to enjoy with theboost to your earning power when you graduate.

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W H A TI SE C O N O M I C S ?5Some benefits are small, such as the benefit you get from a slice of pizza. That benefit is just thepleasure and nutrition that you get from your pizza.Cost: What You Must Give UpSeeing choices as tradeoffs shows there is anopportunitycostof a choice. Theopportunity costofsomethingis the highest-valued alternative thatmust begivenup to getit. So, for instance,the opportunitycost of being in school is all the good things that you can’t afford and don’t have the spare time to enjoy.Students like the “Dr. Suess Version”: Opportunity cost is the thing you would have done if you did not dowhat you did.What is the Opportunity Cost of Getting a College Degree?When the students calculate their opportunity cost of being in school, be sure they place a value on theirleisure time lost to studying on weekends and evenings. Most students are shaken when they realize thatwhen lost leisure time and income is included in their calculations, the opportunity cost of a college degreeapproaches $200,000 or more. Don’t leave them hanging here though. Mention that a college educationdoes yield a high rate of financial return over.To ensure that people do not die of any serious side effects, the Food and Drug Administration (FDA)requires all drug companies to thoroughly test newly developed medicines before allowing them to be soldin the United States. However, it takes many years to perform these tests and many people suffering fromthe terminal diseases these new medicines are designed to cure will die before good new medicines areeventually approved for use. Yet, if the FDA were to abandon this testing process, many others would diefrom the serious side effects of those bad medicines that made it to market. People’s lives will be at riskunder either policy alternative. This stark example of atradeoffreveals the idea that choices haveopportunitycosts.How Much?Choosing at the MarginMaking choices at themarginmeans looking at the trade-offs that arise from makingsmallchanges in an activity. People make choices at the margin bycomparingthebenefit from a smallchange in an activity (which is themarginal benefit) to the cost of making a small change in anactivity (which is themarginal cost).Changes in marginal benefits and marginal costs alter the incentives that we face when makingchoices. When incentives change, people’s decisions change.For example, if homework assignments are weighed more heavily in a class’s final grade, themarginal benefit of completing homework assignments has increased and more students will dothe homework.Choices Respond to IncentivesEconomists take human nature as given and view people acting in their self-interest.Self-interest actions are not necessarilyselfishactions.Self interest can be said to be in the eye of the beholder. Thus, covering the next portion on positive versusnormative analysis can be crucial to the student’s understanding how economic agents act in their ownself-interests, but perhaps not (and often not) in other’s self-interest.

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6C H A P T E R1IV.Economics asSocial Scienceand Policy ToolEconomist as Social ScientistEconomists distinguish betweenpositivestatements andnormativestatements. Apositivestatementis about “what is” and is testable. A normative statement is about “what ought to be” andis an opinion and so is inherently not testable. A positive statement is “Raising the tax on a gallon ofgasoline will raise the price of gasoline and lead more people to buy smaller cars” while anormative statement is “The tax on a gallon of gasoline should be raised.”Economists tend to agree on positive statements, though they might disagree on normativestatements.Aneconomic modeldescribes some aspect of the economic world that includes only thosefeatures needed for the purpose at hand. Economic models describe the economic world in thesame way that a road map explains the road system: Both focus on only what is important and bothare abstract depictions of the real world.Testing an economic model can be difficult, given we observe the outcomes of the simultaneousoperation of many factors. So, economists use the following to copy with the problem:Natural experiment:A situation that arises in the ordinary course of economic life in whichthe one factor of interestis different and other things are equal or similar.Statistical Investigation:A statistical investigation might look for the correlation of twovariables, to see if there is some tendency for the two variables to move in a predictable andrelated way (e.g.cigarette smoking and lung cancer).Economic Experiment:Putting people in a decision-making situation and varying theinfluence of one factor at a time to see how theyrespond.Economic Model vs.the General Lee Car ModelWhen I was a kid, I had a plastic model car that I put together that was from Dukes of Hazardtelevisionshow (you can insert your own “model” as you’d like). Tell the students, “Even though we all know themodel car is not a “real” car, it does give us insights into what the real car is like. You have number on thedoor, the confederate flag on top, the proportions are correct and if you lift thelittle hood you can see whataV8 engine looks like”. An economic model is similar in that it gives us a glimpse of reality under somecertain assumptions and although it is not reality it gives us insights about reality.Economist as PolicyAdviserEconomics is useful. It is a toolkit for advising governments and businesses and for makingpersonal decisions.For a given goal, economics provides a method of evaluating alternative solutions—comparingmarginal benefits and marginal costs and finding the solution that makes the best use of theavailable resources.The success of a model is judged by its ability to predict.Help your student’s appreciate that no matterhow appealing or “realistic looking” a model appears to be, it is useless if it fails to predict. And theconverse, no matter how abstract or far removed from reality a model appears to be, if it predicts well, it isvaluable.Milton Friedman’s Pool Hall exampleillustrates the point nicely. Imagine a physicist’s model thatpredicts where a carefully placed shot of a pool shark would go as he tries to sink the eight ball into thecorner pocket. The model would be a complex, trigonometric equation involving a plethora of Greeksymbols that no ordinary person would even recognize as representing a pool shot. It certainly wouldn’tdepict what we actually see—a pool stick striking a pool cue on a rectangular patch of green felt. Itwouldn’t even reflect the thought processes of the pool shark that relies on years of experience and theright “touch.” Yet, constructed correctly, this mathematical model would predict exactly where the cue ball

