Economics Today: The Micro View

Cover......Page 1
Title Page......Page 4
The Pearson Series in Economics......Page 5
Copyright Page......Page 7
Contents......Page 9
One-Semester Course Outline......Page 18
Preface......Page 19
New to This Edition......Page 20
Making the Connection—from the Classroom to the Real World......Page 21
Helping Students Focus and Think Critically......Page 22
Supplemental Resources......Page 25
Acknowledgments......Page 26
Photo Credits......Page 28
1 The Nature of Economics......Page 32
Defining Economics......Page 33
The Three Basic Economic Questions and Two Opposing Answers......Page 34
International Example: Indian Men Living in the United States Become Ineligible Bachelors......Page 36
Example: The Perceived Value of Gifts......Page 38
Why Not…: Try to Increase Blood Donations by Offering Small Payments to Donors?......Page 40
Positive Versus Normative Economics......Page 41
You Are There: A Movie Producer Responds to Incentives......Page 42
Issues & Applications: In Many U.S. Industries, Command and Control Rules......Page 43
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 44
Problems......Page 45
Answers to Quick Quizzes......Page 47
Constructing a Graph......Page 48
Graphing Numbers in a Table......Page 50
The Slope of a Line (A Linear Curve)......Page 52
Problems......Page 55
Getting Directions......Page 39
Policy Example: The Government Gives Everyone an Incentive to Own a Golf Cart......Page 37
2 Scarcity and the World of Trade-Offs......Page 57
Scarcity......Page 58
Wants and Needs......Page 59
Scarcity, Choice, and Opportunity Cost......Page 60
International Example: France Is the Sleeping Giant......Page 61
The Choices Society Faces......Page 63
Why Not…: Provide “Free” Health Care to Everyone in the United States?......Page 64
Economic Growth and the Production Possibilities Curve......Page 66
The Trade-Off Between the Present and the Future......Page 67
Specialization and Greater Productivity......Page 69
Time as a Determinant of Comparative Advantage......Page 71
You Are There: Stopping Students’ Thursday Night Parties with Friday Classes......Page 72
Issues & Applications: Is Daylight Saving Time Efficient?......Page 73
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 74
Problems......Page 75
Economics on the Net......Page 77
Answers to Quick Quizzes......Page 78
Example: Airlines Confront the Opportunity Cost of Legroom on Planes......Page 62
3 Demand and Supply......Page 79
Demand......Page 80
Why Even Low-Income Households Are Rushing to Buy iPhones......Page 82
Shifts in Demand......Page 85
The Law of Supply......Page 89
International Example: Why the Quantity of Brides Supplied Is Rising in China......Page 90
Why Not…: Help College Students by Requiring Publishers to Reduce Prices for All of the Textbooks They Currently Supply?......Page 92
Shifts in Supply......Page 93
Putting Demand and Supply Together......Page 95
Issues & Applications: How the Great Recession Identified Inferior Goods......Page 99
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 100
Problems......Page 102
Answers to Quick Quizzes......Page 104
Example: A Mistaken Price Change Confirms the Law of Demand......Page 81
An Income Drop Reveals That Divorce Services Are a Normal Good......Page 86
Computer Hardware Consumers Substitute in Favor of “Clouds”......Page 87
How “Fracking” for Natural Gas Has Affected Its Supply......Page 94
How the Housing Bust Created a Sawdust Shortage......Page 97
Policy Example: Should Shortages in the Ticket Market Be Solved by Scalpers?......Page 98
4 Extensions of Demand and Supply Analysis......Page 105
The Price System and Markets......Page 106
International Example: Assisting Scattered Emigrants Who Want to Help Kin at Home......Page 107
The Rationing Function of Prices......Page 110
The Policy of Government-Imposed Price Controls......Page 111
The Policy of Controlling Rents......Page 113
Why Not…: Require Owners of Residential Buildings to Provide Low-Cost Housing So That All U.S. Residents Can “Afford” Roofs over Their Heads?......Page 114
Price Floors in Agriculture......Page 115
Price Floors in the Labor Market......Page 116
Policy Example: Bad Timing for Increasing the Minimum Wage......Page 118
Issues & Applications: Contemplating Two Ways to Tackle Water Shortages......Page 119
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 121
Problems......Page 122
Answers to Quick Quizzes......Page 124
Consumer Surplus......Page 125
Producer Surplus......Page 126
Gains from Trade Within a Price System......Page 127
Price Controls and Gains from Trade......Page 128
International Policy Example: The Rice Must Be White!......Page 112
What Accounts for Rising Pork Prices in China?......Page 109
5 Public Spending and Public Choice......Page 129
Correcting for Externalities......Page 130
The Other Economic Functions of Government......Page 134
