Economics

Cover......Page 1
Title Page......Page 6
Copyright Page......Page 7
Forward......Page 8
About the Authors......Page 10
Brief Contents......Page 11
Contents......Page 14
Flexibility Chart......Page 29
Preface......Page 32
A Word of Thanks......Page 59
 Why Does Ford Assemble Cars in Both the United States and Mexico?......Page 61
 1.1. Three Key Economic Ideas......Page 63
  Apply the Concept: Does Health Insurance Give People an Incentive to Become Obese?......Page 64
  Solved Problem 1.1: The Marginal Benefit and Marginal Cost of Speed Limits......Page 66
 1.2. The Economic Problem That Every Society Must Solve......Page 67
  Who Will Receive the Goods and Services Produced?......Page 68
  The Modern “Mixed” Economy......Page 69
  Efficiency and Equity......Page 70
  The Role of Assumptions in Economic Models......Page 71
  Forming and Testing Hypotheses in Economic Models......Page 72
  Don’t Let This Happen to You: Don’t Confuse Positive Analysis with Normative Analysis......Page 73
  Apply the Concept: What Can Economics Contribute to the Debate over Tariffs?......Page 74
 1.5. Economic Skills and Economics as a Career......Page 75
 1.6. A Preview of Important Economic Terms......Page 76
 Conclusion......Page 78
  An Inside Look: Is Manufacturing Returning to the United States?......Page 79
 Chapter Summary and Problems......Page 81
 Appendix: Using Graphs and Formulas......Page 87
  Graphs of One Variable......Page 88
  Graphs of Two Variables......Page 89
   Slopes of Lines......Page 90
   Positive and Negative Relationships......Page 91
   Determining Cause and Effect......Page 93
   Slopes of Nonlinear Curves......Page 94
  Formulas......Page 95
  Formulas for the Areas of a Rectangle and a Triangle......Page 96
  Problems and Applications......Page 97
 Managers at Tesla Motors Face Trade-offs......Page 99
  Graphing the Production Possibilities Frontier......Page 101
  Solved Problem 2.1: Drawing a Production Possibilities Frontier for Tesla Motors......Page 103
  Increasing Marginal Opportunity Costs......Page 105
  Economic Growth......Page 106
  Specialization and Gains from Trade......Page 107
  Absolute Advantage versus Comparative Advantage......Page 109
  Don’t Let This Happen to You: Don’t Confuse Absolute Advantage and Comparative Advantage......Page 110
  Solved Problem 2.2: Comparative Advantage and the Gains from Trade......Page 111
  Apply the Concept: Comparative Advantage, Opportunity Cost, and Housework......Page 112
 2.3. The Market System......Page 113
  The Circular Flow of Income......Page 114
  The Market Mechanism......Page 115
  Apply the Concept: A Story of the Market System in Action: How Do You Make an iPad?......Page 116
  The Legal Basis of a Successful Market System......Page 118
  Apply the Concept: Managers at Feeding America Use the Market Mechanism to Reduce Hunger......Page 121
 Conclusion......Page 122
 An Inside Look: Tesla Bets Big on Nevada Battery Plant......Page 123
 Chapter Summary and Problems......Page 125
 How Smart Is Your Water?......Page 131
  Demand Schedules and Demand Curves......Page 133
  What Explains the Law of Demand?......Page 134
  Variables That Shift Market Demand......Page 135
  Apply the Concept: Virtual Reality Headsets: Will a Substitute Fail for a Lack of Complements?......Page 136
  Apply the Concept: Millennials Shake Up the Markets for Soda, Groceries, Big Macs, and Running Shoes......Page 137
  Apply the Concept: Forecasting the Demand for Premium Bottled Water......Page 140
 3.2. The Supply Side of the Market......Page 141
  Variables That Shift Market Supply......Page 142
 3.3. Market Equilibrium: Putting Demand and Supply Together......Page 145
  How Markets Eliminate Surpluses and Shortages......Page 146
  Solved Problem 3.3: Demand and Supply Both Count: A Tale of Two Letters......Page 147
  The Effect of Shifts in Demand and Supply over Time......Page 149
