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Untitled-3 1 14/01/2019 12:14
 vii

Change in Quantity Demanded versus Change in The Production Approach: Measuring a

Demand 73 Nation’s Macroeconomic Activity Using
Gross Domestic Product 95
Increases in Demand Shift the Demand Curve 74
The Components of GDP 97
Decreases in Demand Shift the Demand Curve 76
Putting It All Together: The GDP Equation 100
A Decrease in Demand Decreases the Equilibrium
Price 77 APPLICATION 2 Intellectual Property in GDP
Accounts 101
APPLICATION 4 Craft Beer and the Price of Hops 77
The Income Approach: Measuring a Nation’s
Market Effects of Changes in Supply 78
Macroeconomic Activity Using National
Change in Quantity Supplied versus Change in Income 101
Supply 78
Measuring National Income 101
Increases in Supply Shift the Supply Curve 78
Measuring National Income through Value
An Increase in Supply Decreases the Equilibrium Added 102
Price 80
An Expanded Circular Flow 103
Decreases in Supply Shift the Supply Curve 80
APPLICATION 3 The Links Between Self-Reported
A Decrease in Supply Increases the Equilibrium Happiness and GDP 104
Price 82
A Closer Examination of Nominal and Real
Simultaneous Changes in Demand and Supply 82
GDP 104
APPLICATION 5 The Harmattan and the Price of Measuring Real versus Nominal GDP 105
Chocolate 84
How to Use the GDP Def lator 106
Predicting and Explaining Market Changes 84
Fluctuations in GDP 107
APPLICATION 6 Why Lower Drug Prices? 85
GDP as a Measure of Welfare 109
* SUMMARY 85 * KEY TERMS 86
* EXERCISES 86 * CRITICAL THINKING 90 Shortcomings of GDP as a Measure of Welfare 109

* ECONOMIC EXPERIMENT 90 * SUMMARY 110 * KEY TERMS 111

* EXERCISES 111 * CRITICAL THINKING 114

PART 2
The Basic Concepts in Macroeconomics 6 Unemployment and Inflation 115
Examining Unemployment 116
5 Measuring a Nation’s Production and How Is Unemployment Defined and Measured? 116
Income 92
Alternative Measures of Unemployment and Why
They Are Important 118
The Flip Sides of Macroeconomic Activity:
Production and Income 93 Who Are the Unemployed? 119

The Circular Flow of Production and Income 94 APPLICATION 1 Declining Labor Force
Participation 120
APPLICATION 1 Using Value Added to Measure
the True Size of Walmart 95 Categories of Unemployment 121
viii

Types of Unemployment: Cyclical, Frictional, and APPLICATION 1 The Black Death and Living
Structural 121 Standards in Old England 142

The Natural Rate of Unemployment 122 Labor Market Equilibrium and Full
Employment 143
APPLICATION 2 Disability Insurance and Labor
Force Participation 123 Using the Full-Employment Model 144
The Costs of Unemployment 123 Taxes and Potential Output 144

APPLICATION 3 Social Norms, Unemployment, and Real Business Cycle Theory 145
Perceived Happiness 124
APPLICATION 2 Do European Soccer Stars Change
Clubs to Reduce Their Taxes? 147
The Consumer Price Index and the Cost of
Living 125
APPLICATION 3 Government Policies and Savings
The CPI versus the Chain Index for GDP 126 Rates 148

APPLICATION 4 The Introduction of Cell Phones Dividing Output among Competing

and the BIAS in the CPI 127 Demands for GDP at Full
Employment 148
Problems in Measuring Changes in Prices 127
International Comparisons 149
Inflation 127
Crowding Out in a Closed Economy 149
Historical U.S. Inf lation Rates 128
Crowding Out in an Open Economy 151
The Perils of Def lation 129
Crowding In 151
The Costs of Inflation 130 * SUMMARY 152 * KEY TERMS 152
* EXERCISES 152 * CRITICAL THINKING 155
Anticipated Inf lation 130

Unanticipated Inf lation 130

8 Why Do Economies Grow? 156
* SUMMARY 131 * KEY TERMS 132
* EXERCISES 132 * CRITICAL THINKING 135 Economic Growth Rates 157
Measuring Economic Growth 158
PART 3
The Economy in the Long Run Comparing the Growth Rates of Various
Countries 159

Are Poor Countries Catching Up? 160

7 The Economy at Full Employment 136
APPLICATION 1 Global Warming, Rich Countries,
Wage and Price Flexibility and Full and Poor Countries 161
Employment 137
APPLICATION 2 Behavioral Incentives in
The Production Function 137 Development 162

Wages and the Demand and Supply for Capital Deepening 162
Labor 140
Saving and Investment 163
Labor Market Equilibrium 141
How Do Population Growth, Government, and
Changes in Demand and Supply 141 Trade Affect Capital Deepening? 164
 ix

The Key Role of Technological Progress 166 Flexible and Sticky Prices 185

How Do We Measure Technological How Demand Determines Output in the Short

Progress? 166 Run 186

Using Growth Accounting 167 APPLICATION 1 Measuring Price Stickiness in

Consumer Markets 187
APPLICATION 3 Sources of Growth in China
and India 168 Understanding Aggregate Demand 187
APPLICATION 4 How Important is Infrastructure? 169 What Is the Aggregate Demand Curve? 187

What Causes Technological Progress? 169 The Components of Aggregate Demand 188

Research and Development Funding 169 Why the Aggregate Demand Curve Slopes
Downward 188
Monopolies That Spur Innovation 170
Shifts in the Aggregate Demand Curve 189
The Scale of the Market 170
How the Multiplier Makes the Shift Bigger 190
Induced Innovations 171
APPLICATION 2 Two Approaches to Determining
Education, Human Capital, and the Accumulation the Causes of Recessions 194
of Knowledge 171

New Growth Theory 172 Understanding Aggregate Supply 194

The Long-Run Aggregate Supply Curve 194
APPLICATION 5 The Role of Megacities in
Economic Growth 173 The Short-Run Aggregate Supply Curve 196

APPLICATION 6 Culture, Evolution, and Economic

Supply Shocks 197
Growth 173
APPLICATION 3 Oil Price Increases and the
Changing U.S. Economy 198
A Key Governmental Role: Providing
the Correct Incentives and Property
From the Short Run to the Long Run 199
Rights 174
* SUMMARY 201 * KEY TERMS 201
APPLICATION 7 Lack of Property Rights Hinders * EXERCISES 201 * CRITICAL THINKING 203
Growth in Peru 174

* SUMMARY 175 * KEY TERMS 175

* EXERCISES 176 * CRITICAL THINKING 178 10 Fiscal Policy 204
APPENDIX: A Model of Capital Deepening 179
The Role of Fiscal Policy 205
PART 4 Fiscal Policy and Aggregate Demand 205
Economic Fluctuations and Fiscal Policy The Fiscal Multiplier 206

The Limits to Stabilization Policy 207

9 Aggregate Demand and Aggregate
APPLICATION 1 Increasing Life Expectancy and
Supply 184 Aging Populations Spur Costs of Entitlement
Programs 209
Sticky Prices and Their Macroeconomic
Consequences 185 The Federal Budget 210
x

Federal Spending 210 APPLICATION 2 Multipliers in Good Times and

Bad 233
Federal Revenues 211

The Federal Deficit and Fiscal Policy 213 Government Spending and Taxation 233

Automatic Stabilizers 213 Fiscal Multipliers 233

Are Deficits Bad? 214 Using Fiscal Multipliers 235

APPLICATION 2 Dynamic Scoring 215 Understanding Automatic Stabilizers 237

Fiscal Policy in U.S. History 215 APPLICATION 3 The Broken Window Fallacy and
Keynesian Economics 238
The Depression Era 215
Exports and Imports 240
The Kennedy Administration 216

The Vietnam War Era 216 APPLICATION 4 The Locomotive Effect:

How Foreign Demand Affects a Country’s
The Reagan Administration 217 Output 242

The Clinton and George W. Bush The Income-Expenditure Model and the
Administrations 217 Aggregate Demand Curve 243
The Obama and Trump Administrations 217 * SUMMARY 245 * KEY TERMS 245
* EXERCISES 245 * CRITICAL THINKING 248
APPLICATION 3 How Effective was the 2009
Stimulus? 218 * ECONOMIC EXPERIMENT 249

* SUMMARY 219 * KEY TERMS 220

APPENDIX: Formulas for Equilibrium Income and
* EXERCISES 220 * CRITICAL THINKING 221
the Multiplier 249

11 The Income-Expenditure Model 222

12 Investment and Financial
A Simple Income-Expenditure Model 223
Markets 253

Equilibrium Output 223 An Investment: A Plunge into the

Unknown 254
Adjusting to Equilibrium Output 224
APPLICATION 1 Energy Price Uncertainty Reduces
The Consumption Function 226
Investment Spending 255
Consumer Spending and Income 226
Evaluating the Future 256
Changes in the Consumption Function 227
Understanding Present Value 256
APPLICATION 1 The Wealthy Hand-To-Mouth and
Real and Nominal Interest Rates 258
Consumption Spending 228

APPLICATION 2 Explaining Low Investment

Equilibrium Output and the Consumption
Rates 259
Function 229
Saving and Investment 230 Understanding Investment Decisions 260

Understanding the Multiplier 231 Investment and the Stock Market 261
 xi

APPLICATION 3 Underwater Homeowners and APPLICATION 4 Coping with the Financial Chaos
Debt Forgiveness 263 Caused by the Mortgage Crisis 285

