ECONOMIC ISSUES FOR
THE SLOVAK REPUBLIC:
AN INTRODUCTION TO MICROECONOMICS
prof. Fred Ruppel
Eastern KentuckyUniversity
doc. Ing. Iveta Zentkova
Slovak Agricultural University
June 2005
Table of Contents
Part I. International Economic Issues
1. Poverty and World Hunger: Production Possibilities Frontiers
2. International Trade: Supply and Demand
3. Protectionism and the Gains from Trade: Welfare Economics
4. Agriculture: Elasticity
5. Energy: Government Intervention
Part II. Business Economics
6. Labor Issues: Productivity
7. Globalization: Costs
8. Business Organization: Competitive Markets
9. Market Power I: Monopoly
10. Market Power II: Imperfect Competition
Part III. Additional Topics
11. The Role of Government
12. Public Education and Environmental Pollution: Economic Externalities
Preface
Each new textbook requires a preface. Why did we spend thousands of hours writing this book when there are already so many economics textbooks on the market? The simple answer is, this textbook is written for a Slovak audience. There are many economics textbooks, but not many translated to Slovak and even fewer actually written in Slovak. Quite a few are translated into Czech, but the younger Slovak generation is less familiar with the Czech language than their parents. So this is a textbook for the new generation of Slovaks, the generation of the new millennium.
This is also a textbook written in English. Economics is fundamentally an English-language discipline, and the new Slovak generation is much more familiar with English than their parents. So this generation has an opportunity to study economics in the language in which much of the history of economic thought originated. The English-Slovak side-by-side columns approach also allows for a quicker interpretation of confusing concepts and terminology. A Slovak student can read the text in English, but move to the Slovak text as necessary. The side-by-side approach also allows the textbook to be used in English language classes. Much of the material, especially the issues introductions, is written at a relatively low conceptual level, so students with less economics training can still read and see translations of large sections of text.
So, how is this textbook different from other “principles of microeconomics” textbooks. There are at least four ways in which this textbook differs from most of the others on the market. First, this textbook takes an “economic issues” approach. Most economics textbooks are written using the standard “theory-application” method – first present the theory, then show how the theory applies to a variety of economic problems. An issues approach begins with the problem (poverty, pollution, crime, etc.), then brings in the economic tools necessary to help students understand the problem. There is certainly a trade-off with this approach. Although the depth of issue coverage is great in an issues text, the breadth of applications coverage is limited. The issues approach is certainly not new. A number of economics textbooks take an issues approach. However, most of these texts do not presume to be teaching economic principles through the issues approach. Economics of Social Issues by Ansel M. Sharp, Charles A. Register, and Paul W. Grimes (SRG)is the strong exception to this statement. Now in its sixteenth edition, SRG has been advocating an issues approach to economic principles for a number of years. An issues approach is particularly attractive to older, non-traditional students, for whom the “real world” is real.
Second, this text has a strong international flavor, a focus that is too often missing from existing principles textbooks. This book begins with “Part I: International Economic Issues”. Each of the five chapters in Part I covers a specific topic with major international implications. The issues in Part I form the basis for the presentation of the major “tools” normally taught in the first section in a typical economic principles textbook – production possibilities frontiers, supply-demand analysis, and extensions to the supply-demand model. Later chapters also have an international flavor, including discussions of globalization, transnational pollution, and the role of government in international affairs.
Third, the order of material coverage in this text is somewhat different. The standard order of presentation in micro principles is (1) production possibilities frontiers (including opportunity cost and possibly comparative advantage), (2) the supply-demand model, (3) extensions to the supply-demand model (elasticities, welfare economics, price controls), (4) productivity and costs, market structures, and the theory of the firm, (5) resource markets, and (6) additional topics (chosen from a variety of topics, including externalities, public economics, international trade, etc.). In this textbook international trade and protectionism are brought forward to the second and third chapters, respectively; two “additional topics” – agriculture and energy – are covered in the first section; and resource markets are covered before the cost chapter and the theory of the firm. It is important to give students an idea where we get those wages and other costs that we introduce in the cost chapter.
