Microeconomics- Private and Public Choice

Cover......Page 1
Brief Contents......Page 6
Contents......Page 7
Preface......Page 16
Acknowledgments......Page 21
About the Authors......Page 23
Part 1: The Economic Way of Thinking......Page 24
Chapter 1: The Economic Approach......Page 25
1-1 What Is Economics About......Page 27
1-1a Scarcity and Poverty Are Not the Same......Page 28
1-1c The Method of Rationing Influences the Nature of Competition......Page 29
1-2a Eight Guideposts to Economic Thinking......Page 30
1-4a Violation of the Ceteris Paribus Condition Can Lead One to Draw the Wrong Conclusion......Page 36
1-4b Good Intentions Do Not Guarantee Desirable Outcomes......Page 37
1-4d The Fallacy of Composition: What’s True for One Might Not Be True for All......Page 38
Critical Analysis Questions......Page 39
Chapter 2: Some Tools of the Economist......Page 41
2-1a Opportunity Cost......Page 42
2-1b Opportunity Cost and the Real World......Page 43
2-2 Trade Creates Value......Page 44
2-2b The Middleman as a Cost Reducer......Page 45
2-3 The Importance of Property Rights......Page 46
2-3a Private Ownership and Markets......Page 49
2-4 Production Possibilities Curve......Page 51
2-4a Shifting the Production Possibilities Curve Outward......Page 53
2-4b Production Possibilities and Economic Growth......Page 55
2-5a Gains from Specialization and Division of Labor......Page 56
2-5c Gains from Innovation......Page 57
2-6 Human Ingenuity and the Creation of Wealth......Page 58
2-7b Political Organization......Page 59
Key Points......Page 60
Critical Analysis Questions......Page 61
Comparative Advantage, Specialization, and Gains from Trade......Page 62
Part 2: Markets and Government......Page 64
Chapter 3: Demand, Supply, and the Market Process......Page 65
3-1 Consumer Choice and the Law of Demand......Page 66
3-1a The Market Demand Schedule......Page 67
3-1b Consumer Surplus......Page 68
3-1c Responsiveness of Quantity Demanded to Price Changes: Elastic and Inelastic
 Demand Curves......Page 69
3-2 Changes in Demand versus Changes in Quantity Demanded......Page 70
3-3 Producer Choice and the Law ofSupply......Page 74
3-3a The Role of Profits and Losses......Page 75
3-3c Market Supply Schedule......Page 76
3-3d Producer Surplus......Page 77
3-3e Responsiveness of Quantity Supplied to Price Changes: Elastic and Inelastic Supply Curves......Page 78
3-4 Changes in Supply versus Changes inQuantity Supplied......Page 79
3-5 How Market Prices Are Determined: Demand and Supply Interact......Page 80
3-5a Market Equilibrium......Page 81
3-5b Efficiency and Market Equilibrium......Page 82
3-6 How Markets Respond to Changes inDemand and Supply......Page 84
3-6a Invisible Hand Principle......Page 86
3-6b Prices and Market Order......Page 87
3-6c Competition and Property Rights......Page 88
Key Points......Page 89
Critical Analysis Questions......Page 90
Chapter 4: Demand and Supply: Applications and Extensions......Page 91
4-1 The Link between Resource and Product Markets......Page 92
4-2 The Economics of Price Controls......Page 93
4-2a The Impact of Price Ceilings......Page 94
4-2b Rent Control: A Closer Look at a Price Ceiling......Page 96
4-2c The Impact of Price Floors......Page 97
4-2d Minimum Wage: A Closer Look at a Price Floor......Page 98
4-4 The Impact of a Tax......Page 101
4-4b Actual versus Statutory Incidence......Page 103
4-4c Elasticity and the Incidence of a Tax......Page 104
4-5 Tax Rates, Tax Revenues, and the Laffer Curve......Page 106
4-6 The Impact of a Subsidy......Page 110
4-6b Real-World Subsidy Programs......Page 111
Critical Analysis Questions......Page 113
Chapter 5: Difficult Cases for the Market, and the Role of Government......Page 115
5-1 A Closer Look at Economic Efficiency......Page 116
5-2 If It’s Worth Doing, It’s Worth Doing Imperfectly......Page 117
5-3a Protective Function of Government......Page 118
5-4a Lack of Competition......Page 119
5-4c External Costs......Page 121
5-4d External Benefits......Page 123
5-4e Public Goods and Why They Pose a Problem for the Market......Page 125
5-4f Potential Information Problems......Page 126
5-4g Information as a Profit Opportunity......Page 127
5-5 Market and Government Failure......Page 129
Critical Analysis Questions......Page 130
Chapter 6: The Economics of Political Action......Page 132
6-1 The Size and Growth of the U.S. Government......Page 133
6-2 Similarities and Differences between Political and Market Allocation......Page 135
6-3 Political Decision-Making: An Overview......Page 136
6-3a Incentives Confronted by the Voter......Page 137
6-3b Incentives Confronted by the Politician......Page 138
