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 Brief Contents v

Part 6 The United States in the World Economy 437

Chapter 21 International Trade and Comparative Advantage 439
Chapter 22 Is U.S. Economic Leadership Threatened? 461

APPENDIX: Answers to Odd-Numbered Test Yourself Questions 473

Glossary 483

Index 493

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TABLE OF CONTENTS

Preface xviii
About the Authors xxiii

Part 1 Getting Acquainted with Economics 1

Chapter 1 What Is Economics? 3
1-1 IDEAS FOR BEYOND THE FINAL EXAM 3
1-1a Idea 1: How Much Does It Really Cost? 4
1-1b Idea 2: Attempts to Repeal the Laws of Supply and Demand—The Market
Strikes Back 4
1-1c Idea 3: The Surprising Principle of Comparative Advantage 5
1-1d Idea 4: Trade Is a Win–Win Situation 5
1-1e Idea 5: The Importance of Thinking at the Margin 5
1-1f Idea 6: Externalities—A Shortcoming of the Market
Cured by Market Methods 6
1-1g Idea 7: The Trade-Off between Efficiency and Equality 6
1-1h Epilogue 7
1-2 INSIDE THE ECONOMIST’S TOOL KIT 7
1-2a Economics as a Discipline 7
1-2b The Need for Abstraction 7
1-2c The Role of Economic Theory 10
1-2d What Is an Economic Model? 10
1-2e Reasons for Disagreements: Imperfect Information and
Value Judgments 11
Summary 12
Key Terms 12
Discussion Questions 13

APPENDIX Using Graphs: A Review 13

Graphs Used in Economic Analysis 13
Two-Variable Diagrams 13
The Definition and Measurement of Slope 14
Rays through the Origin and 45° Lines 16
Squeezing Three Dimensions into Two: Contour Maps 17
Summary 18
Key Terms 19
Test Yourself 19

Chapter 2 The Economy: Myth and Reality 21

2-1 THE AMERICAN ECONOMY: A THUMBNAIL SKETCH 21
2-1a A Private-Enterprise Economy 23
2-1b A Relatively “Closed” Economy 23
2-1c A Growing Economy … 24
2-1d But with Bumps along the Growth Path 24
2-2 THE INPUTS: LABOR AND CAPITAL 26
2-2a The American Workforce: Who Is in It? 27
2-2b The American Workforce: What Does It Do? 28
vi

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 Table of Contents vii

2-2c The American Workforce: What Does It Earn? 29

2-2d Capital and Its Earnings 30
2-3 THE OUTPUTS: WHAT DOES AMERICA PRODUCE? 30
2-4 THE CENTRAL ROLE OF BUSINESS FIRMS 31
2-5 WHAT’S MISSING FROM THE PICTURE? GOVERNMENT 32
2-5a The Government as Referee 33
2-5b The Government as Business Regulator 33
2-5c Government Expenditures 34
2-5d Taxes in America 34
2-5e The Government as Redistributor 35
2-6 CONCLUSION: IT’S A MIXED ECONOMY 36
Summary 36
Key Terms 36
Discussion Questions 37

Chapter 3 The Fundamental Economic Problem: Scarcity and Choice 39

ISSUE: What to Do about the Budget Deficit? 39
3-1 SCARCITY, CHOICE, AND OPPORTUNITY COST 40
3-1a Opportunity Cost and Money Cost 41
3-1b Optimal Choice: Not Just Any Choice 42
3-2 SCARCITY AND CHOICE FOR A SINGLE FIRM 42
3-2a The Production Possibilities Frontier 43
3-2b The Principle of Increasing Costs 44
3-3 SCARCITY AND CHOICE FOR THE ENTIRE SOCIETY 45
3-3a Scarcity and Choice Elsewhere in the Economy 45
ISSUE REVISITED: Coping with the Budget Deficit 46
3-4 THE CONCEPT OF EFFICIENCY 46
3-5 THE THREE COORDINATION TASKS OF ANY ECONOMY 47
3-6 TASK 1. HOW THE MARKET FOSTERS EFFICIENT
RESOURCE ALLOCATION 48
3-6a The Wonders of the Division of Labor 48
3-6b The Amazing Principle of Comparative Advantage 48
3-7 TASK 2. MARKET EXCHANGE AND DECIDING HOW MUCH OF EACH GOOD
TO PRODUCE 49
3-8 TASK 3. HOW TO DISTRIBUTE THE ECONOMY’S OUTPUTS
AMONG CONSUMERS 50
Summary 52
Key Terms 52
Test Yourself 53
Discussion Questions 53

Chapter 4 Supply and Demand: An Initial Look 55

PUZZLE: What Happened to Oil Prices? 55
4-1 THE INVISIBLE HAND 56
4-2 DEMAND AND QUANTITY DEMANDED 56
4-2a The Demand Schedule 57
4-2b The Demand Curve 58
4-2c Shifts of the Demand Curve 58
4-3 SUPPLY AND QUANTITY SUPPLIED 61
4-3a The Supply Schedule and the Supply Curve 61
4-3b Shifts of the Supply Curve 62
4-4 SUPPLY AND DEMAND EQUILIBRIUM 64
4-4a The Law of Supply and Demand 66

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viii Table of Contents

4-5 EFFECTS OF DEMAND SHIFTS ON SUPPLY-DEMAND EQUILIBRIUM 66

4-6 SUPPLY SHIFTS AND SUPPLY-DEMAND EQUILIBRIUM 67
PUZZLE RESOLVED: Those Leaping Oil Prices 68
4-6a Application: Who Really Pays That Tax? 69
4-7 BATTLING THE INVISIBLE HAND: THE MARKET FIGHTS BACK 70
4-7a Restraining the Market Mechanism: Price Ceilings 71
POLICY DEBATE Economic Aspects of the War on Drugs 71
4-7b Case Study: Rent Controls in New York City 72
4-7c Restraining the Market Mechanism: Price Floors 73
4-7d Case Study: Farm Price Supports and the Case of Sugar Prices 74
4-7e A Can of Worms 74
4-8 A SIMPLE BUT POWERFUL LESSON 76
Summary 76
Key Terms 76
Test Yourself 77
Discussion Questions 78

Part 2 The Building Blocks of Demand and Supply 79

Chapter 5 Consumer Choice: Individual and Market Demand 81
PUZZLE: Why Shouldn’t Water Be Worth More Than Diamonds? 81
5-1 SCARCITY AND DEMAND 82
5-2 UTILITY: A TOOL TO ANALYZE PURCHASE DECISIONS 83
5-2a The Purpose of Utility Analysis: Analyzing How People Behave, Not What They Think 83
5-2b Total versus Marginal Utility 84
5-2c The “Law” of Diminishing Marginal Utility 84
5-2d Using Marginal Utility: The Optimal Purchase Rule 86
5-2e From Diminishing Marginal Utility to Downward-Sloping Demand Curves 88
5-3 BEHAVIORAL ECONOMICS: ARE ECONOMIC DECISIONS REALLY MADE “RATIONALLY”? 90
5-4 CONSUMER CHOICE AS A TRADE-OFF: OPPORTUNITY COST 92
5-4a Consumer’s Surplus: The Net Gain from a Purchase 92
PUZZLE RESOLVED: Resolving the Diamond–Water Puzzle 94
5-4b Income and Quantity Demanded 94
5-5 FROM INDIVIDUAL DEMAND CURVES TO MARKET DEMAND CURVES 95
5-5a Market Demand Curves as a Horizontal Sum of the Demand Curves of Individual Buyers 95
5-5b The “Law” of Demand 96
5-5c Exceptions to the “Law” of Demand 97
Summary 97
Key Terms 98
Test Yourself 98
Discussion Questions 98

