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BRIEF CONTENTS

Preface xi

PART 1 Introduction
1 The Nature of Economics 1
2 Scarcity and the World of Trade-Offs 26
3 Demand and Supply 48
4 Extensions of Demand and Supply Analysis 73
5 Public Spending and Public Choice 98
6 Funding the Public Sector 120

PART 5 Dimensions of Microeconomics

19 Demand and Supply Elasticity 402
20 Consumer Choice 423
21 Rents, Profits, and the Financial Environment of Business 450
PART 6 Market Structure, Resource Allocation, and Regulation
22 The Firm: Cost and Output Determination 471
23 Perfect Competition 495
24 Monopoly 519
25 Monopolistic Competition 542
26 Oligopoly and Strategic Behavior 561
27 Regulation and Antitrust Policy in a Globalized Economy 582

PART 7 Labor Resources and the Environment

28 The Labor Market 605
29 Income, Poverty, and Health Care 631
30 Environmental Economics 652
PART 8 Global Economics
31 Comparative Advantage and the Open Economy 669
32 Exchange Rates and the Balance of Payments 691

iii
x CONTENTS

EXAMPLE ECONOMICS IN YOUR LIFE A Potential Shift of Comparative Advantage in Olive Oil
Shipping Containers and International Production toward the United States 685
Trade 677 ISSUES & APPLICATIONS What Do Countries Gain from Involvement in Regional Trade
INTERNATIONAL POLICY Agreements? 686
EXAMPLE Summary: What You Should Know 687 • Problems 688 • References 689
Identifying Who Loses Out as a
Consequence of Asian Tariffs on Rice
Imports 683

INTERNATIONAL EXAMPLE 32 Exchange Rates and the Balance of Payments 691

The Non-U.S. Derived Demand for and
Supply of U.S. Dollars 701
The Balance of Payments and International Financial Flows 692

INTERNATIONAL POLICY WHAT HAPPENS WHEN . . . U.S. spending on merchandise imports increases during the
EXAMPLE same year that foreign expenditures on U.S. merchandise exports decrease, other things being
equal? 697
African Governments with Dollar-
Denominated Debts Confront Foreign Deriving the Demand for and Supply of Foreign Exchange 697 • Determining
Exchange Depreciations 707 Foreign Exchange Rates 701 • Fixed Versus Floating Exchange Rates 704
AI—DECISION MAKING ECONOMICS IN YOUR LIFE The Hong Kong Monetary Authority Acts to Keep Its Cur-
THROUGH DATA rency’s Exchange Rate Fixed 708
Foreign Exchange Markets Involving ISSUES & APPLICATIONS How Changing a Fixed Exchange Rate to Try to Absorb Shocks
Really Big Data 707 Eventually Can Cause Shocks 709
Summary: What You Should Know 710 • Problems 710 • References 712

Glossary 715
Index 727
 PREFACE

I have modified the learning and teaching package for this 20th edition of Economics
Today to make learning more efficient for your students. At the same time, the hall-
mark of each previous edition has been maintained—teaching and learning through
examples.

Solving Learning and Teaching Challenges

Improving Student Success Through Videos and Animation

Depending on which version you choose for your students, there are available:
• Concept videos with voiceovers
• Concept videos with on-screen live instructor presence
• Improved animated graphs, often with live instructor presence
In addition, for those of you who require that your students access an online version
of the text, all of the Self Check exercises have easily viewable click-on answers avail-
able. These Self Checks are numbered for easy reference by you.

Learning Economic Skills That Are Practical

An increasing number of beginning economics students want concrete examples
about economics that can help them today and tomorrow in their real life. To this
end, I have done the following in this new edition:
• I have added short paragraphs throughout the text, which relate previously dis-
cussed theory with practical applications.
• I have also added Real Application questions throughout. These questions relate
to careers, managerial decision making, future household behavior, and voting
choices, to list just a few.
• Each chapter ends with a feature called Economics in Your Life, plus an additional
Real Application question.
• Each chapter-ending Issue and Application ends with a Real Application question.

What’s New to This Edition

Explaining Artificial Intelligence (AI) Applications in the Real World

New to this edition, I have added a feature entitled AI—Decision-Making Through
Data. There are almost three dozen of these, including:
• The Global Tourism Industry (Chapter 3)
• Contemplating Big Data as a Public Good (Chapter 5)
• Preserving National Tax Bases (Chapter 6)

xi
xii PREFACE

Other New Features

Already mentioned are the chapter-ending features called Economics in Your Life.
Another new feature is What Happens When . . . . This new feature will help
students apply previously discussed theory. Some examples are:
• What Happens When . . . people’s actual reactions to incentives differ from how
they claim they would respond in answers to survey questions? (Chapter 1)
• What Happens When . . . both buyers and sellers anticipate that the price of an
item will increase in the future? (Chapter 3)
• What Happens When . . . the New York City government effectively raises the
legal minimum price of cigarettes within the city’s boundaries to almost twice the
average U.S. price? (Chapter 4)

All Other Features That Are New to This Edition

Economics Today has always been known to provide the latest high-interest features.
To this end, I have replaced every feature in the text, including:
• All chapter-opening Did You Know That . . . features
• All Examples, Policy Examples, and International Examples
• All Behavioral Economics Examples
• All Issues and Applications

ABOUT THE AUTHOR

Roger LeRoy Miller studied at the University of California at Berkeley where he

earned a B.S. in economics while garnering the Departmental Prize. He graduated
Phi Beta Kappa and Summa Cum Laude and was the recipient of numerous
fellowships, including a National Science Foundation Fellowship. He chose to
become a Lilly Honor Fellow at the University of Chicago and received his Ph.D. in
a record 2½ years.
He has taught at the University of Washington and the University of Miami,
where he also co-founded The Law and Economics Center. He is currently Research
Professor of Economics at the University of Texas, Arlington. In addition to writing
Economics Today, he has authored or co-authored dozens of textbooks, including
Applied Econometrics, Intermediate Microeconomics, Intermediate Macroeconomics, Money
and Banking, and The Economics of Public Issues.
He continues to be a passionate athlete, regularly entering sanctioned
triathlons, cross-country ski races, and road-bike time trials.
 ACKNOWLEDGMENTS
As always, I receive a continuing set of suggestions from those professors who use my text. And as always,
I try to satisfy every criticism and comment. In addition, a number of professors have been asked by the
publisher to review the 19th edition. To all of you listed below, please accept my sincere appreciation for
the great work that you have done.

Thomas Elliot, Columbia College
Maria Giuili, Diablo Valley College
Sanja Grubacic, Southern Connecticut State University
Ronald Halcrow, Antelope Valley College
Timothy Hamilton, Columbia College
Samuel Imarhiagbe, Collin College
Ninos Malek, San Jose State University and De Anza College
Margaret McDaniel, Community College of Allegheny County
Kevin McWoodson, Moraine Valley Community College
Alex Obiya, San Diego City College
Jeff Salavitabar, Delaware County Community College
James Sondgeroth, Austin Community College
Alan Traverse, Columbia College
Ricardo Vicente, BYU-Hawaii

I also thank the reviewers of previous editions:

Rebecca Abraham, Cinda J. Adams, Esmond Adams, John Adams, Bill Adamson, Carlos Aguilar, John
R. Aidem, Mohammed Akacem, Ercument Aksoy, M. C. Alderfer, John Allen, Ann Al-Yasiri, Charles
Anderson, Leslie J. Anderson, Fatma W. Antar, Len Anyanwu, Kenneth Ardon, Rebecca Arnold,
Mohammad Ashraf, Ali A. Ataiifar, Aliakbar Ataiifar, Leonard Atencio, John Atkins, Glen W. Atkinson,
Thomas R. Atkinson, James Q. Aylesworth, John Baffoe-Bonnie, Kevin Baird, Maurice B. Ballabon,
Charley Ballard, G. Jeffrey Barbour, Robin L. Barlett, Daniel Barszcz, Kari Battaglia, Robert Becker,
Kevin Beckwith, Charles Beem, Glen Beeson, Bruce W. Bellner, Daniel K. Benjamin, Emil Berendt,
Charles Berry, Abraham Bertisch, John Bethune, Barbara Blake Gonzalez, R. A. Blewett, Scott Bloom,
John Bockino, M. L. Bodnar, Mary Bone, Theologos Homer Bonitsis, Karl Bonnhi, Thomas
W. Bonsor, John M. Booth, Wesley F. Booth, Thomas Borcherding, Melvin Borland, Tom Boston,
Barry Boyer, Austin Boyle, Walter Boyle, Maryanna Boynton, Ronald Brandolini, Fenton
L. Broadhead, Elba Brown, William Brown, James Buck, Michael Bull, William Burrows, Maureen
Burton, Conrad P. Caligaris, Steven Capolarello, Kevin Carey, James Carlson, Robert Carlsson, Joel
Caron, Dancy R. Carr, Scott Carson, Doris Cash, Thomas H. Cate, Richard J. Cebula, Catherine
Chambers, K. Merry Chambers, Richard Chapman, Xudong Chen, Ronald Cherry, David Ching, Young
Back Choi, Marc Chopin, Carol Cies, Joy L. Clark, Curtis Clarke, Gary Clayton, Marsha Clayton, Dale
O. Cloninger, Warren L. Coats, Ed Coen, Pat Conroy, James Cox, Stephen R. Cox, Eleanor D. Craig,
Peggy Crane, Jerry Crawford, Patrick M. Crowley, Richard Croxdale, Joanna Cruse, John P. Cullity,
Will Cummings, Thomas Curtis, Joel Dalafave, Margaret M. Dalton, Andrew J. Dane, Mahmoud
Davoudi, Diana Denison, Edward Dennis, Julia G. Derrick, Sowjanya Dharmasankar, Carol Dimamro,
William Dougherty, Stephen Downing, Tanya Downing, Brad Duerson, Barry Duman, Diane Dumont,
Floyd Durham, G. B. Duwaji, James A. Dyal, Ishita Edwards, Robert P. Edwards, Alan E. Ellis, Miuke
Ellis, Steffany Ellis, Frank Emerson, Carl Enomoto, Zaki Eusufzai, Patricia Euzent, Sandy Evans, John
L. Ewing-Smith, Jamie Falcon, Frank Falero, Frank Fato, Elizabeth Faunce, Maurita Fawls, Abdollah
Ferdowsi, Grant Ferguson, Victoria L. Figiel, Mitchell Fisher, David Fletcher, James Foley, John
Foreman, Diana Fortier, Ralph G. Fowler, Julia Frankland, Deborah Frazier, Arthur Friedberg, Peter
Frost, Timothy S. Fuerst, Tom Fullerton, E. Gabriel, James Gale, Hamilton Galloway, Byron Gangnes,
Frank Garland, Peter C. Garlick, Steve Garner, Neil Garston, Alexander Garvin, Joe Garwood, Doug
Gehrke, Robert Gentenaar, J. P. Gilbert, Otis Gilley, Frank Glesber, Jack Goddard, George Goerner,
Michael G. Goode, Allen C. Goodman, Richard J. Gosselin, Paul Graf, Anthony J. Greco, Edward
Greenberg, Gary Greene, Peter A. Groothuis, Philip J. Grossman, Nicholas Grunt, William Gunther,
Kwabena Gyimah-Brempong, Demos Hadjiyanis, Reza G. Hamzaee, Martin D. Haney, Mehdi
Haririan, Ray Harvey, Michael J. Haupert, E. L. Hazlett, Dennis Heiner, Sanford B. Helman, William
Henderson, Robert Herman, Gus W. Herring, Aref Hervani, Charles Hill, John M. Hill, Morton
Hirsch, Benjamin Hitchner, Charles W. Hockert, Stella Hofrenning, R. Bradley Hoppes, James
Horner, Grover Howard, Nancy Howe-Ford, Cedric Howie, Calvin Hoy, Yu-Mong Hsiao, Yu Hsing,