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W H A TI SE C O N O M I C S ?7would strike the eight ball, hit opposite the bank, and fall into the corner pocket. (You can easily inventanalogous examples from any sport.)V.Economists in the EconomyJobs for an Economics MajorEconomistswork for private firms, governments, and international organizations. Some have abachelor’s degree, while others have a master’s degree or a PhD.On their jobs, economists often collect and analyze data on production and use of resources, goods,and services in order to predict future trends or devise ways to use resources more efficiently.Economists have jobs as market research analysts, financial analysts, and, less often, budgetanalysts. There were about 850,000 of these jobs in the United States in 2014.Will Jobs for Economics Majors Grow?The Bureau of Labor Statistics (BLS) has forecast that from 2014 to 2024, jobs for PhD economistswill grow 6 percent; jobs for budget analysts will grow by only 2 percent; but jobs for financialanalysts will grow by 12 percent; and jobs for market research analysts will grow by 19 percent.

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8C H A P T E R1A d d i t i o n a lP r o b l e m s1.You plan a major adventure trip for the summer. You won’t be able to take your usualsummer job that pays $6,000, and you won’t be able to live at home for free. The cost ofyour travelaccomodationson the trip will be $3,000,gasolinewill cost you $200, and yourfood will cost $1,400. What is the opportunity cost of taking this trip?2.The university has built a new parking garage. There is always an available parking spot,but it costs $1 per day. Before the new garage was built, it usually took 15 minutes ofcruising to find a parking space. Compare the opportunity cost of parking in the new garagewith that in the old parking lot. Which is less costly and by how much?S o l u t i o n st oA d d i t i o n a lP r o b l e m s1.The opportunity cost of taking this trip is $10,600. The opportunity cost of taking the trip is thehighest-valued activity that you will give up so that you can go on the trip. In taking the trip, you willforgo all the goods and services that you could have bought with the income from your summer job($6,000) plus the expenditure on travelaccommodations($3,000),gasoline($200), and food($1,400).2.The opportunity cost of parking before the building of the new parking garage is the highest-valuedactivity that you forgo by spending 15 minutes parking your car. The opportunity cost of parking inthe new parking garage is $1 that you could have spent elsewhere. If the opportunity cost of 15minutes spent parking your car is greater than the opportunity cost of $1, then the new parkinggarage is less costly.A d d i t i o n a lD i s c u s s i o nQ u e s t i o n s1.Why are economists so concerned about the material aspects of life?Explain that this is amyth!Economists are often criticized for focusing onmaterialwell-beingbecause of thegeneral public’s view that economics is about money.Explain that there are economists thatresearchsocial andemotional (or spiritual) aspectsof life.You may also add that theseparts of life oftendepend heavily on attaining material well-being.You may want toreference the Economic Freedom Index(www.freetheworld.com)and its explanatorypower on issues of world hunger and poverty.Ask them to consider the need for life-enhancing goods and services such as health care or education to support spiritual oremotional well-being. Ask how protestors would be able to voice their opinions withoutlow-cost air travel and the power of the Internet to coordinate the activities of hundreds ofprotesters. (Be careful not to seem to be either condoning or condemning these activities.)Most students will begin to see that the more efficient we are at producing materialprosperity, the more time and opportunity everyone has to promote emotional (orspiritual) goals.2.Mini Case Study Illustrating How Economists Use Modeling:Women are unfairly underpaid when compared to men.Ask your students whether thisstatement ispositiveornormative. Mention that the media frequently reports that theaverage woman gets paid only3/4the wages of the average man. Is this “fact” a sufficienttest of the positive statement?If women were paid more than men in one or two professions (like professionalmodeling or elementary teaching) is that sufficient evidence to conclude that women in

