Microeconomics

Front Cover
Title Page
Copyright Page
About the Author
Dedication
Brief Contents
Alternative Pathways Through the Chapters
Detailed Contents
Part One Introduction
Chapter 1 ◆ What is Economics?
Definition of Economics
Two Big Economic Questions
What, How, and For Whom?
Do Choices Made in the Pursuit of Self-Interest also Promote the Social Interest?
The Economic Way of Thinking
A Choice Is a Tradeoff
Making a Rational Choice
Benefit: What You Gain
Cost: What You Must Give Up
How Much? Choosing at the Margin
Choices Respond to Incentives
Economics as Social Science and Policy Tool
Economist as Social Scientist
Economist as Policy Adviser
Economists in the Economy
Jobs for an Economics Major
Will Jobs for Economics Majors Grow?
Earnings of Economics Majors
Skills Needed for Economics Jobs
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Appendix
Appendix Graphs in Economics
Graphing Data
Graphing Economic Data
Scatter Diagrams
Graphs Used in Economic Models
Variables That Move in the Same Direction
Variables That Move in Opposite Directions
Variables That Have a Maximum or a Minimum
Variables That Are Unrelated
The Slope of a Relationship
The Slope of a Straight Line
The Slope of a Curved Line
Graphing Relationships Among More Than Two Variables
Ceteris Paribus
When Other Things Change
Mathematical Note
At Issue,
Economics in the News, 6,
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Appendix
Chapter 2 ◆ The Economic Problem
Production Possibilities and Opportunity Cost
Production Possibilities Frontier
Production Efficiency
Tradeoff Along the PPF
Opportunity Cost
Using Resources Efficiently
The PPF and Marginal Cost
Preferences and Marginal Benefit
Allocative Efficiency
Gains from Trade
Comparative Advantage and Absolute Advantage
Achieving the Gains from Trade
The Liz–Joe Economy and its PPF
Economic Growth
The Cost of Economic Growth
A Nation’s Economic Growth
Changes in What We Produce
Economic Coordination
Firms
Markets
Property Rights
Money
Circular Flows Through Markets
Coordinating Decisions
Economics in Action
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Part One Wrap-Up ◆
Understanding the Scope of Economics Your Economic Revolution
Talking with Esther Duflo
Part Two How Markets Work
Chapter 3 ◆ Demand and Supply
Markets and Prices
Demand
The Law of Demand
Demand Curve and Demand Schedule
A Change in Demand
A Change in the Quantity Demanded Versus a Change in Demand
Supply
The Law of Supply
Supply Curve and Supply Schedule
A Change in Supply
A Change in the Quantity Supplied Versus a Change in Supply
Market Equilibrium
Price as a Regulator
Price Adjustments
Predicting Changes in Price and Quantity
An Increase in Demand
A Decrease in Demand
An Increase in Supply
A Decrease in Supply
Changes in Both Demand and Supply
Mathematical Note Demand, Supply, and Equilibrium
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 4 ◆ Elasticity
Price Elasticity of Demand
Calculating Price Elasticity of Demand
Inelastic and Elastic Demand
The Factors that Influence the Elasticity of Demand
Elasticity Along a Linear Demand Curve
Total Revenue and Elasticity
Your Expenditure and Your Elasticity
More Elasticities of Demand
Income Elasticity of Demand
Cross Elasticity of Demand
Elasticity of Supply
Calculating the Elasticity of Supply
The Factors That Influence the Elasticity of Supply
Economics in Action
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 5 ◆ Efficiency And Equity
Resource Allocation Methods
Market Price
Command
Majority Rule
Contest
First-Come, First-Served
Lottery
Personal Characteristics
Force
Benefit, Cost, and Surplus
Demand, Willingness to Pay, and Value
Individual Demand and Market Demand
Consumer Surplus
Supply and Marginal Cost
Supply, Cost, and Minimum Supply-Price
Individual Supply and Market Supply
Producer Surplus
Is the Competitive Market Efficient?