xiii
xiv ACKNOWLEDGMENTS

Peng Huang, James Hubert, George Hughes, Joseph W. Hunt Jr., Scott Hunt, John Ifediora, R. Jack
Inch, Christopher Inya, Tomotaka Ishimine, E. E. Jarvis, Ricot Jean, Parvis Jenab, Allan Jenkins, John
Jensel, Mark Jensen, S. D. Jevremovic, J. Paul Jewell, Nancy Jianakoplos, Frederick Johnson, David
Jones, Lamar B. Jones, Paul A. Joray, Daniel A. Joseph, Craig Justice, M. James Kahiga, Septimus
Kaikai, Michael Kaluya, Lillian Kamal, Mohammad Kasraian, Devajyoti Kataky, Timothy R. Keely,
Ziad Keilany, Norman F. Keiser, Michele Kegley, Sukanya Kemp, Brian Kench, Randall G. Kesselring,
Alan Kessler, E. D. Key, Saleem Khan, M. Barbara Killen, Bruce Kimzey, Terrence Kinal, Philip
G. King, E. R. Kittrell, David Klingman, Charles Knapp, Jerry Knarr, Tori Knight, Faik Koray, Janet
Koscianski, Dennis Lee Kovach, Marie Kratochvil, Richard W. Kreissle, Peter Kressler, Paul J. Kubik,
Michael Kupilik, Margaret Landman, Richard LaNear, Larry Landrum, Keith Langford, Theresa
Laughlin, James M. Leaman, Anthony T. Lee, Jim Lee, Loren Lee, Bozena Leven, Donald Lien,
George Lieu, Stephen E. Lile, Jane Lopus, Lawrence W. Lovick, Marty Ludlum, William Kent Lutz,
Brian Lynch, Brian Macfie, Michael Machiorlatti, Laura Maghoney, G. Dirk Mateer, John McArthur,
Robert McAuliffe, James C. McBrearty, Howard J. McBride, Bruce McClung, Jeremy McCracken, John
McDowell, E. S. McKuskey, James J. McLain, Kevin McWoodson, John L. Madden, Mary Lou
Madden, John Marangos, Dan Marburger, Glen Marston, John M. Martin, Paul J. Mascotti, James
D. Mason, Paul M. Mason, Tom Mathew, Warren Matthews, Akbar Marvasti, Pete Mavrokordatos,
Fred May, G. Hartley Mellish, Mike Melvin, Diego Mendez-Carbajo, Dan C. Messerschmidt, Michael
Metzger, Charles Meyrick, Herbert C. Milikien, Joel C. Millonzi, Glenn Milner, Ida Mirzaie, Daniel
Mizak, Khan Mohabbat, Thomas Molloy, William H. Moon, Margaret D. Moore, William E. Morgan,
Stephen Morrell, Irving Morrissett, James W. Moser, Thaddeaus Mounkurai, Kevin Murphy, Martin
F. Murray, Densel L. Myers, George L. Nagy, Solomon Namala, Ronald M. Nate, Jerome Neadly,
James E. Needham, Claron Nelson, Douglas Nettleton, William Nook, Gerald T. O’Boyle, Greg
Okoro, Dr. Larry Olanrewaju, Richard E. O’Neill, Lucian T. Orlowski, Diane S. Osborne, Joan
Osborne, Melissa A. Osborne, James O’Toole, Tomi Ovaska, Lawrence Overlan, Benny E. Overton, Jan
Palmer, Zuohong Pan, Gerald Parker, Ginger Parker, Randall E. Parker, Mohammed Partapurwala,
Kenneth Parzych, Elizabeth Patch, Joseph Patton, Norm Paul, Teddi Paulson, Wesley Payne, Raymond
A. Pepin, Martin M. Perline, Timothy Perri, Jerry Petr, Maurice Pfannesteil, Van Thi Hong Pham,
Chris Phillips, James Phillips, Raymond J. Phillips, I. James Pickl, Bruce Pietrykowski, Dennis Placone,
Mannie Poen, William L. Polvent, Robert Posatko, Greg Pratt, Leila J. Pratt, Steven Pressman, Rick
Pretzsch, Reneé Prim, Robert E. Pulsinelli, Rod D. Raehsler, Kambriz Raffiee, Sandra Rahman,
Jaishankar Raman, John Rapp, Richard Rawlins, Gautam Raychaudhuri, Kenneth Rebeck, Ron Reddall,
Mitchell Redlo, Annette Redmon, Charles Reichhelu, Robert S. Rippey, Charles Roberts, Ray
C. Roberts, Leila Angelica Rodemann, Richard Romano, Judy Roobian-Mohr, Duane Rosa, Richard
Rosenberg, Larry Ross, Barbara Ross-Pfeiffer, Marina Rosser, Philip Rothman, John Roufagalas,
Stephen Rubb, Henry Ryder, Lewis Sage, Basel Saleh, Patricia Sanderson, Thomas N. Schaap, William
A. Schaeffer, William Schamoe, David Schauer, A. C. Schlenker, David Schlow, Paul Schoofs, Scott
J. Schroeder, Bill Schweizer, William Scott, Dan Segebarth, Paul Seidenstat, Swapan Sen, Augustus
Shackelford, Richard Sherman Jr., Liang-rong Shiau, Gail Shields, Jeff Shmidl, David Shorow, Vishwa
Shukla, R. J. Sidwell, Jonathan Silberman, David E. Sisk, Alden Smith, Garvin Smith, Howard
F. Smith, Lynn A. Smith, Phil Smith, William Doyle Smith, Brian Sommer, Lee Spector, George Spiva,
Richard L. Sprinkle, Alan Stafford, Amanda Stallings-Wood, Herbert F. Steeper, Diane L. Stehman,
Columbus Stephens, William Stine, Allen D. Stone, Daniel Strang, Jialu Streeter, Osman Suliman,
J. M. Sullivan, Rebecca Summary, Terry Sutton, Joseph L. Swaffar, Thomas Swanke, Manjuri Talukdar,
Frank D. Taylor, Ian Taylor, Daniel Teferra, Lea Templer, Gary Theige, Dave Thiessen, Robert
P. Thomas, Deborah Thorsen, Richard Trieff, George Troxler, William T. Trulove, William
N. Trumbull, Patricia Turco, Arianne K. Turner, Kay Unger, Anthony Uremovic, Ezgi Uzel, John
Vahaly, Jim Van Beek, David Van Hoose, Lee J. Van Scyoc, Roy Van Til, Reuben Veliz, Sharmila
Vishwasrao, Craig Walker, Robert F. Wallace, Henry C. Wallich, Jacqueline Ward, Milledge Weathers,
Ethel C. Weeks, Roger E. Wehr, Don Weimer, Robert G. Welch, Terence West, James Wetzel, Wylie
Whalthall, James H. Wheeler, Everett E. White, Michael D. White, Oxana Wieland, Mark
A. Wilkening, Raburn M. Williams, James Willis, George Wilson, Travis Wilson, Mark Wohar, Ken
Woodward, Tim Wulf, Peter R. Wyman, Whitney Yamamura, Donald Yankovic, Alex Yguado, Paul
Young, Shik Young, Michael Youngblood, Mohammed Zaheer, Ed Zajicek, Charles Zalonka, Sourushe
Zandvakili, Paul Zarembka, Erik Zemljic, George K. Zestos, William J. Zimmer, Jr.
 ACKNOWLEDGMENTS xv
For this 20th edition of Economics Today, I was fortunate to again have production management
masterfully managed by Kathy Smith, working for SPi Global. She remains at the top of her field by
making sure that every correction is made, every graph is perfect, and every table remains error free.
I’m also thankful for the impact of the following: Shweta Jain, content producer; Chris DeJohn, content
strategy manager; Thomas Hayward, content strategy analyst; Samantha Lewis, product manager; and
Adrienne D’Ambrosio, director of product management. I’d also like to thank Ashley DePace and Nayke
Heine on their work on the marketing plans.
To my faithful, long-standing, and amazingly accurate “super reviewer,” Professor Dan Benjamin, a
heartfelt thank you from me. I am sure that those of you reading this text will recognize how error-free
it is, and Professor Benjamin is largely responsible for that level of detail. To my assistant, Sue Jasin, who
was responsible for the many drafts of all of the updated revisions, thank you for “burning the midnight
oil.”
I welcome ideas and criticisms from both professors and students alike.
R.L.M.
 1 The Nature of Economics
Shutterstock

I
LEARNING OBJECTIVES n 1950, the typical woman who married did so at
age 20. Now, however, she is waiting until age 27.
After reading this chapter, you should be Furthermore, a larger number of women are choosing
able to: not to marry at all. Contributing to delayed marriages
1.1 Define economics and discuss the and nonmarriages is the fact that fewer women are
difference between microeconomics and agreeing to marry non-college-educated men employed
macroeconomics by or seeking to work in manufacturing industries. In
1.2 Identify the three basic economic this chapter, you will learn that diminished prospects
questions and the two opposing sets of
for male employment by manufacturing firms and
answers
decreased male earnings at these companies have
1.3 Evaluate the role that rational self-interest
provided women with economic incentives that reduce
plays in economic analysis
their willingness to marry these men. Indeed, you will
1.4 Explain why economics is a science
learn that such incentives play significant roles in most
1.5 Distinguish between positive and
decisions made by all individuals, including choices
normative economics
about when and whether to marry.