6-3c Incentives Confronted by the Government Bureaucrat......Page 139
6-4 When the Political Process Works Well......Page 140
6-5a Special-Interest Effect......Page 142
6-5c Rent-seeking......Page 146
6-5d Inefficiency of Government Operations......Page 147
6-6 Political Favoritism, Crony Capitalism, and Government Failure......Page 148
6-7 The Economic Way of Thinking about Markets and Government......Page 150
Key Points......Page 151
Critical Analysis Questions......Page 152
Part 3: Core Microeconomics......Page 154
Chapter 7: Consumer Choice and Elasticity......Page 155
7-1 Fundamentals of Consumer Choice......Page 156
7-2 Marginal Utility, Consumer Choice, and the Demand Curve of an Individual......Page 157
7-2a Consumer Equilibrium with Many Goods......Page 159
7-2c Time Costs and Consumer Choice......Page 160
7-2d Market Demand Reflects the Demand of Individual Consumers......Page 161
7-3 Elasticity of Demand......Page 162
7-3a Graphic Representation of Price Elasticity of Demand......Page 164
7-3b How Large Are the Demand Elasticities of Various Products......Page 165
7-3c Why Do the Price Elasticities of Demand Vary......Page 166
7-4 How Demand Elasticity and Price Changes
 Affect Total Expenditures (orRevenues) on a Product......Page 168
7-5 Income Elasticity......Page 169
7-6 Price Elasticity of Supply......Page 170
Critical Analysis Questions......Page 171
Chapter 8: Costs and the Supply of Goods......Page 173
8-1a Incentives, Cooperation, and the Nature of the Firm......Page 174
8-1b Three Types of Business Firms......Page 175
8-2 How Well Does the Corporate Structure Work......Page 176
8-3a Calculating Economic Costs and Profits......Page 177
8-4 Short-Run and Long-Run Time Periods......Page 178
8-5 Categories of Costs......Page 179
8-6 Output and Costs in the Short Run......Page 181
8-6a Diminishing Returns and Production in the Short Run......Page 182
8-6b Diminishing Returns and the Shape of the Cost Curves......Page 184
8-7a Economies and Diseconomies of Scale......Page 186
8-7b Alternative Shapes of the LRATC......Page 189
8-8a Prices of Resources......Page 190
8-9a What Are Sunk Costs......Page 191
Looking Ahead......Page 193
Critical Analysis Questions......Page 194
Chapter 9: Price Takers and the Competitive Process......Page 196
9-2 What Are the Characteristics of Price-Taker Markets......Page 197
9-3 How Does the Price Taker Maximize Profit......Page 199
9-3a Profit Maximizing—A Numeric Example......Page 200
9-3b Losses and When to Go Out of Business......Page 201
9-4 The Firm’s Short-Run Supply Curve......Page 203
9-6 Price and Output in Price-Taker Markets......Page 204
9-6a Long-Run Equilibrium......Page 205
9-6b How Will the Market Respond to an Increase in Demand......Page 206
9-6c How Will the Market Respond to a Decrease in Demand......Page 207
9-6d The Long-Run Market Supply Curve......Page 208
9-6e Supply Elasticity and the Role of Time......Page 209
9-7 The Role of Profits and Losses......Page 210
9-8 Competition Promotes Prosperity......Page 211
Looking Ahead......Page 212
Critical Analysis Questions......Page 213
Chapter 10: Price-Searcher Markets with Low Entry Barriers......Page 216
10-1a Price and Output in Competitive Price-Searcher Markets......Page 217
10-2 Contestable Markets and the Competitive Process......Page 220
10-3 Evaluating Competitive Price-Searcher Markets......Page 221
10-4 A Special Case: Price Discrimination......Page 223
10-5 Entrepreneurship and Economic Progress......Page 225
10-5a Dynamic Competition, Innovation, and Business Failures......Page 228
Looking Ahead......Page 230
Critical Analysis Questions......Page 231
Chapter 11: Price-Searcher Markets with High Entry Barriers......Page 234
11-1b Government Licensing and Other Legal Barriers to Entry......Page 235
11-2 Characteristics of a Monopoly......Page 236
11-2a Price and Output under Monopoly......Page 237
11-3b Substantial Economies of Scale......Page 240
11-4 Price and Output under Oligopoly......Page 241
11-4a The Incentive to Collude...and to Cheat......Page 242
11-4b Obstacles to Collusion......Page 244
11-4c Uncertainty and Oligopoly......Page 245
11-6 Defects of Markets with High Entry Barriers......Page 247
11-7a Antitrust Policy and Controlling the Structure of an Industry......Page 248
11-7c Regulate the Price......Page 249
11-7d Problems with Regulation......Page 250
11-7f Pulling It Together......Page 253
Looking Ahead......Page 254
Critical Analysis Questions......Page 255
Chapter 12: The Supply of and Demand for Productive Resources......Page 257
12-2 The Demand for Resources......Page 259