APPENDIX Analyzing Consumer Choice Graphically: Indifference Curve Analysis 99

Geometry of Available Choices: The Budget Line 99
Properties of the Budget Line 100
Changes in the Budget Line 100
What the Consumer Prefers: Properties of the Indifference Curve 101
The Slopes of Indifference Curves and Budget Lines 102
Tangency Conditions 103
Consequences of Income Changes: Inferior Goods 104
Consequences of Price Changes: Deriving the Demand Curve 104
Summary 105
Key Terms 106
Test Yourself 106

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 Table of Contents ix

Chapter 6 Demand and Elasticity 107

ISSUE: Will Taxing Cigarettes Make Teenagers Stop Smoking? 107
6-1 ELASTICITY: THE MEASURE OF RESPONSIVENESS 108
6-1a Price Elasticity of Demand and the Shapes of Demand Curves 111
6-2 PRICE ELASTICITY OF DEMAND: ITS EFFECT ON TOTAL REVENUE AND TOTAL
EXPENDITURE 113
ISSUE REVISITED: Will a Cigarette Tax Decrease Teenage Smoking Significantly? 114
6-3 WHAT DETERMINES DEMAND ELASTICITY? 115
6-4 ELASTICITY AS A GENERAL CONCEPT 115
6-4a 1. Income Elasticity 116
6-4b 2. Price Elasticity of Supply 116
6-4c 3. Cross Elasticity of Demand 116
6-5 THE TIME PERIOD OF THE DEMAND CURVE AND ECONOMIC DECISION MAKING 118
6-6 REAL-WORLD APPLICATION: POLAROID VERSUS KODAK 119
6-7 IN CONCLUSION 120
Summary 120
Key Terms 120
Test Yourself 121
Discussion Questions 121

APPENDIX How Can We Find a Legitimate Demand Curve from Historical Statistics? 121
An Illustration: Did the Advertising Program Work? 123
How Can We Find a Legitimate Demand Curve from the Statistics? 123

Chapter 7 Production, Inputs, and Cost: Building Blocks for Supply Analysis 125
PUZZLE: How Can We Tell if Large Firms Are More Efficient? 126
7-1 SHORT-RUN VERSUS LONG-RUN COSTS: WHAT MAKES AN INPUT VARIABLE? 127
7-1a The Economic Short Run versus the Economic Long Run 127
7-1b Fixed Costs and Variable Costs 128
7-2 PRODUCTION, INPUT CHOICE, AND COST WITH ONE VARIABLE INPUT 128
7-2a Total, Average, and Marginal Physical Products 128
7-2b Marginal Physical Product and the “Law” of Diminishing Marginal Returns 129
7-2c The Optimal Quantity of an Input and Diminishing Returns 130
7-3 MULTIPLE INPUT DECISIONS: THE CHOICE OF OPTIMAL INPUT COMBINATIONS 132
7-3a Substitutability: The Choice of Input Proportions 132
7-3b The Marginal Rule for Optimal Input Proportions 133
7-3c Changes in Input Prices and Optimal Input Proportions 134
7-4 COST AND ITS DEPENDENCE ON OUTPUT 135
7-4a Input Quantities and Total, Average, and Marginal Cost Curves 135
7-4b The Law of Diminishing Marginal Productivity and the U-Shaped Average Cost Curve 138
7-4c The Average Cost Curve in the Short and Long Run 139
7-5 ECONOMIES OF SCALE 140
7-5a The “Law” of Diminishing Returns and Returns to Scale 141
7-5b Historical Costs versus Analytical Cost Curves 142
PUZZLE RESOLVED: Resolving the Economies of Scale Puzzle 142
7-5c Cost Minimization in Theory and Practice 144
POLICY DEBATE Should Offshore Oil Drilling Be Subsidized by the U.S. Government? 144
Summary 145
Key Terms 145
Test Yourself 145
Discussion Question 146

APPENDIX Production Indifference Curves 146

Characteristics of the Production Indifference Curves, or Isoquants 147
The Choice of Input Combinations 147

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x Table of Contents

Cost Minimization, Expansion Path, and Cost Curves 148

Summary 150
Key Terms 150
Test Yourself 150

Chapter 8 Output, Price, and Profit: The Importance of Marginal Analysis 151
PUZZLE: Can a Company Make a Profit by Selling Below Its Costs? 152
8-1 PRICE AND QUANTITY: ONE DECISION, NOT TWO 153
8-2 TOTAL PROFIT: KEEP YOUR EYE ON THE GOAL 154
8-3 ECONOMIC PROFIT AND OPTIMAL DECISION MAKING 154
8-3a Total, Average, and Marginal Revenue 155
8-3b Total, Average, and Marginal Cost 156
8-3c Maximization of Total Profit 157
8-3d Profit Maximization: A Graphical Interpretation 158
8-4 MARGINAL ANALYSIS AND MAXIMIZATION OF TOTAL PROFIT 159
8-4a Marginal Revenue and Marginal Cost: Guides to Optimization 161
8-4b Finding the Optimal Price from Optimal Output 162
POLICY DEBATE Profit and the New Market Economies 162
8-5 GENERALIZATION: THE LOGIC OF MARGINAL ANALYSIS AND MAXIMIZATION 164
8-5a Application: Fixed Cost and the Profit-Maximizing Price 164
PUZZLE RESOLVED: Using Marginal Analysis to Unravel the Case of the “Unprofitable” Calculator 165
8-6 CONCLUSION: THE FUNDAMENTAL ROLE OF MARGINAL ANALYSIS 166
8-7 THE THEORY AND REALITY: A WORD OF CAUTION 167
Summary 168
Key Terms 168
Test Yourself 168
Discussion Question 169

APPENDIX The Relationships among Total, Average, and Marginal Data 169
Graphical Representation of Marginal and Average Curves 170
Test Yourself 171

Chapter 9 Securities, Business Finance, and the Economy: The Tail that Wags
the Dog? 173
PUZZLE: The Stock Market’s Unpredictability 173
9-1 CORPORATIONS AND THEIR UNIQUE CHARACTERISTICS 174
9-1a Financing Corporate Activity: Stocks and Bonds 175
9-1b Plowback, or Retained Earnings 177
9-1c What Determines Stock Prices? The Role of Expected Company Earnings 178
9-2 STOCK EXCHANGES AND THEIR FUNCTIONS 178
9-2a Regulation of the Stock Market 179
9-2b Stock Exchanges and Corporate Capital Needs 180
9-3 SPECULATION 181
9-4 BETTING ON SECURITIES: RISKS TO THE ENTIRE ECONOMY 182
9-4a Investments and Their Risks 182
9-4b Derivatives and Other Complex Security Investments: An Invitation to Gamble? 183
9-4c Leverage: Raising the Stakes 184
9-4d Herd Behavior, the Securities Markets, and the Path to Recession 184
9-4e Irresponsible Lending: Another Booby Trap 185
PUZZLE RESOLVED: Unpredictable Stock Prices as “Random Walks” 186
Summary 188
Key Terms 188
Test Yourself 188
Discussion Questions 189

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 Table of Contents xi

APPENDIX Buying Stocks and Bonds 189

Selecting a Portfolio: Diversification 189
Key Terms 191
Test Yourself 191
Discussion Question 191

Part 3 Markets and the Price System 193

Chapter 10 The Firm and the Industry under Perfect Competition 195
PUZZLE: Pollution Reduction Incentives That Actually Increase Pollution 195
10-1 PERFECT COMPETITION DEFINED 196
10-2 THE PERFECTLY COMPETITIVE FIRM 197
10-2a The Firm’s Demand Curve under Perfect Competition 197
10-2b Short-Run Equilibrium for the Perfectly Competitive Firm 197
10-2c Short-Run Profit: Graphic Representation 199
10-2d The Case of Short-Term Losses 200
10-2e Shutdown and Break-Even Analysis 200
10-2f The Perfectly Competitive Firm’s Short-Run Supply Curve 202
10-3 THE PERFECTLY COMPETITIVE INDUSTRY 203
10-3a The Perfectly Competitive Industry’s Short-Run Supply Curve 203
10-3b Industry Equilibrium in the Short Run 203
10-3c Industry and Firm Equilibrium in the Long Run 204
10-3d Zero Economic Profit: The Opportunity Cost of Capital 207
10-3e The Long-Run Industry Supply Curve 208
POLICY DEBATE Should Government Regulators Use Perfect Competition as a Guide? 209
10-4 PERFECT COMPETITION AND ECONOMIC EFFICIENCY 209
PUZZLE RESOLVED: Which More Effectively Cuts Pollution—The Carrot or the Stick? 210
Summary 211
Key Terms 212
Test Yourself 212
Discussion Questions 212

