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Economics For Dummies, 3rd Edition

Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com

Copyright 2018 by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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Library of Congress Control Number: 2018937401

ISBN 978-1-119-47638-2 (pbk); ISBN 978-1-119-47627-6 (ebk); ISBN 978-1-119-47632-0 (epdf)

Economics is all about humanitys struggle to achieve happiness in a world full of constraints. Theres never enough time or money to do everything people want, and things like curing cancer are still impossible because the necessary technologies havent been developed yet. But people are clever. They tinker and invent, ponder and innovate. They look at what they have and what they can do with it and take steps to make sure that if they cant have everything, theyll at least have as much as possible.

Having to choose is a fundamental part of everyday life. The science that studies how people choose economics is indispensable if you really want to understand human beings both as individuals and as members of larger organizations. Sadly, though, economics has typically been explained so badly that people either dismiss it as impenetrable gobbledygook or stand falsely in awe of it after all, if its hard to understand, it must be important, right?

I wrote this book so you can quickly and easily understand economics for what it is a serious science that studies a serious subject and has developed some seriously good ways of explaining human behavior out in the (very serious) real world. Economics touches on nearly everything, so the returns on reading this book are huge. Youll understand much more about people, the government, international relations, business, and even environmental issues.

The Scottish historian Thomas Carlyle called economics the dismal science, but Im going to do my best to make sure that you dont come to agree with him. Ive organized this book to try to get as much economics into you as quickly and effortlessly as possible. Ive also done my best to keep it lively and fun.

In this book, you find the most important economic theories, hypotheses, and discoveries without a zillion obscure details, outdated examples, or complicated mathematical proofs. Among the topics covered are

• How the government fights recessions and unemployment
• How and why international trade is good for both individuals and nations
• Why poorly designed property rights are responsible for environmental problems such as global warming, pollution, and species extinctions
• How profits guide businesses to produce the goods and services you take for granted
• How economic incentives affect healthcare costs, prices, and efficiency
• Why competitive firms are almost always better for society than monopolies
• How the Federal Reserve controls the money supply, interest rates, and inflation all at the same time
• Why government policies such as price controls and subsidies often cause much more harm than good
• How the simple supply and demand model can explain the prices of everything from comic books to open-heart surgeries

You can read the chapters in any order, and you can immediately jump to what you need to know without having to read a bunch of stuff that you couldnt care less about.

Economists like competition, so you shouldnt be surprised that there are a lot of competing views. Indeed, its only through vigorous debate and careful review of the evidence that the profession improves its understanding of how the world works. This book contains core ideas and concepts that economists agree are true and important I try to steer clear of fads or ideas that foster a lot of disagreement. (If you want to be subjected to my opinions and pet theories, youll have to buy me a drink.)

Note: Economics is full of two things you may not find very appealing: jargon and algebra. To minimize confusion, whenever I introduce a new term, I put it in italics and follow it closely with an easy-to-understand definition. Also, whenever I bring algebra into the discussion, I use those handy italics again to let you know that Im referring to a mathematical variable. For instance, I is the abbreviation for investment, so you may see a sentence like this one: I think that I is too big.

I try to keep equations to a minimum, but sometimes they help make things clearer. In such instances, I sometimes have to use several equations one after another. To avoid confusion about which equation Im referring to at any given time, I give each equation a number, which I put in parentheses. For example,

(1)