  Apply the Concept: Lower Demand for Orange Juice—But Higher Prices?......Page 151
  Solved Problem 3.4: Can We Predict Changes in the Price and Quantity of Organic Corn?......Page 153
  Shifts in a Curve versus Movements along a Curve......Page 154
  Don’t Let This Happen to You: Remember: A Change in a Good\'s Price Does NotCause the Demand or Supply Curve to Shift......Page 155
 Conclusion......Page 156
  An Inside Look: McDonald’s Looks for New Ways to Attract Customers......Page 157
 Chapter Summary and Problems......Page 159
 What Do Food Riots in Venezuela and the Rise of Uber in the United States Have in Common?......Page 167
  Consumer Surplus......Page 169
  Apply the Concept: The Consumer Surplus from Uber......Page 171
  Producer Surplus......Page 173
  Marginal Benefit Equals Marginal Cost in Competitive Equilibrium......Page 174
  Economic Surplus......Page 175
  Economic Surplus and Economic Efficiency......Page 176
  Price Floors: Government Policy in Agricultural Markets......Page 177
  Apply the Concept: Price Floors in Labor Markets: The Debate over Minimum Wage Policy......Page 178
  Price Ceilings: Government Rent Control Policy in Housing Markets......Page 180
  Black Markets and Peer-to-Peer Sites......Page 181
  Solved Problem 4.3: What’s the Economic Effect of a Black Market in Renting Apartments?......Page 182
  Apply the Concept: Price Controls Lead to Economic Decline in Venezuela......Page 183
  The Effect of Taxes on Economic Efficiency......Page 185
  Tax Incidence: Who Actually Pays a Tax?......Page 186
  Solved Problem 4.4: When Do Consumers Pay All of a Sales Tax Increase?......Page 187
  Apply the Concept: Is the Burden of the Social Security Tax Really Shared Equally between Workers and Firms?......Page 189
 Conclusion......Page 190
  An Inside Look: Will Uber Be Required to Pay British VAT?......Page 191
 Chapter Summary and Problems......Page 193
  Demand and Supply Equations......Page 200
  Calculating Consumer Surplus and Producer Surplus......Page 201
   Problems and Applications......Page 203
 Why Does ExxonMobil Want to Pay a Carbon Tax?......Page 205
  The Effect of Externalities......Page 207
  Externalities and Market Failure......Page 209
 5.2. Private Solutions to Externalities: The Coase Theorem......Page 210
  Apply the Concept: The Clean Air Act: How a Government Policy Reduced Infant Mortality......Page 211
  Don’t Let This Happen to You: Remember That It’s the Net Benefit That Counts......Page 213
  Do Property Rights Matter?......Page 214
  Apply the Concept: How Can You Defend Your Knees on a Plane Flight?......Page 215
  Imposing a Tax When There Is a Negative Externality......Page 216
  Providing a Subsidy When There Is a Positive Externality......Page 217
  Apply the Concept: Should the Government Tax Cigarettes and Soda?......Page 218
  Solved Problem 5.3: Dealing with the Externalities of Car Driving......Page 219
  Command-and-Control versus Market-Based Approaches......Page 221
  Apply the Concept: Should the United States Enact a Carbon Tax to Fight Global Warming?......Page 222
 5.4. Four Categories of Goods......Page 224
  The Demand for a Public Good......Page 225
  The Optimal Quantity of a Public Good......Page 226
  Solved Problem 5.4: Determining the Optimal Level of Public Goods......Page 228
  Common Resources......Page 229
 Conclusion......Page 232
 Chapter Summary and Problems......Page 233
 Do Soda Taxes Work?......Page 241
  Measuring the Price Elasticity of Demand......Page 243
  An Example of Calculating Price Elasticities......Page 244
  The Midpoint Formula......Page 245
  Solved Problem 6.1: Calculating the Price Elasticity of Demand......Page 246
  Polar Cases of Perfectly Elastic and Perfectly Inelastic Demand......Page 247
  Availability of Close Substitutes......Page 249
  Some Estimated Price Elasticities of Demand......Page 250