Chapter 11 Monopoly 213

PUZZLE: What Happened to AT&T’s “Natural Monopoly” in Telephone Service? 213
11-1 MONOPOLY DEFINED 214
11-1a Sources of Monopoly: Barriers to Entry and Cost Advantages 214
11-1b Natural Monopoly 215
11-2 THE MONOPOLIST’S SUPPLY DECISION 216
11-2a Determining the Profit-Maximizing Output 218
11-2b Comparing Monopoly and Perfect Competition 219
11-2c Monopoly Is Likely to Shift Demand 221
11-2d Monopoly Is Likely to Shift Cost Curves 221
11-3 CAN ANYTHING GOOD BE SAID ABOUT MONOPOLY? 221
11-3a Monopoly May Aid Innovation 222
11-3b Natural Monopoly: Where Single-Firm Production Is Cheapest 222
11-4 PRICE DISCRIMINATION UNDER MONOPOLY 222
11-4a Is Price Discrimination Always Undesirable? 225
PUZZLE RESOLVED: Competition in Telephone Service 225
Summary 226
Key Terms 226
Test Yourself 227
Discussion Questions 227

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xii Table of Contents

Chapter 12 Between Competition and Monopoly 229

PUZZLE: Three Puzzling Observations 230
12-1 MONOPOLISTIC COMPETITION 230
12-1a Characteristics of Monopolistic Competition 231
12-1b Price and Output Determination under Monopolistic Competition 232
12-1c The Excess Capacity Theorem and Resource Allocation 233
1ST PUZZLE RESOLVED: Explaining the Abundance of Retailers 234
12-2 OLIGOPOLY 234
2ND PUZZLE RESOLVED: Why Oligopolists Advertise but Perfectly Competitive Firms
Generally Do Not 235
12-2a Why Oligopolistic Behavior Is So Difficult to Analyze 235
12-2b A Shopping List 236
POLICY DEBATE Acting on Recognized Interdependence versus “Tacit Collusion” 239
12-2c Sales Maximization: An Oligopoly Model with Interdependence Ignored 239
3RD PUZZLE RESOLVED: The Kinked Demand Curve Model 241
12-2d The Game Theory Approach 243
12-2e Games with Dominant Strategies 243
12-2f Games without Dominant Strategies 245
12-2g Other Strategies: The Nash Equilibrium 246
12-2h Zero-Sum Games 246
12-2i Repeated Games 247
12-3 MONOPOLISTIC COMPETITION, OLIGOPOLY, AND PUBLIC WELFARE 249
12-4 A GLANCE BACKWARD: COMPARING THE FOUR MARKET FORMS 250
Summary 251
Key Terms 252
Test Yourself 252
Discussion Questions 252

Chapter 13 Limiting Market Power: Regulation and Antitrust 255

13-1 THE PUBLIC INTEREST ISSUE: MONOPOLY POWER VERSUS MERE SIZE 255
13-2 ANTITRUST LAWS AND POLICIES 257
13-3 MEASURING MARKET POWER: CONCENTRATION 258
13-3a Concentration: Definition and Measurement—The Herfindahl-Hirschman Index 258
13-3b The Evidence of Concentration in Reality 260
13-4 A CRUCIAL PROBLEM FOR ANTITRUST: THE RESEMBLANCE OF MONOPOLIZATION
AND VIGOROUS COMPETITION 261
13-5 ANTICOMPETITIVE PRACTICES AND ANTITRUST 262
13-5a Predatory Pricing 262
13-5b The Microsoft Case: Bottlenecks, Bundling, and Network Externalities 262
13-6 USE OF ANTITRUST LAWS TO PREVENT COMPETITION 263
13-7 WHAT IS REGULATION? 264
PUZZLE: Why Do Regulators Often Raise Prices? 265
13-8 SOME OBJECTIVES OF REGULATION 265
13-8a Control of Market Power Resulting from Economies of Scale and Scope 265
13-8b Universal Service and Rate Averaging 266
13-9 TWO KEY ISSUES THAT FACE REGULATORS 267
13-9a Setting Prices to Protect Consumers’ Interests and Allow Regulated Firms to Cover Their Costs 267
13-9b Marginal versus Average Cost Pricing 267
13-9c Preventing Monopoly Profit but Keeping Incentives for Efficiency and Innovation 269
13-10 THE PROS AND CONS OF “BIGNESS” 270
13-10a Economies of Large Size 270
13-10b Required Scale for Innovation 270
13-11 DEREGULATION 271
13-11a The Effects of Deregulation 271
PUZZLE RESOLVED: Why Regulators Often Push Prices Upward 273

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 Table of Contents xiii

13-12 CONCLUDING OBSERVATIONS 274

Summary 274
Key Terms 275
Discussion Questions 275

Part 4 The Virtues and Limitations of Markets 277

Chapter 14 The Case for Free Markets: The Price System 279
PUZZLE: Crossing the San Francisco–Oakland Bay Bridge: Is the Price Right? 280
14-1 EFFICIENT RESOURCE ALLOCATION AND PRICING 280
14-1a Pricing to Promote Efficiency: An Example 281
14-1b Can Price Increases Ever Serve the Public Interest? 282
14-2 SCARCITY AND THE NEED TO COORDINATE ECONOMIC DECISIONS 284
14-2a Three Coordination Tasks in the Economy 284
14-2b Input-Output Analysis: The Near Impossibility of Perfect Central Planning 287
14-2c Which Buyers and Which Sellers Get Priority? 290
14-3 HOW PERFECT COMPETITION ACHIEVES EFFICIENCY: A GRAPHIC ANALYSIS 291
14-4 HOW PERFECT COMPETITION ACHIEVES OPTIMAL OUTPUT: MARGINAL ANALYSIS 294
14-4a The Invisible Hand at Work 295
14-4b Other Roles of Prices: Income Distribution and Fairness 296
14-4c Yet Another Free-Market Achievement: Growth versus Efficiency 297
POLICY DEBATE User Charges for Public Facilities 298
PUZZLE RESOLVED: San Francisco Bridge Pricing Revisited 298
14-5 TOWARD ASSESSMENT OF THE PRICE MECHANISM 299
Summary 299
Key Terms 300
Test Yourself 300
Discussion Questions 300

Chapter 15 The Shortcomings of Free Markets 301

PUZZLE: Why Are Health-Care Costs in Canada Rising? 302
15-1 WHAT DOES THE MARKET DO POORLY? 302
15-2 EFFICIENT RESOURCE ALLOCATION: A REVIEW 303
15-3 EXTERNALITIES: GETTING THE PRICES WRONG 304
15-3a Externalities and Inefficiency 304
15-3b Externalities Are Everywhere 306
15-3c Government Policy and Externalities 307
15-4 PROVISION OF PUBLIC GOODS 308
15-5 ALLOCATION OF RESOURCES BETWEEN PRESENT AND FUTURE 310
15-5a The Role of the Interest Rate 310
15-5b How Does It Work in Practice? 311
15-6 SOME OTHER SOURCES OF MARKET FAILURE 312
15-6a Imperfect Information: “Caveat Emptor” 312
15-6b Rent Seeking 312
15-6c Moral Hazard 312
15-6d Principals, Agents, and Recent Stock Option Scandals 313
15-7 MARKET FAILURE AND GOVERNMENT FAILURE 315
15-8 THE COST DISEASE OF SOME VITAL SERVICES: INVITATION TO GOVERNMENT FAILURE 316
15-8a Deteriorating Personal Services 317
15-8b Personal Services Are Getting More Expensive 317
15-8c Why Are These “In-Person” Services Costing So Much More? 318
15-8d Uneven Labor Productivity Growth in the Economy 319
15-8e A Future of More Goods but Fewer Services: Is It Inevitable? 319
15-8f Government May Make the Problem Worse 321
PUZZLE RESOLVED: Explaining the Rising Costs of Canadian Health-Care 321