1
2 PART 1 | INTRODUCTION
Incentives
Rewards or penalties for engaging in
a particular activity.
1.1 Define economics and
discuss the difference
between microeconomics and
macroeconomics
Economics
The study of how people allocate their
limited resources to satisfy their
unlimited wants.
Resources
Things used to produce goods and services
to satisfy people’s wants.
Wants
What people would buy if their incomes
were unlimited.
DID YOU KNOW THAT…
more than one out of every four vehicles on Russian roads is equipped with a dashboard camera? Russian resi-
dents likely are no more tech savvy than residents of many other nations, but they have stronger incentives to
document auto accidents that may occur while they are driving. Russia’s Arctic winter conditions and poor
maintenance of many of its roads contribute to large numbers of accidents that drivers might wish to document
in case their insurers question whether they or other drivers were at fault. In addition, Russian Highway Patrol
officers commonly stop drivers who have committed no driving offenses and threaten them with tickets unless
they pay bribes. Furthermore, criminal organizations commonly stage accidents or provide damaged vehicles as
evidence for filing insurance claims against motorists. Taken together, the prevalence of icy roads, police cor-
ruption, and faked accident claims gives drivers in Russia particularly strong incentives to install dashboard
cameras and compile video documentation of every second their vehicles spend on the road.
In this chapter, you will learn why contemplating the nature of self-interested responses to incentives is
the starting point for analyzing choices people make in all walks of life. After all, how much time you devote
to studying economics in this introductory course depends in part on the incentives established by your
instructor’s grading system. As you will see, self-interest and incentives are the underpinnings for all the
decisions you and others around you make each day.
The Power of Economic Analysis
Simply knowing that self-interest and incentives are central to any decision-making
process is not sufficient for predicting the choices that people will actually make. You
also have to develop a framework that will allow you to analyze solutions to each
­economic problem. You must do so whether you are trying to decide how much to
study, which courses to take, or to finish school, or whether you are evaluating if the
U.S. government should provide more grants to universities or raise taxes. The
­framework that you will learn in this text is the economic way of thinking.
This framework gives you power—the power to reach informed judgments about
what is happening in the world. You can, of course, live your life without the power of
economic analysis as part of your analytical framework. Indeed, most people do.
Economists believe, though, that economic analysis can help you make better deci-
sions concerning your career, your education, financing your home, and other impor-
tant matters.
In the business world, the power of economic analysis can help increase your com-
petitive edge as an employee or as the owner of a business. As a voter, for the rest of
your life you will be asked to make judgments about policies that are advocated by
political parties. Many of these policies will deal with questions related to interna-
tional economics, such as whether the U.S. government should encourage or discour-
age immigration or restrict other countries from selling their goods here.
Defining Economics
Economics is part of the social sciences and, as such, seeks explanations of real events.
All social sciences analyze human behavior, as opposed to the physical sciences, which
generally analyze the behavior of electrons, atoms, and other nonhuman phenomena.
Economics is the study of how people allocate their limited resources in an
attempt to satisfy their unlimited wants. As such, economics is the study of how
people make choices.
To understand this definition fully, two other words need explaining: resources and
wants. Resources are things that have value and, more specifically, are used to pro-
duce goods and services that satisfy people’s wants. Wants are all of the items that
people would purchase if they had unlimited income.
 CHAPTER 1 | The Nature of Economics 3
Whenever an individual, a business, or a nation faces alternatives, a choice must be
made, and economics helps us study how those choices are made. For example, you
have to choose how to spend your limited income. You also have to choose how to
spend your limited time. You may have to choose how many of your company’s limited
resources to allocate to advertising and how many to allocate to new-product research.
In economics, we examine situations in which individuals choose how to do things,
when to do things, and with whom to do them. Ultimately, the purpose of economics
is to explain choices.

Microeconomics versus Macroeconomics

Economics is typically divided into two types of analysis: microeconomics and Microeconomics
macroeconomics. The study of decision making undertaken
by individuals (or households) and by
firms.
Microeconomics is the part of economic analysis that studies decision making
undertaken by individuals (or households) and by firms. It is like looking Macroeconomics
through a microscope to focus on the small parts of our economy. The study of the behavior of the economy
as a whole, including such economywide
phenomena as changes in unemployment,
Macroeconomics is the part of economic analysis that studies the behavior of the the general price level, and national
economy as a whole. It deals with economywide phenomena such as changes in income.
unemployment, in the general price level, and in national income.

Microeconomic analysis, for example, is concerned with the effects of changes in the
price of gasoline relative to that of other energy sources. It examines the effects of new
taxes on a specific product or industry. If the government establishes new health care
regulations, how individual firms and consumers will react to those regulations would
be in the realm of microeconomics. The effects of higher wages brought about by an
effective union strike would also be analyzed using the tools of microeconomics.
In contrast, issues such as the rate of inf lation, the amount of economywide unem-
ployment, and the yearly growth in the output of goods and services in the nation all
fall into the realm of macroeconomic analysis. In other words, macroeconomics deals
with aggregates, or totals—such as total output in an economy. Aggregates
Be aware, however, of the blending of microeconomics and macroeconomics in Total amounts or quantities. Aggregate
modern economic theory. Modern economists are increasingly using microeconomic demand, for example, is total planned
expenditures throughout a nation.
analysis—the study of decision making by individuals and by firms—as the basis of
macroeconomic analysis. They do this because even though macroeconomic analysis
focuses on aggregates, those aggregates are the result of choices made by individuals
and firms.
Recent technological developments have contributed further to the theoretical
blending of microeconomics and macroeconomics. Increasingly, businesses, govern-
ments, and even individuals are turning to artificial intelligence (AI) technologies, Artificial intelligence (AI) technologies
which are digital-app-based or -assisted tools utilized in making and implementing The development and implementation of
decisions. AI technologies often implement sophisticated and typically automated methods of utilizing automated data-
analytics techniques, machine learning, or
data-analytics methods for working with very substantial volumes of information, com-
virtual- or augmented-reality techniques to
monly known as big data, to reveal previously hidden relationships. In the past, people examine and evaluate information in an
applied their skills in using basic statistical techniques to examine and learn from large effort to help consumers, businesses, and
sets of data. To a growing extent, however, people now have adopted machine learning, governments to make decisions.
or the application of simple or sophisticated AI-guided programming of digital devices,
to search through massive bodies of data that human minds might struggle to compre-
hend. Increasingly, AI technologies also entail the use of virtual-reality techniques, which
allow people to view or perceive fully artificial environments, or augmented-reality
methods, which enable individuals to observe virtual overlays of information alongside
real images. With such AI technologies, businesses, governments, and consumers can
make more informed decisions. Furthermore, a growing number of economists also
are employing AI technologies to examine people’s decision making and choices.
Why does the application of big data analytics potentially have microeconomic and
macroeconomic implications?
4 PART 1 | INTRODUCTION

AI DECISION MAKING THROUGH DATA

Microeconomic and Macroeconomic Applications
AI technologies can be applied to both microeconomic and macroeco-
nomic issues. At the level of a company, for instance, data-analytics
techniques can be applied to vast amounts of information on prices of
products, quality features, numbers of units, amounts purchased, and
so on. For example, U.S. companies, such as Amazon, Apple, and Google,
currently are spending tens of billions of dollars per year on digital
equipment used to conduct automated data analytics. Information about
prices, characteristics, and quantities purchased can be subjected to a
variety of automated data-analytics techniques. Even though substan-
tial volumes of individual bits of information may be contained in such
a large set of data, the scope of such an evaluation would be micro
economic.
In contrast, practitioners of big data analytics use the techniques to
contemplate large sets of data involving economic aggregates. For ex-
ample, central banks interested in coordinating their policies must
evaluate considerable information encompassing annual price levels,
total outputs of goods and services, levels of employment of workers, and
so on for many of the world’s economies over a lengthy interval. The
­nature of analyzing such very large sets of data via automated data-
analytics techniques is macro economic.
In spite of the differences in microeconomic and macroeconomic
scopes of various large sets of data, the methods of big data analytics
used to study the datasets are similar. This fact helps to explain why the
advent of AI technologies has tended to increase the blending of micro-
economics and macroeconomics.
FOR CRITICAL THINKING
Why do you suppose that economists might sometimes disagree about
whether to classify as a microeconomic or macroeconomic endeavor the
application of big data analytics to massive volumes of information
encompassing virtually all of a nation’s industries and interactions
among those industries?
Sources are listed at the end of this chapter.

1.2 Identify the three
basic economic questions
and the two opposing sets
of answers
Economic system
A society’s institutional mechanism for
determining the way scarce resources are
used to satisfy human desires.
The Three Basic Economic Questions and
Two Opposing Sets of Answers
In every nation, three fundamental questions must be addressed irrespective of the
form of its government or who heads that government, how rich or how poor the
nation may be, or what type of economic system—the institutional mechanism
through which resources are utilized to satisfy human wants—has been chosen.
The Three Basic Questions
The three fundamental questions of economics concern the problem of how to allo-
cate society’s scarce resources:

ECONOMICS IN YOUR LIFE
To contemplate a recent example
from U.S. housing finance regarding
choosing among answers to the
three basic economic questions,
take a look at Government
Involvement Enables a Private
U.S. Housing Finance Company to
Provide “Cheap” Loans on page 12.
1. What and how much will be produced? Some mechanism must exist for determining
which items will be produced while others remain inventors’ pipe dreams or indi-
viduals’ unfulfilled desires.
2. How will items be produced? There are many ways to produce a desired item. It is
possible to use more labor and fewer machines, or vice versa. It is possible, for
instance, to produce an item with an aim to maximize the number of people
employed. Alternatively, an item may be produced with an aim to minimize the
total expenses that members of society incur. Somehow, a decision must be made
about the mix of resources used in production, the way in which they are organized,
and how they are brought together at a particular location.
3. For whom will items be produced? Once an item is produced, who should be able to
obtain it? People use scarce resources to produce any item, so typically people value
access to that item. Thus, determining a mechanism for distributing produced
items is a crucial issue for any society.
Now that you know the questions an economic system must answer, how do cur-
rent systems actually answer them?
 CHAPTER 1 | The Nature of Economics 5
Two Opposing Sets of Answers
At any point in time, every nation has its own economic system. How a nation’s resi-
dents go about answering the three basic economic questions depends on that nation’s
economic system.

Centralized Command and Control Throughout history, one common type of eco-
nomic system has been command and control (also called central planning). Such a system
is operated by a centralized authority, such as a king or queen, a dictator, a central
government, or some other type of authority. Such an entity assumes responsibility
for addressing fundamental economic issues. Under command and control, this
authority decides what items to produce and how many, determines how the scarce
resources will be organized in the items’ production, and identifies who will be able to
obtain the items.
For instance, in a command-and-control economic system, a government
might decide that particular types of automobiles ought to be produced in certain
numbers. The government might issue specific rules for how to manage the pro-
duction of these vehicles, or it might even establish ownership over those resources
so that it can make all such resource allocation decisions directly. Finally, the
government may then decide who will be authorized to purchase or otherwise
utilize the vehicles.

The Price System The alternative to command and control is the price system (also
called a market system), which is a shorthand term describing an economic system that
answers the three basic economic questions via decentralized decision making. Under
a pure price system, individuals and families own all of the scarce resources used in
production. Consequently, choices about what and how many items to produce are
left to private parties to determine on their own initiative, as are decisions about how
to go about producing those items. Furthermore, individuals and families choose how
to allocate their own incomes to obtain the produced items at prices established via
privately organized mechanisms.
In the price system, which you will learn about in considerable detail in later
chapters, prices define the terms under which people agree to make exchanges. Prices
signal to everyone within a price system which resources are relatively scarce and
which are relatively abundant. This signaling aspect of the price system provides infor-
mation to individual buyers and sellers about what and how many items should be
produced, how production of items should be organized, and who will choose to buy
the produced items.
Thus, in a price system, individuals and families own the facilities used to produce
automobiles. They decide which types of automobiles to produce, how many of them
to produce, and how to bring labor and machines together within their facilities to
generate the desired production. Other individuals and families decide how much of
their earnings they wish to spend on automobiles.

