Part 1: Fundamentals of Economics

Chapter 1: What is Economics?
1.1 Basic Characteristics of Economics
1.2 The Basis of Rational Choice
1.3 Economic Resources and the Production Possibilities Curve
1.4 Basic framework of the national economy
1.5 Markets and Prices

Chapter 2: Methods of Economic Research
2.1 What is economic theory?
2.2 Economic Model
2.3 Verification of the theory
2.4 Classification of economic theories
2.5 Foundations of Economic Thinking
〈Appendix〉 How to read the pictures

Chapter 3: Demand, Supply, and Market Equilibrium
3.1 Wednesday
3.2 Elasticity of Demand
3.3 Supply
3.4 Elasticity of Supply
3.5 Market Balance
3.6 Application of Balance Analysis
3.7 Consumer and Producer Surplus

Part 2: Consumer Theory

Chapter 4 Consumer Choice
4.1 The Meaning of Consumer Choice
4.2 Consumer Preferences and Utility
4.3 Indifference Curves
4.4 Budget Line
4.5 Consumers' optimal choice
4.6 Substitution effect and income effect
4.7 Network Effects

Part 3: Producer Theory

Chapter 5 Enterprises and Production Technology
5.1 What is a company?
5.2 Production Technology
5.3 Production process with one variable input factor
5.4 Production process with two variable inputs
5.5 Choices for cost minimization

Chapter 6: Production Costs and Profit Maximization
6.1 Concept of Cost
6.2 Production costs in the short run
6.3 Production costs in the long term
6.4 Economies of scale and scope
6.5 Analysis of Imports
6.6 Deriving the Profit-Maximizing Production Level
6.7 Do companies really pursue profit maximization?

Part 4: Product Markets and Competition

Chapter 7 Perfectly Competitive Market
7.1 Characteristics related to the form of the market
7.2 Requirements for a Perfectly Competitive Market
7.3 Profit Maximization and the Supply Curve in the Short Run
7.4 Long-run equilibrium
7.5 In what ways is a perfectly competitive market desirable?

Chapter 8 Monopoly Market
8.1 Background
8.2 Equilibrium in a monopoly market
8.3 Economic Effects of Monopoly
8.4 Price Discrimination
8.5 Government policy on monopolies

Chapter 9 Monopolistic Competition and Oligopoly Markets
9.1 Characteristics of a Monopolistic Competition Market
9.2 Equilibrium in a monopolistic competitive market
9.3 Evaluation of the Monopolistic Competition Market
9.4 Characteristics of an oligopoly market
9.5 Model of Independent Action
9.6 Cartel Model
9.7 Advertisement
〈Appendix〉 Characteristics of each market type

Chapter 10: Games and Strategy
10.1 The basic skeleton of the game
10.2 Suspect's Dilemma Game
10.3 Nash Equilibrium
10.4 Sequential games
10.5 Examples of Competitive Strategy
10.6 Auction Theory

Part 5: Factor Markets and Income Distribution

Chapter 11: Prices and Employment of Factors of Production
11.1 Background Information
11.2 Determining the demand for factors of production
11.3 Determining the Supply of Factors of Production
11.4 Equilibrium in the Factors of Production Market
11.5 Monopoly on demand

Chapter 12 Labor Market and Wages
12.1 Our country's labor market
12.2 Skilled and Unskilled Labor
12.3 Labor Union
12.4 Discrimination in the Labor Market
Appendix: The Advent of a Low Birth Rate and Aging Society

Chapter 13: Capital Markets, Interest, and Profit
13.1 The concept of capital
13.2 Investment Decision Criteria
13.3 Determination of interest rates
13.4 Lee Yoon

Chapter 14: The Reality of Income Distribution
14.1 Background
14.2 Income distribution by function and income distribution by class
14.3 What is fair distribution?
14.4 Measurement of inequality
14.5 The problem of intergenerational mobility
14.6 The Problem of Poverty
14.7 Redistribution Policy

Part 6: Various Problems in Microeconomic Theory

Chapter 15: Information Economics Theory
15.1 The Economic Implications of Information
15.2 Apricot Market and Reverse Selection
15.3 Signaling and Selection
15.4 The problem of incentives related to the apricot market
15.5 Principal-Agent Relationship and Moral Hazard
15.6 The Incentive Problem Related to Moral Hazard
Appendix: Theory of Information Goods