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xiv Table of Contents

15-9 THE MARKET SYSTEM ON BALANCE 322

15-10 EPILOGUE: THE UNFORGIVING MARKET, ITS GIFT OF ABUNDANCE,
AND ITS DANGEROUS FRIENDS 322
Summary 323
Key Terms 324
Test Yourself 324
Discussion Questions 324

Chapter 16 Externalities, the Environment, and Natural Resources 325

PUZZLE: Those Resilient Natural Resource Supplies 325
16-1 THE ECONOMICS OF ENVIRONMENTAL PROTECTION 326
16-2 REVIEW—EXTERNALITIES: A CRITICAL SHORTCOMING OF THE MARKET
MECHANISM 326
16-2a The Facts: Is the World Really Getting Steadily More Polluted? 327
16-2b The Role of Individuals and Governments in Environmental Damage 330
16-2c Pollution and the Law of Conservation of Matter and Energy 331
16-3 BASIC APPROACHES TO ENVIRONMENTAL POLICY 333
16-3a Emissions Taxes versus Direct Controls 334
16-3b Another Financial Device to Protect the Environment: Emissions Permits 336
16-4 TWO CHEERS FOR THE MARKET 337
16-5 THE ECONOMICS OF NATURAL RESOURCES 338
16-6 ECONOMIC ANALYSIS: THE FREE MARKET AND PRICING OF DEPLETABLE
NATURAL RESOURCES 339
16-6a Scarcity and Rising Prices 339
16-6b Supply-Demand Analysis and Consumption 339
16-7 ACTUAL RESOURCE PRICES IN THE TWENTIETH CENTURY 341
16-7a Interferences with Price Patterns 342
16-7b Is Price Interference Justified? 345
16-7c On the Virtues of Rising Prices 345
PUZZLE RESOLVED: Growing Reserves of Exhaustible Natural Resources 345
Summary 346
Key Terms 346
Test Yourself 346
Discussion Questions 347

Chapter 17 Taxation and Resource Allocation 349

PUZZLE: Why Can’t We Simplify the Income Tax? 350
17-1 THE LEVEL AND TYPES OF TAXATION 350
17-1a Progressive, Proportional, and Regressive Taxes 351
17-1b Direct versus Indirect Taxes 351
17-2 THE FEDERAL TAX SYSTEM 352
17-2a The Federal Personal Income Tax 352
17-2b The Payroll Tax 353
17-2c The Corporate Income Tax 353
17-2d Excise Taxes 353
17-2e The Payroll Tax and the Social Security System 354
17-3 THE STATE AND LOCAL TAX SYSTEM 355
17-3a Sales and Excise Taxes 355
17-3b Property Taxes 355
17-3c Fiscal Federalism 355
17-4 THE CONCEPT OF EQUITY IN TAXATION 356
17-4a Horizontal Equity 356
17-4b Vertical Equity 356
17-4c The Benefits Principle 357
17-5 THE CONCEPT OF EFFICIENCY IN TAXATION 357
17-5a Tax Loopholes and Excess Burden 358

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 Table of Contents xv

17-6 SHIFTING THE TAX BURDEN: TAX INCIDENCE 359

17-6a The Incidence of Excise Taxes 360
17-6b The Incidence of the Payroll Tax 361
17-7 WHEN TAXATION CAN IMPROVE EFFICIENCY 362
17-8 EQUITY, EFFICIENCY, AND THE OPTIMAL TAX 363
PUZZLE REVISITED: Why We Can’t Simplify the Tax Code 363
Summary 364
Key Terms 365
Test Yourself 365
Discussion Questions 366

Part 5 The Distribution of Income 367

Chapter 18 Pricing the Factors of Production 369
PUZZLE: Why Does a Higher Return to Savings Reduce the Amounts Some People Save? 369
18-1 THE PRINCIPLE OF MARGINAL PRODUCTIVITY 370
18-2 INPUTS AND THEIR DERIVED DEMAND CURVES 371
18-3 INVESTMENT, CAPITAL, AND INTEREST 372
18-3a The Demand for Funds 374
18-3b The Downward-Sloping Demand Curve for Funds 375
PUZZLE RESOLVED: The Supply of Funds 376
18-3c The Issue of Usury Laws: Are Interest Rates Too High? 376
18-4 THE DETERMINATION OF RENT 377
18-4a Land Rents: Further Analysis 378
18-4b Generalization: Economic Rent Seeking 380
18-4c Rent as a Component of an Input’s Compensation 381
18-4d An Application of Rent Theory: Salaries of Professional Athletes 382
18-4e Rent Controls: The Misplaced Analogy 382
18-5 PAYMENTS TO BUSINESS OWNERS: ARE PROFITS TOO HIGH OR TOO LOW? 383
18-5a What Accounts for Profits? 384
18-5b Taxing Profits 386
18-6 CRITICISMS OF MARGINAL PRODUCTIVITY THEORY 386
Summary 387
Key Terms 388
Test Yourself 388
Discussion Questions 388

APPENDIX Discounting and Present Value 389

Summary 390
Key Term 390
Test Yourself 390

Chapter 19 Labor and Entrepreneurship: The Human Inputs 391

19-1 THE MARKETS FOR LABOR 391
PUZZLE: Entrepreneurs Earn Less Than Most People Think—Why So Little? 392
19-2 WAGE DETERMINATION IN COMPETITIVE MARKETS 393
19-2a The Demand for Labor and the Determination of Wages 394
19-2b Influences on MRPL: Shifts in the Demand for Labor 394
19-2c Technical Change, Productivity Growth, and the Demand for Labor 395
19-2d The Service Economy and the Demand for Labor 395
19-3 THE SUPPLY OF LABOR 396
19-3a Rising Labor-Force Participation 397
19-3b An Important Labor Supply Conundrum 397
19-3c The Labor Supply Conundrum Resolved 399

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xvi Table of Contents

19-4 WHY DO WAGES DIFFER? 400

19-4a Labor Demand in General 400
19-4b Labor Supply in General 401
19-4c Investment in Human Capital 401
19-4d Teenagers: A Disadvantaged Group in the Labor Market 401
19-5 UNIONS AND COLLECTIVE BARGAINING 402
19-5a Unions as Labor Monopolies 403
19-5b Monopsony and Bilateral Monopoly 405
19-5c Collective Bargaining and Strikes 405
19-6 THE ENTREPRENEUR: THE OTHER HUMAN INPUT 406
19-7 THE MARKET ECONOMY’S INCREDIBLE GROWTH RECORD 407
19-8 SOURCES OF FREE-MARKET INNOVATION: THE ROLE OF THE ENTREPRENEUR 407
19-8a Breakthrough Invention and the Entrepreneurial Firm 408
19-9 ENTREPRENEURSHIP AND GROWTH 409
19-9a The Entrepreneur’s Prices and Profits 409
19-9b Fixed Costs and Public Good Attributes in Invention and Entrepreneurship 410
19-9c Discriminatory Pricing of an Innovative Product over Its Life Cycle 411
19-9d Negative Financial Rewards for Entrepreneurial Activity? 412
PUZZLE RESOLVED: Why Are Entrepreneurial Earnings Surprisingly Low? 413
19-10 INSTITUTIONS AND THE SUPPLY OF INNOVATIVE ENTREPRENEURSHIP 414
Summary 415
Key Terms 416
Test Yourself 417
Discussion Questions 417