Mixed Economic Systems By and large, the economic systems of the world’s nations
are mixed economic systems that incorporate aspects of both centralized command
and control and a decentralized price system. At any given time, some nations lean
toward centralized mechanisms of command and control and allow relatively little
scope for decentralized decision making. At the same time, other nations limit the
extent to which a central authority dictates answers to the three basic economic ques-
tions, leaving people mostly free to utilize a decentralized price system to generate
their own answers.
A given country may reach different decisions at different times about how much to
rely on command and control versus a price system to answer its three basic economic
questions. Until 2008, for instance, U.S. residents preferred to rely mainly on a decen-
tralized price system to decide which and how many financial services to produce and
6 PART 1 | INTRODUCTION
1.3 Evaluate the role that
rational self-interest plays in
economic analysis
Rationality assumption
The assumption that people do not
intentionally make decisions that would
leave them worse off.
how to produce them. During some years since then, the U.S. government has owned
substantial fractions of financial firms and hence has exerted considerable command-
and-control authority over production of financial services.
The Economic Approach: Systematic Decisions
Economists assume that individuals act as if they systematically pursue self-motivated
interests and respond predictably to perceived opportunities to attain those interests.
This central insight of economics was first clearly articulated by Adam Smith in 1776.
Smith wrote in his most famous book, An Inquiry into the Nature and Causes of the
Wealth of Nations, that “it is not from the benevolence [good will] of the butcher, the
brewer, or the baker that we expect our dinner, but from their regard to their own
interest.” Thus, the typical person about whom economists make behavioral predic-
tions is assumed to act as though he or she systematically pursues self-motivated
interest.
The Rationality Assumption
The rationality assumption of economics, simply stated, is as follows:
We assume that individuals do not intentionally make decisions that would leave
them worse off.
The distinction here is between what people may think—the realm of psychology
and psychiatry and perhaps sociology—and what they do. Economics does not
involve itself in analyzing individual or group thought processes. Economics looks at
what people actually do in life with their limited resources. It does little good to
criticize the rationality assumption by stating, “Nobody thinks that way” or “I never
think that way” or “How unrealistic! That’s as irrational as anyone can get!” In a
world in which people can be atypical in countless ways, economists find it useful to
concentrate on discovering the baseline. Knowing what happens on average is a
good place to start. In this way, we avoid building our thinking on exceptions rather
than on reality.
Take the example of driving. When you consider passing another car on a two-lane
highway with oncoming traffic, you have to make very quick decisions: You must esti-
mate the speed of the car that you are going to pass, the speed of the oncoming cars,
the distance between your car and the oncoming cars, and your car’s potential rate of
acceleration. If we were to apply a model to your behavior, we would use the rules of
calculus. In actual fact, you and most other drivers in such a situation do not actually
think of using the rules of calculus, but to predict your behavior, we could make the
prediction as if you understood those rules.
Responding to Incentives
If it can be assumed that individuals never intentionally make decisions that would
leave them worse off, then they will respond to changes in incentives. Indeed, much of
human behavior can be explained in terms of how individuals respond to changing
incentives over time.
Schoolchildren are motivated to do better by a variety of incentive systems, rang-
ing from gold stars and certificates of achievement when they are young, to better
grades with accompanying promises of a “better life” as they get older. Of course,
negative incentives affect our behavior, too. Penalties, punishments, and other
forms of negative incentives can raise the total cost of engaging in various
activities.
How have earnings-based and tuition-expense-related incentives of pursuing a col-
lege degree changed in recent years?
 CHAPTER 1 | The Nature of Economics 7

EXAMPLE
The Altered Incentives Confronting Prospective College Students

In 1975, an individual considering enrolling in a college and success-
fully completing about four years of coursework required for a bachelor’s
degree could anticipate an inflation-adjusted annual payoff of about
$20,000 every year following graduation. By 2000, this inflation-
adjusted annual earnings incentive to earn a college degree had
increased to about $33,000. This substantial jump in average annual
income helps to explain why the percentage of U.S. adults holding col-
lege degrees steadily increased from 13 percent in 1975 to 33 percent
today.
Since 2000, however, the average inflation-adjusted annual earn-
ings gain from obtaining a college degree has dropped to about
$29,500 per year. Accompanying this 11 percent decrease in the antici-
pated earnings payoff from a college degree has been an inflation-
adjusted increase in average tuition and fees of 75 percent over the
same interval. Thus, today’s dollars-and-cents incentives to pursue a
college degree are much weaker than was true a generation ago.
REAL APPLICATION
Sometimes adults tell young people to “get all the education you can
get.” Does that mean you should necessarily obtain an advanced degree?
Sources are listed at the end of this chapter.

Defining Self-Interest
Self-interest does not always mean increasing one’s wealth measured in dollars and
cents. We assume that individuals seek many goals, not just increased wealth measured
in monetary terms. Thus, the self-interest part of our economic-person assumption
includes goals relating to prestige, friendship, love, power, helping others, creating
works of art, and many other matters. We can also think in terms of enlightened self-
interest, whereby individuals, in the pursuit of what makes them better off, also
achieve the betterment of others around them. In brief, individuals are assumed to
want the ability to further their goals by making decisions about how items around
them are used. The head of a charitable organization usually will not turn down an
additional contribution, because accepting the funds yields control over how they are
used, even though their use is for other people’s benefit.
Does the fact that many people donate to charity necessarily imply that the donors
only wish to help others?

BEH AVIO R AL EXAMPL E

Assessing Whether Charitable Donations Reflect Caring for Others or for Oneself

When contemplating making a charitable donation, people often consider
two motivations. The first is a desire to help others. The second is the pos-
sibility of benefiting from incentives that governments provide to those
who make donations, such as certain tax deductions granted to charitable
donors by tax authorities.
Three behavioral economists—Eiji Yamamura of Seinan Gakuin Univer-
sity, Yoshiro Tsutsui of Konan University, and Fumio Ohtake of Osaka
­University—have studied how these motivations interacted in Japan during
the years following an unusually damaging earthquake in the eastern part
of the country. Under Japan’s tax laws, people were allowed to respond to
the earthquake by directing portions of their local tax payments, potentially
supplemented with extra donations, to municipalities that suffered most
from the quake. At the same time, however, municipal governments in
Japan could compete for directed tax payments and donations by offering
donors reciprocal gifts, including gift cards, digital devices, home appli-
ances, jewelry, and even gold or silver.
The researchers find evidence that Japan’s taxpayers definitely
responded to the earthquake in a caring manner by directing more taxes
and additional donations to earthquake-stricken municipalities. Yet
directed taxes and donations to regions whose governments offered gifts
were more than six times larger than those that taxpayers directed to areas
in which governments offered no gifts. The researchers conclude that allow-
ing governments unaffected by the earthquake to offer reciprocal gifts
reduced directed taxes and donations to governments of regions damaged
by the quake. Thus, in the absence of governmental reciprocal gifts to
donors, even more funds would have reached parts of Japan that suffered
the greatest harm from the earthquake.
FOR CRITICAL THINKING
How might the fact that the U.S. government allows larger tax deductions
for some charitable donations than for others affect U.S. taxpayers’ incen-
tives about how much to donate and to whom they direct their
donations?
Sources are listed at the end of this chapter.
8 PART 1 | INTRODUCTION

1.4 Explain why economics Economics as a Science

is a science
Models, or theories
Simplified representations of the real world
used as the basis for predictions or
explanations.
Variables
Choices that people make or other human
outcomes that are subject to change.
Economics is a social science that employs the same kinds of methods used in other
sciences, such as biology, physics, and chemistry. Like these other sciences, economics
uses models, or theories. Economic models, or theories, are simplified representa-
tions of the real world that we use to help us understand, explain, and predict eco-
nomic phenomena in the real world. There are, of course, differences between
sciences. Social scientists, including economists, tend to make less use of laboratory
experiments in which changes in variables—human choices or outcomes subject to
change—are studied under controlled conditions. Social scientists often test their
models, or theories, by examining what has already happened in the real world.

Models and Realism

At the outset it must be emphasized that no model in any science, and therefore no
economic model, is complete in the sense that it captures every detail or interrelation-
ship that exists. Indeed, a model, by definition, is an abstraction from reality. It is
conceptually impossible to construct a perfectly complete realistic model. For exam-
ple, in physics we cannot account for every molecule and its position and certainly not
for every atom and subatomic particle. Not only is such a model unreasonably expen-
sive to build, but working with it would be impossibly complex.
The nature of scientific model building is that the model should capture only the
essential relationships that are sufficient to analyze the particular problem or answer
the particular question with which we are concerned. An economic model cannot be
faulted as unrealistic simply because it does not represent every detail of the real world. A map
of a city that shows only major streets is not faulty if, in fact, all you wish to know is
how to pass through the city using major streets. As long as a model is able to shed
light on the central issue at hand or forces at work, it may be useful.
A map is the quintessential model. It is always a simplified representation. It is
always unrealistic. It is, however, also useful in making predictions about the world. If
the model—the map—predicts that when you take Campus Avenue to the north, you
always run into the campus, that is a prediction. If a simple model can explain observed
behavior in repeated settings just as well as a complex model, the simple model has
some value and is probably easier to use.

Assumptions
Every model, or theory, must be based on a set of assumptions. Assumptions define
the array of circumstances in which our model is most likely to be applicable. When
some people predicted that sailing ships would fall off the edge of the earth, they used
the assumption that the earth was f lat. Columbus did not accept the implications of
such a model because he did not accept its assumptions. He assumed that the world
was round. The real-world test of his own model refuted the f lat-earth model.
­Indirectly, then, it was a test of the assumption of the f lat-earth model.
Is it possible to use our knowledge about assumptions to understand why driving
directions sometimes contain very few details?

EX AM PLE
Getting Directions

Assumptions are a shorthand for reality. Imagine that you have decided
to drive from your home in San Diego to downtown San Francisco.
Because you have never driven this route, you decide to use a travel-
planner device such as global-positioning-system equipment.
When you ask for directions, the electronic travel planner could
give you a set of detailed maps that shows each city through which
you will travel—Oceanside, San Clemente, Irvine, Anaheim, Los
Angeles, Bakersfield, Modesto, and so on—with the individual
maps showing you exactly how the freeway threads through each of
these cities. You would get a nearly complete description of reality
because the GPS travel planner will not have used many simplifying
assumptions. It is more likely, however, that the travel planner will
 CHAPTER 1 | The Nature of Economics 9
simply say, “Get on Interstate 5 going north. Stay on it for about 500 miles. Francisco—they focus on what is relevant to the problem at hand
Follow the signs for San Francisco. After crossing the toll bridge, and omit what is not.
take any exit marked ‘Downtown.’” By omitting all of the trivial
details, the travel planner has told you all that you really need and FOR CRITICAL THINKING
want to know. The models you will be using in this text are similar to In what way do small talk and gossip represent the use of simplifying
the simplified directions on how to drive from San Diego to San assumptions?

The Ceteris Paribus Assumption: All Other Things Being Equal Everything in the world
seems to relate in some way to everything else in the world. It would be impossible to
isolate the effects of changes in one variable on another variable if we always had to
worry about the many other variables that might also enter the analysis. Similar to
other sciences, economics uses the ceteris paribus assumption. Ceteris paribus means Ceteris paribus [KAY-ter-us
“other things constant” or “other things equal.” PEAR-uh-bus] assumption
Consider an example taken from economics. One of the most important determi- The assumption that nothing changes
except the factor or factors being studied.
nants of how much of a particular product a family buys is how expensive that product
is relative to other products. We know that in addition to relative prices, other factors
inf luence decisions about making purchases. Some of them have to do with income,
others with tastes, and yet others with custom and religious beliefs. Whatever these
other factors are, we hold them constant when we look at the relationship between
changes in prices and changes in how much of a given product people will purchase.