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W H A TI SE C O N O M I C S ?9general are not underpaid when compared to men?Ask the students to think about howto properly test the model. Are these counter examples enough to discard the idea thatwomen are underpaid?What would you take into account when you collected data to compare women’ssalaries versus men’s salaries?Remind the students that any model directly comparingmen’s and women’s wages should control for any differences in wage-relevantcharacteristics between working men and women. You can discuss many different reasonswhy a gender wage gap can occur, including:Women are underrepresented in higher paid occupations and are overrepresented inlower paid occupations (the problem may not be unequalpaybut instead it may beunequalaccessto high paying jobs (glass ceiling?);Women are underrepresented among those earning advanced degrees, though mostlyamong older age cohorts (U.S. Bureau of Labor Statistics,Employment and Earnings, Vol.45, January, 1998). Here the problem here might not be unequalpaybut unequalaccessto higher education;Women have relatively less occupational-specific work experience and have relativelyless unbroken work experience, as many women struggle between pursuing a careerand raising a family. For example, one study found that women who were not mothersearned 90 percent of men’s salaries, whereas those who were mothers earned only 77percent (Waldfogel, “Understanding the ‘Family Gap’ in Pay for Women with Children,”Journal of Economic Perspectives, Vol. 12, No. 1, 1998).Does it further the public interest (and the interests of women workers specifically) topropagate normative statements about wage inequality based on statistics withouttaking account of all relevant factors?Summarize the discussion by noting that economicstudies have indeed found evidence that a gender gap in wages exists in the United States,even after controlling for all known relevant factors. However, the gender wage gap is muchless than the 1/3 number often quoted by the media, and has beendecreasingsignificantlyover the last few decades (Blau, “Trends in the Well Being of American Women, 1970-1995,”Journal of Economic Literature,Vol. 36, No.1, March 1998). Get the students to seehow properly applying the science of economics to social issues helps us strip awayinflammatory rhetoric and examine the problem carefully and objectively.

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1 0C H A P T E R1C h a p t e r1A p p e n d i x ,G r a p h si nE c o n omi c sL e c t u r eN o t e sGoggle TheoryExplain to students that you are going to ask them to use three sets of goggles to view math in the course.Ihave found this to be a great tool for students to understand why we present data in different ways.1.Equation Goggles:Write an equation in slope-intercept form and explain that this is one way to showrelationships between two variables.I like to useXandYfor this one and then quickly explain thateconomics is much more fun than math because we may be talking about X-rays and Yo-Yo’s.Thishelps some students break the barrier early on what “variable” means.2.Graphing Goggles:Work through a graph of the equation you wrote highlighting slope and intercept.Indicate that this may be a Demand or Supply curve for instance.3.Now you can explain that they will see all three of these forms of math at different times during thecourse and it is important for them to understand that you can move between all three anytime. Weusually have it shown just one way for convenience. It is also fun during lecture to say, “I need you topull out your graphing goggles.”I.Graphing DataGraphs are valuable tools that clarify what otherwise might be obscure relationships.Graphs represent “quantity” as a distance.Two-variable graphs use two perpendicular scale lines.The vertical line is they-axis.The horizontal line is thex-axis. The zero point in common to bothaxes is theorigin.Scatter diagram—a graph that plots the value of one variable on thex-axis and the value of theassociated variable on they-axis. A scatter diagram can make clear the relationship between twovariables.II.Graphs Used in Economic ModelsGraphs are used to show the relationship between variables.Graphs can immediately convey therelationship between the variables:Apositive relationship(ordirect relationship)—when the variable on the x-axis increasesthe variable on the y-axis increases. A straight line is alinear relationship.Anegative relationship(orinverse relationship)—when the variable on thex-axis increases,the variable on they-axis decreases.A maximum or a minimum—when the variable has a highest or lowest value.III.The Slope of a RelationshipTheslopeof a curve equals the change in the value of the variable on the vertical axis at the pointwhere the slope is being calculated divided by the change in the value of the variable on thehorizontal axis at the relevant point.In terms of symbols, the slope equalsy/x, withstanding for“change in.”Theslope of a straight lineis constant. The slope is positive if the variables are positively relatedand negative if the variables are negatively related.Theslope of a curved line at a pointequals the slope ofthe straight line that is tangent to the curvedline at the point.Theslope of a curved line across an arcequals the slope ofastraight line between the two points on thecurved line.

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