The Political Functions of Government......Page 136
Public Spending and Transfer Programs......Page 137
Valuable Charter School Services—for Those Who Can Get Them......Page 142
Issues & Applications: Uncle Sam Becomes an Investor in Clean-Energy Technology......Page 145
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 147
Problems......Page 148
Economics on the Net......Page 150
Answers to Quick Quizzes......Page 151
Example: Space Age Litterbugs......Page 131
Countdown to Private Production of Space Travel......Page 135
International Example: So Little Mail, So Little for So Many Post Offices to Do......Page 144
Policy Example: Seeking to Halt “Overuse” of Massachusetts Health Care......Page 141
6 Funding the Public Sector......Page 152
Policy Example: Government Grinches Grab Gifts......Page 153
The Most Important Federal Taxes......Page 156
Tax Rates and Tax Revenues......Page 159
International Policy Example: Ireland Collects Plenty of Corporate Taxes with a Low Rate......Page 161
Taxation from the Point of View of Producers and Consumers......Page 162
You Are There: A Business Owner Responds to a Marginal Tax Rate Increase......Page 164
Issues & Applications: Raising Capital Gains Tax Rates Shrinks the Tax Base......Page 165
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 166
Problems......Page 167
Answers to Quick Quizzes......Page 169
Will U.S. Consumers Pour Their Dollars into a Federal VAT?......Page 154
What the Typical Taxpayer Owes Out of the Next Dollar Earned......Page 155
19 Demand and Supply Elasticity......Page 170
Price Elasticity......Page 171
Example: The Price Elasticity of Demand for Natural Gas......Page 173
Elasticity and Total Revenues......Page 174
Determinants of the Price Elasticity of Demand......Page 177
Why Not…: Always Raise Prices When Demand Is Inelastic?......Page 178
Cross Price Elasticity of Demand......Page 180
Income Elasticity of Demand......Page 181
The Income Elasticity of Demand for Dental Services......Page 182
Issues & Applications: Measuring the Substitutability of Satellite and Cable TV......Page 185
Summary: What You Should Know/Key Terms and Key Figures/ Where to Go to Practice......Page 186
Problems......Page 188
Answers to Quick Quizzes......Page 189
What Do Real-World Price Elasticities of Demand Look Like?......Page 179
International Example: Price Elasticities of Salmon Supply in Norway......Page 184
20 Consumer Choice......Page 190
Utility Theory......Page 191
Graphical Analysis......Page 192
Diminishing Marginal Utility......Page 194
Example: Newspaper Vending Machines versus Candy Vending Machines......Page 195
How a Price Change Affects Consumer Optimum......Page 198
The Demand Curve Revisited......Page 200
Behavioral Economics and Consumer Choice Theory......Page 201
You Are There: Signing Up for “Free” Trial Offers with TrialPay......Page 202
Issues & Applications: Is the Utility from Using Credit Cards Really Negative?......Page 203
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 204
Problems......Page 205
Economics on the Net......Page 206
Answers to Quick Quizzes......Page 207
On Being Indifferent......Page 208
Properties of Indifference Curves......Page 209
The Marginal Rate of Substitution......Page 210
The Indifference Map......Page 211
The Budget Constraint......Page 212
Consumer Optimum Revisited......Page 213
Deriving the Demand Curve......Page 214
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 215
Problems......Page 216
Does Consuming More Expensive Items Make People Happier?......Page 197
21 Rents, Profits, and the Financial Environment of Business......Page 217
Economic Rent......Page 218
Firms and Profits......Page 220
Interest......Page 225
Corporate Financing Methods......Page 229
Why Not…: Compare Average Stock Prices Today with Average Stock Prices in Years Past?......Page 230
Issues & Applications: The Recent Stock Market Meltdown versus Past Meltdowns......Page 232
Summary: What You Should Know/Key Terms and Key Figures/ Where to Go to Practice......Page 234
Problems......Page 235
Answers to Quick Quizzes......Page 237
Example: Do Entertainment Superstars Make Super Economic Rents?......Page 219
Higher Future Taxes Reduce the Discounted Present Value of Profits......Page 228
International Example: British Law Firms Adopt Corporate Structures......Page 222
Policy Example: The Insider-Trading Regulator’s Insiders Require Regulating......Page 231
22 The Firm: Cost and Output Determination......Page 238
Short Run versus Long Run......Page 239
Example: Virtualization Expands Feasible Production at Many Firms......Page 240
Diminishing Marginal Product......Page 242
Short-Run Costs to the Firm......Page 243
Why Not…: Force Firms to Reduce Their Fixed and, Hence, Total Costs by Cutting Their Energy Use?......Page 244
The Relationship Between Diminishing Marginal Product and Cost Curves......Page 248
Long-Run Cost Curves......Page 251
