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Reading Essentials and Study Guide - Student Edition
ECONOMICS:
PRINCIPLES AND PRACTICES
Reading Essentials
and
Study Guide
Student Workbook
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TO THE STUDENT
The Reading Essentials and Study Guide is designed to help you use recognized reading
strategies to improve your reading-for-information skills. For each section of the student text-
book, you are alerted to key terms, asked to draw from prior knowledge, organize thoughts with
a graphic organizer, and then follow a process to read and understand the text. The Reading
Essentials and Study Guide was prepared to help you get more from your textbook by
reading with purpose.
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Permission is granted to reproduce
the material contained herein on the condition that such material be reproduced only for classroom use;
be provided to students, teachers, and families without charge; and be used solely in conjunction with
Economics: Principles and Practices. Any other reproduction, for use or sale, is prohibited without
written permission from the publisher.
Send all inquiries to:
Glencoe/McGraw-Hill
8787 Orion Place
Columbus, OH 43240
ISBN 0-07-865040-2
Printed in the United States of America.
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C ONTENTS
Chapter 1 What Is Economics?
1 Scarcity and the Science of Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Basic Economic Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3 Economic Choices and Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Chapter 2 Economic Systems and Decision Making
1 Economic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2 Evaluating Economic Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3 Capitalism and Economic Freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Chapter 3 Business Organizations
1 Forms of Business Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2 Business Growth and Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3 Other Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Chapter 4 Demand
1 What Is Demand? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2 Factors Affecting Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3 Elasticity of Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Chapter 5 Supply
1 What Is Supply? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2 The Theory of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3 Cost, Revenue, and Profit Maximization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Chapter 6 Prices and Decision Making
1 Prices as Signals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
2 The Price System at Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3 Social Goals vs. Market Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Chapter 7 Market Structures
1 Competition and Market Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
2 Market Failures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
3 The Role of Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Chapter 8 Employment, Labor, and Wages
1 The Labor Movement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
2 Resolving Union and Management Differences . . . . . . . . . . . . . . . . . . . . . . . 67
3 Labor and Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
4 Employment Trends and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Chapter 9 Sources of Government Revenue
1 The Economics of Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
2 The Federal Tax System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
3 State and Local Tax Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
4 Current Tax Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Chapter 10 Government Spending
1 The Economics of Government Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
2 Federal Government Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
3 State and Local Government Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . 96
4 Deficits, Surpluses, and the National Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 98
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Chapter 11 Money and Banking
1 The Evolution of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
2 Early Banking and Monetary Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
3 The Development of Modern Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Chapter 12 Financial Markets
1 Savings and the Financial System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
2 Investment Strategies and Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 115
3 Investing in Equities, Futures, and Options . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Chapter 13 Economic Performance
1 Measuring the Nation’s Output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
2 GDP and Changes in the Price Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
3 GDP and Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
4 Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Chapter 14 Economic Instability
1 Business Cycles and Fluctuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
2 Unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
3 Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
4 Poverty and the Distribution of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Chapter 15 The Fed and Monetary Policy
1 The Federal Reserve System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
2 Monetary Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
3 Monetary Policy, Banking, and the Economy . . . . . . . . . . . . . . . . . . . . . . . . 156
Chapter 16 Achieving Economic Stability
1 The Cost of Economic Instability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
2 Macroeconomic Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
3 Stabilization Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
4 Economics and Politics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Chapter 17 International Trade
1 Absolute and Comparative Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
2 Barriers to International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
3 Financing and Trade Deficits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
Chapter 18 Comparative Economic Systems
1 The Spectrum of Economic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
2 The Rise and Fall of Communism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
3 The Transition to Capitalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
4 The Various Faces of Capitalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
Chapter 19 Developing Countries
1 Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
2 A Framework for Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
3 Financing Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
Chapter 20 Global Economic Challenges
1 The Global Demand for Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
2 Economic Incentives and Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
3 Applying the Economic Way of Thinking . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
 
Name
Date
Class
1,
1
For use with textbook pages 5–10
S CARCITY AND THE SCIENCE OF ECONOMICS
KEY TERMS
scarcity The condition that results from society not having enough resources to produce all the things
people would like to have (page 5)
economics The study of how people try to satisfy what appears to be seemingly unlimited and competing
wants through the careful use of relatively scarce resources (page 6)
need A basic requirement for survival that includes food, clothing, and shelter (page 6)
want A way of expressing a need (page 6)
factors of production Resources required to produce things people would like to have; they include land,
capital, labor, and entrepreneurs (page 7)
land Natural resources not created by humans (page 7)
capital The tools, equipment, machinery, and factories used in the production of goods and services
(page 7)
financial capital The money used to buy the tools and equipment used in production (page 7)
labor People with all their efforts, abilities, and skills (page 8)
entrepreneur A risk-taker in search of profits who does something new with existing resources ( page 8)
production The process of creating goods and services (page 8)
Gross Domestic Product (GDP) The dollar value of all final goods, services, and structures produced
within a country’s borders in a 12-month period (page 9 )
DRAWING FROM EXPERIENCE
Have you ever wanted more than you had? What did you do to get what you wanted? Where
did you go to get it?
This section focuses on basic economic concepts such as people’s needs and wants and how the
economy produces goods and services to satisfy them.
ORGANIZING YOUR THOUGHTS
Use the table below to help you take notes as you read the summaries that follow. Think about
the three basic economic questions that face every society and how the four factors of produc-
tion try to answer them.
Basic Economic Questions
Factors of Production
1.
1.
2.
2.
3.
3.
4.
Study Guide
1
Name
Date
Class
KEY TERMS
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