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