 6.3. The Relationship between Price Elasticity of Demand and Total Revenue......Page 251
  Elasticity and Revenue with a Linear Demand Curve......Page 252
  Solved Problem 6.3: Price and Revenue Don’t Always Move in the Same Direction......Page 254
  Apply the Concept: Why Does Amazon Care about Price Elasticity?......Page 255
  Cross-Price Elasticity of Demand......Page 256
  Income Elasticity of Demand......Page 257
 6.5. Using Elasticity to Analyze the Disappearing Family Farm......Page 258
  Solved Problem 6.5: Using Price Elasticity to Analyze the Effects of a Soda Tax......Page 259
  Determinants of the Price Elasticity of Supply......Page 261
  Apply the Concept: Why Are Oil Prices So Unstable?......Page 262
  Polar Cases of Perfectly Elastic and Perfectly Inelastic Supply......Page 263
  Using Price Elasticity of Supply to Predict Changes in Price......Page 265
 Conclusion......Page 266
 Chapter Summary and Problems......Page 268
 Where Will You Find Health Insurance?......Page 277
 7.1. The Improving Health of People in the United States......Page 279
  Reasons for Long-Run Improvements in U.S. Health......Page 280
  The U.S. Health Care System......Page 281
  Apply the Concept: The Increasing Importance of Health Care in the U.S. Economy......Page 283
  The Health Care Systems of Canada, Japan, and the United Kingdom......Page 284
  Comparing Health Care Outcomes around the World......Page 285
  How Useful Are Cross-Country Comparisons of Health Outcomes?......Page 286
  Adverse Selection and the Market for “Lemons”......Page 287
  Asymmetric Information in the Market for Health Insurance......Page 288
  Don’t Let This Happen to You: Don’t Confuse Adverse Selection with Moral Hazard......Page 289
  Externalities in the Market for Health Care......Page 290
  Should the Government Run the Health Care System?......Page 292
  The Rising Cost of Health Care......Page 293
  Apply the Concept: Are U.S. Firms Handicapped by Paying for Their Employees’ Health Insurance?......Page 295
  Explaining Increases in Health Care Spending......Page 296
  The Continuing Debate over Health Care Policy......Page 299
  Solved Problem 7.4: Recent Trends in U.S. Health Care......Page 300
  Apply the Concept: How Much Is That MRI Scan?......Page 302
 Conclusion......Page 304
 Chapter Summary and Problems......Page 305
 Is Snapchat the Next Facebook . . . or the Next Twitter?......Page 311
  Who Is Liable? Limited and Unlimited Liability......Page 313
  Corporations Earn the Majority of Revenue and Profits......Page 314
  Apply the Concept: Why Are Fewer Young People Starting Businesses?......Page 315
  The Structure of Corporations and the Principal–Agent Problem......Page 316
  Sources of External Funds......Page 317
  Apply the Concept: The Rating Game: Are the Federal Government or State Governments Likely to Default on Their Bonds?......Page 318
  Stock and Bond Markets Provide Capital—and Information......Page 320
  Don’t Let This Happen to You: When Snap Shares Are Sold, Snap Doesn’t Getthe Money......Page 321
  Apply the Concept: Why Are Many People Poor Stock Market Investors?......Page 323
  Solved Problem 8.2: Why Does Warren Buffett Like Mutual Funds?......Page 324
  The Income Statement......Page 325
  The Balance Sheet......Page 326
  Corporate Governance and the Financial Crisis of 2007–2009......Page 327
  Did Principal–Agent Problems Help Cause the 2007–2009 Financial Crisis?......Page 328
  Apply the Concept: Should Investors Worry about Corporate Governance at Snapchat?......Page 329
 Conclusion......Page 331
 Chapter Summary and Problems......Page 332
  Using Present Value to Make Investment Decisions......Page 337
   Solved Problem 8A.1: How to Receive Your Contest Winnings......Page 339
   Using Present Value to Calculate Bond Prices......Page 340
   A Simple Formula for Calculating Stock Prices......Page 341
  Going Deeper into Financial Statements......Page 342