Deciding on the Usefulness of a Model

We generally do not attempt to determine the usefulness, or “goodness,” of a model
by evaluating how realistic its assumptions are. Rather, we consider a model “good” if
it yields usable predictions that are supported by real-world observations. In other
words, can we use the model to predict what will happen in the world around us? Does
the model provide useful implications about how things happen in our world?
Once we have determined that the model may be useful in predicting real-world phe-
nomena, the scientific approach to the analysis of the world around us requires that we
consider evidence. Evidence is used to test the usefulness of a model. This is why we call
economics an empirical science. Empirical means that evidence (data) is looked at to see Empirical
whether we are right. Economists are often engaged in empirically testing their models. Relying on real-world data in evaluating
the usefulness of a model.
Models of Behavior, Not Thought Processes
Take special note of the fact that economists’ models do not relate to the way people
think. Economic models predict how people act and what they do in life with their
limited resources. The economist does not attempt to predict how people will think
about a particular topic, such as a higher price of oil products, accelerated inf lation, or
higher taxes. Rather, the task at hand is to predict how people will behave, which may
be quite different from what they say they will do (much to the consternation of poll
takers and market researchers). Thus, people’s declared preferences are generally of
little use in testing economic theories, which aim to explain and predict people’s
revealed preferences. The people involved in examining thought processes are psy-
chologists and psychiatrists, not typically economists.

WH AT H APPEN S W HEN …
people’s actual reactions to incentives differ from how they claim they would respond in answers to survey questions?
When businesses contemplate actions, such as price increases, that to such questions is that they would halt entirely their consumption of
alter people’s incentives to consume a product, the firms sometimes such services. In fact, however, what typically occurs is that, although
conduct surveys to try to gauge how purchases might be affected. For the total quantity of banking services purchased declines after a fee is
instance, large banks often hire public-opinion firms to survey people imposed, many people pay the new fee and continue to utilize the ser-
about how they think they would respond to a new fee on banking ser- vices. Hence, the declared preferences of consumers do not necessarily
vices previously provided at no charge. A common response people give accord with their true preferences.
10 PART 1 | INTRODUCTION
Behavioral economics
An approach to the study of consumer
behavior that emphasizes psychological
limitations and complications that
potentially interfere with rational decision
making.
Bounded rationality
The hypothesis that people are nearly,
but not fully, rational, so that they cannot
examine every possible choice available
to them but instead use simple rules of
thumb to sort among the alternatives
that happen to occur to them.
1.5 Distinguish between
positive and normative
economics
Behavioral Economics and Bounded Rationality
In recent years, some economists have proposed paying more attention to psycholo-
gists and psychiatrists. They have suggested an alternative approach to economic anal-
ysis. Their approach, known as behavioral economics, examines consumer behavior
in the face of psychological limitations and complications that may interfere with
rational decision making.
Bounded Rationality Proponents of behavioral economics suggest that traditional
economic models assume that people exhibit three “unrealistic” characteristics:
1. Unbounded selfishness. People are interested only in their own satisfaction.
2. Unbounded willpower. Their choices are always consistent with their long-term goals.
3. Unbounded rationality. They are able to consider every relevant choice.
As an alternative, advocates of behavioral economics have proposed replacing the
rationality assumption with the assumption of bounded rationality, which assumes
that people cannot examine and think through every possible choice they confront. As
a consequence, behavioral economists suggest, individuals cannot always pursue, on
their own, their best long-term personal interests. They sometimes require help.
Rules of Thumb A key behavioral implication of the bounded rationality assumption is
that people should use so-called rules of thumb: Because every possible choice cannot
be considered, an individual will tend to fall back on methods of making decisions that
are simpler than trying to sort through every possibility.
A problem confronting advocates of behavioral economics is that people who appear
to use rules of thumb may in fact behave as if they are fully rational. For instance, if a
person faces persistently predictable ranges of choices for a while, the individual may
rationally settle into repetitive behaviors that an outside observer might conclude to
be consistent with a rule of thumb. According to the bounded rationality assumption,
the person will continue to rely on a rule of thumb even if there is a major change in
the environment that the individual faces. Time and time again, however, economists
find that people respond to altered circumstances by fundamentally changing their
behaviors. Economists also generally observe that people make decisions that are con-
sistent with their own self-interest and long-term objectives.
Behavioral Economics Goes Mainstream The bulk of economic analysis continues to
rely on the rationality assumption as the basis for constructing economic models. In
most contexts, economists view the rationality assumption as a reasonable foundation
for constructing models intended to predict human decision making.
Nevertheless, a growing number of economists are exploring ways in which psycho-
logical elements might improve analysis of decision making by individual consumers,
firm owners and managers, and government officials. These economists are applying the
bounded rationality assumption to study effects of limitations on people’s capabilities to
pursue self-interest, to assess how choices relate to long-term goals, or to consider all
available choices. As you will learn in later chapters, behavioral theories and methods are
being applied to the study of both microeconomic and macroeconomic issues.
Positive versus Normative Economics
Economics uses positive analysis, a value-free approach to inquiry. No subjective or
moral judgments enter into the analysis. Positive analysis relates to statements such as
“If A, then B.” For example, “If the price of gasoline goes up relative to all other
prices, then the amount of it that people buy will fall.” That is a positive economic
statement. It is a statement of what is. It is not a statement of anyone’s value judgment
or subjective feelings.
 CHAPTER 1 | The Nature of Economics 11
Distinguishing between Positive and Normative Economics
For many problems analyzed in the “hard” sciences such as physics and chemistry, the
analyses are considered to be virtually value-free. After all, how can someone’s values
enter into a theory of molecular behavior? Economists, however, face a different
problem. They deal with the behavior of individuals, not molecules. That makes it
more difficult to stick to what we consider to be value-free or positive economics Positive economics
without reference to our feelings. Analysis that is strictly limited to making
When our values are interjected into the analysis, we enter the realm of normative either purely descriptive statements or
scientific predictions. For example, “If A,
economics, involving normative analysis. A positive economic statement is “If the
then B.” A statement of what is.
price of gas rises, people will buy less.” If we add to that analysis the statement “so we
should not allow the price to go up,” we have entered the realm of normative economics— Normative economics
we have expressed a value judgment. In fact, any time you see the word should, you will Analysis involving value judgments about
economic policies; relates to whether
know that values are entering into the discussion. Just remember that positive state- outcomes are good or bad. A statement of
ments are concerned with what is, whereas normative statements are concerned with what ought to be.
what ought to be.
Each of us has a desire for different things. That means we have different values.
When we express a value judgment, we are simply saying what we prefer, like, or
desire. Because individual values are diverse, we expect—and indeed observe—that
people express widely varying value judgments about how the world ought to be.

A Warning: Recognize Normative Analysis

It is easy to define positive economics. It is quite another matter to catch all unla-
beled normative statements in a textbook, even though an author goes over the man-
uscript many times before it is printed or electronically created. Therefore, do not
get the impression that a textbook author will be able to keep all personal values out
of the book. They will slip through. In fact, the very choice of which topics to include
in an introductory textbook involves normative economics. There is no value-free
way to decide which topics to use in her or his textbook. The author’s values ulti-
mately make a difference when choices have to be made. From your own standpoint,
though, you might want to be able to recognize when you are engaging in normative
as opposed to positive economic analysis. Reading this text will help equip you for
that task.

ECONOMICS AS IT APPLIES TO YOUR EVERYDAY LIFE

AND YOUR FUTURE
Throughout this new edition, you will find numerous examples of how to apply eco-
nomics to your everyday life and to decision making with respect to your career, your
family, and even how you analyze political statements. In other words, you will learn
economic skills that are practical.
In many of the examples and other features throughout the text, you will find a
Real Application question. These questions relate to:
• Career choices
• Managerial choices if you decide to go into business
• Future behavior in your household
• Voting choices
The next-to-last chapter-ending feature, called Economics in Your Life, always ends
with a Real Application question.
The last feature in each chapter, called Issues & Applications, will also always end
with a Real Application question.
12 PART 1 | INTRODUCTION

ECO N O MICS IN YO U R L I F E
Government Involvement Enables a Private U.S. Housing Finance Company to Provide “Cheap” Loans

David Brickman, an executive vice president of a government-sponsored FOR CRITICAL THINKING

financial company called the Federal Home Loan Mortgage Corporation—
FHLMC or “Freddie Mac”—has announced a new program to provide real- Overall, does it appear that the affordable-housing loans offered by
estate owners with loans at interest rates lower than those available from Freddie Mac arise from the application of centralized command and
the private price system. Recipients of this special loan must agree not to control, the price system, or a mix of the two? Explain your reasoning.
raise rents on tenants during the full ten-year term of the loan.
“There’s nothing about our typical loan that prevents someone REAL APPLICATION
from raising rents,” even though, “[t]he supply of workforce housing is
Assume that you and two friends decide to buy an apartment building
rapidly declining,” says Brickman. “There’s an urgent need to pre-
next to a college. Renters are primarily full-time students. Should you
serve [current housing] and find ways that you can effectively create
take advantage of the low-interest-rate loan? What calculations do
more.” For these reasons, he explains, Freddie Mac has created its
you have to make?
low-interest loan to induce landlords who receive the funds to agree to
maintain fixed rents for a decade. Sources are listed at the end of this chapter.

ISSUES &
APPLICATIONS
Why Fewer Men in
Manufacturing Jobs Helps
Shutterstock

to Explain Why Fewer

Women Are Married
CONCEPTS APPLIED Naturally, whether to marry is a personal decision for any woman who
contemplates the possibility. It is also a self-interested decision that
Z Self-Interest
involves assessing tangible valuations of the economic contributions
Z Rationality Assumption that a man has to offer to a combined household. Considerable
­evidence indicates that during recent years, women have begun
Z Incentives
placing lower valuations on the potential economic contributions of non-­
college-educated men who are employed or regularly seek employment
in manufacturing industries. The result has been a reduction in the
number of women who have decided to marry these men. This fact
helps to explain why the prevalence of marriage has decreased.