* SUMMARY 286 * KEY TERMS 286

How Financial Intermediaries Facilitate
* EXERCISES 286 * CRITICAL THINKING 288
Investment 263
* ECONOMIC EXPERIMENT 288
When Financial Intermediaries Malfunction 266

APPLICATION 4 New Regulations for Financial APPENDIX: Formula for Deposit Creation 290
Stability 267

* SUMMARY 268 * KEY TERMS 268 14 The Federal Reserve and Monetary
* EXERCISES 269 * CRITICAL THINKING 270 Policy 291
* ECONOMIC EXPERIMENT 271
The Money Market 292
The Demand for Money 292
PART 5
Money, Banking, and Monetary Policy APPLICATION 1 What to Do with the Fed’s Balance
Sheet? 294

13 Money and the Banking System 272 How the Federal Reserve Can Change the
Money Supply 295
What Is Money? 273
Open Market Operations 295
Three Properties of Money 273
Other Tools of the Fed 296
Measuring Money in the U.S. Economy 275
APPLICATION 2 Commodity Prices and Interest
APPLICATION 1 Cash as a Sign of Trust 276 Rates 297

How Banks Create Money 277 How Interest Rates Are Determined:
A Bank’s Balance Sheet: Where the Money Comes Combining the Demand and Supply
from and Where It Goes 277 of Money 298
How Banks Create Money 278 Interest Rates and Bond Prices 299

How the Money Multiplier Works 279 Interest Rates and How They Change
How the Money Multiplier Works in Reverse 280 Investment and Output (GDP) 301

A Banker’s Bank: The Federal Reserve 281 APPLICATION 3 The Effectiveness of

Committees 301
APPLICATION 2 Bitcoin and Cryptocurrencies 281
Monetary Policy and International Trade 303
Functions of the Federal Reserve 282

The Structure of the Federal Reserve 282 Monetary Policy Challenges for the Fed 305

The Independence of the Federal Reserve 283 Lags in Monetary Policy 305

Inf luencing Market Expectations: From the

What the Federal Reserve Does During a
Federal Funds Rate to Interest Rates on
Financial Crisis 284
Long-Term Bonds 306
APPLICATION 3 Stress Tests for the Financial * SUMMARY 307 * KEY TERMS 307
System 284 * EXERCISES 308 * CRITICAL THINKING 310
xii

PART 6 16 The Dynamics of Inflation and

Inflation, Unemployment, Unemployment 329
and Economic Policy
Money Growth, Inflation, and Interest
Rates 330
15 Modern Macroeconomics: From the
Short Run to the Long Run 311 Inf lation in a Steady State 330

How Changes in the Growth Rate of Money

Linking the Short Run and the Long Affect the Steady State 331
Run 312
The Difference between the Short and Long Understanding the Expectations Phillips
Run 312 Curve: The Relationship between
Unemployment and Inflation 332
Wages and Prices and Their Adjustment over
Time 312 APPLICATION 1 Shifts in the Natural Rate of
Unemployment 332
APPLICATION 1 Secular Stagnation? 313
Are the Public’s Expectations about Inf lation
How Wage and Price Changes Move Rational? 333
the Economy Naturally Back to Full
U.S. Inf lation and Unemployment in the
Employment 314
1980s 334
Returning to Full Employment from a
Shifts in the Natural Rate of Unemployment in
Recession 314
the 1990s 335
Returning to Full Employment from a Boom 315
How the Credibility of a Nation’s Central
Economic Policy and the Speed of Bank Affects Inflation 336
Adjustment 316
APPLICATION 2 Estimating the Natural Real
Liquidity Traps or Zero Lower Bound 317
Interest Rate Around the World 337
Political Business Cycles 318
APPLICATION 3 The Ends of Hyperinflations 339
APPLICATION 2 Elections, Political Parties, and
Voter Expectations 318 Inflation and the Velocity of Money 340

The Economics Behind the Adjustment Hyperinflation 342

Process 319
How Budget Deficits Lead to Hyperinf lation 343
The Long-Run Neutrality of Money 321 * SUMMARY 344 * KEY TERMS 344
Crowding Out in the Long Run 322 * EXERCISES 345 * CRITICAL THINKING 346

* ECONOMIC EXPERIMENT 347

APPLICATION 3 Increasing Health-Care
Expenditures and Crowding Out 324

Classical Economics in Historical 17 Macroeconomic Policy Debates 348

Perspective 324
Say’s Law 325 Should We Balance the Federal
Budget? 349
Keynesian and Classical Debates 325
The Budget in Recent Decades 349
* SUMMARY 326 * KEY TERMS 326
* EXERCISES 326 * CRITICAL THINKING 328 Five Debates about Deficits 351
 xiii

Should the Fed Target Both Inflation and To Help Domestic Firms Establish Monopolies in
Employment? 355 World Markets 374

APPLICATION 1 Creating the U.S. Federal Fiscal APPLICATION 2 Chinese Imports and Local
System through Debt Policy 355 Economies 375

Two Debates about Targeting 356

A Brief History of International Tariff and
Trade Agreements 375
APPLICATION 2 Do We Need to Change our
Inflation Targets? 358
Recent Policy Debates and Trade
Agreements 376
Should We Tax Consumption Rather than
Income? 359 Are Foreign Producers Dumping Their
Products? 377
Two Debates about Consumption Taxation 360

APPLICATION 3 Should We Care If Another

APPLICATION 3 Is a VAT in Our Future? 362
Country Adopts Our Latest Technology? 377
* SUMMARY 362 * KEY TERMS 362
* EXERCISES 363 * CRITICAL THINKING 364 Do Trade Laws Inhibit Environmental
Protection? 378

PART 7 APPLICATION 4 How American are American

The International Economy Cars? 379

Do Outsourcing and Trade Cause Income

Inequality? 380
18 International Trade and Public
Policy 365 Why Do People Protest Free Trade? 381
* SUMMARY 381 * KEY TERMS 382
Benefits from Specialization and Trade 366 * EXERCISES 382 * CRITICAL THINKING 385

Production Possibilities Curve 366

Comparative Advantage and the Terms of 19 The World of International

Trade 368 Finance 386
The Consumption Possibilities Curve 368
How Exchange Rates Are Determined 387
How Free Trade Affects Employment 369
What are Exchange Rates? 387
Protectionist Policies 370
How Demand and Supply Determine Exchange
Import Bans 370 Rates 388

Quotas and Voluntary Export Restraints 370 Changes in Demand or Supply 389
Responses to Protectionist Policies 372
Real Exchange Rates and Purchasing Power
Parity 391
APPLICATION 1 The Impact of Tariffs on the Poor 373

APPLICATION 1 Big Macs in Norway 393

What Are the Rationales for Protectionist
Policies? 373
The Current Account, the Financial Account,
To Shield Workers from Foreign Competition 374 and the Capital Account 394
To Nurture Infant Industries until They Rules for Calculating the Current, Financial, and
Mature 374 Capital Accounts 394
xiv

APPLICATION 2 Tax Havens and Global APPLICATION 2 Vanity Plates and the Elasticity of
Imbalances 397 Demand 419

Fixed and Flexible Exchange Rates 397 Price Elasticity along a Linear Demand Curve 419

Fixing the Exchange Rate 398 APPLICATION 3 Drones and the Lower Half of a
Linear Demand Curve 421
Fixed versus Flexible Exchange Rates 399
Elasticity and Total Revenue for a Linear Demand
The U.S. Experience with Fixed and Flexible Curve 421
Exchange Rates 400

Exchange Rate Systems Today 401 Other Elasticities of Demand 422

Income Elasticity of Demand 422
Managing Financial Crises 401
Cross-Price Elasticity of Demand 422
APPLICATION 3 Problems within the Euro Bloc 402
The Price Elasticity of Supply 423
APPLICATION 4 The Argentine Financial Crisis 404
APPLICATION 4 I Can Find that Elasticity in Four
* SUMMARY 404 * KEY TERMS 405
Clicks! 423
* EXERCISES 405 * CRITICAL THINKING 407
What Determines the Price Elasticity of
* ECONOMIC EXPERIMENT 408
Supply? 424

The Role of Time: Short-Run versus Long-Run

PART 8 Supply Elasticity 425
A Closer Look at Demand and Supply
Extreme Cases: Perfectly Inelastic Supply and
Perfectly Elastic Supply 425
20 Elasticity: A Measure of Predicting Changes in Quantity Supplied 426
Responsiveness 409
APPLICATION 5 The Short-Run and Long-Run
The Price Elasticity of Demand 410 Elasticity of Supply of Coffee 427

Computing Percentage Changes and Elasticities 410 Using Elasticities to Predict Changes in
Price Elasticity and the Demand Curve 411 Prices 427
The Price Effects of a Change in Demand 427
Elasticity and the Availability of Substitutes 413
The Price Effects of a Change in Supply 429
Other Determinants of the Price Elasticity of
Demand 414
APPLICATION 6 A Broken Pipeline and the Price
of Gasoline 430
Using Price Elasticity 415
* SUMMARY 431 * KEY TERMS 431
Predicting Changes in Quantity 415 * EXERCISES 432 * CRITICAL THINKING 436

APPLICATION 1 The Elasticity of Demand for

Public Transit 415
21 Market Efficiency and Government
Price Elasticity and Total Revenue 416 Intervention 437
Using Elasticity to Predict the Revenue Effects of
Price Changes 418 Consumer Surplus and Producer
Surplus 438
Elasticity and Total Revenue for a Linear
Demand Curve 418 The Demand Curve and Consumer Surplus 439
 xv