Fourth, the discussion of costs includes a different breakdown of costs and profit calculations than is typically presented in microeconomics principles. There are two major differences in this text. The first is the introduction of the concept of “variable profit” (also referred to as “checkbook profit”). Frankly, checkbook profit is how small firms operate! The end of every month finds many firms asking the same question, “Do we have enough left in the checkbook to pay the note at the bank?” Variable costs are also separated into “proportional variable costs” and “standard variable costs”. The second major difference is the calculation of accounting profit instead of economic profit in the text, tables and diagrams. It is extremely difficult to build implicit opportunity costs into the cost curves. However, it is a simple matter to compare accounting profit with those implicit opportunity costs. So we do the latter in examining the possibility of positive or negative economic profit. In addition, opportunity costs are clarified into work opportunities vs. investments foregone.
With all these changes, this book remains a basic microeconomic principles textbook. The book does not have a lot of ornamentation or economic philosophy. There are already quite a few diagrams, but there could easily be many more. Students and other readers are encouraged to offer their suggestions for improvements to this textbook. Our ultimate goal is education – to better serve the future leaders of the SlovakRepublic.
Fred J. Ruppel, Eastern KentuckyUniversity, Richmond, KY, USA
Iveta Zentkova, Slovak Agricultural University, Nitra, SlovakRepublic
Acknowledgements
The bulk of the writing of this textbook was undertaken while Professor Ruppel was on Sabbatical Leave as a Fulbright Scholar at doc. Ing. Zentkova’s SlovakAgriculturalUniversity. We would like to thank a number of people on two continents for supporting this endeavor.
Ruppel: Faculty, staff and administrators at EasternKentuckyUniversity were particularly helpful. Thank you to John Wade and my Economics Department colleagues for encouraging the Sabbatical and to Jennifer Mullins for taking care of details in my absence. Thank you to the College of Arts and Sciences, to the University Sabbatical Committee and to the University administration for approving the Sabbatical. And thank you to dozens of people who helped at various points along the way, both before and during my time away. A special thank-you is owed for those bank deposits that kept showing up twice a month!!
A Fulbright award presents a very special opportunity. Thank you to the Fulbright Scholar Program and the administrators at the Council for International Exchange of Scholars for their support. I cannot say enough about the Fulbright administrative team in Slovakia. Thank you so much, Nora, Viera, and Maria for all you did to make our stay fruitful and enjoyable. Thank you also to my Fulbright colleagues for their friendship and support.
I would also like to thank my colleagues in the Department of Economics at the Slovak Agricultural University, especially the Chair, Fero Kuzma for accommodating my particular needs for office space and class scheduling; my host, co-author, and Vice-Chair, Iveta Zentkova, for whom my appreciation is endless; my economics colleagues, in particular my office mates (Roman, Mirka, Vladimir, and effectively, Jan), and the English language faculty for their encouragement toward the completion of this bilingual effort and who, under Mary’s leadership are dedicated, gifted, and FUN!! Thank you also to the administration in the Faculty of Economics and Management, especially Dean Peter Bielik and Vice-Dean Elena Horska, and to the University administration, especially Vice-Rector Anna Bandlerova, who authored the Letter of Invitation that brought me here.
I certainly owe a debt of gratitude to the 120 students who took my SPU classes. They provided the need that generated this textbook. But in this category my student-translators are the real honorees. They undertook the translation of the entire text voluntarily, with no monetary reward and no class credit – only the thought that working on the text would be a fun thing to do. Our few evenings together in Mexico do not begin to repay them for their efforts. They are listed in alphabetical order: Kinga Brédová, Zuzana Candraková, Anna Danová, Dušan Drabik, Matej Farkaš, Michal Hlinka, Kristína Kotesová, Beata Krajmerová, Nora Krizanová, Mario Mekys, Katarína Nortíková, Maroš Popelka, Lívia Slaná, Juraj Smatana, Kristina Šmitalová, and Andrea Zalabalová. Thank you!!
Finally, I owe my greatest debt of thanks to my family – to my loving wife Carol and my “transplanted Slovak” children Eric and Rachel (and my daughters Nancy and Emily, in absentia). They tolerated my plugging away at my laptop evenings and weekends and celebrated each chapter’s completion with me. This task would have been grueling without their support.