[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Internet Connection
TRACKING THE DIGITAL ECONOMY
Since 1998, the U.S. Department of Commerce has issued an
annual report on the digital economy. You can find the latest
report at www.esa.doc.gov/reports.cfm.
This mechanism grants the employee the opportunity to purchase shares in
the company at a set price. If the company does well and its shares go up in
value, the employee can sell the stock for a profit—a prospect that creates an
incentive to work hard and help the company succeed. The Federal
Accounting Standards Board (FASB) proposed new accounting rules requiring
firms that offer stock options to report these as an expense, thereby reducing
the firm’s reported profits. The FASB argues that to do so would
present investors with a more accurate picture of the firm’s profits, enabling
investors to make better decisions about buying stock in the company.
News headlines frequently focus on economic issues, and these six point to some
of the key topics that economists study: the role of incentives and information, globalization
and exchange, competition and government regulation, costs and business
decisions. The study of economics will give you new insights into the news stories you
see in the paper, it will give you insights into the world of business, and it will help
you understand the world of economics you participate in every day.
What Is Economics?
Headlines can illustrate many of the important issues with which economics deals,
but now a definition of our subject is in order. Economics studies how individuals,
firms, government, and other organizations within our society make choices, and
how these choices determine society’s use of its resources. Why did consumers
choose to buy small, energy-efficient cars in the 1970s and large sports utility vehicles
in the 1990s? What determines how many individuals work in health care
industries and how many work in the computer industry? Why did the income gap
between rich and poor rise in the 1980s? To understand how choices are made
and how these choices affect the use of society’s resources, we must examine five
concepts that play an important role: trade-offs, incentives, exchange, information,
and distribution.
1. Choice involves trade-offs—deciding to spend more on one thing leaves less
to spend on something else; devoting more time to studying economics leaves
less time to study physics.
6 ∂ CHAPTER 1 MODERN ECONOMICS