What's New in the Second Edition

New Hardcover "Economics" edition and "Essentials" Split

Much has happened in the world since the first edition of Foundations was written. The Bush administration took office and spurred Congress to pass a large and controversial tax cut package. For the first time in a decade, the U.S. economy slipped into recession in early 2001; many Americans saw their personal wealth decline as the stock market fell. The tragic events of September 11, 2001, left an indelible mark on our memories and brought far-reaching consequences for our economy.

Foundations of Economics, Second Edition, seeks to make sense of these and other major events of the early 2000s. Examples and data have been thoroughly updated to provide students with a compelling and current text that reflects the world that they live in.

In addition, we have made a number of improvements in coverage, organization, and structure, the most important of which we explain here.

Hardcover Economics edition.
By popular demand, Foundations is now offered as a single, hardcover volume, Foundations of Economics. We retain, however, our much-liked innovation of distinct front ends for the micro and macro splits: the first four chapters of micro introduce the big ideas of microeconomics, and the first four chapters of macro introduce the big ideas of macroeconomics. The hardcover economics edition is a synthesis of the two.

One-semester split.
We were told by many that Foundations, with its focus on core concepts, would be well-suited to a one-semester principles course that covers both micro and macro. A one-semester split, Essential Foundations of Economics, will be available in Summer 2003.

Extensive updating.
Every chapter has been revised to ensure that the data used are the latest available. In most cases, our data run through 2002 and in some cases reflect events at the beginning of 2003.

Reorganized and expanded coverage of public policy.
We have expanded Part 3, How Governments Influence the Economy, and reorganized the topics in this part. Chapter 7, Government Influences on Markets, which explains the effects of price ceilings and price floors, has a new section on production quotas. Chapter 8 unifies our explanation of the effects of taxes and of incidence, efficiency, and equity issues in the design of the tax system. Chapter 9 on externalities is largely unchanged. And Chapter 10 discusses public goods and the free rider problem along with a new section that explains the problem of the commons.

Expanded coverage of market structure.
Monopolistic competition and oligopoly, previously covered in one chapter, now each have their own full chapter treatment (Chapters 15 and 16, respectively). This expansion enables us to provide a more carefully paced presentation of the material on the two market types that students encounter most frequently in their everyday lives. It also enables a discussion that closely parallels our thorough treatment of perfect competition and monopoly.

Streamlined coverage of inequality.
Two chapters in the first edition-Earnings Differences and Inequality, Poverty, and Redistribution-have been reworked and combined into a new single chapter-Inequality and Redistribution, (Chapter 19). This change enables us to provide a more unified account of the sources of economic inequality, the trends in income differences, and the effects of redistribution policies.

More prominent placement of AS-AD.
We provide an initial overview of the AS-AD model at the beginning of Chapter 23—our first macro theory chapter—to serve as the over-arching model for understanding macroeconomic performance in both the long term and the short term. The model is developed in detail and used to explain the business cycle in Chapter 29 and then used extensively to discuss stabilization policy issues in Chapters 31-33. Chapter 23 continues to provide a clear explanation of the forces that determine potential GDP and the natural unemployment rate.

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Simplified coverage of money and inflation.
Chapter 28, Money, Interest, and Inflation has been carefully revised to simplify and strengthen our explanation of the relationship between money growth and inflation in the long run and the distinction between short-run equilibrium and long-run equilibrium in the money market.

The business cycle and current state of the U.S. economy.
We have switched the order of our chapters on the Keynesian cross model and multiplier (now Chapter 30) and the AS-AD model and the business cycle (now Chapter 29). The AS-AD business cycle chapter includes a new “Eye on the U.S. Economy” that describes the anatomy of the 2001 recession and slow recovery of 2002 and also looks at the factors to which the NBER paid special attention in dating the onset of the 2001 recession.

Thorough yet self-contained and optional coverage of Keynesian cross.
Our coverage of the Keynesian cross is now located entirely within Chapter 30. We offer a thorough treatment of this topic for those who wish to teach it. But the material is optional. It gives the student a look behind the AD curve, an explanation of the multiplier, and a discussion of role of business inventories in the adjustment process that follows a change in autonomous expenditure at a business cycle turning point. The chapter also explains the relationship between the AD curve and the AE curve.

Expanded explanation of supply side effects of fiscal policy.
Chapter 31, which explains the effects of monetary policy and fiscal policy, contains an expanded explanation of the supply side effects of fiscal policy. This chapter also includes a discussion of the Bush 2003 tax cut proposals and an account of the 2001-2002 interest rate cuts.

New coverage of the stabilzation policy debate.
Chapter 33, which reviews the debate on how best to use monetary policy and fiscal policy, contains a new discussion of the idea that price level targeting might result in greater stability of real GDP and so provide a “free lunch.” It also explains the Taylor rule and the McCallum rule for monetary policy and compares the operation of each of these rules with the Fed’s actual policy during the 1990s and 2000s.

Bonus web chapter on farms and cities.
A bonus Web chapter on Farms and Cities provides an opportunity to apply the concepts of elasticity of demand and supply, price floors, and externalities and helps students appreciate the power of economics as an aid to understanding everyday situations and problems.

Expanded end-of-chapter exercises.
Because of the Checklist/Checkpoint organization of our text, we devote much more space to review and problem solving than other texts. Nonetheless, in this new edition we have expanded our end-of-chapter exercises to three full pages. Two pages offer a series of analytical exercises that parallel those in the Checkpoints and one page provides a rich array of critical thinking and Web exercises.

Expanded web resources.
The Foundations Web site now delivers the e-text-the entire textbook-in PDF format with hyperlinks to all the other components of our Web resources. We have prepared a Flash animation accompanied by an audio explanation of every figure in the textbook. We have created a set of new diagnostic quizzes for every Checkpoint with feedback that includes hyperlinks to the e-text and other Web-based review materials. And we have provided a comprehensive set of Web exercises with external links for every chapter.

Course management with MyEconLab.
Every student who buys a new textbook receives a prepaid subscription to MyEconLab. New to the Second Edition of Foundations, MyEconLab delivers all of the resources available on the Foundations Web site in a comprehensive online course.