Efficiency of Competitive Equilibrium
Market Failure
Sources of Market Failure
Alternatives to the Market
Is the Competitive Market Fair?
It’s Not Fair if the Result Isn’t Fair
It’s Not Fair if the Rules Aren’t Fair
Case Study: A Generator Shortage in a Natural Disaster
Economics in Action
At Issue
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 6 ◆ Government Actions in Markets
A Housing Market with a Rent Ceiling
A Housing Shortage
Increased Search Activity
A Black Market
Inefficiency of a Rent Ceiling
Are Rent Ceilings Fair?
A Labor Market with a Minimum Wage
Minimum Wage Brings Unemployment
Is the Minimum Wage Fair?
Inefficiency of a Minimum Wage
Taxes
Tax Incidence
Equivalence of a Tax on Buyers and Sellers
Taxes and Efficiency
Tax Influence of the Elasticity of Demand
Tax Influence of the Elasticity of Supply
Taxes and Fairness
The Big Tradeoff
Production Quotas and Subsidies
Production Quotas
Subsidies
Markets for Illegal Goods
A Free Market for a Drug
A Market for an Illegal Drug
Legalizing and Taxing Drugs
Economics in Action
At Issue
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 7 ◆ Global markets in action
How Global Markets Work
International Trade Today
What Drives International Trade?
Why the United States Imports T-Shirts
Why the United States Exports Airplanes
Winners, Losers, and the Net Gain from Trade
Gains and Losses from Imports
Gains and Losses from Exports
Gains for All
International Trade Restrictions
Tariffs
Import Quotas
Other Import Barriers
Export Subsidies
The Case Against Protection
Helps an Infant Industry Grow
Counteracts Dumping
Saves Domestic Jobs
Allows Us to Compete with Cheap Foreign Labor
Penalizes Lax Environmental Standards
Prevents Rich Countries from Exploiting Developing Countries
Reduces Offshore Outsourcing that Sends Good U.S. Jobs to Other Countries
Avoiding Trade Wars
Why Is International Trade Restricted?
Compensating Losers
Economics in Action
At Issue
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Part Two Wrap-Up ◆
Understanding How Markets Work The Amazing Market
Talking with Susan Athey
Part Three Households’ Choices
Chapter 8 ◆ Utility and Demand
Consumption Choices
Consumption Possibilities
Preferences
Utility-Maximizing Choice
A Spreadsheet Solution
Choosing at the Margin
The Power of Marginal Analysis
Revealing Preferences
Predictions of Marginal Utility Theory
A Fall in the Price of a Movie
A Rise in the Price of Soda
A Rise in Income
The Paradox of Value
Temperature: An Analogy
New Ways of Explaining Consumer Choice
Behavioral Economics
Neuroeconomics
Controversy
Economics in Action
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 9 ◆ Possibilities, Preferences, and Choices
Consumption Possibilities
Budget Line
Budget Equation
Preferences and Indifference Curves
Marginal Rate of Substitution
Degree of Substitutability
Predicting Consumer Choices
Best Affordable Choice
A Change in Price
A Change in Income
Substitution Effect and Income Effect
Economics in Action
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Part Three Wrap-Up ◆
Understanding Households’ Choices Making the Most of Life
Talking with Steven D. Levitt
Part Four Firms and Markets
Chapter 10 ◆ Organizing Production
The Firm and Its Economic Problem
The Firm’s Goal
Accounting Profit
Economic Accounting
A Firm’s Opportunity Cost of Production
Economic Accounting: A Summary
The Firm’s Decisions
The Firm’s Constraints
Technological and Economic Efficiency
Technological Efficiency
Economic Efficiency
Information and Organization
Command Systems
Incentive Systems
The Principal–Agent Problem
Coping with the Principal–Agent Problem
Types of Business Organization
Pros and Cons of Different Types of Firms
Markets and the Competitive Environment
Measures of Concentration
Limitations of a Concentration Measure
Produce or Outsource? Firms and Markets
Firm Coordination
Market Coordination
Why Firms?