12-2b Substitution in Consumption......Page 260
12-2d Shifts in the Demand for a Resource......Page 261
12-3a Using a Variable Resource with a Fixed Resource......Page 263
12-3c Multiple Resources and How Much to Use of Each......Page 265
12-3e Cost Minimization When Multiple Resources Are Used......Page 266
12-4 The Supply of Resources......Page 267
12-4a Short-Run versus Long-Run Resource Supply......Page 268
12-4b Short-Run Supply......Page 269
12-5 Supply, Demand, and Resource Prices......Page 270
12-5a The Coordinating Function of Resource Prices......Page 271
Critical Analysis Questions......Page 273
Chapter 13: Earnings, Productivity, and the Job Market......Page 275
13-1a Earnings Differentials Due to Nonidentical Workers......Page 276
13-1c Earnings Differentials Due to the Immobility of Labor......Page 281
13-1d Sources of Wage Differentials: A Summary......Page 282
13-2 The Economics of Employment Discrimination......Page 284
13-2a How Much Impact Does Employment Discrimination Have on Earnings......Page 285
13-3 The Link between Productivity and Earnings......Page 286
13-3a Productivity and Compensation: Measurement Problems......Page 287
Critical Analysis Questions......Page 290
Chapter 14: Investment, the Capital Market, and the Wealth of Nations......Page 292
14-1 Why People Invest......Page 293
14-2a How Interest Rates Are Determined......Page 294
14-2c Interest Rates and Risk......Page 296
14-3 The Present Value of Future Income and Costs......Page 297
14-4 Present Value, Profitability, and Investment......Page 299
14-4b Investors and Corporate Investments......Page 300
14-5 Investing in Human Capital......Page 301
14-6 Uncertainty, Entrepreneurship, and Profit......Page 302
14-6a Returns to Physical and Human Capital......Page 304
14-7 Why Is the Capital Market So Important......Page 305
Key Points......Page 307
Critical Analysis Questions......Page 308
Chapter 15: Income Inequality and Poverty......Page 309
15-1 How Much Income Inequality Exists in the United States......Page 310
15-1a The Factors Affecting Income Distribution......Page 311
15-1b Why Has Income Inequality Increased......Page 314
15-2 Income Mobility and Inequality in Economic Status......Page 315
15-3 Poverty in the United States......Page 317
15-3a Transfer Payments and the Poverty Rate......Page 318
15-3b Why Haven’t Anti-Poverty Programs Been More Effective......Page 320
15-4 Income Inequality: Some Concluding Thoughts......Page 322
Critical Analysis Questions......Page 325
Part 4: International Economics......Page 328
Chapter 16: Gaining from International Trade......Page 329
16-1 The Trade Sector of the United States......Page 330
16-2 Gains from Specialization and Trade......Page 331
16-2a How Trade Expands Consumption Possibilities......Page 333
16-2b Some Real-World Considerations......Page 335
16-3 Supply, Demand, and International Trade......Page 337
16-4a The Economics of Tariffs......Page 339
16-4b The Economics of Quotas......Page 340
16-5a The National-Defense Argument......Page 342
16-5d Special Interests and the Politics of Trade Restrictions......Page 343
16-6a Trade Fallacy 1: Trade Restrictions that Limit Imports Save Jobs and Expand Employment......Page 346
16-6b Trade Fallacy 2: Free Trade with Low-Wage Countries Like Mexico and China will Reduce
 the Wages of Americans......Page 347
16-7 Institutions and the Changing Nature of Global Trade......Page 348
Key Points......Page 349
Critical Analysis Questions......Page 350
Part 5: Applying the Basics: Special Topics in Economics......Page 352
Special Topic 1: Government Spending and Taxation......Page 353
Special Topic 2: The Economics of Social Security......Page 368
Special Topic 3: The Stock Market: Its Function, Performance, and Potential
 as an Investment Opportunity......Page 378
Special Topic 4: Keynes and Hayek: Contrasting Views on Sound Economics
 and the Role of Government......Page 388
Special Topic 5: The Great Recession of 2008–2009: Causes and Response......Page 394
Special Topic 6: Lessons from the Great Depression......Page 409
Special Topic 7: The Economics of Health Care......Page 423
Special Topic 8: Earnings Differences between Men and Women......Page 436
Special Topic 9: Do Labor Unions Increase the Wages of Workers......Page 443
Special Topic 10: The Question of Resource Exhaustion......Page 454
Special Topic 11: Difficult Environmental Cases and the Role of Government......Page 465
Appendix A: General Business and Economics Indicators for the United States......Page 474
Appendix B: Answers to Selected Critical Analysis Questions......Page 481
Glossary......Page 493
Index......Page 500