Why the Long-Run Average Cost Curve Is U-Shaped......Page 253
Minimum Efficient Scale......Page 254
Issues & Applications: Why Small Nuclear Reactors Are Fueling Big Dreams......Page 256
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 257
Problems......Page 259
Answers to Quick Quizzes......Page 261
New Technologies Reshape the LAC Curve in Book Publishing......Page 252
Why “Big-Box” Retailer Best Buy Has Begun to Shrink Its Stores......Page 255
Policy Example: Pulling New Weapons off the Computer Games Shelf......Page 246
23 Perfect Competition......Page 262
The Demand Curve of the Perfect Competitor......Page 263
How Much Should the Perfect Competitor Produce?......Page 264
Using Marginal Analysis to Determine the Profit-Maximizing Rate of Production......Page 266
Short-Run Profits......Page 268
The Short-Run Break-Even Price and the Short-Run Shutdown Price......Page 270
Example: Why Firms Stubbornly Produced Aluminum in the Late 2000s......Page 272
Price Determination Under Perfect Competition......Page 274
The Long-Run Industry Situation: Exit and Entry......Page 275
Long-Run Equilibrium......Page 278
Competitive Pricing: Marginal Cost Pricing......Page 279
You Are There: The Coal Mining Industry Confronts a Changing Cost Structure......Page 280
Issues & Applications: A Higher Price Sets Off a New California Gold Rush......Page 281
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 282
Problems......Page 284
Answers to Quick Quizzes......Page 286
International Example: A Global Plunge in the Price of Iron Ore Leads to Shutdowns......Page 271
24 Monopoly......Page 287
Barriers to Entry......Page 288
Why Not…: Stop Erecting Government Barriers to Entry?......Page 289
Example: Inducing Patients to Switch from One Patented Drug to Another......Page 291
Elasticity and Monopoly......Page 293
Costs and Monopoly Profit Maximization......Page 294
Calculating Monopoly Profit......Page 297
International Example: A Mexican Cement Monopoly Finds a Way to Incur Losses......Page 299
The Social Cost of Monopolies......Page 301
You Are There: A Texas Veterinary Board Whittles Down Vets’ Competition......Page 302
Issues & Applications: This Medallion Is Not Simply a Decorative Pendant......Page 303
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 304
Problems......Page 306
Answers to Quick Quizzes......Page 307
Consumer Surplus in a Perfectly Competitive Market......Page 308
How Society Loses from Monopoly......Page 309
Why Students Pay Different Prices to Attend College......Page 300
Policy Example: Congress Decides to License Tax Preparers......Page 290
25 Monopolistic Competition......Page 310
Monopolistic Competition......Page 311
Price and Output for the Monopolistic Competitor......Page 313
Comparing Perfect Competition with Monopolistic Competition......Page 315
Brand Names and Advertising......Page 316
Why Not…: Outlaw Persuasive Advertising?......Page 318
Information Products and Monopolistic Competition......Page 319
You Are There: Stimulating Candy Sales by Adding Caffeine......Page 322
Issues & Applications: Finding a Band Name Between ABBA and ZZ Top......Page 323
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 324
Problems......Page 325
Answers to Quick Quizzes......Page 327
Example: Is Punxsutawny Phil Hogging Too Much Attention?......Page 312
26 Oligopoly and Strategic Behavior......Page 328
Oligopoly......Page 329
Strategic Behavior and Game Theory......Page 332
The Cooperative Game: A Collusive Cartel......Page 335
Network Effects......Page 337
Product Compatibility in Multiproduct Oligopolies Facing Network Effects......Page 338
Why Not…: Require Companies to Make Their Products Compatible?......Page 341
You Are There: Apple Puts Adobe on Hold......Page 343
Issues & Applications: More Companies are “Going Vertical”......Page 344
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 345
Problems......Page 347
Answers to Quick Quizzes......Page 348
Example: Market Concentration in the Cellphone Industry......Page 331
The Prisoners’ Dilemma......Page 333
Policy Example: The U.S. Government Protects an Oligopoly—Or Is It a Cartel?......Page 336
27 Regulation and Antitrust Policy in a Globalized Economy......Page 349
Forms of Industry Regulation......Page 350
Regulating Natural Monopolies......Page 352
Regulating Nonmonopolistic Industries......Page 355
Incentives and Costs of Regulation......Page 358
Antitrust Policy......Page 361
International Policy Example: Antitrust Authorities Fine Intel for Its Low Prices......Page 364
Why Not…: Outlaw All Mergers Between Firms That Sell Similar Items?......Page 365
You Are There: A Church Loses a Pie Fight with Pennsylvania......Page 366
Issues & Applications: Food-Labeling Regulations Multiply......Page 367
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 368
Problems......Page 370
Economics on the Net......Page 371
Answers to Quick Quizzes......Page 372