Chapter 20 Poverty, Inequality, and Discrimination 419

ISSUE: Were the Bush Tax Cuts Unfair? 419
20-1 THE FACTS: POVERTY 420
20-1a Counting the Poor: The Poverty Line 420
20-1b Absolute versus Relative Poverty 421
20-2 THE FACTS: INEQUALITY 422
20-3 SOME REASONS FOR UNEQUAL INCOMES 424
20-4 THE FACTS: DISCRIMINATION 426
20-5 THE TRADE-OFF BETWEEN EQUALITY AND EFFICIENCY 426
20-6 POLICIES TO COMBAT POVERTY 428
20-6a Education as a Way Out 428
20-6b The Welfare Debate and the Trade-Off 429
20-6c The Negative Income Tax 430
20-7 OTHER POLICIES TO COMBAT INEQUALITY 431
20-7a The Personal Income Tax 431
20-7b Death Duties and Other Taxes 431
20-8 POLICIES TO COMBAT DISCRIMINATION 431
POLICY DEBATE Should Affirmative Action Be Abolished? 432
20-9 A LOOK BACK 433
Summary 433
Key Terms 434
Test Yourself 434
Discussion Questions 434

APPENDIX The Economic Theory of Discrimination 434

Discrimination by Employers 434
Discrimination by Fellow Workers 435
Statistical Discrimination 435
The Roles of the Market and the Government 436
Summary 436
Key Term 436

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 Table of Contents xvii

Part 6 The United States in the World Economy 437

Chapter 21 International Trade and Comparative Advantage 439
ISSUE: How Can Americans Compete with “Cheap Foreign Labor”? 439
21-1 WHY TRADE? 440
21-1a Mutual Gains from Trade 441
21-2 INTERNATIONAL VERSUS INTRANATIONAL TRADE 442
21-2a Political Factors in International Trade 442
21-2b The Many Currencies Involved in International Trade 442
21-2c Impediments to Mobility of Labor and Capital 442
21-3 THE LAW OF COMPARATIVE ADVANTAGE 443
21-4 THE ARITHMETIC OF COMPARATIVE ADVANTAGE 443
21-4a The Graphics of Comparative Advantage 444
21-4b Must Specialization Be Complete? 447
ISSUE REVISITED: Comparative Advantage Exposes the “Cheap Foreign Labor” Fallacy 447
21-5 TARIFFS, QUOTAS, AND OTHER INTERFERENCES WITH TRADE 448
21-5a Tariffs versus Quotas 449
21-6 WHY INHIBIT TRADE? 450
21-6a Gaining a Price Advantage for Domestic Firms 450
21-6b Protecting Particular Industries 450
21-6c National Defense and Other Noneconomic Considerations 451
21-6d The Infant-Industry Argument 452
21-6e Strategic Trade Policy 452
21-7 CAN CHEAP IMPORTS HURT A COUNTRY? 453
ISSUE RESOLVED: Last Look at the “Cheap Foreign Labor” Argument 454
Summary 455
Key Terms 456
Test Yourself 456
Discussion Questions 456

APPENDIX Supply, Demand, and Pricing in World Trade 457

How Tariffs and Quotas Work 458
Summary 459
Test Yourself 459

Chapter 22 Is U.S. Economic Leadership Threatened? 461

ISSUE: Is America Past Its Prime? Two Economists Debate the Prospects for Future U.S. Growth 461
22-1 PRODUCTIVITY GROWTH 462
22-2 ENTREPRENEURSHIP 463
22-3 INNOVATION 464
22-4 THE BUDGET DEFICIT AND PUBLIC DEBT 465
22-5 THE TRADE DEFICIT 466
22-6 HEALTH CARE 467
22-7 EDUCATION 468
22-8 POVERTY AND INEQUALITY 469
22-9 CONCLUSIONS: MIXED PROSPECTS FOR FUTURE U.S. GROWTH 471
Summary 472
Key Terms 472
Test Yourself 472
Discussion Questions 472

APPENDIX: Answers to Odd-Numbered Test Yourself Questions 473

Glossary 483

Index 493

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PREFACE

I
t can be argued that, from the point of view of the general welfare, there are two topics
of primary importance in economics. One is the analysis of recessions and depres-
sions, with the unemployment and general impoverishment they bring. The second
is economic growth and rising productivity, which, in the long run, is the way to reduce
poverty in our country and throughout the world.
In earlier editions of this book, before the problems stemming from the recent, ter-
rible worldwide economic crisis claimed the spotlight, the new materials that we added
focused more on the growth issue. We discussed, for example, the microeconomic roles
of innovation and entrepreneurship, offering far more material on these issues than any
other textbook in the field.
Then, for two editions, the biggest changes came in the macroeconomic portions of
the book, especially the parts relevant to understanding the financial crisis and the Great
Recession of 2007–2009. Those changes remain in this thirteenth edition—including the
abandonment, almost unique among principles books, of pretending that there is only
one interest rate (“the interest rate”). Instead, we explain and discuss the implications of
having many different interest rates, based on differential risk.
The biggest innovation in this thirteenth edition is a brand new chapter (Chapter 22)
that appraises the strengths and weaknesses of America’s economy in relation to those
of other nations—both now and in the future. As is common when things go wrong,
there have been many claims in recent years that America is slipping or has lost its way.
Chapter 22 attempts to separate truth from fiction in that regard, focusing on what the
facts and the relevant economic theory can tell us.
As usual, this revision includes literally hundreds of small changes to improve clarity
of exposition and especially to update the text material—both for relevant advances in
economics and for recent events, particularly the aftermath of the Great Recession—which
continues to play out day by day. In the microeconomic sections of the book, we have
added ample new material in response to requests by survey respondents. For example,
we have updated our coverage of the new health-care reform in Chapter 15.

NOTE TO THE STUDENT

May we offer a suggestion for success in your economics course? Unlike some of the other
subjects you may be studying, economics is cumulative: Each week’s lesson builds on
what you have learned prior to that. You will save yourself a lot of frustration—and a lot
of work—by keeping up on a week-to-week basis.
To assist you in doing so, we provide a chapter summary, a list of important terms and
concepts, a selection of questions to help you review the contents of each chapter, as well
as the answers to odd-numbered Test Yourself questions. Making use of these learning
aids will help you to master the material in your economics course. For additional assis-
tance, we have prepared student supplements to help in the reinforcement of the concepts
in this book and provide opportunities for practice and feedback.
The following list indicates the ancillary materials and learning tools that have been
designed specifically to be helpful to you. If you believe any of these resources could
benefit you in your course of study, you may want to discuss them with your instructor.
Further information on these resources is available at www.cengagebrain.com.

xviii

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 Preface xix

To access additional course materials and companion resources, please visit

www.cengagebrain.com. At the CengageBrain.com home page, search for the ISBN of
your title (from the back cover of your book) using the search box at the top of the page.
This will take you to the product page where free companion resources can be found.
We hope our book is helpful to you in your study of economics and welcome your com-
ments or suggestions for improving student experience with economics. Please write to
us in care of Baumol and Blinder, Editor for Economics, Cengage Learning, 5191 Natorp
Boulevard, Mason, Ohio, 45040, or through the book’s website at www.cengagebrain.com.

MindTap
MindTap is a personalized teaching experience with relevant assignments that guide
students to analyze, apply, and improve thinking, allowing you to measure skills and
outcomes with ease.
• Personalized Teaching: Becomes yours with a Learning Path that is built with key
student objectives. Control what students see and when they see it. Use it as-is
or match to your syllabus exactly—hide, rearrange, add, and create your own
content.
• Guide Students: A unique learning path of relevant readings, multimedia, and
activities that move students up the learning taxonomy from basic knowledge
and comprehension to analysis and application.
• Promote Better Outcomes: Empower instructors and motivate students with ana-
lytics and reports that provide a snapshot of class progress, time in course, and
engagement and completion rates.