The Choice Faced by a Woman Considering
Marriage to a Man Working or Seeking
Work in Manufacturing
In years past, inf lation-adjusted hourly earnings of male
manufacturing workers were among the highest available
to men not receiving education beyond high school. In
2000, more than 16 million men had these higher-paying
manufacturing jobs, but in the years since, the number of
men working in manufacturing industries has declined by
about 25 percent.
If a woman’s behavior is consistent with the rationality
assumption, she will recognize that fewer non-college-
educated men are now finding manufacturing employment
Another random document with
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had not loved the children with all the devotion he should have or he
would never have had the thoughts he had had—or so he had
reasoned afterward. Yet then as now he suffered because of the love
he should have given them, and had not—and now could not any
more, save in memory. He recalled how both boys looked in those
last sad days, their pinched little faces and small weak hands! Marie
was crushed, and yet dearer for the time being than ever before. But
the two children, once gone, had seemed the victims of his own dark
thoughts as though his own angry, resentful wishes had slain them.
And so, for the time, his mood changed. He wished, if he could, that
he might undo it all, go on as before with Marie, have other children
to replace these lost ones in her affection—but no. It was apparently
not to be, not ever any more.
For, once they were gone, the cords which had held him and Marie
together were weaker, not stronger—almost broken, really. For the
charm which Marie had originally had for him had mostly been
merged in the vivacity and vitality and interest of these two prattling
curly-headed boys. Despite the financial burden, the irritation and
drain they had been at times, they had also proved a binding chain,
a touch of sweetness in the relationship, a hope for the future, a
balance which had kept even this uneven scale. With them present
he had felt that however black the situation it must endure because
of them, their growing interests; with them gone, it was rather plain
that some modification of their old state was possible—just how, for
the moment, he scarcely dared think or wish. It might be that he
could go away and study for awhile now. There was no need of his
staying here. The neighborhood was too redolent now of the
miseries they had endured. Alone somewhere else, perhaps, he
could collect his thoughts, think out a new program. If he went away
he might eventually succeed in doing better by Marie. She could
return to her parents in Philadelphia for a little while and wait for him,
working there at something as she had before until he was ready to
send for her. The heavy load of debts could wait until he was better
able to pay them. In the meantime, also, he could work and whatever
he made over and above his absolute necessities might go to her—
or to clearing off these debts.
 So he had reasoned.
But it had not worked out so of course. No. In the broken mood in
which Marie then was it was not so easy. Plainly, since he had run
across her that April day in Philadelphia when he was wiring for the
great dry goods store, her whole life had become identified with his,
although his had not become merged with hers. No. She was, and
would be, as he could so plainly see, then, nothing without him,
whereas he—he—Well, it had long since been plain that he would be
better off without her—materially, anyhow. But what would she do if
he stayed away a long time—or never came back? What become?
Had he thought of that then? Yes, he had. He had even thought that
once away he might not feel like renewing this situation which had
proved so disastrous. And Marie had seemed to sense that, too. She
was so sad. True he had not thought of all these things in any bold
outright fashion then. Rather they were as sly, evasive shadows
skulking in the remote recesses of his brain, things which scarcely
dared show their faces to the light, although later, once safely away
—they had come forth boldly enough. Only at that time, and later—
even now, he could not help feeling that however much Marie might
have lacked originally, or then, the fault for their might was his,—that
if he himself had not been so dull in the first instance all these black
things would not have happened to him or to her. But could she go
on without him? Would she? he had asked himself then. And
answered that it would be better for him to leave and build himself up
in a different world, and then return and help her later. So he fretted
and reasoned.
But time had solved all that, too. In spite of the fact that he could
not help picturing her back there alone with her parents in
Philadelphia, their poor little cottage in Leigh Street in which she and
her parents had lived—not a cottage either, but a minute little brick
pigeon-hole in one of those long lines of red, treeless, smoky
barracks flanking the great mills of what was known as the
Reffington District, where her father worked—he had gone. He had
asked himself what would she be doing there? What thinking, all
alone without him—the babies dead? But he had gone.
 He recalled so well the day he left her—she to go to Philadelphia,
he to Boston, presumably—the tears, the depression, the
unbelievable sadness in her soul and his. Did she suspect? Did she
foreknow? She was so gentle, even then, so trustful, so sad. “You
will come back to me, dearie, won’t you, soon?” she had said, and so
sadly. “We will be happy yet, won’t we?” she had asked between
sobs. And he had promised. Oh yes; he had done much promising in
his life, before and since. That was one of the darkest things in his
nature, his power of promising.
But had he kept that?
However much in after months and years he told himself that he
wanted to, that he must, that it was only fair, decent, right, still he
had not gone back. No. Other things had come up with the passing
of the days, weeks, months, years, other forces, other interests.
Some plan, person, desire had always intervened, interfered,
warned, counseled, delayed. Were there such counselors? There
had been times during the first year when he had written her and
sent her a little money—money he had needed badly enough
himself. Later there was that long period in which he felt that she
must be getting along well enough, being with her parents and at
work, and he had not written. A second woman had already
appeared on the scene by then as a friend. And then—
The months and years since then in which he had not done so!
After his college course—which he took up after he left Marie,
working his way—he had left Boston and gone to K—— to begin a
career as an assistant plant manager and a developer of ideas of his
own, selling the rights to such things as he invented to the great
company with which he was connected. And then it was that by
degrees the idea of a complete independence and a much greater
life had occurred to him. He found himself so strong, so interesting to
others. Why not be free, once and for all? Why not grow greater?
Why not go forward and work out all the things about which he had
dreamed? The thing from which he had extricated himself was too
confining, too narrow. It would not do to return. The old shell could
not now contain him. Despite her tenderness, Marie was not
significant enough. So—He had already seen so much that he could
do, be, new faces, a new world, women of a higher social level.
But even so, the pathetic little letters which still followed from time
to time—not addressed to him in his new world (she did not know
where he was), but to him in the old one—saying how dearly she
loved him, how she still awaited his return, that she knew he was
having a hard time, that she prayed always, and that all would come
out right yet, that they would be able to be together yet!—she was
working, saving, praying for him! True, he had the excuse that for the
first four years he had not really made anything much, but still he
might have done something for her,—might he not have?—gone
back, persuaded her to let him go, made her comfortable, brought
her somewhat nearer him even? Instead he had feared, feared,
reasoned, argued.
Yes, the then devil of his nature, his ambition, had held him
completely. He was seeing too clearly the wonder of what he might
be, and soon, what he was already becoming. Everything as he
argued then and saw now would have had to be pushed aside for
Marie, whereas what he really desired was that his great career, his
greater days, his fame, the thing he was sure to be now—should
push everything aside. And so—Perhaps he had become sharper,
colder, harder, than he had ever been, quite ready to sacrifice
everything and everybody, or nearly, until he should be the great
success he meant to be. But long before this he might have done so
much. And he had not—had not until very recently decided to revisit
this older, sweeter world.
But in the meantime, as he had long since learned, how the
tragedy of her life had been completed. All at once in those earlier
years all letters had ceased, and time slipping by—ten years really—
he had begun to grow curious. Writing back to a neighbor of hers in
Philadelphia in a disguised hand and on nameless paper, he had
learned that nearly two years before her father had died and that she
and her mother and brother had moved away, the writer could not
say where. Then, five years later, when he was becoming truly
prosperous, he had learned, through a detective agency, that she
and her mother and her ne’er-do-well brother had moved back into
this very neighborhood—this old neighborhood of his and hers!—or,
rather, a little farther out near the graveyard where their two boys
were buried. The simplicity of her! The untutored homing instinct!
But once here, according to what he had learned recently, she and
her mother had not prospered at all. They had occupied the most
minute of apartments farther out, and had finally been compelled to
work in a laundry in their efforts to get along—and he was already so
well-to-do, wealthy, really! Indeed three years before his detectives
had arrived, her mother had died, and two years after that, she
herself, of pneumonia, as had their children. Was it a message from
her that had made him worry at that time? Was that why, only six
months since, although married and rich and with two daughters by
this later marriage, he had not been able to rest until he had found
this out, returned here now to see? Did ghosts still stalk the world?
Yes, to-day he had come back here, but only to realize once and
for all now how futile this errand was, how cruel he had been, how
dreary her latter days must have been in this poor, out-of-the-way
corner where once, for a while at least, she had been happy—he
and she.
“Been happy!”
“By God,” he suddenly exclaimed, a passion of self-reproach and
memory overcoming him, “I can’t stand this! It was not right, not fair. I
should not have waited so long. I should have acted long, long since.
The cruelty—the evil! There is something cruel and evil in it all, in all
wealth, all ambition, in love of fame—too cruel. I must get out! I must
think no more—see no more.”
And hurrying to the door and down the squeaking stairs, he
walked swiftly back to the costly car that was waiting for him a few
blocks below the bridge—that car which was so representative of the
realm of so-called power and success of which he was now the
master—that realm which, for so long, had taken its meaningless
lustre from all that had here preceded it—the misery, the loneliness,
the shadow, the despair. And in it he was whirled swiftly and gloomily
away.
 IX
PHANTOM GOLD