   Analyzing Balance Sheets......Page 343
   Problems and Applications......Page 345
 President Trump, Oreo Cookies, and Free Trade......Page 347
 9.1. The United States in the International Economy......Page 349
  The Importance of Trade to the U.S. Economy......Page 350
 9.2. Comparative Advantage in International Trade......Page 351
  Comparative Advantage and Absolute Advantage......Page 352
  Increasing Consumption through Trade......Page 353
  Solved Problem 9.3: The Gains from Trade......Page 355
  Why Don’t We See Complete Specialization?......Page 356
  Apply the Concept: Who Gains and Who Loses from U.S. Trade with China?......Page 357
  Where Does Comparative Advantage Come From?......Page 360
 9.4. Government Policies That Restrict International Trade......Page 361
  Tariffs......Page 362
  Measuring the Economic Effect of the Sugar Quota......Page 363
  Solved Problem 9.4: Measuring the Economic Effect of a Quota......Page 365
  Apply the Concept: Smoot-Hawley, the Politics of Tariffs, and the Cost of Protecting a Vanishing Industry......Page 366
  Why Do Some People Oppose the World Trade Organization?......Page 368
  Apply the Concept: Protecting Consumer Health or Protecting U.S. Firms from Competition?......Page 371
  Positive versus Normative Analysis (Once Again)......Page 372
 Conclusion......Page 373
 Chapter Summary and Problems......Page 374
 J.C. Penney Customers Didn’t Buy into “Everyday Low Prices”......Page 383
  Utility......Page 385
  The Rule of Equal Marginal Utility per Dollar Spent......Page 386
  Solved Problem 10.1: Finding the Optimal Level of Consumption......Page 389
  What if the Rule of Equal Marginal Utility per Dollar Does Not Hold?......Page 390
  Don’t Let This Happen to You: Equalize Marginal Utilities per Dollar......Page 391
  The Income Effect and Substitution Effect of a Price Change......Page 392
 10.2. Where Demand Curves Come From......Page 393
  Apply the Concept: Are There Any Upward-Sloping Demand Curves in theReal World?......Page 395
  The Effects of Celebrity Endorsements......Page 396
  Network Externalities......Page 397
  Does Fairness Matter?......Page 398
  Apply the Concept: Who Made the Most Profit from the Broadway Musical Hamilton?......Page 400
  Solved Problem 10.3: Why Doesn’t Tesla Charge Its Employees to Park Their Cars?......Page 402
  Pitfalls in Decision Making......Page 404
  Apply the Concept: A Blogger Who Understands the Importance of Ignoring Sunk Costs......Page 405
  “Nudges”: Using Behavioral Economics to Guide Behavior......Page 406
  The Behavioral Economics of Shopping......Page 407
  Apply the Concept: J.C. Penney Meets Behavioral Economics......Page 408
 Conclusion......Page 410
 Chapter Summary and Problems......Page 411
   Indifference Curves......Page 417
   Can Indifference Curves Ever Cross?......Page 418
  The Budget Constraint......Page 419
  Choosing the Optimal Consumption of Pizza and Coke......Page 420
   Apply the Concept: Apple Determines the Optimal Mix of iPhone Features......Page 421
   Deriving the Demand Curve......Page 422
   Solved Problem 10A.1: When Does a Price Change Make a Consumer Better Off?......Page 423
   The Income Effect and the Substitution Effect of a Price Change......Page 424
  The Slope of the Indifference Curve, the Slope of the Budget Line, and the Rule of Equal Marginal Utility per Dollar Spent......Page 426
   The Rule of Equal Marginal Utility per Dollar Spent Revisited......Page 427
   Problems and Applications......Page 429
 Will the Cost of MOOCs Revolutionize Higher Education?......Page 431
  Apply the Concept: Would You Please Be Quiet? Technological Change at Segment.com......Page 433
  The Difference between Fixed Costs and Variable Costs......Page 434
  Implicit Costs versus Explicit Costs......Page 435
  The Production Function......Page 436
  A First Look at the Relationship between Production and Cost......Page 437