Aplia
Aplia saves instructors valuable time they would otherwise spend on routine grading
while giving students an easy way to stay on top of coursework with regularly scheduled
assignments. Currently, Aplia supports college-level courses and has been used by more
than 1,000,000 students at over 1,300 institutions. Aplia’s economics students use interac-
tive chapter assignments, tutorials, news analyses, and experiments to make economics
relevant and engaging. Math and graphing tutorials help students overcome deficiencies
in these crucial areas. Economics articles from top news sources challenge students to
connect current events to course concepts.
End of Chapter and traditional homework problem sets allow students to work through
the economic concepts they have learned in each chapter. Students can choose to "Grade It
Now” on a homework problem and will receive instant feedback whether an answer is cor-
rect or incorrect. Students can then choose to complete another problem to test themselves
on the same concept with randomization. Aplia End of Chapter will also be mobile enabled.

IN GRATITUDE
Finally, we are pleased to acknowledge our mounting indebtedness to the many people
who have generously helped us in our efforts through the history of this book. We often
have needed assistance in dealing with some of the many subjects that an introductory
textbook must cover. Our friends and colleagues Dean Alderucci, New York University;
Rebecca Blank, University of Michigan; Gregory Chow, Princeton University; Avinash Dixit,
Princeton University; Susan Feiner, University of Southern Maine; Claudia Goldin, Harvard
University; Ronald Grieson, University of California, Santa Cruz; Daniel Hamermesh,

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xx Preface

University of Texas; Yuzo Honda, Osaka University; Peter Kenen, Princeton University; Melvin
Krauss, Stanford University; Herbert Levine, University of Pennsylvania; Burton Malkiel,
Princeton University; Edwin Mills, Northwestern University; Janusz Ordover, New York
University; David H. Reiley Jr., University of Arizona; Uwe Reinhardt, Princeton University;
Harvey Rosen, Princeton University; Joseph Seneca, Rutgers University; William Silber, New
York University; Laura Tyson, University of California, Berkeley; Martin Weitzman, Harvard
University; and Lawrence White, New York University have all given generously of their
knowledge in particular areas over the course of 13 editions. We have learned much from
them and have shamelessly relied on their help.
Economists and students at colleges and universities other than ours offered numerous
useful suggestions for improvements, many of which we have been incorporated into this
thirteenth edition. We wish to thank the following for their insightful reviews:

Marco Airaudo, Drexel University Alex Gialanella, Iona College

Rahsan Akbulut, California State Dan Giedeman, Grand Valley State
University–Fullerton University
Onur Akmehmet, Tufts University Chris Gingrich, Eastern Mennonite
Steven Antler, Roosevelt University University
Muhammad Anwar, Framingham State Tuncer Gocmen, Shepherd University
& University of Massachusetts–Lowell Ann Goldman, San Francisco State
Mohsen Bahmani-Oskooee, University of University
Wisconsin–Milwaukee Barbara Good, Ursuline College
Jeffrey Baird, The Ohio State University Lyndon Goodridge, University of New
Damyana Bakardzhieva, George Hampshire
Washington University Kimberly Goudy, Central Ohio Technical
James Bang, Virginia Military Institute College
Nimfa Bemis, University of Southern John Gregor, Washington & Jefferson College
California Richard Grossman, Wesleyan University
Charles Braymen, Kansas State University Patrycja Grzelonska, Yeshiva University
Morgan Bridge, Mesa State College Homan Hajiran, Wheeling Jesuit University
Raymonda Burgman, DePauw University William Hart, Miami University
Scott Carson, University of Texas–Permian Martha Hensley, University of Kansas
Basin Peng Huang, Ripon College
Aspi Contractor, De Anza College Amy Ickowitz, Clark University
Jim Couch, University of North Alabama Christos Ioannou, University of
Elizabeth Crowell, University of Southampton
Michigan–Dearborn Brian Kench, The University of Tampa
Christopher Dabbs, Wallace Community Kil-Joong Kim, Austin Peay State
College Selma University
Norm Dalsted, Colorado State University Sharmila King, University of the Pacific
David Danning, University of Massachusetts Dave Kingsley, University of
Maria Davis, Indian River State College Massachusetts– Lowell
Pierangelo De Pace, Pomona College Richard Kramer, New England College
Juan J. DelaCruz, Lehman College–CUNY Ganesh Krishnan, Metropolitan State
& FIT–SUNY University
Mine Aysen Doyran, Lehman College–CUNY Michael Kuryla, Broome Community
Kevin Egan, University of Toledo College–SUNY
Mona El Shazly, Columbia College Gary Langer, Roosevelt University
Mahmoud Elamin, University of Minnesota June Lapidus, Roosevelt University
Layton Franko, Queens College Frederic Lerner, New York University
Denise Froning, Community College of Zhen Li, Albion College
Aurora Tony Lima, California State University–
Shailendra Gajanan, University of East Bay
Pittsburgh Christine Loucks, Boise State University
Claudia Garcia, Santa Monica College Angelo Luciano, Columbia College–Chicago

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 Preface xxi

David Lui, East Los Angeles College Geetha Rajaram, Whittier College
Kristina Lybecker, Colorado College Taghi Ramin, William Paterson University
Brian Lynch, Lake Land College Kolleen Rask, College of the Holy Cross
Leah Marcal, California State University, Artatrana Ratha, St. Cloud State University
Northridge Jim Rathwell, Tri-County Technical College
Cynthia Mayo, J. Sargeant Reynolds Wendy Rayack, Wesleyan University
Community College Michael Roberts, North Carolina State
John Mukum Mbaku, Weber State University University
Erika McGrath, California State University Malcolm Robinson, Thomas More College
Monterey Bay Cliff Rochlin, Loyola Marymount
Alice Melkumian, Western Illinois University
University Juliette Roddy, University of Michigan
Carrie Meyer, George Mason University Dearborn
Ida Mirzaie, The Ohio State University Duane Rosa, West Texas A&M University
Rashida Mohd Rowther, Northern Virginia Matthew Rousu, Susquehanna University
Community College Neil Sheflin, Rutgers New Brunswick
Stephen Mullin, Drexel University Ian Shepherd, Abilene Christian University
David Murphy, Boston College Robert Shoffner, Central Piedmont
Kevin Neuman, University of Wisconsin– Community College
Stevens Point Gary Smith, Pomona College
Eric Nilsson, California State University– Paul Sommers, Seattle University
San Bernardino Blake Sorem, Pierce College
David O’Hara, Metropolitan State University Michael Steinberger, Pomona College
Maria Pia Olivero, Drexel University Josh Stillwagon, University of New
Martha Olney, University of California Hampshire
Berkeley Carolyn Stumph, Indiana University–
Wafa Orman, University of Alabama– Purdue University Fort Wayne
Huntsville Eric Taylor, Central Piedmont Community
Samir Ouanes, Metro State University College
Orgul Ozturk, University of South Carolina Erdal Tekin, Georgia State University
Mercy Palamuleni, Kansas State University Mike Urbancic, University of California
Claudia Parliament, University of Minnesota Berkeley
Peter Pasqualino, Fulton–Montgomery Kristin Van Gaasbeck, California State
Community College University–Sacramento
Andrew Pearlman, Bard College Abu Wahid, Tennessee State University
Ragan Petrie, George Mason University Janice Weaver, Drake University
Barbara Phipps, University of Kansas Cathy Whiting, Willamette University
James Polito, Marian University Chiou-nan Yeh Yeh, Alabama State
Jennie Popp, University of Arkansas University
Gregrory Price, Morehouse College Ali Zadeh, Susquehanna University
Michael Rabbitt, Johnson County Madeline Zavodny, Agnes Scott College
Community College Xinfu Zhu, Inver Hills Community College

Obviously, the book you hold in your hands was not produced by us alone. In revising
the thirteenth edition, a special role was played by Baumol’s in-office editor, Anne Noyes
Saini, who skillfully edited, researched, and refreshed data and information throughout
the book. It is probably true that Baumol could not have done it without her.
We also appreciate the contribution of the staff at Cengage Learning, including
Michael Worls, Product Manager; Michael Parthenakis, Senior Product Manager; John
Carey, Senior Marketing Manager; Jennifer E. Thomas, Product Development Manager;
Leah G. Wuchnick, Associate Content Developer; Colleen A. Farmer, Senior Content
Project Manager; Sarah Blasco, Media Developer; Michelle Kunkler, Senior Art Director;
Jennifer Nonenmacher, Intellectual Property Analyst; and Kevin Kluck, Manufacturing
Planner. It was a pleasure to work with them, and we appreciate their understanding
of our approaches, our goals, and our idiosyncrasies. We also thank our intelligent and

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xxii Preface

delightful assistants at Princeton University and New York University, Kathleen Hurley
and Janeece Roderick Lewis, who struggled successfully with the myriad of tasks
involved in completing the manuscript.
And, finally, we must acknowledge—with joy—our continuing debt to our wives,
Hilda Baumol and Madeline Blinder. They have now suffered through 13 editions and the
inescapable neglect and distraction the preparation of each new edition imposes. Their
tolerance and understanding have been no minor contribution to the project.

