DK LONDONPROJECT ART EDITORSAnna Hall, Duncan TurnerSENIOR EDITORSJanet Mohun, Rebecca WarrenEDITORLizzie MunseyUS EDITORKate JohnsenMANAGING ART EDITORMichelle BaxterMANAGING EDITORCamilla HallinanPUBLISHERSarah LarterART DIRECTORPhilip OrmerodASSOCIATE PUBLISHING DIRECTORLiz WheelerPUBLISHING DIRECTORJonathan MetcalfILLUSTRATIONSJames GrahamPICTURE RESEARCHLouise ThomasPRODUCTION EDITORBen MarcusPRODUCTION CONTROLLERSophie Argyrisoriginal styling bySTUDIO8 DESIGNDK DELHISENIOR ART EDITORIvy RoyART EDITORArijit GangulyASSISTANT ART EDITORSSanjay Chauhan, Kanika MittalCONSULTANT ART DIRECTORShefali UpadhyaySENIOR EDITORAnita KakarEDITORSRupa Rao, Priyaneet SinghDEPUTY MANAGING EDITORAlka ThakurEDITORIAL MANAGERRohan SinhaDTP MANAGERBalwant SinghDTP DESIGNERSVishal Bhatia, Bimlesh Tiwaryproduced for DK byTALLTREE LTDMANAGING EDITORDavid JohnCOMMISSIONING EDITORSarah TomleySENIOR DESIGNERBen RuoccoSENIOR EDITORSRob Colson, Deirdre HeadonFirst American Edition, 2012Published in the United States byDK Publishing375 Hudson StreetNew York, New York 1001407 08 09 10 11 10 9 8 7 6 5 4 3 2 1001 - 186345 - Sep/2012Copyright © 2012Dorling Kindersley LimitedAll rights reserved.Without limiting the rights undercopyright reserved above, no part ofthis publication may be reproduced,stored in or introduced into a retrievalsystem, or transmitted, in any form, orby any means (electronic, mechanical,photocopying, recording, or otherwise),without the prior written permissionof both the copyright owner and theabove publisher of this book.Published in Great Britain byDorling Kindersley Limited.A catalog record for this book is availablefrom the Library of Congress.ISBN: 978-0-7566-9827-0DK books are available at specialdiscounts when purchased in bulkfor sales promotions, premiums,fund-raising, or educational use.For details, contact: DK PublishingSpecial Markets, 375 Hudson Street,New York, New York 10014 orSpecialSales@dk.com.Printed and bound in Chinaby Leo Paper Products LtdDiscover more atwww.dk.comLONDON, NEW YORK, MELBOURNE,MUNICH, AND DELHI NIALL KISHTAINY, CONSULTANT EDITORNiall Kishtainy teaches at the London School ofEconomics and specializes in economic history anddevelopment. He has worked for the World Bank andthe United Nations Economic Commission for Africa.GEORGE ABBOTGeorge Abbot is an economist who worked in 2012 onBarack Obama’s presidential reelection campaign. Hepreviously worked with Compass, the influential UKthink tank, on strategic documents such as Plan B:A New Economy for a New Society.JOHN FARNDONJohn Farndon is the author of many books oncontemporary issues and the history of ideas,including overviews of the booming economiesof China and India.FRANK KENNEDYFrank Kennedy worked for over 25 years ininvestment banking in the City of London as atop-ranked investment analyst and as a managingdirector in capital markets, where he led a Europeanteam advising financial institutions. He studiedeconomic history at the London School of Economics.JAMES MEADWAYEconomist James Meadway works at the NewEconomics Foundation, an independent Britishthink tank. He has also worked as a policy adviserfor the UK Treasury.CHRISTOPHER WALLACEChristopher Wallace is Head of Economicsat the UK’s prestigious Colchester Royal GrammarSchool. He has been teaching economics for morethan 25 years.MARCUS WEEKSMarcus Weeks studied philosophy and worked as ateacher before embarking on a career as an author.He has contributed to many books on the arts andpopular sciences.CONTRIBUTORS 10 INTRODUCTIONLET THE TRADINGBEGIN400 BCE–1770 CE20 Property should beprivate Property rights22 What is a just price?Markets and morality24 You don’t need to barterwhen you have coinsThe function of money26 Make money from moneyFinancial services30 Money causes inflationThe quantity theory of money34 Protect us fromforeign goodsProtectionism and trade36 The economy can becounted Measuring wealth38 Let firms be tradedPublic companies39 Wealth comes fromthe landAgriculture in the economy40 Money and goods flowbetween producers andconsumers The circularflow of the economy46 Private individuals neverpay for street lightsProvision of public goodsand servicesTHE AGEOF REASON1770–182052 Man is a cold, rationalcalculatorEconomic man54 The invisible handof the marketbrings orderFree market economics62 The last worker addsless to output thanthe firstDiminishing returns63 Why do diamonds costmore than water?The paradox of value64 Make taxes fairand efficientThe tax burden66 Divide up pinproduction, and youget more pinsThe division of labor68 Population growthkeeps us poorDemographicsand economics70 Meetings of merchantsend in conspiracies toraise pricesCartels and collusion74 Supply creates itsown demandGluts in markets76 Borrow now, tax laterBorrowing and debt78 The economy is a yo-yoBoom and bust80 Trade is beneficialfor allComparative advantageCONTENTS INDUSTRIAL ANDECONOMICREVOULTIONS1820–192990 How much should Iproduce, given thecompetition?Effects of limited competition92 Phone calls costmore withoutcompetitionMonopolies98 Crowds breed collectiveinsanityEconomic bubbles100 Let the ruling classestremble at a communistrevolutionMarxist economics106 The value of a productcomes from the effortneeded to make itThe labor theory of value108 Prices come from supplyand demandSupply and demand114 You enjoy the lastchocolate less thanthe firstUtility and satisfaction116 When the price goes up,some people buy moreSpending paradoxes118 A system of free marketsis stableEconomic equilibrium124 If you get a pay raise,buy caviar not breadElasticity of demand126 Companies are pricetakers not price makersThe competitive market130 Make one person better offwithout hurting the othersEfficiency and fairness132 The bigger the factory,the lower the costEconomies of scale133 The cost of going to themovies is the fun you’dhave had at an ice rinkOpportunity cost134 Workers must improvetheir lot togetherCollective bargaining136 People consume tobe noticedConspicuous consumption137 Make the polluter payExternal costs138 Protestantism has madeus richReligion and the economy140 The poor are unlucky,not bad The poverty problem142 Socialism is the abolitionof rational economyCentral planning148 Capitalism destroys theold and creates the newCreative destructionWAR ANDDEPRESSIONS1929–1945154 Unemployment is nota choice Depressions andunemployment162 Some people love risk,others avoid itRisk and uncertainty164 Government spendingboosts the economy bymore than what is spentThe Keynesian multiplier166 Economies are embeddedin cultureEconomics and tradition168 Managers go for perks,not their company’s profitsCorporate governance170 The economy is apredictable machineTesting economic theories171 Economics is the scienceof scarce resourcesDefinitions of economics172 We wish to preservea free societyEconomic liberalism178 Industrialization createssustained growthThe emergence of moderneconomies180 Different prices to differentpeople Price discrimination