Chapter 16 Markets and Government
16.1 Markets and Efficiency
16.2 Market Failure
16.3 Specific types of government intervention
16.4 Government Failure

Chapter 17: Various Issues in Public Policy
17.1 The Public Goods Problem
17.2 Environmental Issues
17.3 The Economics of Taxation
17.4 Problems of the welfare state
〈Appendix〉 Our country's finances

Chapter 18: Theory of Financial Markets
18.1 Background Information
18.2 Financial Markets
18.3 Bonds and Stocks
18.4 Return on Financial Assets
18.5 Derivative Financial Products
Appendix: The Relationship Between Bond Prices and Interest Rates

Chapter 19: Behavioral Economics: A New Frontier in Economics
19.1 Background Information
19.2 Characteristics of Human Behavior: Heuristics and Biases
19.3 Various unusual phenomena
19.4 Behavioral Game Theory
19.5 The Meaning and Prospects of Behavioral Economics Theory

Part 7: Introduction to Macroeconomic Theory

Chapter 20: Foundations of Macroeconomic Theory
20.1 Basic Concepts of Macroeconomic Theory
20.2 Aggregate Demand and Aggregate Supply

Chapter 21: Definition and Measurement of Macroeconomic Variables
21.1 GDP
21.2 Nominal GDP and Real GDP
21.3 Various Aspects of GDP
21.4 Gross National Income and Disposable Income
21.5 Korea's National Accounts
21.6 Limitations of the concept of GDP
21.7 Price Index

Part 8: Determination of National Income

Chapter 22: Consumption Theory
22.1 Aggregate Demand and Consumer Expenditure
22.2 Determinants of Consumer Expenditure
22.3 Consumption Function and Consumption Curve
22.4 New Consumption Theory

Chapter 23: Investment, Government Spending, and Net Exports
23.1 National Economy and Investment
23.2 Investment Decision Process
23.3 Government spending
23.4 Net exports

Chapter 24: Income-Expenditure Analysis and the Multiplier Effect
24.1 Basic Framework of Income-Expenditure Analysis
24.2 Derivation of Equilibrium National Income
24.3 Multiplier effect
Appendix: Government Spending Multiplier Considering Income Tax and International Trade

Chapter 25: Keynes's Effective Demand Theory
25.1 Background Information
25.2 Full employment national income
25.3 Reasons for the Insufficient Demand Phenomenon
25.4 Multiplier Effect and Fiscal Policy
Appendix: Fiscal Balance and National Debt

Chapter 26: National Income and Prices: The Aggregate Demand-Aggregate Supply Model
26.1 Derivation of the aggregate demand curve
26.2 Characteristics of the Aggregate Demand Curve
26.3 Aggregate supply curve
26.4 Balance of the National Economy
26.5 Application of the Model I: The Effects of Fiscal Policy
26.6 Application of the Model II: The Effects of Rising Crude Oil Prices

Part 9: Currency and the National Economy

Chapter 27: Money Markets and Interest Rates
27.1 The nature of money
27.2 History of Money
27.3 Measurement of the money supply
27.4 Demand and Supply of Money
27.5 Equilibrium in the Money Market
Appendix: The Inversion of Long- and Short-Term Interest Rates

Chapter 28: Aggregate Demand-Aggregate Supply Model and the Money Market
28.1 Short-term effects of monetary policy
28.2 Long-term effects of monetary policy
28.3 Short- and long-term effects of fiscal policy
28.4 Comparison of Fiscal and Monetary Policy
Appendix: Automatic Stabilizer

Chapter 29: Banking System and Money Supply
29.1 Development of the banking system
29.2 Deposit Creation and the Money Multiplier
29.3 Central Bank's Monetary Management Method
29.4 Endogenous Money Supply
29.5 Monetary Policy: Money Supply and Interest Rates
29.6 Price Stability Target System
29.7 Functions of the Central Bank

Part 10: Theory of Economic Stabilization Policy

Chapter 30: Debate Surrounding Economic Stabilization Policy
30.1 Keynes's Economic Theory
30.2 The Rise of Monetarists
30.3 New Classical Economics
30.4 Real Economic Fluctuation Theory
30.5 New Keynesian Economics