  The Law of Diminishing Returns......Page 438
  Graphing Production......Page 439
  The Relationship between Marginal Product and Average Product......Page 440
  An Example of Marginal and Average Values: College Grades......Page 441
  Why Are the Marginal and Average Cost Curves U Shaped?......Page 442
  Solved Problem 11.4: Calculating Marginal Cost and Average Cost......Page 444
 11.5. Graphing Cost Curves......Page 445
  Economies of Scale......Page 447
  Solved Problem 11.6: Using Long-Run Average Cost Curves to Understand Business Strategy......Page 448
  Apply the Concept: The Colossal River Rouge: Diseconomies of Scale at Ford Motor Company......Page 450
  Don’t Let This Happen to You: Don’t Confuse Diminishing Returns with Diseconomies of Scale......Page 451
 Conclusion......Page 452
 Chapter Summary and Problems......Page 453
   An Isoquant Graph......Page 461
   The Slope and Position of the Isocost Line......Page 462
   Different Input Price Ratios Lead to Different Input Choices......Page 464
   Solved Problem 11A.1: Firms Responding to Differences in Input Price Ratios......Page 465
   Another Look at Cost Minimization......Page 466
   Solved Problem 11A.2: Determining the Optimal Combination of Inputs......Page 467
   Apply the Concept: Do National Football League Teams Behave Efficiently?......Page 468
  The Expansion Path......Page 469
   Problems and Applications......Page 470
 Are Cage-Free Eggs the Road to Riches?......Page 473
  A Perfectly Competitive Firm Cannot Affect the Market Price......Page 476
  Don’t Let This Happen to You: Don’t Confuse the Demand Curve for Farmer Parker’s Wheat with the Market Demand Curve for Wheat......Page 477
 12.2. How a Firm Maximizes Profit in a Perfectly Competitive Market......Page 478
  Determining the Profit-Maximizing Level of Output......Page 479
 12.3. Illustrating Profit or Loss on the Cost Curve Graph......Page 481
  Showing Profit on a Graph......Page 482
  Solved Problem 12.3: Determining Profit-Maximizing Price and Quantity......Page 483
  Illustrating When a Firm Is Breaking Even or Operating at a Loss......Page 485
  Apply the Concept: Losing Money in the Restaurant Business......Page 486
 12.4. Deciding Whether to Produce or to Shut Down in the Short Run......Page 487
  The Supply Curve of a Firm in the Short Run......Page 488
  Solved Problem 12.4: When to Shut Down a Farm......Page 489
  The Market Supply Curve in a Perfectly Competitive Industry......Page 490
  Economic Profit and the Entry or Exit Decision......Page 491
  Long-Run Equilibrium in a Perfectly Competitive Market......Page 493
  The Long-Run Supply Curve in a Perfectly Competitive Market......Page 495
  Apply the Concept: In the Apple App Store, Easy Entry Makes the Long Run Pretty Short......Page 496
  Productive Efficiency......Page 497
  Solved Problem 12.6: How Productive Efficiency Benefits Consumers......Page 498
  Allocative Efficiency......Page 499
 Conclusion......Page 500
 Chapter Summary and Problems......Page 501
 Will Panera’s “Pure Food” Advantage Last?......Page 509
  Marginal Revenue for a Firm with a Downward-Sloping Demand Curve......Page 511
 13.2. How a Monopolistically Competitive Firm Maximizes Profit in the Short Run......Page 513
  Solved Problem 13.2: Does Minimizing Cost Maximize Profit at Apple?......Page 515
  How Does the Entry of New Firms Affect the Profits of Existing Firms?......Page 516
  Don’t Let This Happen to You: Don’t Confuse Zero Economic Profit with Zero Accounting Profit......Page 517
  Apply the Concept: Is “Clean Food” a Sustainable Market Niche for Panera?......Page 519
  Solved Problem 13.3: Red Robin Abandons an Experiment in Fast-Casual Restaurants......Page 520
 13.4. Comparing Monopolistic Competition and Perfect Competition......Page 521
  Is Monopolistic Competition Inefficient?......Page 522