Y OU would have to have seen it to have gathered a true

impression—the stubby roughness of the country, the rocks, the
poverty of the soil, the poorness of the houses, barns, agricultural
implements, horses and cattle and even human beings, in
consequence—especially human beings, for why should they, any
more than any other product of the soil, flourish where all else was
so poor?
It was old Judge Blow who first discovered that “Jack,” or zinc,
was the real riches of Taney, if it could be said to have had any
before “Jack” was discovered. Months before the boom began he
had stood beside a smelter in far-off K—— one late winter afternoon
and examined with a great deal of care the ore which the men were
smelting, marveling at its resemblance to certain rocks or boulders
known as “slug lumps” in his home county.
“What is this stuff?” he asked of one of the bare-armed men who
came out from the blazing furnace after a time to wipe his dripping
face.
“Zinc,” returned the other, as he passed his huge, soiled palm over
his forehead.
“We have stuff down in our county that looks like that,” said the
judge as he turned the dull-looking lump over and considered for a
while. “I’m sure of it—any amount.” Then he became suddenly silent,
for a thought struck him.
“Well, if it’s really ‘Jack,’” said the workman, using the trade or
mining name for it, “there’s money in it, all right. This here comes
from St. Francis.”
The old judge thought of this for a little while and quietly turned
away. He knew where St. Francis was. If this was so valuable that
they could ship it all the way from southeast B——, why not from
Taney? Had he not many holdings in Taney?
The result was that before long a marked if secret change began
to manifest itself in Taney and regions adjacent thereto. Following
the private manipulations and goings to and fro of the judge one or
two shrewd prospectors appeared, and then after a time the whole
land was rife with them. But before that came to pass many a farmer
who had remained in ignorance of the value of his holdings was
rifled of them.
Old Bursay Queeder, farmer and local ne’er-do-well in the
agricultural line, had lived on his particular estate or farm for forty
years, and at the time that Judge Blow was thus mysteriously
proceeding to and fro and here and there upon the earth, did not
know that the rocks against which his pair of extra large feet were
being regularly and bitterly stubbed contained the very wealth of
which he had been idly and rather wistfully dreaming all his life.
Indeed, the earth was a very mysterious thing to Bursay, containing,
as it did, everything he really did not know. This collection of seventy
acres, for instance—which individually and collectively had wrung
more sweat from his brow and more curses from his lips than
anything else ever had—contained, unknown to him, the possibility
of the fulfilment of all his dreams. But he was old now and a little
queer in the head at times, having notions in regard to the Bible,
when the world would come to an end, and the like, although still
able to contend with nature, if not with man. Each day in the spring
and summer and even fall seasons he could be seen on some
portion or other of his barren acres, his stubby beard and sparse hair
standing out roughly, his fingers like a bird’s claws clutching his
plough handles, turning the thin and meagre furrows of his fields and
rattling the stony soil, which had long ceased to yield him even a
modicum of profit. It was a bare living now which he expected, and a
bare living which he received. The house, or cabin, which he
occupied with his wife and son and daughter, was dilapidated
beyond the use or even need of care. The fences were all decayed
save for those which had been built of these same impediments of
the soil which he had always considered a queer kind of stone,
useless to man or beast—a “hendrance,” as he would have said. His
barn was a mere accumulation of patchboards, shielding an old
wagon and some few scraps of machinery. And the alleged corn crib
was so aged and lopsided that it was ready to fall. Weeds and
desolation, bony horses and as bony children, stony fields and thin
trees, and withal solitude and occasional want—such was the world
of his care and his ruling.
Mrs. Queeder was a fitting mate for the life to which he was
doomed. It had come to that pass with her that the monotony of
deprivation was accepted with indifference. The absence or
remoteness of even a single modest school, meeting house or town
hall, to say nothing of convenient neighbors, had left her and hers all
but isolated. She was irascible, cantankerous, peculiar; her voice
was shrill and her appearance desolate. Queeder, whom she
understood or misunderstood thoroughly, was a source of comfort in
one way—she could “nag at him,” as he said, and if they quarreled
frequently it was in a fitting and harmonious way. Amid such a
rattletrap of fields and fences bickering was to be expected.
“Why don’t yuh take them thar slug lumps an’ make a fence over
thar?” she asked of Queeder for something like the thousandth time
in ten years, referring to as many as thirty-five piles of the best and
almost pure zinc lying along the edges of the nearest field, and piled
there by Bursay,—this time because two bony cows had invaded one
of their corn patches. The “slug lumps” to which she referred could
not have been worth less than $2,000.
For as many as the thousandth time he had replied:
“Well, fer the land sakes, hain’t I never got nuthin’ else tuh do?
Yuh’d think them thar blame-ding rocks wuz wuth more nor anythin’
else. I do well enough ez ’tis to git ’em outen the sile, I say, ‘thout
tryin’ tuh make fences outen ’em.”
“So yuh say—yuh lazy, good-fer-nuthin’ ole tobacco-chewin’ ——,”
here a long list of expletives which was usually succeeded by a
stove lid or poker or a fair-sized stick of wood, propelled by one party
or the other, and which was as deftly dodged. Love and family
affection, you see, due to unbroken and unbreakable propinquity, as
it were.
But to proceed: The hot and rainy seasons had come and gone in
monotonous succession during a period of years, and the lumps still
lay in the field. Dode, the eldest child and only son—a huge, hulking,
rugged and yet bony ignoramus, who had not inherited an especially
delicate or agreeable disposition from his harried parents—might
have removed them had he not been a “consarned lazy houn’,” his
father said, or like his father, as his mother said, and Jane, the
daughter, might have helped, but these two partook of the same
depressed indifference which characterized the father. And why not,
pray? They had worked long, had had little, seen less and hoped for
no particular outlet for their lives in the future, having sense enough
to know that if fate had been more kind there might have been.
Useless contention with an unyielding soil had done its best at
hardening their spirits.
“I don’t see no use ploughin’ the south patch,” Dode had now
remarked for the third time this spring. “The blamed thing don’t grow
nuthin’.”
“Ef yuh only half ’tended it instid o’ settin’ out thar under them thar
junipers pickin’ yer teeth an’ meditatin’, mebbe ’twould,” squeaked
Mrs. Queeder, always petulant or angry or waspish—a nature soured
by long and hopeless and useless contention.
“No use shakin’ up a lot uv rocks, ez I see,” returned Dode, wearily
and aimlessly slapping at a fly. “The hull place ain’t wuth a hill o’
beans,” and from one point of view he was right.
“Why don’t yuh git off’n hit then?” suggested Queeder in a
tantalizing voice, with no particular desire to defend the farm, merely
with an idle wish to vary the monotony. “Ef hit’s good enough tuh
s’port yuh, hit’s good enough to work on, I say.”
“S’port!” sniffed the undutiful Dode, wearily, and yet humorously
and scornfully. “I ain’t seed much s’port, ez I kin remember. Mebbe
ye’re thinkin’ uv all the fine schoolin’ I’ve had, er the places I’ve
been.” He slapped at another fly.
 Old Queeder felt the sneer, but as he saw it it was scarcely his
fault. He had worked. At the same time he felt the futility of
quarreling with Dode, who was younger and stronger and no longer,
owing to many family quarrels, bearing him any filial respect. As a
matter of fact it was the other way about. From having endured many
cuffs and blows in his youth Dode was now much the more powerful
physically, and in any contest could easily outdo his father; and
Queeder, from at first having ruled and seen his word law, was now
compelled to take second, even third and fourth, place, and by
contention and all but useless snarling gain the very little
consideration that he received.
But in spite of all this they lived together indifferently. And day after
day—once Judge Blow had returned to Taney—time was bringing
nearer and nearer the tide of mining and the amazing boom that
went with it. Indeed every day, like a gathering storm cloud, it might
have been noted by the sensitive as approaching closer and closer,
only these unwitting holders were not sensitive. They had not the
slightest inkling as yet of all that was to be. Here in this roadless,
townless region how was one to know. Prospectors passed to the
north and the south of them; but as yet none had ever come directly
to this wonderful patch upon which Queeder and his family rested. It
was in too out-of-the-way a place—a briary, woodsy, rocky corner.
Then one sunny June morning—
“Hi, thar!” called Cal Arnold, their next neighbor, who lived some
three miles further on, who now halted his rickety wagon and bony
horses along the road opposite the field in which Queeder was
working. “Hyur the news?” He spoke briskly, shifting his cud of
tobacco and eyeing Queeder with the chirpiness of one who brings
diverting information.
“No; what?” asked Queeder, ceasing his “cultivating” with a worn
one-share plough and coming over and leaning on his zinc fence,
rubbing a hand through his sparse hair the while.
“Ol’ Dunk Porter down here to Newton’s sold his farm,” replied Cal,
shrewdly and jubilantly, as though he were relating the tale of a great
battle or the suspected approach of the end of the world. “An’ he got
three thousan’ dollars fer it.” He rolled the sum deliciously under his
tongue.
“Yuh don’t say!” said Queeder quietly but with profound and
amazed astonishment. “Three thousan’?” He stirred as one who
hears of the impossible being accomplished and knows it can’t be
true. “Whut fer?”
“They ’low now ez how thar’s min’l onto it,” went on the farmer
wisely. “They ’low ez how now this hyur hull kentry round hyur is
thick an’ spilin’ with it. Hit’s uvrywhar. They tell me ez how these hyur
slug lumps”—and he flicked at one of the large piles of hitherto
worthless zinc against which Queeder was leaning—“is this hyur
min’l—er ‘Jack,’ ez they call hit—an’ that hit’s wuth two cents a
pound when it’s swelted” (“smelted,” he meant) “an’ even more. I see
yuh got quite a bit uv hit. So’ve I. Thar’s a lot layin’ down around my
place. I allus ’lowed ez how ’twant wuth much o’ anythin,’ but they
say ’tis. I hyur from some o’ the boys ’at’s been to K—— that when
hit’s fixed up, swelted and like o’ that, that hit’s good fer lots of
things.”
He did not know what exactly, so he did not stop to explain.
Instead he cocked a dreamful eye, screwed up his mouth
preparatory to expectorating and looked at Queeder. The latter,
unable to adjust his thoughts to this new situation, picked up a piece
of the hitherto despised “slug” and looked at it. To think that through
all these years of toil and suffering he should have believed it
worthless and now all of a sudden it was worth two cents a pound
when “swelted” and that neighbors were beginning to sell their farms
for princely sums!—and his farm was covered with this stuff, this
gold almost! Why, there were whole hummocks of it raising slaty-
gray backs to the hot sun further on, a low wall in one place where it
rose sheer out of the ground on this “prupetty,” as he always referred
to it. Think of that! Think of that! But although he thought much he
said nothing, for in his starved and hungry brain was beginning to
sprout and flourish a great and wondrous idea. He was to have
money, wealth—ease, no less! Think of it! Not to toil and sweat in the
summer sun any more, to loaf and dream at his ease, chew all the
tobacco he wished, live in town, visit far-off, mysterious K——, see
all there was to see!
“Well, I guess I’ll be drivin’ on,” commented Arnold after a time,
noting Queeder’s marked abstraction. “I cal’late tuh git over tuh
Bruder’s an’ back by sundown. He’s got a little hay I traded him a pig
fer hyur a while back,” and he flicked his two bony horses and was
off up the rubbly, dusty road.
For a time Queeder was scarcely satisfied to believe his senses.
Was it really true? Had Porter really sold his place? For days
thereafter, although he drove to Arno—sixteen miles away—to
discover the real truth, he held his own counsel, nursing a wonderful
fancy. This property was his, not his wife’s, nor his two children’s.
Years before he had worked and paid for it, a few lone dollars at a
time, or their equivalent in corn, pigs, wheat, before he had married.
Now—now—soon one of those strange creatures—a “prowspector,”
Arnold had called him—who went about with money would come
along and buy up his property. Wonderful! Wonderful! What would he
get for it?—surely five thousand dollars, considering that Porter had
received three for forty acres, whereas he had seventy. Four
thousand, anyhow—a little more than Dunk. He could not figure it
very well, but it would be more than Dunk’s, whatever it was—
probably five thousand!
The one flaw in all this though—and it was a great flaw—was the
thought of his savage and unkindly family—the recalcitrant Dode, the
angular Jane and his sour better half, Emma—who would now
probably have to share in all this marvelous prosperity, might even
take it away from him and push him into that background where he
had been for so long. They were so much more dogmatic, forceful
than he. He was getting old, feeble even, from long years of toil. His
wife had done little this long time but sneer and jeer at him, as he
now chose most emphatically to remember; his savage son the
same. Jane, the indifferent, who looked on him as a failure and a
ne’er-do-well, had done nothing but suggest that he work harder.
Love, family tenderness, family unity—if these had ever existed they
had long since withered in the thin, unnourishing air of this rough,
poverty-stricken world. What did he owe any of them? Nothing. And
now they would want to share in all this, of course. Having lived so
long with them, and under such disagreeable conditions, he now
wondered how they would dare suggest as much, and still he knew
they would. Fight him, nag him, that’s all they had ever done. But
now that wealth was at his door they would be running after him,
fawning upon him—demanding it of him, perhaps! What should he
do? How arrange for all of this?—for wealth was surely close to his
hands. It must be. Like a small, half-intelligent rat he peeked and
perked. His demeanor changed to such an extent that even his
family noticed it and began to wonder, although (knowing nothing of
all that had transpired as yet) they laid it to the increasing queerness