The Supply Curve and Producer Surplus 440 * SUMMARY 456 * KEY TERMS 456
* EXERCISES 456 * CRITICAL THINKING 460
Market Equilibrium and Efficiency 441
* ECONOMIC EXPERIMENT 460
Total Surplus Is Lower with a Price below the
Equilibrium Price 441

APPLICATION 1 Consumer Surplus of Internet

22 Consumer Choice: Utility Theory
Service 441 and Insights from Behavioral
Economics 462
Total Surplus Is Lower with a Price above the
Equilibrium Price 443
Traditional Consumer Choice: Utility
Efficiency and the Invisible Hand 443 Theory 463
Government Intervention in Efficient Markets 444 Consumer Constraints: The Budget Line 463

APPLICATION 2 Rent Control and Mismatches 444 Total and Marginal Utility 464

The Marginal Principle and the Equimarginal

Controlling Prices—Maximum and Minimum Rule 466
Prices 445
Conditions for Utility Maximization 467
Setting Maximum Prices 445

Rent Control 445 The Law of Demand and the Individual

Demand Curve 469
APPLICATION 3 Price Controls and the Shrinking
Candy Bar 447 APPLICATION 1 Measuring Diminishing Marginal
Utility 470
Setting Minimum Prices 447
Effect of a Decrease in Price 470
Controlling Quantities—Licensing and Income and Substitution Effects of a Decrease in
Import Restrictions 447 Price 471
Taxi Medallions 448
The Individual Demand Curve 473
Licensing and Market Efficiency 448
APPLICATION 2 A Revenue-Neutral Carbon
Winners and Losers from Licensing 449 Tax 474

Import Restrictions 449

Consumer Decisions: Insights from
Behavioral Economics 474
APPLICATION 4 The Cost of Protecting a Lumber
Job 451 A Brief Look at the Neuroscience of Consumer
Choice 474
Who Really Pays Taxes? 451
Dietary Choice: Donut versus Apple 476
Tax Shifting: Forward and Backward 451
Present Bias: Spending versus Saving 477
Tax Shifting and the Price Elasticity of
Demand 452 Present Bias and Credit Cards 479

Cigarette Taxes and Tobacco Land 453 Present Bias and Smoking 479

The Luxury Boat Tax and Boat Workers 453 APPLICATION 3 Coke Versus Pepsi in the
Prefrontal Cortex 480
Tax Burden and Deadweight Loss 453
* SUMMARY 480 * EXERCISES 481
APPLICATION 5 French Restaurants and VAT 455 * CRITICAL THINKING 484
xvi

APPENDIX: Mental Shortcuts and Consumer Examples of Production Cost 503

Puzzles 484
Scale Economies in Wind Power 503
Mental Accounting and Bundling 485
Anchoring 485 The Average Cost of a Music Video 503
The Decoy Effect 486 Solar versus Nuclear: The Crossover 504
The Appeal of Percentage Changes 487
* SUMMARY 504 * KEY TERMS 505
* SUMMARY 487 * EXERCISES 506 * CRITICAL THINKING 508

PART 9
24 Perfect Competition 509
Market Structures and Pricing
Preview of the Four Market Structures 510
23 Production Technology and Cost 488 APPLICATION 1 Wireless Women in Pakistan 512

Economic Cost and Economic Profit 489 The Firm’s Short-Run Output Decision 512

APPLICATION 1 Opportunity Cost and The Total Approach: Computing Total Revenue
Entrepreneurship 490 and Total Cost 513

The Marginal Approach 514

A Firm with a Fixed Production Facility:
Short-Run Costs 490 Economic Profit and the Break-Even Price 516

Production and Marginal Product 491 APPLICATION 2 The Break-Even Price for
Switchgrass, a Feedstock for Biofuel 516
Short-Run Total Cost 492

Short-Run Average Costs 493 The Firm’s Shut-Down Decision 517

Short-Run Marginal Cost 495 Total Revenue, Variable Cost, and the Shut-Down
Decision 517
The Relationship between Marginal Cost and
Average Cost 496 The Shut-Down Price 518

Fixed Costs and Sunk Costs 519

Production and Cost in the Long Run 497
APPLICATION 3 Shutting Down a Coal Mine 519
APPLICATION 2 The Rising Marginal Cost of Crude
Oil 497
Short-Run Supply Curves 520
Expansion and Replication 498
The Firm’s Short-Run Supply Curve 520
Reducing Output with Indivisible Inputs 499
The Short-Run Market Supply Curve 520
Scaling Down and Labor Specialization 500
Market Equilibrium 521
Economies of Scale 500
APPLICATION 4 Short-Run Supply Curve for
Diseconomies of Scale 500 Cargo 522

Actual Long-Run Average-Cost Curves 501 The Long-Run Supply Curve for an
Short-Run versus Long-Run Average Cost 502 Increasing-Cost Industry 522
Production Cost and Industry Size 523
APPLICATION 3 Indivisible Inputs and the Cost of
Fake Killer Whales 502 Drawing the Long-Run Market Supply Curve 524
 xvii

Examples of Increasing-Cost Industries: Sugar and Patents and Monopoly Power 545
Apartments 524
Incentives for Innovation 545
APPLICATION 5 Chinese Coffee Growers Obey the Trade-Offs from Patents 546
Law of Supply 525
APPLICATION 3 Bribing the Makers of Generic
Short-Run and Long-Run Effects of Changes Drugs 546
in Demand 525
Price Discrimination 547
The Short-Run Response to an Increase in
Demand 525 Senior Discounts in Restaurants 548
The Long-Run Response to an Increase in Price Discrimination and the Elasticity of
Demand 526 Demand 549

APPLICATION 6 The Upward Jump and Downward Examples: Movie Admission versus Popcorn, and
Slide of Blueberry Prices 527 Hardback versus Paperback Books 549

Long-Run Supply for a Constant-Cost APPLICATION 4 Refillable Soda Bottles and Price
Industry 528 Discrimination 550

* SUMMARY 550 * KEY TERMS 551

Long-Run Supply Curve for a Constant-Cost
* EXERCISES 551 * CRITICAL THINKING 554
Industry 528
* ECONOMIC EXPERIMENT 554
Hurricane Andrew and the Price of Ice 528

APPLICATION 7 Economic Detective and the Case

of Margarine Prices 529
26 Market Entry and Monopolistic
Competition 555
* SUMMARY 530 * KEY TERMS 530
* EXERCISES 531 * CRITICAL THINKING 534
The Effects of Market Entry 556
Entry Squeezes Profits from Three Sides 557
25 Monopoly and Price Discrimination 535 Examples of Entry: Car Stereos, Trucking, and
Tires 558
The Monopolist’s Output Decision 536
APPLICATION 1 Satellite Versus Cable 558
Total Revenue and Marginal Revenue 537

A Formula for Marginal Revenue 538 Monopolistic Competition 559

Using the Marginal Principle 539 When Entry Stops: Long-Run Equilibrium 559

APPLICATION 1 Marginal Revenue from a Baseball

Differentiation by Location 560
Fan 541
APPLICATION 2 Opening a Restaurant 561
The Social Cost of Monopoly 542
Trade-Offs with Entry and Monopolistic
Deadweight Loss from Monopoly 542 Competition 562

Rent Seeking: Using Resources to Get Monopoly Average Cost and Variety 562
Power 544
Monopolistic Competition versus Perfect
Monopoly and Public Policy 544 Competition 562

APPLICATION 2 Rent Seeking for Tribal Casinos 545 APPLICATION 3 Happy Hour Pricing 563
xviii

Advertising for Product Differentiation 564 Entry Deterrence and Contestable

Markets 586
APPLICATION 4 Picture of Man Versus Picture of
Woman 564
When Is the Passive Approach Better? 587

* SUMMARY 566 * KEY TERMS 566 APPLICATION 4 Cable TV Service as an Insecure

* EXERCISES 566 * CRITICAL THINKING 568 Monopolist 587

* ECONOMIC EXPERIMENT 569

The Advertisers’ Dilemma 588

APPLICATION 5 Got Milk? 590

27 Oligopoly and Strategic Behavior 570 * SUMMARY 590 * KEY TERMS 591
* EXERCISES 591 * CRITICAL THINKING 595
Cartel Pricing and the Duopolists’
* ECONOMIC EXPERIMENT 596
Dilemma 572
Price Fixing and the Game Tree 573

Equilibrium of the Price-Fixing Game 575 28 Controlling Market Power: Antitrust

and Regulation 597
Nash Equilibrium 576

APPLICATION 1 Failure of the Salt Cartel 577 Natural Monopoly 598

Picking an Output Level 598
Overcoming the Duopolists’ Dilemma 577
Will a Second Firm Enter? 599
Low-Price Guarantees 577
Price Controls for a Natural Monopoly 600
Repeated Pricing Games with Retaliation for
Underpricing 578 APPLICATION 1 Public Versus Private
Price Fixing and the Law 580 Waterworks 601

Price Leadership 580 APPLICATION 2 Satellite Radio Versus the

Connected Car 602
APPLICATION 2 Low-Price Guarantee Increases
Tire Prices 581 Antitrust Policy 602

Simultaneous Decision Making and the Breaking Up Monopolies 602

Payoff Matrix 581 Blocking Mergers 603
Simultaneous Price-Fixing Game 581 Merger Remedy for Wonder Bread 604
The Prisoners’ Dilemma 582 Regulating Business Practices 605

APPLICATION 3 Cheating on the Final Exam: The A Brief History of U.S. Antitrust Policy 606
Cheaters’ Dilemma 583
APPLICATION 3 Merger of Pennzoil and Quaker
The Insecure Monopolist and Entry State 607
Deterrence 584
APPLICATION 4 Merger of Office Depot and
Entry Deterrence and Limit Pricing 584 Officemax 607
Examples: Aluminum and Campus * SUMMARY 608 * KEY TERMS 608
Bookstores 586 * EXERCISES 608 * CRITICAL THINKING 610
 xix