Part 11: Unemployment and Inflation

Chapter 31: Unemployment
31.1 Two Tasks for the National Economy
31.2 Definition and Measurement of Unemployment
31.3 The nature of unemployment
31.4 Theory of Determination of the Natural Rate of Unemployment

Chapter 32 Inflation
32.1 The Social Cost of Inflation
32.2 Price Linkage System
32.3 Short-term inflation theory
32.4 Long-Term Inflation and Hyperinflation Theory

Part 12: The Problem of Economic Growth

Chapter 33 Economic Growth and Development
33.1 Background Information
33.2 The Process of Economic Growth
33.3 The Problem of Sustained Economic Growth
33.4 Growth Accounting
33.5 Economic development in developing countries
Appendix: The Future of Artificial Intelligence

Part 13: International Economy

Chapter 34: International Trade Theory
34.1 The Reality of International Trade
34.2 Gains from Trade and the Theory of Comparative Advantage
34.3 Gains from Trade
34.4 Other International Trade Theories

Chapter 35 Regulation of Trade
35.1 Basis of Protectionism
35.2 Strategic Trade Policy
35.3 Specific methods of trade regulation
35.4 Movements to pursue free trade

Chapter 36 Exchange Rates
36.1 Background Information
36.2 Supply and Demand for Foreign Exchange
36.3 Current Transactions and Exchange Rates
36.4 Financial Transactions and Exchange Rates
36.5 Floating Exchange Rate System and Fixed Exchange Rate System

Chapter 37: Aggregate Demand-Aggregate Supply Model in an Open Economy
37.1 The Meaning of an Open Economy
37.2 Balance of Payments and Balance of Payments
37.3 Savings, Investment, and the Current Account
37.4 Exchange Rate and Current Account Balance
37.5 Exchange Rates and the Aggregate Demand-Aggregate Supply Curve
37.6 Monetary and Fiscal Policy in an Open Economy

Part 14: The Current State of the World Economy

Chapter 38: The Economics of Crisis
38.1 Background Information
38.2 The Occurrence and Development of the Global Financial Crisis
38.3 Why did the financial crisis occur?
38.4 Eurozone financial crisis
38.5 Policy Response to the Financial Crisis
38.6 The COVID-19 pandemic
38.7 The Age of Uncertainty - New Challenges for Economics

Preface to the 7th Edition

The world economy, barely recovering from the extreme recession caused by the global financial crisis, is now facing another crisis due to the COVID-19 pandemic.
Looking back, the past 20 years have been a turbulent time, no less than any other time in the past.
For our economy, which already had weak growth momentum, it was bound to be extremely difficult to navigate the turbulent waves of this global crisis.
I imagine that almost all readers of this book have been anxiously wondering how our economy can regain its former vitality.

It is not only global crises like this that pose significant challenges to our economy.
The rapid decline in birth rates and the resulting aging of the population have already become difficult challenges that cannot be easily solved.
The persistent decline in potential growth rate is a challenging problem that makes it difficult to even figure out where to start looking for solutions.
Moreover, the polarization of income distribution and the decline in inter-class mobility, which have become more pronounced in recent years, are casting a dark shadow over the future of our economy.

It was with this very problem in mind that we embarked on this revision.
The main focus of this revision was to create a good economics textbook that provides a theoretical background for understanding the current economic situation.
By faithfully updating both theory and data, we focus on helping readers gain a detailed understanding of even recent events.
We would be more than grateful if readers would recognize the traces of our efforts as they read this revised edition.

I also received valuable help from many people during this revision.
The three people who have participated in the past several revisions and are now veteran helpers have been of great help in various ways this time as well.
First of all, the wonderful cover design was done by Ms. Shinbi, an artist active in France, who recently had the honor of receiving her doctorate.
And Professor Jeong Ji-young, through her meticulous review process, helped us achieve our goal of creating a book with zero errors.
Also, former KDI researcher Heo Su-gyeong, who handled the data update task neatly, was of great help.
Lastly, I would like to express my sincere gratitude to President Kim Young-hoon and Manager Jeon Young-wan of Moonwoo Publishing for their tireless efforts throughout the entire revision process.

February 2025

Lee Jun-gu