The Tobacco Industry Sees Benefits in Regulation......Page 359
28 The Labor Market: Demand, Supply, and Outsourcing......Page 373
Labor Demand for a Perfectly Competitive Firm......Page 374
The Market Demand for Labor......Page 378
International Example: Globalization of Tasks and the Elasticity of U.S. Labor Demand......Page 380
Labor Outsourcing, Wages, and Employment......Page 383
Monopoly in the Product Market......Page 386
The Utilization of Other Factors of Production......Page 389
Issues & Applications: The Incentives to Outsource Labor Internationally......Page 391
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 393
Problems......Page 394
Answers to Quick Quizzes......Page 396
An Increase in the Demand for Services of Icelandic Translators......Page 382
Policy Example: Payroll Regulations Spur the Hiring of Independent Contractors......Page 390
29 Unions and Labor Market Monopoly Power......Page 397
Industrialization and Labor Unions......Page 398
Union Goals and Strategies......Page 401
Why Not…: Require Firms to Pay Union Wages to Nonunionized Workers?......Page 405
Monopsony: A Buyer’s Monopoly......Page 406
You Are There: Caught Up in an Unusual Jurisdictional Dispute in Michigan......Page 411
Issues & Applications: Tax Dollars Increasingly Pay Union Wages......Page 412
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 413
Problems......Page 415
Economics on the Net......Page 416
Answers to Quick Quizzes......Page 417
International Example: The Chinese Union Monopoly Expands to Include Employees of Foreign Firms......Page 399
Policy Example: Can Minimum Wage Laws Ever Boost Employment?......Page 409
30 Income, Poverty, and Health Care......Page 418
Income......Page 419
Determinants of Income Differences......Page 422
Theories of Desired Income Distribution......Page 425
Poverty and Attempts to Eliminate It......Page 426
Health Care......Page 430
Why Not…: Have All Physicians Work for the Federal Government?......Page 435
Issues & Applications: Is Your College Degree Worth $1 Million?......Page 437
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 439
Problems......Page 440
Economics on the Net......Page 441
Answers to Quick Quizzes......Page 442
Example Women Discover Payoffs from Extra Education and Training......Page 424
International Example: The U.S. Health Care Program’s Benefits for Indian Workers......Page 436
31 Environmental Economics......Page 443
Private versus Social Costs......Page 444
Correcting for Externalities......Page 446
Policy Example Why Higher Cigarette Taxes Might Be Preferable to Smoking Bans......Page 447
Common Property......Page 449
Reducing Humanity’s Carbon Footprint: Restraining Pollution-Causing Activities......Page 451
Wild Species, Common Property, and Trade-Offs......Page 452
International Example: Fisheries Hook a Solution to the Common Property Problem......Page 453
Issues & Applications: Human Activities and Honeybee Colony Collapse Disorder......Page 454
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 455
Problems......Page 457
Economics on the Net......Page 458
Answers to Quick Quizzes......Page 459
32 Comparative Advantage and the Open Economy......Page 460
The Worldwide Importance of International Trade......Page 461
Why We Trade: Comparative Advantage and Mutual Gains from Exchange......Page 462
Why Not…: Obtain Gains from Trade by Subsidizing Exports and Discouraging Imports?......Page 467
Can Africa’s International Competitiveness Be Improved?......Page 468
Arguments Against Free Trade......Page 469
Ways to Restrict Foreign Trade......Page 471
International Trade Organizations......Page 473
International Policy Example: Does the Spread of Regional Trade Blocs Reduce Protectionism?......Page 475
Issues & Applications: A U.S. Effort to Expand Exports While Reducing Imports......Page 476
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice......Page 477
Problems......Page 478
Answers to Quick Quizzes......Page 480
International Example: Gains from International Trade in Used Merchandise......Page 466
33 Exchange Rates and the Balance of Payments......Page 481
The Balance of Payments and International Capital Movements......Page 482
Determining Foreign Exchange Rates......Page 487
Why Not…: Encourage U.S. Exports by Forcing the Dollar’s Value to Fall?......Page 492
Fixed versus Floating Exchange Rates......Page 495
You Are There: Trading in the Real Estate Business for Trading Currencies......Page 498
Issues & Applications: Will the Euro’s Global Currency Status Be Short-Lived?......Page 499
Summary: What You Should Know/Key Terms and Key Figures/ Where to Go to Practice......Page 500
Problems......Page 502
Answers to Quick Quizzes......Page 503
International Example: Current Account Balances and Currency Values......Page 494
Answers to Odd-Numbered Problems......Page 504
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