PART 10 APPLICATION 4 Car Insurance and Risky Driving 624

Externalities and Information Deposit Insurance for Savings and Loans 624
* SUMMARY 625 * KEY TERMS 625
* EXERCISES 625 * CRITICAL THINKING 629
29 Imperfect Information: Adverse
Selection and Moral Hazard 611 * ECONOMIC EXPERIMENT 629

Adverse Selection for Buyers: The Lemons

30 Public Goods and Public Choice 631
Problem 612
Uninformed Buyers and Knowledgeable External Benefits and Public Goods 633
Sellers 612 Public Goods and the Free-Rider Problem 634
Equilibrium with All Low-Quality Goods 613 Behavioral Economics and Free Riding 634
A Thin Market: Equilibrium with Some High- Overcoming the Free-Rider Problem 635
Quality Goods 614
APPLICATION 1 Clearing Space Debris 635
APPLICATION 1 Are Baseball Pitchers Like Used
Cars? 616 APPLICATION 2 Global Weather Observation 636

Evidence of the Lemons Problem 616 Private Goods with External Benefits 636
Responding to the Lemons Problem 617 External Benefits from Education 637

Buyers Invest in Information 617 External Benefits and the Marginal Principle 637

Consumer Satisfaction Scores from Angie‘s List APPLICATION 3 External Benefits from Lojack 638
and eBay 617
APPLICATION 4 The Private and External Benefit
Guarantees and Lemons Laws 618
of Trees 639
APPLICATION 2 Regulation of the California Other Private Goods That Generate External
Kiwifruit Market 618 Benefits 639

Adverse Selection for Sellers: Public Choice and the Median Voter 639
Insurance 619
Voting and the Median-Voter Rule 639
Health Insurance 619
Voting with Feet 641
Equilibrium with All High-Cost Consumers 620
The Median Voter and the Median Location 641
Responding to Adverse Selection in Insurance:
Group Insurance 621 Alternative Models of Government: Self-Interest
and Special Interests 642
The Uninsured 622
Which Theory Is Correct? 643
Other Types of Insurance 622
APPLICATION 5 The Median Voter and Fire
APPLICATION 3 Genetic Testing and Adverse
Protection 643
Selection 622
* SUMMARY 644 * KEY TERMS 644
Insurance and Moral Hazard 623 * EXERCISES 644 * CRITICAL THINKING 646

Insurance Companies and Moral Hazard 623 * ECONOMIC EXPERIMENT 647

xx

31 External Costs and Environmental APPLICATION 5 Young Drivers and

Collisions 665
Policy 648
* SUMMARY 666 * KEY TERMS 666
* EXERCISES 666 * CRITICAL THINKING 669
The Efficient Level of Pollution 649
Using the Marginal Principle 650 * ECONOMIC EXPERIMENT 669

Example: The Efficient Level of Water

Pollution 650 PART 11
The Labor Market and Income
Coase Bargaining 651
Distribution
Taxing Pollution 652

APPLICATION 1 Reducing Methane Emissions 653 32 The Labor Market and the Distribution
of Income 671
A Firm’s Response to a Pollution Tax 653

The Market Effects of a Pollution Tax 653 The Demand for Labor 672
Example: A CO2 Tax 656 Labor Demand by an Individual Firm in the Short
Run 672
APPLICATION 2 Washing Carbon Out of
the Air 656 Market Demand for Labor in the Short Run 674

Labor Demand in the Long Run 674

Traditional Regulation 657
Uniform Abatement with Permits 657 APPLICATION 1 Marginal Revenue Product in
Major League Baseball 676
Command and Control 657
Short-Run versus Long-Run Demand 676
Market Effects of Pollution Regulations 658

Lesson from Dear Abby: Options for Pollution

The Supply of Labor 676
Abatement 658 The Individual Labor-Supply Decision: How
Many Hours? 677
APPLICATION 3 Options for Reducing CO2
Emissions from International Shipping 659 An Example of Income and Substitution
Effects 677
Marketable Pollution Permits 659
The Market Supply Curve for Labor 678
Voluntary Exchange and Marketable Permits 659
APPLICATION 2 Bike Messengers and Revenue
Supply, Demand, and the Price of Marketable Sharing in Zurich 679
Permits 661
Labor Market Equilibrium 679
External Costs from Automobiles 662
Changes in Demand and Supply 679
External Costs from Pollution 662
The Market Effects of the Minimum Wage 680
APPLICATION 4 The Price of CO2 Permits in the
Variation in Wages across Occupations and the
European Union 662
College Premium 681
External Costs from Congestion 663
The Gender Pay Gap and Racial
External Costs from Collisions 664 Discrimination 683
 xxi

Labor Unions and Wages 684 APPLICATION 4 Earned Income Tax Credit
and Child Health 691
Immigration and Labor Markets 685
Earned Income Tax Credit 691
The Distribution of Income and Public
* SUMMARY 692 * KEY TERMS 692
Policy 687
* EXERCISES 693 * CRITICAL THINKING 695

APPLICATION 3 The Value of a Statistical Life 687 Glossary 697

The Distribution of Income in 2013 688 Index 707
Changes in the Distribution of Income 689 Photo Credits 735
Poverty and Public Policy 690
 P R EFAC E

In preparing this tenth edition, we had three primary goals. • We also incorporated a total of 35 exciting new
First, we wanted to incorporate the ongoing changes in the Applications into this edition, including four in the
United States and world economies as they have continued common chapters (Chapters 1–4), 17 in macroeco-
to recover and adjust from the worldwide recession of the nomics, and 14 in microeconomics. In addition, we
last decade. Second, we strived to update this edition to incorporated a total of 18 new chapter-opening s­ tories,
reflect the latest exciting developments in economic think- including nine in macroeconomics and nine in micro-
ing and make these accessible to new students of economics. economics. These fresh applications and chapter
Finally, we wanted to stay true to the philosophy of the text- openers show the widespread relevance of economic
book—using basic concepts of economics to explain a wide analysis.
variety of timely and interesting economic applications. • In the chapters common to macroeconomics and
To improve student results, we recommend pairing the microeconomics, the new applications include solar tax
text content with MyLab Economics, which is the teach- credits (Chapter 1), crop insurance and food produc-
ing and learning platform that empowers you to reach every tion (Chapter 3), and the effects of the growing popu-
student. By combining trusted author content with digital larity of craft beer on hop prices (Chapter 4).
tools and a flexible platform, MyLab personalizes the learn-
• In the macroeconomics chapters, other new applica-
ing experience and will help your students learn and retain
tions include explaining high rates of saving in China
key course concepts while developing skills that future
(Chapter 7), the behavior of households that are
employers are seeking in their candidates. From Digital
wealthy but have little cash on hand (Chapter 11),
Interactives to Real-time Data Analysis Exercises,
theories of why investment spending has been low in
MyLab Economics helps you teach your course, your way.
the United States (Chapter 12), the role that Bitcoin
Learn more at www.pearson.com/mylab/economics.
and other cryptocurrencies may play in the monetary
system (Chapter 13), and the role that technological
New to This Edition improvements in other countries will have on trade and
In addition to updating all the figures and data, we made a welfare for the United States (Chapter 18).
number of other key changes in this edition. They include • In the microeconomics chapters, the new applica-
the following: tions include the effect of a VAT tax on French res-
taurants (Chapter 21), the opportunity cost of serving
• At the end of each chapter, we have added Critical as an Airbnb host (Chapter 23), the rationale for shut-
Thinking Exercises that challenge the student to think ting down a coal mine (Chapter 24), the maple syrup
more deeply about the topics and ideas within the cartel (Chapter 27), the implications of genetic testing
chapters. for insurance (Chapter 29), the behavioral econom-
• We discuss in Chapter 6 the links between disability ics of free riding (Chapter 30), carbon permits in the
insurance and labor force participation. European Union (Chapter 31), and how bicycle mes-
• We discuss in Chapter 8 the relationships between cit- sengers respond to incentives (Chapter 32).
ies and economic growth.
• We discuss in Chapter 10 the concept of dynamic scor- Solving Teaching and Learning
ing and explain how it is used to estimate tax revenues ­Challenges
in the federal budget process.
Many students who take the principles of economics class
• We discuss in Chapter 12 the Dodd-Frank regulations
have difficulty seeing the relevance of the key concepts of
and consider how they will impact the financial sector
economics, including the role of opportunity costs, thinking
and the economy.
on the margin, the benefits of voluntary exchange, the idea
• In Chapter 14, we introduce Jerome Powell, the new of diminishing returns, and the distinction between real and
Chairman of the Federal Reserve and discuss his prior nominal magnitudes. This reduces student preparedness
experience and the challenges he will face in the new and engagement. We explore the five key principles of eco-
economic environment. nomics we think are most important to students and use the
• In Chapter 18, we explore how automobile companies following resources to engage ­students with the content to
have been purchasing a large fraction of their parts highlight not only how economics is relevant to their lives,
­outside the United States to put into “American” cars. but also their future careers.

xxii
 xxiii

Make Economics Relevant through nomic and macroeconomic news stories and accompanying
Real-World Application exercises are posted to MyLab Economics. Assignable and
auto-graded, these multi-part exercises ask students to rec-
Real-world application is crucial to helping students find
ognize and apply economic concepts to current events.
the relevance in economics. As such, our applications-driven
text includes over 130 real-world Applications to help stu-
dents master essential economics concepts. Here is an exam- 5.9 Repaying a Car Loan. Suppose you borrow money to 5.10 Inflation and Interest Rates. Len buys MP3 music at

ple of our approach from Chapter 4, “Demand, Supply, and buy a car and must repay $20,000 in interest and prin-
cipal in 5 years. Your current monthly salary is $4,000.
$1 per tune and prefers music now to music later. He is
willing to sacrifice 10 tunes today as long as he gets at

Market Equilibrium.” (Related to Application 5 on page 40.)