Economics in Action
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 11 ◆ Output and Costs
Decision Time Frames
The Short Run
The Long Run
Short-Run Technology Constraint
Product Schedules
Product Curves
Total Product Curve
Marginal Product Curve
Average Product Curve
Short-Run Cost
Total Cost
Marginal Cost
Average Cost
Marginal Cost and Average Cost
Why the Average Total Cost Curve Is U-Shaped
Cost Curves and Product Curves
Shifts in the Cost Curves
Long-Run Cost
The Production Function
Short-Run Cost and Long-Run Cost
The Long-Run Average Cost Curve
Economies and Diseconomies of Scale
Economics in Action
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 12 ◆ Perfect Competition
What Is Perfect Competition?
How Perfect Competition Arises
Price Takers
Economic Profit and Revenue
The Firm’s Decisions
The Firm’s Output Decision
Marginal Analysis and the Supply Decision
Temporary Shutdown Decision
The Firm’s Supply Curve
Output, Price, and Profit in the Short Run
Market Supply in the Short Run
Short-Run Equilibrium
A Change in Demand
Profits and Losses in the Short Run
Three Possible Short-Run Outcomes
Output, Price, and Profit in the Long Run
Entry and Exit
A Closer Look at Entry
A Closer Look at Exit
Long-Run Equilibrium
Changes in Demand and Supply as Technology Advances
A Decrease in Demand
An Increase in Demand
Technological Advances Change Supply
Competition and Efficiency
Efficient Use of Resources
Choices, Equilibrium, and Efficiency
Economics in Action
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 13 ◆ Monopoly
Monopoly and How It Arises
How Monopoly Arises
Monopoly Price-Setting Strategies
A Single-Price Monopoly’s Output and Price Decision
Price and Marginal Revenue
Marginal Revenue and Elasticity
Price and Output Decision
Single-Price Monopoly and Competition Compared
Comparing Price and Output
Efficiency Comparison
Redistribution of Surpluses
Rent Seeking
Rent-Seeking Equilibrium
Price Discrimination
Two Ways of Price Discriminating
Increasing Profit and Producer Surplus
A Price-Discriminating Airline
Efficiency and Rent Seeking with Price Discrimination
Monopoly Regulation
Efficient Regulation of a Natural Monopoly
Second-Best Regulation of a Natural Monopoly
Economics in Action
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 14 ◆ Monopolistic Competition
What Is Monopolistic Competition?
Large Number of Firms
Product Differentiation
Competing on Quality, Price, and Marketing
Entry and Exit
Examples of Monopolistic Competition
Price and Output in Monopolistic Competition
The Firm’s Short-Run Output and Price Decision
Profit Maximizing Might Be Loss Minimizing
Long Run: Zero Economic Profit
Monopolistic Competition and Perfect Competition
Is Monopolistic Competition Efficient?
Product Development and Marketing
Product Development
Advertising
Using Advertising to Signal Quality
Brand Names
Efficiency of Advertising and Brand Names
Economics in Action
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 15 ◆ Oligopoly
What Is Oligopoly?
Barriers to Entry
Small Number of Firms
Examples of Oligopoly
Oligopoly Games
What Is a Game?
The Prisoners’ Dilemma
An Oligopoly Price-Fixing Game
A Game of Chicken
Repeated Games and Sequential Games
A Repeated Duopoly Game
A Sequential Entry Game in a Contestable Market
Antitrust Law
The Antitrust Laws
Price Fixing Always Illegal
Three Antitrust Policy Debates
Mergers and Acquisitions
Economics in Action
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Part Four Wrap-Up ◆
Understanding Firms and Markets Managing Change and Limiting Market Power
Talking with Thomas Hubbard
Part Five Market Failure and Government
Chapter 16 ◆ Public Choices, Public Goods, and Healthcare
Public Choices
Why Governments?