William J. Baumol
Alan S. Blinder

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Other documents randomly have
different content
But, bee not of this last, of all the rest.
 Pursue thy Workes, without delay,
For, thy short houres runne fast away.

Illvstr. IIII. Book. 4

 Hough this bee but the picture of that Glasse,
By which thou measur'st how thine houres doe
passe,
Yet, sleight it not; for, much 'twill profit thee,
To ponder what the Morals of it bee.
And, 'tis an Emblem, whence the Wise may learne,
That, which their persons, neerely doth concerne.
The brittle Glasse, serves fitly to expresse
The Bodie's frailtie, and much crasinesse.
Foure Pillars, which the glassie worke empale,
Instruct thee, that the Vertues Cardinall,
To guard the Manhood, should bee still employ'd,
Lest else the feeble fabrick bee destroy'd.
The Sand, still running forth, without delay,
Doth shew, that Life-time, passeth fast away,
And, makes no stop: yea, and the Motto too,
(Lest thou forgetfull prove) informes thee so.
By viewing this, Occasion, therefore, take,
Of thy fast-flying Houres, more use to make;
And, heedfull bee, to shunne their common crime,
Who take much care to trifle out the time;
As if it merited their utmost paine,
To lose the gemme, which most they seeke to gaine.
Time-past is lost already: Time-to-come,
Belongs, as yet, thou knowst not unto whom.
The present-houres are thine, and, onely those,
Of which thou hast Commission to dispose;
And, they from thee, doe flye away so fast,
That, they are scarcely knowne, till they are past.
Lord, give mee grace, to minde, and use Time so,
That, I may doe thy worke, before I goe.
 Repent, or God will breake the thread,
By which, thy doome hangs o're thy head.

Illvstr. V. Book. 4
 Arke well this Emblem; and, (when in a thread,
You see the Globe, there, hang above their
head,
Who in securitie, beneath it sit)
Observe likewise, the Knife, that threatens it;
The smallnesse of the Twine; and, what a death
Would follow, should it fall on those beneath:
And (having well observ'd it) mind, I pray,
That, which the word about it, there, doth say:
For, it includes a Caveat, which wee need
To entertaine, with a continuall heed.
Though few consider it, wee finde it thus
(Throughout our lives) with ev'ry one of us.
Destruction hangeth in a single thread,
Directly over every Sinner's head.
That Sentence is gone forth, by which wee stand
Condemn'd to suffer death. The dreadfull hand,
Of God's impartiall Iustice, holds a Knife,
Still ready, to cut off our thread of life;
And, 'tis his mercie, that keepes up the Ball
From falling, to the ruine of us all.
Oh! let us minde, how often wee have bin,
Ev'n in the very act of Deadly-sinne,
Whilst this hung over us; and, let us praise,
And love him, who hath yet prolong'd our dayes:
Yea, let our thankfulnesse, bring forth such fruit,
As, to the benefit may somewhat suit:
For, though a sudden-Death may not ensue,
Yet, (since Times Axe, doth every minute hew
The Root of Life) the Tree, e're long, must fall;
And, then perhaps, too late, repent wee shall.
 When woe is in our selves begun,
Then, whither from it, can wee run?

Illvstr. VI. Book. 4

 Oore Hart, why dost thou run so fast? and why,
Behind thee dost thou looke, when thou dost
fly?
As if thou seem'dst in thy swift flight, to heare
Those dangers following thee, wch thou dost feare?
Alas! thou labour'st, and thou runn'st in vaine,
To shunne, by flight, thy terrors, or thy paine;
For, loe, thy Death, which thou hast dreaded so,
Clings fast unto thee, wheresoere thou goe:
And while thou toyl'st, an outward-ease to win,
Thou draw'st thine owne destruction further in;
Making that Arrow, which but prickes thy hide,
To pierce thy tender entrailes, through thy side.
And, well I may this wounded Hart bemoane;
For, here, me thinkes, I'm taught to looke upon
Mine owne condition; and, in him, to see
Those deadly wounds, my Sinnes have made in mee.
I greatly feare the World, may unawares
Intangle mee, by her alluring snares:
I am afraid, the Devill may inject
Some poys'nous fume, my Spirit to infect,
With ghostly Pestilence; and, I assay,
To flie from these, with all the pow'rs I may.
But, oh my Flesh! this very Flesh I weare,
Is worse to mee, than Worlds, and Devils are:
For, without this, no pow'r on mee, they had.
This is that Shirt, which made Alcides mad.
It is a griefe, which I shall never cure,
Nor flie from, whilst my life-time doth endure:
From thence, oh Lord, my greatest sorrowes bee;
And, therefore, from my Selfe, I flie to Thee.
 When Magistrates confined are,
They revell, who were kept in feare.

Illvstr. VII. Book. 4

 Tyrannous, or wicked Magistrat,
Is fitly represented by a Catt:
For, though the Mice a harmfull vermine bee,
And, Cats the remedie; yet, oft wee see,
That, by the Mice, far lesse, some house-wives leese,
Then when they set the Catt to keepe the Cheese.
A ravenous Cat, will punish in the Mouse,
The very same Offences, in the house,
Which hee himselfe commits; yea, for that Vice,
Which was his owne (with praise) he kills the Mice;
And, spoyleth not anothers life alone,
Ev'n for that very fault which was his owne,
But feeds, and fattens, in the spoyle of them,
Whom hee, without compassion did condemne.
Nay, worse than so; hee cannot bee content,
To slaughter them, who are as innocent,
As hee himselfe; but, hee must also play,
And sport his wofull Pris'ners lives away;
More torturing them, 'twixt fruitlesse hopes and feares,
Than when their bowels, with his teeth he teares:
For, by much terrour, and much crueltie,
Hee kills them, ten times over, e're they die.
When, such like Magistrates have rule obtain'd,
The best men wish their powre might be restrain'd:
But, they who shun enormities, through Feare,
Are glad when good-men out of Office are.
Yea, whether Governours bee good or bad,
Of their displacings wicked-men are glad;
And, when they see them brought into disgraces,
They boldly play the Knaves before their faces.
Loe, heere is all, that bee possest,
Which once was Victor of the East.

Illvstr. VIII. Book. 4

 Hen hee, who by his conquering Arme, possest
The rich, and spacious Empires of the East,
Felt his approaching end; he bade them beare
A Shirt throughout his Armie, on a Speare,
Proclaiming, that of all his large estate,
No more was left him, then, but only that:
Perhaps intending, thereby, to expresse,
A sorrow for his wilde Ambitiousnesse;
Or, hoping, by that Spectacle, to give
Some good Instructions unto those that live.
However, let it serve us, to declare,
How vaine their toylings, and ambitions are,
Who rob themselves, and other men of rest,
For things that are so little while possest.
And, if that powerfull King, could nothing have,
That was of use, to carry to his Grave,
(Of all his conquered Kingdomes) but, one Shirt,
Or, Winding sheet, to hide his Royall durt;
Why should we pinch, and scrape, and vext become,
To heap up Riches, for we know not whom?
Or, macerate the Flesh, by raising strife,
For more, than will bee usefull during life?
Nay, ev'n for that, which sometimes shortens breath,
And makes us, also, wretched after Death.
Let mee, oh God! my labour so employ,
That, I, a competencie may enjoy.
I aske no more, than may Lifes want supply,
And, leave their due to others, when I die.
If this thou grant, (which nothing doubt I can)
None ever liv'd, or dy'd a richer man.
When Hopes, quite frustrate were become,
The Wither'd-branch did freshly bloome.