of age.
“Have yuh noticed how Pap acts these hyur days?” Dode inquired
of Jane and his mother one noontime after old Queeder had eaten
and returned to the fields. “He’s all the time standin’ out thar at the
fence lookin’ aroun’ ez if he wuz a-waitin’ fer somebody er thinkin’
about somepin. Mebbe he’s gittin’ a little queer, huh? Y’ think so?”
Dode was most interested in anything which concerned his father
—or, rather, his physical or mental future—for once he died this
place would have to be divided or he be called upon to run it, and in
that case he would be a fitting catch for any neighborhood farming
maiden, and as such able to broach and carry through the long-
cherished dream of matrimony, now attenuated and made all but
impossible by the grinding necessities he was compelled to endure.
“Yes, I’ve been noticin’ somepin,” returned Mrs. Queeder. “He
hain’t the same ez he wuz a little while back. Some new notion he’s
got into his mind, I reckon, somepin he wants tuh do an’ kain’t, er
somepin new in ’ligion, mebbe. Yuh kain’t ever tell whut’s botherin’
him.”
Jane “’lowed” as much and the conversation ended. But still
Queeder brooded, trying to solve the knotty problem, which
depended, of course, on the open or secret sale of the land—secret,
if possible, he now finally decided, seeing that his family had always
been so unkind to him. They deserved nothing better. It was his—
why not?
 In due time appeared a prospector, mounted on horseback and
dressed for rough travel, who, looking over the fields of this area and
noting the value of these particular acres, the surface outcropping of
a thick vein, became intensely interested. Queeder was not to be
seen at the time, having gone to some remote portion of the farm,
but Mrs. Queeder, wholly ignorant of the value of the land and
therefore of the half-suppressed light in the stranger’s eye, greeted
him pleasantly enough.
“Would you let me have a drink of water?” inquired the stranger
when she appeared at the door.
“Sartinly,” she replied with a tone of great respect. Even
comparatively well-dressed strangers were so rare here.
Old Queeder in a distant field observing him at the well, now
started for the house.
“What is that stuff you make your fences out of?” asked the
stranger agreeably, wondering if they knew.
“Well, now, I dunno,” said Mrs. Queeder. “It’s some kind o’ stone, I
reckon—slug lumps, we uns always call hit aroun’ hyur.”
The newcomer suppressed a desire to smile and stooped to pick
up a piece of the zinc with which the ground was scattered. It was
the same as he had seen some miles back, only purer and present
in much greater quantities. Never had he seen more and better zinc
near the surface. It was lying everywhere exposed, cultivation, frosts
and rains having denuded it, whereas in the next county other men
were digging for it. The sight of these dilapidated holdings, the
miserable clothing, old Queeder toiling out in the hot fields, and all
this land valueless for agriculture because of its wondrous mineral
wealth, was almost too much for him.
“Do you own all this land about here?” he inquired.
“’Bout seventy acres,” returned Mrs. Queeder.
“Do you know what it sells at an acre?”
“No. It ain’t wuth much, though, I reckon. I ain’t heerd o’ none bein’
sold aroun’ hyur fer some time now.”
 The prospector involuntarily twitched at the words “not wuth
much.” What would some of his friends and rivals say if they knew of
this particular spot? What if some one should tell these people? If he
could buy it now for a song, as he well might! Already other
prospectors were in the neighborhood. Had he not eaten at the same
table at Arno with three whom he suspected as such? He must get
this, and get it now.
“I guess I’ll stroll over and talk to your husband a moment,” he
remarked and ambled off, the while Mrs. Queeder and Jane, the
twain in loose blue gingham bags of dresses much blown by the
wind, stood in the tumbledown doorway and looked after him.
“Funny, ain’t he?” said the daughter. “Wonder whut he wants o’
Paw?”
Old Queeder looked up quizzically from his ploughing, to which he
had returned, as he saw the stranger approaching, and now
surveyed him doubtfully as he offered a cheery “Good morning.”
“Do you happen to know if there is any really good farming land
around here for sale?” inquired the prospector after a few delaying
comments about the weather.
“Air yuh wantin’ it fer farmin’?” replied Queeder cynically and
casting a searching look upon the newcomer, who saw at once by
Queeder’s eye that he knew more than his wife. “They’re buyin’ hit
now mostly fer the min’l ez is onto it, ez I hyur.” At the same time he
perked like a bird to see how this thrust had been received.
The prospector smiled archly if wisely. “I see,” he said. “You think
it’s good for mining, do you? What would you hold your land at as
mineral land then if you had a chance to sell it?”
Queeder thought for a while. Two wood doves cooed mournfully in
the distance and a blackbird squeaked rustily before he answered.
“I dunno ez I keer tuh sell yit.” He had been getting notions of late
as to what might be done if he were to retain his land, bid it up
against the desires of one and another, only also the thought of how
his wife and children might soon learn and insist on dividing the
profits with him if he did sell it was haunting him. Those dreams of
getting out in the world and seeing something, of getting away from
his family and being happy in some weird, free way, were actually
torturing him.
“Who owns the land just below here, then?” asked the stranger,
realizing that his idea of buying for little or nothing might as well be
abandoned. But at this Queeder winced. For after all, the land
adjoining had considerable mineral on it also, as he well knew.
“Why, let me see,” he replied waspishly, with mingled feelings of
opposition and indifference. “Marradew,” he finally added, grudgingly.
It was no doubt true that this stranger or some other could buy of
other farmers if he refused to sell. Still, land around here anywhere
must be worth something, his as much as any other. If Dunk Porter
had received $3,000—
“If you don’t want to sell, I suppose he might,” the prospector
continued pleasantly. The idea was expressed softly, meditatively,
indifferently almost.
There was a silence, in which Queeder calmly leaned on his
plough handles thinking. The possibility of losing this long-awaited
opportunity was dreadful. But he was not floored yet, for all his
hunger and greed. Arnold had said that the metal alone, these rocks,
was worth two cents a pound, and he could not get it out of his mind
that somehow the land itself, the space of soil aside from the metal,
must be worth something. How could it be otherwise? Small crops of
sorts grew on it.
“I dunno,” he replied defiantly, if internally weakly. “Yuh might ast. I
ain’t heerd o’ his wantin’ to sell.” He was determined to risk this last if
he had to run after the stranger afterward and beg him to
compromise, although he hoped not to have to do that, either. There
were other prospectors.
“I don’t know yet whether I want this,” continued the prospector
heavily and with an air of profound indifference, “but I’d like to have
an option on it, if you’d like to sell. What’ll you take for an option at
sixty days on the entire seventy acres?”
 The worn farmer did not in the least understand what was meant
by the word option, but he was determined not to admit it. “Whut’ll
yuh give?” he asked finally, in great doubt as to what to say.
“Well, how about $200 down and $5,000 more at the end of sixty
days if we come to terms at the end of that time?” He was offering
the very lowest figure that he imagined Queeder would take, if any,
for he had heard of other sales in this vicinity this very day.
Queeder, not knowing what an option was, knew not what to say.
Five thousand was what he had originally supposed he might be
offered, but sixty days! What did he mean by that? Why not at once if
he wanted the place—cash—as Dunk Porter, according to Arnold,
had received? He eyed the stranger feverishly, fidgeted with his
plough handles, and finally observed almost aimlessly: “I ’low ez I
could git seven thousan’ any day ef I wanted to wait. The feller hyur
b’low me a ways got three thousan’, an’ he’s got thirty acres less’n I
got. Thar’s been a feller aroun’ hyur offerin’ me six thousan’.”
“Well, I might give you $6,000, providing I found the ground all
right,” he said.
“Cash down?” asked Queeder amazedly, kicking at a clod.
“Within sixty days,” answered the prospector.
“Oh!” said Queeder, gloomily. “I thort yuh wanted tuh buy t’day.”
“Oh, no,” said the other. “I said an option. If we come to terms I’ll
be back here with the money within sixty days or before, and we’ll
close the thing up—six thousand in cash, minus the option money.
Of course I don’t bind myself absolutely to buy—just get the privilege
of buying at any time within sixty days, and if I don’t come back
within that time the money I turn over to you to-day is yours, see,
and you’re free to sell the land to some one else.”
“Huh!” grunted Queeder. He had dreamed of getting the money at
once and making off all by himself, but here was this talk of sixty
days, which might mean something or nothing.
“Well,” said the prospector, noting Queeder’s dissatisfaction and
deciding that he must do something to make the deal seem more
attractive, “suppose we say seven thousand, then, and I put down
$500 cash into your hands now? How’s that? Seven thousand in
sixty days and five hundred in cash right now. What do you say?”
He reached in his pocket and extracted a wallet thick with bills,
which excited Queeder greatly. Never had so much ready money,
which he might quickly count as his if he chose, been so near him.
After all, $500 in cash was an amazing amount in itself. With that
alone what could he not do? And then the remainder of the seven
thousand within sixty days! Only, there were his wife and two
children to consider. If he was to carry out his dream of decamping
there must be great secrecy. If they learned of this—his possession
of even so much as five hundred in cash—what might not happen?
Would not Dode or his wife or Jane, or all three, take it away from
him—steal it while he was asleep? It might well be so. He was so
silent and puzzled that the stranger felt that he was going to reject
his offer.
“I’ll tell you what I’ll do,” he said, as though he were making a
grand concession. “I’ll make it eight thousand and put up eight
hundred. How’s that? If we can’t arrange it on that basis we’ll have to
drop the matter, for I can’t offer to pay any more,” and at that he
returned the wallet to his pocket.
But Queeder still gazed, made all but dumb by his good fortune
and the difficulties it presented. Eight thousand! Eight hundred in
cash down! He could scarcely understand.
“T’day?” he asked.
“Yes, to-day—only you’ll have to come with me to Arno. I want to
look into your title. Maybe you have a deed, though—have you?”
Queeder nodded.
“Well, if it’s all right I’ll pay you the money at once. I have a form of
agreement here and we can get some one to witness it, I suppose.
Only we’ll have to get your wife to sign, too.”
Queeder’s face fell. Here was the rub—his wife and two children!
“She’s gotta sign, hez she?” he inquired grimly, sadly even. He was
beside himself with despair, disgust. To work and slave so all these
years! Then, when a chance came, to have it all come to nothing, or
nearly so!
“Yes,” said the prospector, who saw by his manner and tone that
his wife’s knowledge of it was not desired. “We’ll have to get her
signature, too. I’m sorry if it annoys you, but the law compels it.
Perhaps you could arrange all that between you in some way. Why
not go over and talk to her about it?”
Queeder hesitated. How he hated it—this sharing with his wife and
son! He didn’t mind Jane so much. But now if they heard of it they
would quarrel with him and want the larger share. He would have to
fight—stand by his “rights.” And once he had the money—if he ever
got it—he would have to watch it, hide it, to keep it away from them.
“What’s the matter?” asked the prospector, noting his perturbation.
“Does she object to your selling?”
“’Tain’t that. She’ll sell, well enough, once she hyurs. I didn’t ’low
ez I’d let ’er know at fust. She’ll be wantin’ the most uv it—her an’
Dode—an’ hit ain’t ther’n, hit’s mine. I wuz on hyur fust. I owned this
hyur place fust, ’fore ever I saw ’er. She don’t do nuthin’ but fuss an’
fight, ez ’tis.”
“Supposing we go over to the house and talk to her. She may not
be unreasonable. She’s only entitled to a third, you know, if you don’t
want to give her more than that. That’s the law. That would leave you
nearly five thousand. In fact, if you want it, I’ll see that you get five
thousand whatever she gets.” He had somehow gathered the
impression that five thousand, for himself, meant a great deal to
Queeder.
And true enough, at that the old farmer brightened a little. For five
thousand? Was not that really more than he had expected to get for
the place as a whole but an hour before! And supposing his wife did
get three thousand? What of it? Was not his own dream coming
true? He agreed at once and decided to accompany the prospector
to the house. But on the way the farmer paused and gazed about
him. He was as one who scarcely knew what he was doing. All this
money—this new order of things—if it went through! He felt strange,
different, confused. The mental ills of his many years plus this great
fortune with its complications and possibilities were almost too much
for him. The stranger noted a queer metallic and vacant light in the
old farmer’s eyes as he now turned slowly about from west to east,
staring.
“What’s the matter?” he asked, a suspicion of insanity coming to
him.
The old man seemed suddenly to come to. “’Tain’t nuthin’,” he
said. “I wuz just thinkin’.”
The prospector meditated on the validity of a contract made with a
lunatic, but the land was too valuable to bother about trifles. Once a
contract was made, even with a half-wit, the legal difficulties which
could be made over any attempt to break the agreement would be
very great.
In the old cabin Jane and her mother wondered at the meaning of
the approaching couple, but old Queeder shooed off the former as
he would have a chicken. Once inside the single room, which served
as parlor, sitting-room, bedroom and all else convenient, Queeder
nervously closed the door leading into the kitchen, where Jane had
retired.
“Go on away, now,” he mumbled, as he saw her there hanging
about. “We want a word with yer Maw, I tell yuh.”
Lank Jane retired, but later clapped a misshapen ear to the door
until she was driven away by her suspicious father. Then the farmer
began to explain to his wife what it was all about.
“This hyur stranger—I don’t know your name yit—”
“Crawford! Crawford!” put in the prospector.
“Crawford—Mr. Crawford—is hyur tuh buy the place ef he kin. I
thought, seein’ ez how yuh’ve got a little int’est in it—third”—he was
careful to add—“we’d better come an’ talk tuh yuh.”
“Int’est!” snapped Mrs. Queeder, sharply and suspiciously, no
thought of the presence of the stranger troubling her in her
expression of her opinion, “I should think I had—workin’ an’ slavin’