Public Choice and the Political Marketplace
Political Equilibrium
What Is a Public Good?
A Fourfold Classification
The Things Our Governments Buy
Providing Public Goods
The Free-Rider Problem
Marginal Social Benefit from a Public Good
Marginal Social Cost of a Public Good
Efficient Quantity of a Public Good
Inefficient Private Provision
Efficient Public Provision
Inefficient Public Overprovision
The Economics of Healthcare
Healthcare Market Failure
Alternative Public Choice Solutions
Better Solutions?
Economics in Action
At Issue
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 17 ◆ Externalities
Externalities In Our Lives
Negative Production Externalities
Positive Production Externalities
Negative Consumption Externalities
Positive Consumption Externalities
Negative Externality: Pollution
Private, External, and Social Cost
Establish Property Rights
Mandate Clean Technology
Tax or Cap and Price Pollution
Coping with Global Externalities
Negative Externality: The Tragedy of the Commons
Unsustainable Use of a Common Resource
Inefficient Use of a Common Resource
Achieving an Efficient Outcome
Positive Externality: Knowledge
Private Benefits and Social Benefits
Government Actions in the Market with External Benefits
Illustrating an Efficient Outcome
Bureaucratic Inefficiency and Government Failure
Economics in Action
At Issue
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Part Five Wrap-Up ◆
Understanding Market Failure and Government
We, the People, ...
Talking with Caroline M. Hoxby
Part Six Factor Markets, Inequality, and Uncertainty
Chapter 18 ◆ Markets for Factors of Production
The Anatomy of Factor Markets
Markets for Labor Services
Markets for Capital Services
Markets for Land Services and Natural Resources
Entrepreneurship
The Demand for a Factor of Production
Value of Marginal Product
A Firm’s Demand for Labor
A Firm’s Demand for Labor Curve
Changes in a Firm’s Demand for Labor
Labor Markets
A Competitive Labor Market
Differences and Trends in Wage Rates
A Labor Market with a Union
Capital and Natural Resource Markets
Capital Rental Markets
Land Rental Markets
Nonrenewable Natural Resource Markets
Mathematical Note Present Value and Discounting
Economics in Action
At Issue
Economics In The News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 19 ◆ Economic Inequality
Economic Inequality in the United States
The Distribution of Income
The Income Lorenz Curve
The Distribution of Wealth
Wealth or Income?
Annual or Lifetime Income and Wealth?
Trends in Inequality
Poverty
Inequality in the World Economy
Income Distributions in Selected Countries
Global Inequality and Its Trends
The Sources of Economic Inequality
Human Capital
Discrimination
Contests Among Superstars
Unequal Wealth
Income Redistribution
Income Taxes
Income Maintenance Programs
Subsidized Services
The Big Tradeoff
Economics in Action
Economics In The News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Chapter 20 ◆ Uncertainty and Information
Decisions in the Face of Uncertainty
Expected Wealth
Risk Aversion
Utility of Wealth
Expected Utility
Making a Choice with Uncertainty
Buying and Selling Risk
Insurance Markets
A Graphical Analysis of Insurance
Risk That Can’t Be Insured
Private Information
Asymmetric Information: Examples and Problems
The Market for Used Cars
The Market for Loans
The Market for Insurance
Uncertainty, Information, and the Invisible Hand
Information as a Good
Monopoly in Markets that Cope with Uncertainty
Economics in Action
Economics in the News
Worked Problem
Summary
Key Points
Key Terms
Study Plan Problems and Applications
Additional Problems and Applications
Part Six Wrap-Up ◆
Understanding Factor Markets, Inequality, and Uncertainty For Whom?
Talking with Raj Chetty
Glossary
Index
Credits
Back Cover