Complete the following table.
least 11 tunes in a year. When Len loans $50 to Barb
for a 1-year period, he cuts back his music purchases
66 P AR T 1 by 50 tunes.
Which environment has the lowest real cost of repay-
ing the loan? a. To make Len indifferent about making the
loan, Barb must repay him _________ tunes or
APPLICATION 1 $_________. The implied interest rate is _________
Change in Prices and Months of Work to percent.
THE LAW OF DEMAND FOR YOUNG SMOKERS Wages Monthly Salary Repay $20,000 Loan b. Suppose that over the 1-year period of the loan, all
Stable $4,000 prices (including the price of MP3 tunes) increase by
APPLYING THE CONCEPTS #1: What is the law of demand?
inflation: Prices rise 20 percent, and Len and Barb anticipate the price
by 25% changes. To make Len indifferent about making
that increases in state cigarette taxes between 1990 and 2005 the loan, Barb must repay him _________ tunes or
Deflation: Prices drop
resulted in less participation (fewer smokers) and lower fre-
by 50% $_________. The implied interest rate is _________
quency (fewer cigarettes per smoker).
A change in cigarette taxes in Canada illustrates the sec- percent.
ond effect, the new-smoker effect. in 1994, several provinces
in eastern Canada cut their cigarette taxes in response to the
smuggling of cigarettes from the united States (where taxes are
lower), and the price of cigarettes in the provinces decreased CRITICAL THINKING
by roughly 50 percent. Researchers tracked the choices of
591 youths from the Waterloo Smoking Prevention Program and
concluded that the lower price increased the smoking rate by
1. Consider a college graduate who is thinking about 4. Consider a student studying for a biology exam.
As price decreases and we move downward along the market enrolling in law school. How would you compute the Would you expect study time to be subject to dimin-
demand for cigarettes, the quantity of cigarettes demanded roughly 17 percent. Related to Exercises 1.6 and 1.8.
cost of a 3-year law degree? ishing returns? Suppose productivity is measured as
Stimulate Active Learning with Experiments
increases for two reasons. First, people who smoked cigarettes
2. Suppose you open a new food cart and must decide the anticipated increase in the exam score. Construct
at the original price respond to the lower price by smoking
more. Second, some people start smoking.
SOURCES: (1) Anindya Sen and Tony Wirjanto, “Estimating the Impacts of Ciga-
how long to remain open. Explain how you would use a numerical example in which the first hour is twice as
rette Taxes on Youth Smoking Participation, Initiation, and Persistence: Empirical
in the united States, cigarette taxes vary across states, and economic logic to make the decision. productive as the second hour, which is twice as pro-
studies of cigarette consumption patterns show that higher
taxes mean less cigarette consumption by youths. using data
Evidence from Canada,” Health Economics 19 (2010), pp. 1264–1280. (2) Chris-
topher Carpentera and Philip J. Cook, “Cigarette Taxes and Youth Smoking: New
Evidence from National, State, and Local Youth Risk Behavior Surveys,” Journal
Economics Experiment sections are available throughout
3. At the end of a party, Steph Curry must decide whether
ductive as the third hour, and so on up to five hours
of study.
from the youth Risk Behavior Surveys (ySBS), one study shows of Health Economics 27 (2008), pp. 287–299.
the text, engaging students with
5. the opportunity to perform
to clean up his back yard by tossing discarded napkins
(conveniently rolled into spheres) into a single station- Suppose you graduate from college with $40,000 in
ary trash can. Given his formidable 3-point skills, he student-loan debt. Over the 10 years it takes you to
their own economic analysis.
could complete the task in 3 minutes, compared to repay the debt, do you prefer inflation or stable prices?
Suppose that after you repay your debt, you become a
an hour for a groundskeeper. Should he clear the dis-
The market demand is negatively sloped, reflecting the law of demand. This is lender rather than a borrower. How will your prefer-
carded napkins, or hire a groundskeeper? Explain.
Each Application has at least one related exercise available
sensible, because if each consumer obeys the law of demand, consumers as a group
will, too. When the price increases from $4 to $8, there is a change in quantity
ences with respect to inflation change?

in MyLab Economics. These exercises can beis the

found
demanded as we move along the demand curve from point f to point c. The move-
ment along the demand curve occurs if the price of pizza inthatthe
only variable has
Economic Experiment
Application boxeschanged.
MyLab Economics Study Plan
in the eText with an opportunity for
MyLab Economics Concept Check

PRODUCING FOLD-ITS
additional practiceThe
Learning Objective 4.2 inSupply
the StudyCurve Plan, and in the end-of-
Here is a simple economic experiment that takes about 15 minutes to four students, and so on. How does the number of fold-its change as
chapter section. The Study
supply sidePlan gives
firms sellstudents
their products to personalized
Describe and explain the law of supply.
On the of a market, consumers. Suppose you run. The instructor places a stapler and a stack of paper on a table. Stu- the number of workers increases?
ask the manager of a firm, “How much of your product are you willing to produce and dents produce “fold-its” by folding a page of paper in thirds and stapling
recommendations,sell?” practice opportunities, and learning aids
The answer is likely to be “it depends.” The manager’s decision about how much
to produce depends on many variables, including the following, using pizza as an
both ends of the folded page. One student is assigned to inspect each
fold-it to be sure that it is produced correctly. The experiment starts MyLab Economics
to help them stay on track.
example: with a single student, or worker, who has 1 minute to produce as many
fold-its as possible. After the instructor records the number of fold-its
For additional economic experiments, please visit
• The price of the product (e.g., the price per pizza) www.pearson.com/mylab/economics
• The wage paid to workers produced, the process is repeated with two students, three students,

• The price of materials (e.g., the price of dough and cheese)

• The cost of capital (e.g., the cost of a pizza oven)
• The state of production technology (e.g., the knowledge used in making pizza)
• Producers’ expectations about future prices
• Taxes paid to the government or subsidies (payments from the government to Single Player Experiments are also available in MyLab 45
firms to produce a product)
quantity supplied Together, these variables determine how much of a product firms are willing to pro- Economics to engage students in economic decision-
The amount of a product that firms are
willing and able to sell.
duce and sell, the quantity supplied. We start our discussion of market supply with
the relationship between the price of a good and the quantity of that good supplied, making. Experiments are an easy-to-use, fun, and engaging
way to promote active learning and mastery of important
M02_OSUL1098_10_SE_C02.indd 45 15/09/18 3:24 PM

economic concepts. Single-player experiments allow your

students to play against virtual players from anywhere at
M04_OSUL1098_10_SE_C04.indd 66
any time so long as they have an Internet connection. Pre-
24/08/2018 18:32

and post-questions for each experiment are available for

assignment.

Our macroeconomic world is rich with data. We help

students understand the importance of real and current data
through the incorporation of Real-Time-Data Analysis
Exercises in the Macroeconomics volume. The Real-Time-
Data Analysis Exercises, marked with , allow students
and instructors to use the very latest data from FRED. By
completing the exercises, students become familiar with
a key data source, learn how to locate data, and develop
important employability skills in interpreting data.
Students are often best motivated when they see the
relevance of what they’re learning to the world they live
in. The Current News Exercises available to students in
MyLab Economics help demonstrate the real world rele-
vance of these important concepts. Every week, microeco-
xxiv

Show the Big Picture with Five Key Thinking exercise will be available in MyLab Economics
Principles as an essay question. These open-ended, thought-pro-
voking questions challenge students to think more deeply
In Chapter 2, “The Key Principles of Economics,” we intro-
about and apply the key concepts presented within the
duce the following five key principles and then apply them
chapters.
throughout the book:
Illustrating the Key Principles of Economics
1. The Principle of Opportunity Cost. The opportu-
These big picture concepts are also well-illustrated in
nity cost of something is what you sacrifice to get it.
the figures and tables included in the text. Animated
2. The Marginal Principle. Increase the level of an activ- graphs in MyLab Economics help students understand
ity as long as its marginal benefit exceeds its marginal shifts in curves, movements along curves, and changes in
cost. Choose the level at which the marginal benefit equilibrium values. For every figure in the book, there is
equals the marginal cost. also an exercise directly related to that figure in MyLab
3. The Principle of Voluntary Exchange. A voluntary Economics.
exchange between two people makes both people bet-
ter off.
4. The Principle of Diminishing Returns. If we
increase one input while holding the other inputs fixed,
output will increase, but at a decreasing rate.
5. The Real-Nominal Principle. What matters to ­people
is the real value of money or income—its p ­ urchasing
power—not the face value of money or income.