  Apply the Concept: One Way to Differentiate Your Restaurant? Become a Ghost!......Page 523
 13.5. How Marketing Differentiates Products......Page 524
 13.6. What Makes a Firm Successful?......Page 525
 Apply the Concept: Is Being the First Firm in the Market a Key to Success?......Page 526
 Conclusion......Page 528
 Chapter Summary and Problems......Page 529
 Apple, Spotify, and the Music Streaming Revolution......Page 537
 14.1. Oligopoly and Barriers to Entry......Page 539
  Barriers to Entry......Page 540
  Apply the Concept: Got a Great Recipe for Cookies? Don’t Try Selling Them in Wisconsin or New Jersey......Page 542
 14.2. Game Theory and Oligopoly......Page 543
  A Duopoly Game: Price Competition between Two Firms......Page 544
  Don’t Let This Happen to You: Don’t Misunderstand Why Each Firm Ends UpCharging a Price of $9.99......Page 545
  Solved Problem 14.2: Is Offering a College Student Discount a Prisoner’s Dilemma for Apple and Spotify?......Page 546
  Can Firms Escape the Prisoner’s Dilemma?......Page 547
  Apply the Concept: Are the Big Four Airlines Colluding?......Page 548
  Cartels: The Case of OPEC......Page 550
  Deterring Entry......Page 551
  Solved Problem 14.3: Is Deterring Entry Always a Good Idea?......Page 553
  Bargaining......Page 554
  Competition from Existing Firms......Page 555
  The Bargaining Power of Suppliers......Page 556
  Apply the Concept: Can We Predict Which Firms Will Continue to Be Successful?......Page 557
 Conclusion......Page 558
 Chapter Summary and Problems......Page 559
 A Monopoly on Lobster Dinners in Maine?......Page 565
  Apply the Concept: Is the NCAA a Monopoly?......Page 567
  Government Action Blocks Entry......Page 569
  Apply the Concept: Does Hasbro Have a Monopoly on Monopoly?......Page 570
  Apply the Concept: Are Diamond Profits Forever? The De Beers Diamond Monopoly......Page 571
  Network Externalities......Page 572
  Natural Monopoly......Page 573
  Marginal Revenue Once Again......Page 574
  Profit Maximization for a Monopolist......Page 575
  Solved Problem 15.3: Finding the Profit-Maximizing Price and Output for a Cable Monopoly......Page 577
  Comparing Monopoly and Perfect Competition......Page 578
  Measuring the Efficiency Losses from Monopoly......Page 579
  How Large Are the Efficiency Losses Due to Monopoly?......Page 580
  Antitrust Laws and Antitrust Enforcement......Page 581
  Apply the Concept: Have Generic Drug Firms Been Colluding to Raise Prices?......Page 582
  Mergers: The Trade-off between Market Power and Efficiency......Page 583
  The Department of Justice and FTC Merger Guidelines......Page 585
  Regulating Natural Monopolies......Page 587
  Solved Problem 15.5: What Should Your College Charge for a MOOC?......Page 588
 Conclusion......Page 589
 Chapter Summary and Problems......Page 590
 Walt Disney Discovers the Magic of Big Data......Page 597
  Arbitrage......Page 599
  Why Don’t All Firms Charge the Same Price?......Page 600
  The Requirements for Successful Price Discrimination......Page 601
  An Example of Price Discrimination......Page 602
  Solved Problem 16.2: How Apple Uses Price Discrimination to Increase Profits......Page 603
  Airlines: The Kings of Price Discrimination......Page 604
  Apply the Concept: Big Data and the Rise of Dynamic Pricing......Page 605
  Perfect Price Discrimination......Page 607
  Price Discrimination across Time......Page 608
  Odd Pricing: Why Is the Price $2.99 Instead of $3.00?......Page 610
  Apply the Concept: Cost-Plus Pricing in the Publishing Industry......Page 611
  How Can Using Two-Part Tariffs Increase a Firm’s Profit?......Page 612
 Conclusion......Page 615
 Chapter Summary and Problems......Page 616
 Rio Tinto Mines with Robots......Page 621
  The Marginal Revenue Product of Labor......Page 623
  Solved Problem 17.1: Hiring Decisions by a Firm That Is a Price Maker......Page 625
  Factors That Shift the Market Demand Curve for Labor......Page 626