Illvstr. IX. Book. 4

 'is true, a wither'd-branch I am, and seeme
To some, as voyd of Hopes, as of esteeme;
For, in their judgements, I appeare to be
A saplesse Bough, quite broken from the Tree,
(Ev'n such as that, in this our Emblem, here)
And, yet, I neither feele Despaire, nor Feare;
For, I have seene (e're now) a little Spray,
(Rent from her Stemme) lye trodden by the way,
Three moneths together; which, when Spring drew on,
To take an unexpected Root begun;
(Yea, grew to bee a Tree) and, growing, stood,
When those great Groves, were fell'd for firing-wood,
Which once had high esteeme; and sprung unhurt,
While that poore Branch, lay sleighted in the durt.
Nay, I have seene such twiggs, afford them shade,
By whom they were the meanest shrippings made,
Of all the Wood; And, you may live to see,
(For ought yet knowne) some such event in mee.
And, what if all who know mee, see me dead,
Before those hopes begin to spring and spread?
Have therefore they that hate me, cause to boast,
As if mine expectations I had lost?
No sure: For, I, who by Faith's eyes have seene,
Old Aarons wither'd Rod grow fresh and greene;
And also viewed (by the selfe-same Eyes)
Him, whom that Rod, most rightly typifies,
Fall by a shamefull Death, and rise, in spight
Of Death, and Shame, unto the glorioust height.
Ev'n I, beleeve my Hope shall bee possest,
And, therefore, (ev'n in Death) in Hope I'le rest.
 True Vertue, whatsoere betides,
In all extreames, unmoov'd abides.

Illvstr. X. Book. 4
 Hen, in this Emblem, here, you have espide,
The shape of a triangled Pyramide,
And, have observed well, those mightie Rockes,
Whose firme foundation bides the dreadfull shockes
Of angry Neptune; you may thereby see,
How firmly setled, Vertues reall bee.
For, as the raging Seas, although they roare,
Can make no breach upon the Rockie shore;
And, as a true triangled Pyramide,
Stands fast, and shewes alike, on ev'ry side:
So, howsoever Fortune, turnes or winds,
Those men, which are indow'd with vertuous minds,
It is impossible, to drive them from
Those Formes, or Stations, which those minds become.
And, as the raging Sea, with foming threats,
Against the Rockie-shore, but vainely beats;
So, Envie shall in vaine, loud blustrings make,
When vertuous resolutions they would shake.
For, Vertue, which receives an overthrow,
Was Vertue, not indeed, but in the show.
So farre am I, oh Lord! from laying claime
To have this Vertue, that, I doe but ayme
At such perfection; and, can come no nigher
As yet, than to obtaine it in desire.
But, fixe thou so, this weake desire of mine,
Vpon the Vertues of thy Rocke divine,
That I, and that invaluable Stone,
May bee incorporated into One:
And, then, it will bee neither shame, nor pride,
To say, my Vertues, will unmov'd abide.
The motion of the World, this day,
Is mov'd the quite contrarie way.

Illvstr. XI. Book. 4

 Hat was this Figures meaning, but to show,
That, as these kinde of Shell-fish backward goe,
So now the World, (which here doth seeme to
take
An arseward Iourney on the Cancer's backe)
Moves counterwise; as if delight it had,
To runne a race, in Courses retrograde:
And, that, is very likely to be true,
Which, this our Emblem, purposeth to shew.
For, I have now, of late, not onely seene,
What backward motions, in my Friends have beene;
And, that my outward Fortunes and Affaires,
Doe of themselves, come tumbling downe the staires:
But, I have also found, that other things,
Have got a wheeling in contrary Rings;
Which Regresse, holding on, 'tis like that wee,
To Iewes, or Ethnicks, backe shall turned bee.
Some punie Clerkes, presume that they can teach
The ancient holy Doctors, how to preach.
Some Laicks, learne their Pastors how to pray.
Some Parents, are compelled to obay
Their Sonnes; and, so their Dignitie to lose,
As to be fed and cloth'd, at their dispose.
Nay, wee have some, who have assay'd to draw,
All backward, to the Bondage of the Law;
Ev'n to those abrogated Rites and Dayes,
By which, the wandring Iew markes out his wayes.
And, to pursue this Round, they are so heady,
That, they have made themselves, and others giddy.
Doe then, these froward Motions, Lord, restraine,
And, set the World in her due course againe.
 Invincibilitie is there,
Where Order, Strength, and Vnion are.

Illvstr. XII. Book. 4

 Rom these well-order'd Arrowes, and the
Snake,
This usefull Observation you may make;
That, where an able Prudence, doth combine
Vnited-forces, by good Discipline,
It maketh up a pow'r, exempted from
The feare, or perill, to be overcome:
And, if you covet safetie, you will seeke
To know this Ward, and to acquire the like.
For, doubtlesse, neither is it in the force,
Of iron Charets, or of armed Horse,
In which, the King, securitie may finde,
Unlesse the Riders bee well Disciplinde.
Nor, lyes it in the Souldiers common Skill
In warlike Postures; nor in theirs, who drill
The Rankes and Fyles, to order them aright,
According as Occasion makes the Fight.
But, men must use a further Prudence too,
Or else, those vulgar-Arts will all undoe.
For, these, are onely Sciences injoynd,
To order well the Body, not the Mind:
And, men best train'd in these (oft times) we see,
The Hare-brain'dst-fooles, in all our Armies bee.
To strength, and skill, unite we must, therefore,
A manly Prudence, comprehending more,
Than all these Powr's: ev'n such, as when shee please,
To all her ends, can use and mannage these;
And, shew us how to cure, or to prevent
All HaZards; or, withall to bee content.
Hee that's thus arm'd, and trusts in God alone,
May bee oppos'd, but, conquered of none.
When thou art shipwrackt in Estate,
Submit with patience, unto Fate.

Illvstr. XIII. Book. 4

 Hen I beheld this Picture of a Boat,
(Which on the raging Waves doth seeme to
float)
Forc'd onward, by the current of the Tide,
Without the helpe of Anchor, Oare or Guide,
And, saw the Motto there, which doth imply,
That shee commits her selfe to Destinie;
Me thinkes, this Emblem sets out their estate,
Who have ascribed ev'ry thing to Fate;
And dreame, that howsoe're the businesse goe,
Their Worke, nor hinders, neither helpes thereto.
The leaking Ship, they value as the sound:
Hee that's to hanging borne, shall ne're bee drown'd;
And, men to happinesse ordain'd (say these)
May set their Ship to float, as Fate shall please.
This Fancie, springing from a mis-beleeving
Of God's Decrees; and, many men deceiving,
With shewes of Truth, both causeth much offence
Against God's Mercies, and his Providence;
And brings to passe, that some to ruine runne,
By their neglect of what they might have done.
For, Meanes is to bee us'd, (if wee desire,
The blessing of our safetie to acquire)
Whose naturall effects, if God deny,
Vpon his Providence wee must relye,
Still practising what naturall aydes may bee,
Vntill no likely ayd untride wee see.
And, when this Non plus wee are forc'd unto,
Stand still, wee may, and wayt what God will do.
Hee that shall thus to Fate, his fortunes leave,
Let mee bee ruin'd, if Shee him deceive.
The best, and fairest House, to mee,
Is that, where best I love to bee.

Illvstr. XIV. Book. 4