This approach of repeating five key principles gives stu-

dents the big picture—the framework of economic reason-
ing. We make the key concepts unforgettable by using them
repeatedly, illustrating them with intriguing examples, and
giving students many opportunities to practice what they’ve
learned, such as the Concept Checks available in MyLab
Developing Employability Skills
Economics. For students to succeed in a rapidly changing job market,
they need thinking and communication skills. In addition,
Practicing the Principles they need to be informed about career options and the path-
Each section of each learning objective concludes with an way from college student to productive employee. This
online Concept Check that contains one or two multiple book—along with the MyLab—promotes skill development
choice, true/false, or fill-in questions. These checks act as and career awareness.
“speed bumps” that encourage students to stop and check We added a new section to Chapter 1 on page 10,
their understanding of fundamental terms and concepts “Employability: Economic Logic on the Job,” where we
before moving on to the next section. The goal of this dig- discuss how economics promotes the sort of critical think-
ital resource is to help students assess their progress on a ing and communication skills that employers value in their
section-by-section basis, so they can be better prepared for workers. Additionally, we discuss the role of economics in a
homework, quizzes, and exams. liberal-arts education in building thinking skills that make
The end-of-chapter exercises then test student under- a worker responsive to changes in the workplace. We also
standing of the concepts presented in each chapter. These point readers to the U.S. Bureau of Labor Statistics as a
exercises are available in MyLab Economics and include good source of information about career paths that start
multiple-choice, graph drawing, and free-response items, with course work in economics.
many of which are generated algorithmically so that each Economics is the science of choice, and the book
time a student works them, a different variation is presented. clearly illustrates the widespread application of econom-
New to this edition are accessible versions of exercises in ics. Throughout the book we use examples from business,
MyLab Economics that ask students to draw a graph. These government, and other organizations to show the practi-
accessible versions present the same question in a different cal deployment of economics to all sorts of decisions. This
form, which will allow every student the same opportunity approach applies economic concepts with real-world situa-
to practice their knowledge of the key principles explored tions, and thus imparts critical thinking skills to workers in
in the text. all sorts of organizations. We deliver these practical applica-
New to this edition are the Critical Thinking exercises tions in the text itself, as well as in chapter openers and 3 to
included in the end-of-chapter section. Every Critical 5 applications per chapter.
Discovering Diverse Content Through
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 "I have told it you," she said, lifting candid eyes, "as far as even I
know it——"
"You must know that His Highness hath in his desk letters from
almost every lord in England, assuring him of admiration and respect
—what was M. Dyckfelt over here for—and M. Zuylestein?—we want
to know what the Earl will do."
"What are the others—doing?" asked the Countess lightly.
He saw the snare, and laughed.
"My hand is always for you to read, but there are others seated
at this game, and I may not disclose the cards."
My lady lent forward.
"You cannot," she said, in the same almost flippant tone, "expect
my lord to declare himself openly a Whig?"
"He might, though, declare himself secretly our friend."
"Perhaps," she admitted, then was silent.
Intimate as he was with the Countess, Mr. Sidney was not close
with her lord, and felt more than a little puzzled by that statesman's
attitude. Sunderland, he knew, was in receipt of a pension, probably a
handsome pension, from France; he was loathed by the Whigs and
caressed by the King; as Lord President and First Secretary he held
the highest position in the Kingdom; the emoluments of his offices,
with what he made by selling places, titles, pardons, and dignities,
were known to be enormous; his conversion to the Church of Rome
had given him almost unlimited influence over James; and his great
experience, real talents, and insinuating manners made him as secure
in his honours as any man could hope to be; yet through his wife he
had dallied with the Whigs, written, as Sidney knew, to the Prince of
Orange, and held out very distinct hopes that he would, at a crisis,
help the Protestants.
 Certainly he had not gone far, and it was important, almost vital,
to the opposition that he should go farther, for he had it in his power
to render services which no other man could; he only had the ear of
James, the control of the foreign correspondence, the entire
confidence of M. Barillon, and he alone was fitted to mislead the King
and the Ambassador as to the schemes of their enemies, as he alone
would be able to open their eyes to the full extent of the ramifications
of the Protestant plots.
It was the Countess who broke the silence, and her words were
what she might have chosen could she have read Mr. Sidney's
thoughts.
"My lord, who is the greatest man in the kingdom, hath more to
stake and lose than you Whigs who are already in disgrace with His
Majesty."
"I know that very well," he answered; "but if the government fell,
remember there are some who would fall with it beyond the hope of
ever climbing again. One is my Lord Jefferies, another my Lord
Sunderland."
She looked at him calmly.
"They are both well hated by the people," she said. "I do admit
it." She leant forward in her chair. "Do you think it would be worth
while for my lord to stake the great post he holdeth for the chance of
safety if..."
She hesitated, and he supplied the words.
—"if there was a revolution," he said.
"Do you talk of revolutions!" she exclaimed.
His fair face flushed.
"Listen," he answered briefly.
 My lady turned her delicate head towards the window. Beyond
her brocade curtains lay the dark shape of London, overhung with a
glow of red that stained the summer sky. She sat silent. Mr. Sidney
stood close to her, and she could hear his quick breathing; he, as she,
was listening to the bells, the shouting, the crack of fireworks, now
louder, now fainter, but a continuous volume of sound.
"The people——" said Mr. Sidney.
"Do they make revolutions?" she asked.
"If there is a man to guide them they do——"
"Well?"
"Before, there was Cromwell."
"And now——"
"Now there is William of Orange."
My lady rose.
"His Highness," she said quietly but firmly, "may be assured that
he hath a friend, a secret friend in my lord."
Mr. Sidney looked anxiously into her eyes.
"May I rely on that?"
She smiled rather sadly.
"You, at least, can trust me."
Mr. Sidney bowed over her slender hand.
"You are a sweet friend and a clever woman, but——"
Lady Sunderland interrupted him.
"I am sincere to-night. We see our dangers. You shall hear from
me at The Hague."