 17.2. The Supply of Labor......Page 627
  Factors That Shift the Market Supply Curve of Labor......Page 628
 17.3. Equilibrium in the Labor Market......Page 629
  Apply the Concept: Is Investing in a College Education a Good Idea?......Page 630
  The Effect of Immigration on the U.S. Labor Market......Page 631
  Apply the Concept: Will You Compete with a Robot for a Job—Or Work with One?......Page 633
 17.4. Explaining Differences in Wages......Page 636
  Apply the Concept: Technology and the Earnings of “Superstars”......Page 637
  Compensating Differentials......Page 638
  Discrimination......Page 639
  Solved Problem 17.4: Is Passing “Comparable Worth” Legislation a Good Way to Close the Gap between Men’s and Women’s Pay?......Page 640
  Apply the Concept: Does Greg Have an Easier Time Finding a Job Than Jamal?......Page 642
 17.5. Personnel Economics......Page 644
  Should Workers’ Pay Depend on How Much They Work or on How Much They Produce?......Page 645
  Apply the Concept: A Better Way to Sell Contact Lenses......Page 646
  The Market for Capital......Page 647
  The Market for Natural Resources......Page 648
  Monopsony......Page 649
 Conclusion......Page 650
 Chapter Summary and Problems......Page 651
 Should Your Small Business Be Taxed Like Apple?......Page 659
  How Do We Know the Public Interest? Models of Voting......Page 661
  Government Failure?......Page 663
 18.2. The Tax System......Page 665
  An Overview of the U.S. Tax System......Page 666
  Progressive and Regressive Taxes......Page 667
  Apply the Concept: Which Groups Pay the Most in Federal Taxes?......Page 668
  International Comparison of Corporate Income Taxes......Page 669
  Evaluating Taxes......Page 670
 18.3. Tax Incidence Revisited: The Effect of Price Elasticity......Page 673
  Apply the Concept: Do Corporations Really Bear the Burden of the Federal Corporate Income Tax?......Page 674
  Solved Problem 18.3: The Effect of Price Elasticity on the Excess Burden of a Tax......Page 675
  Measuring the Income Distribution and Measuring Poverty......Page 676
  Showing the Income Distribution with a Lorenz Curve......Page 678
  Problems in Measuring Poverty and the Distribution of Income......Page 679
  Solved Problem 18.4: What’s the Difference between Income Mobility and Income Inequality?......Page 680
  Explaining Income Inequality......Page 682
  Policies to Reduce Income Inequality......Page 683
  Apply the Concept: Who Are the 1 Percent, and How Do They Earn Their Incomes?......Page 685
  Income Distribution and Poverty around the World......Page 686
 Conclusion......Page 688
 Chapter Summary and Problems......Page 689
 The Ford Motor Company Meets Macroeconomics......Page 695
  Measuring Total Production: Gross Domestic Product......Page 698
  Production, Income, and the Circular-Flow Diagram......Page 699
  Components of GDP......Page 701
  An Equation for GDP and Some Actual Values......Page 702
  Apply the Concept: Microsoft’s Steve Ballmer Uses the U.S. Constitution to Reorganize Government Data......Page 703
  Shortcomings in GDP as a Measure of Total Production......Page 705
  Apply the Concept: Why Do Many Developing Countries Have Such Large Underground Economies?......Page 706
  Shortcomings of GDP as a Measure of Well-Being......Page 707
  Solved Problem 19.3: Calculating Real GDP......Page 708
  Comparing Real GDP and Nominal GDP......Page 709
  The GDP Deflator......Page 710
  Apply the Concept: Did the Standard of Living in Nigeria Almost Double Overnight?......Page 711
  National Income......Page 712
  The Division of Income......Page 713
 Conclusion......Page 714
 Chapter Summary and Problems......Page 715
 Why Would Boeing Cut Thousands of Jobs As the Economy Expands?......Page 721
  The Household Survey......Page 723
  Solved Problem 20.1: What Happens if the BLS Includes the Military?......Page 725
  Problems with Measuring the Unemployment Rate......Page 726
  Trends in Labor Force Participation......Page 727
  Unemployment Rates for Different Groups......Page 728
  Apply the Concept: Eight Million Workers Are Missing!......Page 729
  The Establishment Survey: Another Measure of Employment......Page 731
  Job Creation and Job Destruction over Time......Page 732
  Frictional Unemployment and Job Search......Page 733
  Cyclical Unemployment......Page 734
  Apply the Concept: How Should We Categorize the Unemployment Resulting from Boeing’s Layoffs?......Page 735
  Government Policies and the Unemployment Rate......Page 736
  Labor Unions......Page 737
  The Consumer Price Index......Page 738
  Don’t Let This Happen to You: Don’t Miscalculate the Inflation Rate......Page 740
 20.5. Using Price Indexes to Adjust for the Effects of Inflation......Page 741
  Solved Problem 20.5: What Has Been Happening to Real Wages in the United States?......Page 742
 20.6. Nominal Interest Rates versus Real Interest Rates......Page 744
 20.7. Does Inflation Impose Costs on the Economy?......Page 745
  The Problem with Anticipated Inflation......Page 746
  Apply the Concept: What’s So Bad about Falling Prices?......Page 747
 Conclusion......Page 749
 Chapter Summary and Problems......Page 750
 Economic Growth and the Business Cycle at Chevron Corporation......Page 761
 21.1. Long-Run Economic Growth......Page 763
  Apply the Concept: The Connection between Economic Prosperity and Health......Page 764
  Calculating Growth Rates and the Rule of 70......Page 766
  What Determines the Rate of Long-Run Growth?......Page 767
  Solved Problem 21.1: Where Does Productivity Come From?......Page 768
  Apply the Concept: Can India Sustain Its Rapid Growth?......Page 769
  Potential GDP......Page 771
  An Overview of the Financial System......Page 772
  The Macroeconomics of Saving and Investment......Page 773
  The Market for Loanable Funds......Page 775
  Apply the Concept: Ebenezer Scrooge: Accidental Promoter of Economic Growth?......Page 776
  Solved Problem 21.2: Are Future Budget Deficits a Threat to the Economy?......Page 778
  Some Basic Business Cycle Definitions......Page 780
  How Do We Know When the Economy Is in a Recession?......Page 781
  What Happens during the Business Cycle?......Page 782
  Don’t Let This Happen to You: Don’t Confuse the Price Level and the Inflation Rate......Page 784
  Will the U.S. Economy Return to Stability?......Page 787
 Conclusion......Page 788
 Chapter Summary and Problems......Page 789
 What Explains Slow Growth in Mexico?......Page 795
  Economic Growth from 1,000,000 B.C.E. to the Present......Page 797
  Apply the Concept: Why Did the Industrial Revolution Begin in England?......Page 798
  Small Differences in Growth Rates Are Important......Page 799
  “The Rich Get Richer and … ”......Page 800
  Apply the Concept: Is Income All That Matters?......Page 801
 22.2. What Determines How Fast Economies Grow?......Page 802
  The Per-Worker Production Function......Page 803
  Technological Change: The Key to Sustaining Economic Growth......Page 804
  Apply the Concept: What Explains the Economic Failure of the Soviet Union?......Page 805
  Solved Problem 22.2: Using the Economic Growth Model to Analyze the Failure of the Soviet Economy......Page 806
  New Growth Theory......Page 807
  Economic Growth in the United States since 1950......Page 809
  Is the United States Headed for a Long Period of Slow Growth?......Page 810
 22.4. Why Isn’t the Whole World Rich?......Page 812
  Catch-up: Sometimes but Not Always......Page 813
  Solved Problem 22.4: The Economic Growth Model’s Prediction of Catch-Up......Page 815
  Why Haven’t Most Western European Countries, Canada, and Japan Caught Up to the United States?......Page 816
  Why Don’t More Low-Income Countries Experience Rapid Growth?......Page 818
  Apply the Concept: Why Hasn’t Mexico Grown as Fast as China?..