CHAPTER III
 THE NIGHT OF JUNE 30th, 1688

Some hours after his parting with Lady Sunderland, Mr. Sidney left a
modest house in Greg Street, Soho Fields, in company with a common
tarpaulin, whose rough clothes were in strong contrast to the rich
appointments of the notable beau he accompanied.
It was a fine night, but cloudy. The two men proceeded in silence
towards Gerrard Street, the sailor with his hands in his pockets and
Mr. Sidney swinging his cane.
Every house they passed had the seven candles in the windows,
and the sound of bells and shouting was as persistent as it had been
in the drawing-room of Sunderland House; the street was empty save
for a few wandering link-boys and beggars.
As they, walking rapidly and steadily, approached St. Martin-in-
the-Fields, the feeble rays of the oil-lamps over every tenth door, that
only served to illuminate the signs and cast great shadows from the
passers-by, were absorbed in a red glare that touched the brick fronts
of the precise houses with a deep glow.
"A bonfire," remarked Mr. Sidney.
The tarpaulin answered in the accents of a gentleman.
"A pope-burning—had we not best take another way?"
As Mr. Sidney hesitated the other added, with a laugh—
"After all, is it not a good omen? Let us see this martyrdom," and
he pressed into the confines of the crowd gathered round an
enormous bonfire, which blazed in front of the church steps.
Mr. Sidney followed, and the two found themselves absorbed into
the multitude of apprentices, shopkeepers, clerks, and citizens of all
descriptions, who were engaged in celebrating the acquittal of the
bishops by burning His Holiness in effigy.
For awhile they were unnoticed in the general excitement, then
Mr. Sidney's appearance was remarked. His plumed hat, his sword, his
curling peruke, and the rich velvet mantle that concealed his person
instantly told them that he was not of their class. Suspicion was
roused that he was a spy of the Court, and they began to rudely jostle
him; but the sailor, who kept closely beside him, laughed good-
humouredly, and cried—
"Gently, my friends. We are good Protestants come to see the
burning of the Devil and the Pope."
"Sure," came a quick answer, "if you were popish dogs you would
scarce be here to-night!"
Sidney smiled at the eager young man who spoke.
"No," he said. "Long live the King, the Church, and the Laws—eh,
my friend?"
"I do not know so much about the first—but all my heart the
second and third!"
The sailor looked sharply at the speaker, who was a youth of two-
or three-and-twenty, very plainly dressed, almost shabby, with a keen,
dark face, intelligent, ardent eyes, and a quantity of untidy curly hair.
He seemed to be a student or clerk, and was obviously the leading
spirit of a band of youths of his own age, who were making most of
the noise and clamour.
He in his turn closely scrutinized the sailor, then said, in abrupt
tones of friendliness—
"I'll get you through. You and the gentleman get behind me, and
I'll make 'em give away——"
 With the quick energy that seemed his characteristic he
shouldered his way through the press and forced a passage for Mr.
Sidney and the sailor, bringing them to the steps of the church, where
they had a good view over the crowd, and stood directly behind the
bonfire.
He paused, a little breathless with fighting through the throng,
and with blows given and taken, and asked Mr. Sidney, whose
splendour seemed to somewhat overawe him, if he had ever seen a
pope-burning before.
"Never," smiled that gentleman; but the sailor added instantly—
"I have, many a time; 'tis the finest fun in the world."
The young man looked at him with the sharp suspicious curiosity
of youth. He was quick to notice the difference between speech and
dress, and his instant's glance further confused him. The strong light
of the bonfire showed a resolute-looking man, dressed in the coarse
worn clothes of a common sailor, but unmistakeably a gentleman. He
seemed amused and interested. A pleasant smile lit his face, and his
grey eyes were bright and self-contained.
"You were like to be clapt up if the watch caught you at this," he
said.
The youth was gloriously scornful.
"The watch! Do you think we would disperse for a regiment?"
"Look out for the regiments then," smiled the sailor. "There are
sixteen thousand men on Hounslow Heath."
"How many of 'em would take arms against the city?" was the
instant retort. "They too are good Protestants."
"I perceive that you are something of a Politic," said Mr. Sidney;
and then all further remark was cut short by the arrival of the
procession carrying the Pope, at sight of which an almost solemn
hush fell on the crowd, who stopped supplying the bonfire with
squibs, oil, and tar, and drew back in close ranks before the steps of
the church.
The Pope was a huge figure of straw with a wax face, carried in a
chair on the shoulders of four men. He was clothed in an expensive
scarlet silk robe, and wore on his head a tiara of painted pasteboard,
decorated with sparkling glass; his scornful and saturnine face, which,
if meant for the reigning pontiff, was a cruel libel on the most
honourable and simple of men, was turned a little to one side in the
action of listening to a huge black-horned Devil who was busily
whispering in his ear, one stiff hand was raised with two fingers lifted
in blessing, and the other (both formed of white gloves stuffed, with
glass beads on the backs) hung limply by his side.
The young man who had befriended Mr. Sidney and his friend
gave some kind of a whistling signal, upon which the greater number
of the crowd broke into verses of a doggerel song against popery and
the bishops. As each sang different words and tune the result was a
mere lusty din, in which not a syllable was distinguishable;
nevertheless the hundred voices of hate, derision, scorn, and triumph
addressing the dumb grotesque image of a loathed religion had an
impressive significance and contained a deep warning.
For these were not isolated nor feeble voices—the will and
purpose of a great nation echoed in them—nor were they the voices
of mere fanaticism, but the cries of protest raised by a jealous people
whose liberties had been struck at and broken.
In the faces the leaping flames brought into relief against the
surrounding darkness might be traced that fearless English spirit that
would not for long own a master; in the coarse jeers, hoots, and
hisses might be discerned that devotion to the reformed faith that had
united Anglican and Dissenter (despite the high bid the King had
made for the favour of the latter), in stern and unyielding opposition
to the Romanist worship that was in vain being forced on them.
Mr. Sidney wondered if James could see these faces and hear
these voices it would give him pause; if even his hard bigotry would
not learn something of the temper of a strong people roused. It
seemed incredible that if the King could see these people now that he
could forget Cromwell and his own exiled youth.
The dummy Pope was lowered from his seat of mock triumph and
pitched forward into the centre of the flames, the Devil clinging to
him, at which a savage roar rose as if real flesh and blood had been
sacrificed to appease fierce passions.
Mr. Sidney a little drew back against the flame-flushed pillars
behind him. As the spreading fire scorched his face so the temper of
the crowd put a kind of awe into his heart.
"Who is to manage these?" he murmured. He was no statesman.
Then he pulled his companion by the sleeve. "There was a man killed
to-day—let us get on——"
But the sailor, with his arms folded across his breast, was
watching the bonfire, in the heart of which the Pope appeared to be
writhing as he shrivelled, while his wax face ran into one great tear,
his tiara shrunk and disappeared, and the Devil, a black patch in the
redness, emitted horrid fumes of sulphur as he was consumed.
"'Tis a pretty show," he said briefly.
"But one not pleasing to the King's Majesty, do you think?"
flashed the dark youth who had been their guide.
"No," smiled the other. "I think it would grieve His Majesty even
more than the acquittal of the holy fathers——"
The young man laughed; he seemed very excited.
 "See you, sir, if you wait awhile you will see a warming-pan burnt
—with the pretended Prince of Wales, that Popish brat, within!"
Mr. Sidney interrupted.
"We have a boat to catch at Gravesend, if you could make a
passage for us, my friend——"
More than a little flattered at being thus addressed by so fine a
gentleman, the youth, by various shouted commands to his
companions, elbowings and blows administered in a lively manner,
steered Mr. Sidney and the sailor out of the crowd with the same
dexterity that he had guided them to the church steps.
On the confines of the press, Mr. Sidney, rather breathless, shook
out his mantle and adjusted his hat. The glow from the bonfire cast
their shadows long and leaping over the grass. In the distance
towards the archery fields and the Mall were other crowds and
processions to be seen passing in and out of the trees, and another
bonfire was burning in front of the mansion of the Protestant
Northumberlands. The air was full of the harsh colour of artificial light,
the smell of powder and tar, of burning rag and oil, belching smoke
and the crack of squib, rocket and bomb, mingled with noisy shouting
of anti-Popish songs and hoarse cheers for the bishops, the
Dissenters, and the Protestant succession.
"This must be pleasant music at Whitehall," remarked the sailor,
with good-humoured indifference. He was standing now full in the
light of the lantern at the corner of the church, and the young man,
who had been looking at him with great eagerness, exclaimed softly—
"It is Admiral Herbert!"
He turned instantly.
"My name is not for public hearing to-night," he said quickly.
"And, God of Heaven, boy, how did you know me?"
 The young man flushed.
"You used to come to the 'Rose' in Charing Cross—near here, you
remember? My uncle kept it——"
Arthur Herbert smiled.
"Yes—I remember; and who are you?"
"A scholar at St. John's now," answered the youth, in the same
eager, excited way; "that is thanks to my Lord Dorset——"
"Why, I recall," said Mr. Sidney; "'tis my lord's last genius, sure—
he who wrote a satire against the court last year with one Charley
Montague—a parody on Mr. Dryden's bombast, which sorely vexed
him——"
"The same, sir," answered the young man, flushing deeper with
pleasure. "Lord Dorset is the Mæcenas of the age, as I have truly
found——"
"Well," said the Admiral, "you seem a likely spark—stick to your
Pope-burning and you'll find yourself at Court yet—that is good
advice. What is your name? I don't read poetry."
"I don't write it, sir," retorted the other, with an engaging touch
of impudence. "Only verses—a little satire and a little truth."
Arthur Herbert laughed.
"Well, what is your name?"
"Prior, sir—Matthew Prior."
"Good evening, Mr. Prior, and remember that you did not see me
to-night—silence, mind, even to your friends the Whigs."
"I know enough for that, sir," responded the student simply. He
took off a battered hat with a courtly air of respect, and discreetly
turned away and slipped back into the crowd.
The two gentlemen continued their way.
 "We run some risk, you observe," smiled Mr. Sidney. "Who would
have reckoned on that chance?"
"None but good Protestants are abroad to-night," answered the
Admiral; "but I doubt if you will be safe in London much longer——"
"I will come to The Hague as soon as I dare—tell His Highness so
much; but I would not have my going prejudice those who must
remain at their posts—it would give a colour to rumours if I was to
return to The Hague——"
"My Lord Sunderland manageth the rumours," smiled Herbert.
"My Lord Sunderland," repeated Mr. Sidney reflectively, "is
difficult stuff to handle. I tell you plainly that I do not know how far
he will go."
"But he will not betray us?"
"No—I can go warrant for that."
They turned down the Strand and walked along the river, which
was lively with water-men and boats of music and great barges.
"M. Zuylestein will be sending Edward Russell with further news,"
said Mr. Sidney. "Look out for him, I pray you, at The Hague."
"Edward Russell must be weary of running to and fro England
and Holland," remarked Herbert. "And how long will the King allow M.
Zuylestein to drill parties against him?"
Mr. Sidney answered shortly.
"Mr. Russell hath my reason of hatred to the house of Stewart,
and as for M. Zuylestein he is too clever to give His Majesty a chance
to interfere."
They paused at one of the landing stages, and Herbert shouted
to an idle pair of oars that was looking for custom.
"Now, farewell," he said, "lest you shame my appearance—I shall
be at Gravesend to-night and, given fair wind, at Maaslandsluys in a
day." He pressed Mr. Sidney's hand, smiled, and hastened down the
steps.
With a sobbing swish of water the boat drew up; the oars
clanked in the rowlocks. Mr. Sidney watched the tall figure in the red
breeches of the sailor step in, look back and wave his hand; then the
boat joined the others that covered the dark river, and was soon lost
to sight in the cross glimmers of lanterns and half-seen shapes.
Mr. Sidney remained gazing down the Thames—behind him the
great capital rejoicing with their bells and rockets and bonfires, their
shouting and singing, behind him the luxurious palace where the King
must be enduring a sharp humiliation. Mr. Sidney smiled; he thought
with a keenness rare in his soft nature of his brother who had laid
down his life on Tower Hill through the intrigues of the Duke of York,
now King. It astonished himself how much the memory of that injury
rankled. He had not loved his brother to half the measure that he
hated the man who had brought him to death. Indolent in mind and
temper, he loathed cruelty, and the blood of Algernon Sidney was not
the only witness to the cruelty of James Stewart. Mr. Sidney had seen
the look on the fair face of Lord Monmouth when he landed at the
Tower stairs; he had seen well-born men and women, implicated only
indirectly in the late rebellion, shipped off to Virginia as slaves, while
the Italian Queen and her women quarrelled over the price of them;
he had seen, in this short reign, many acts of an extraordinary
tyranny and cruelty, and his thoughts dealt triumphantly on Mr.
Herbert, slipping down the river out of the tumult and excitement to
the quiet of Gravesend with an important little paper in his seaman's
coat pocket.
 CHAPTER IV
THE MESSENGER FROM ENGLAND

Madame de Marsac, one time Miss Basilea Gage and maid of honour
to the Queen of England, sat in the window-place of an inn in The
Hague and looked down into the street. There was an expression of
indifference on her face and of listlessness in her attitude, though a
man in black velvet was standing near to her and speaking with an
appearance of great energy, and he was M. D'Avaux, minister of King
Louis XIV to the States General.
Basilea was Romanist, of a family who had held that faith since
the days of Queen Mary Tudor; her husband, two years dead, an
officer in the French Army, had left her with a small fortune and no
regrets, since she was yet undecided as to whether she had liked him
or no; though too clever to be unhappy she was miserably idle, and
had drifted from Paris back to London, and from London to
Amsterdam, where her late lord's people were prominent among the
powerful French faction, and still without finding any interest in life.
It was M. D'Avaux, with whom she had some former
acquaintance, who had urgently requested her to come to The Hague,
and she was here, listening to him, but without enthusiasm, being
more engaged in watching the great number of well-dressed people
who passed up and down the wide, clean street.
M. D'Avaux perhaps noticed her inattention, for he broke his
discourse with an abrupt question.
"Would you care to see a revolution in your country—'49 over
again with the Prince of Orange in place of Cromwell?"
 She turned quickly, obviously startled. Though so indifferent to
actual happenings, she was tenacious of tradition, and she felt a vast,
though passive, admiration for the action of King James in re-
establishing in his kingdoms the ancient faith that was hers.
"Why—you mean——" she began, and paused, searching his face
with puzzled dark eyes.
"I mean, Madame," said M. D'Avaux strongly, "that your King is
cutting away the supports that prop his throne—you must know
something of the feeling in England."
"Yes," she assented; "the trouble with the colleges, the
declaration of Indulgence, and some rare malicious talk of the Prince
of Wales—but nothing like—a revolution!"
The Frenchman smiled.
"Let me tell you some facts. When Henry Sidney was Envoy here
he was in reality the channel of communication between the
Opposition in England and His Highness—even since his recall he hath
served the same turn—and these last months Edward Russell hath
been coming and going with messages between the Prince and those
great Protestants whom the King hath put out of office."
"If this is known," cried Basilea, "surely it can be prevented—it is
treason!"
"What is treason in England, Madame, is loyalty at The Hague—
and do you imagine that I have any influence with the States, who
are entirely under the rule of the Prince?"
"I have noticed," answered Basilea, "a monstrous number of
English and French Protestants at The Hague, but thought they came
here for a mere refuge."
"They come here," said M. D'Avaux drily, "for revenge—since the
Edict of Nantes was revoked all the Huguenots look to the Prince, and
since he refused his assent to the declaration of Indulgence every
Englishman who is not a Romanist looketh to him also."
Basilea rose; the sunshine was over her curls and blue dress, and
shook a red light from the garnets at her wrist; her eyes narrowed;
she was interested by this clear talk of important events.
"What could the Prince do?" she asked quietly.

M. D'Avaux replied with some passion.

"This is the tenth year of the uneasy peace forced on His Highness by
His Majesty and the late King Charles, and not a month of that time
that he hath not been working to be avenged on us for the terms we
obtained then—he hath combined powers in secret leagues against
us, he hath vexed and defied us at every turn, and he hath never, for
one moment, ceased to intrigue for the help of England against us—in
some final issue."
"But England," said Basilea quickly, "is entirely bound to France
——"
"Yes; and because of that, and because the Prince of Orange
knoweth it, King James is in a desperate strait——"
"Why?"
"Madame, I know the Prince tolerably well—he never relinquishes
any idea that hath a firm hold on his mind, and what he cannot
accomplish by diplomacy he will assay by force."
"By force!" echoed Basilea, staring at the Ambassador.
He came a little nearer to her and lowered his voice.
"What is the business that keepeth Edward Russell on messenger
duty to and fro The Hague and London? What is the business that
keepeth the Prince for ever riding from his villa to the States? Why are
all the harness makers of the Provinces making bridles, bits, and
spurs? Why is the Prince, if there is not some great design afoot,
buying up load after load of hay—why are new ships being built, fresh
troops being raised?"
"Surely," answered Basilea, "I have heard it said that the States
were making ready in case the dispute between King Louis and the
Pope anent Cologne should involve attack on their frontiers."
"I do not believe it," said M. D'Avaux. "But King James and Lord
Sunderland take your view—they will not be roused, they will not see,
and daily they further rouse that loyalty which is their sole support. I
am well informed from England that not one man in ten believeth the
Prince of Wales to be the King's son, and that they regard the
producing of him as a mere fraud to cheat the Princesses of their
birthright."
"What do you mean, what do you think?" asked Basilea. "It is not
possible that the Prince should claim his wife's inheritance by force of
arms?"
"You put it very succinctly," said M. D'Avaux. "That is exactly what
I think he will do."
Basilea was silent. The, to her, amazing aspect of international
politics disclosed in M. D'Avaux's brief and troubled summary filled her
with dismay and anger. The domestic government of England did not
concern her, since she did not live under it, and her family, being
Romanist, were more prosperous under King James than they had
ever been. She had not given much thought to the justice or wisdom
of the means the King had taken to convert his kingdom, but she
approved of the principle. She had no admiration for the Prince of
Orange, and no sympathy for the cause he upheld.
 "He would never," she remarked, continuing her thoughts aloud,
"dare the scandal of an open rupture betwixt himself and His Majesty,
who is both his uncle and his wife's father——"
"There is nothing but dislike between them since the King
recalled Sidney and the Prince refused his assent to the repeal of the
Test Act——"
"But the Princess," interrupted Basilea. "Why, I used to know her,
and I dare assure you she is not one to forget her duty——"
"Her duty!" repeated M. D'Avaux.
He looked at her intently.
"You have touched the reason why I asked you to come to The
Hague," he said. "I want you to wait on the Princess and obtain from
her some assurance that she would never countenance any menace
to her father——"
"I am sure she would not," answered Basilea at once.
"I do hope it, for if she will not support her husband his design is
as good as hopeless, since it is her claim, not his own, he must put
forward."
Basilea smiled.
"She is a Stewart, must be a little ambitious, if nothing else, and
hers was not a love-match that she should sacrifice everything to her
husband."
She glanced quickly at M. D'Avaux, and added—
"But you still look doubtful——"
"Madame," he replied earnestly, "the Princess is a very ardent
Protestant——"
"She was not at Whitehall."
"—She hath," he continued, "lived ten years with the Prince——"
"They say in England that he doth not treat her kindly——"
 "His Majesty hath done his best to put discord between them—
when Her Highness discovered that her Chaplain and one of her
women, Anne Trelawney, were working on His Majesty's orders to
make mischief betwixt the Prince and herself, she dismissed them. I
thought that looked ill for us."
Basilea shook her head, still smiling.
"An English princess will not be so soon subdued—I'll undertake
to get assurances from Her Highness that she is ignorant of these
tales of the designs of the Prince, and that she would never support
them if she knew of them."
Basilea spoke with some animation; she felt sure of what she
said, and was not ill pleased to be of service to her own and her
adopted country in this, as she thought it, pleasant fashion.
She remembered Mary Stewart as a lively, laughing girl, who had
detested and opposed her marriage with much spirit, and she had no
fear that she would find that wilful gay Princess difficult to manage.

M. D'Avaux was not so confident.

"You do not know the Prince," he remarked, and Basilea laughed.

"He is not so redoubtable where women are concerned, I think,"
she answered; "at least allow me to try."
"I ask it of you," he said gravely; "for more hangs on this than I
dare think."
"Sure, you need not fear the Prince," she returned, "if he had the
most wicked will in the world—the difficulties in his way are
unsurmountable."
"France," he replied, "must make them so."
 On that he took his leave, and left Basilea with more busy
thoughts than had been hers for some while since.
She returned to the window-seat, propped her chin on her palm,
and looked down the street. She was a pretty seeming woman,
slender, dusky brown in the hair and eyes, of a just height and
proportion, and her person was shown to advantage by the plain
French style of her gown and ringlets, which had a graceful simplicity
wholly wanting in the stiff fashions prevailing in England and the Low
Countries.
Her window looked upon an end of the Buitenhof, one of the two
great squares that formed the centre of The Hague so admired by
strangers; it was planted with lime trees, now past their flowering
time, but still fragrant and softly green in the gentle air of July.
A great number of people of both sexes, finely dressed, were
passing up and down, on foot, on horseback, and in little open
chariots and sedans. Basilea noticed many unmistakeably English,
Scotch, and French of varying degrees of qualities—soldiers, divines,
gentlemen, and women mingling with the crowd, hastening past with
intent faces or lounging with idle glances at each other in hopes to
detect a friend or patron.
She opened the window and leaned out so that she could see the
Buitenhof with the straight lines and arches of the government
buildings of the States, the trees that shaded the great fish-pond
called the Vyver, and the open square where the carriages passed on
their way to the fashionable promenade of the Voorhout and
Toorviveld.
Among all the varying figures that caught her glance was that of
a tall man in the garb of an English seaman—red breeches, a tarred
coat, a cocked hat with his captain's colours, and a heavy sword.
 She noticed him first because he stopped to ask directions of two
passers-by, English also, and because he was, even among so many,
of a fine and showy appearance.
He turned at first towards the arches that led through to the
Binnenhof and the Hall of the Knights, then hesitated, turned back,
and retraced his steps until he was just under Basilea's window.
Here he paused again, and accosted a stout gentleman in the
dress of an Anglican priest, who was dashing through the press with a
great air of importance and hurry.
On seeing the tarpaulin he greeted him with noisy surprise and
pleasure, and drew him a little out of the crowd, and proceeded to
converse eagerly with the unction of the inveterate talker.
Basilea laughed to herself as she observed the seaman's efforts
to escape, and to obtain some answer to a question first.
At last he seemed to accomplish both, for he wrenched himself
from the powerful presence of the priest, and hastened towards the
Stadhuis, while the other called after him in a voice meant to be
subdued, but still so resonant that Basilea could hear every word:
"The Prince will be back to-morrow evening!"
The seaman waved his hat, nodded, and hastened on.
Basilea wondered why a common sailor should be concerned as
to when His Highness returned to The Hague, and concluded, rather
angrily, that here was evidence of one of the manifold intrigues which
the Whigs, M. D'Avaux had assured her, carried on almost openly in
Holland.

CHAPTER V
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