Microeconomics

2015·70.19 MB·English

by  Paul Krugman

Cover Page Page: EP-1
Inside Front Cover Page: EP-1
Title Page Page: iii
Copyright Page Page: iv
Dedication Page: v
About the Authors Page: vii
Brief Contents Page: viii
Contents Page: ix
Preface Page: xvii
Part 1 What Is Economics? Page: 5
Chapter 1 First Principles Page: 5
Common Ground Page: 5
Principles That Underlie Individual Choice: The Core of Economics Page: 6
Principle #1: Choices Are Necessary Because Resources Are Scarce Page: 6
Principle #2: The True Cost of Something Is Its Opportunity Cost Page: 7
Principle #3: “How Much” Is a Decision at the Margin Page: 8
Principle #4: People Usually Respond to Incentives, Exploiting Opportunities to Make Themselves Better Off Page: 9
For Inquiring Minds: Cashing In At School Page: 9
Economics in Action: Boy or Girl? It Depends on the Cost Page: 10
Interaction: How Economies Work Page: 12
Principle #5: There Are Gains from Trade Page: 12
Principle #6: Markets Move Toward Equilibrium Page: 13
For Inquiring Minds: Choosing Sides Page: 13
Principle #7: Resources Should Be Used Efficiently to Achieve Society’s Goals Page: 15
Principle #8: Markets Usually Lead to Efficiency Page: 16
Principle #9: When Markets Don’t Achieve Efficiency, Government Intervention Can Improve Society’s Welfare Page: 16
Economics in Action: Restoring Equilibrium on the Freeways Page: 17
Economy-Wide Interactions Page: 18
Principle #10: One Person’s Spending Is Another Person’s Income Page: 18
Principle #11: Overall Spending Sometimes Gets Out of Line with the Economy’s Productive Capacity Page: 19
Principle #12: Government Policies Can Change Spending Page: 19
Economics in Action: Adventures in Babysitting Page: 20
Business Case: How Priceline.com Revolutionized the Travel Industry Page: 20
Summary Page: 22
Key Terms Page: 22
Problems Page: 23
Chapter 2 Economic Models: Trade-offs and Trade Page: 25
From Kitty Hawk to Dreamliner Page: 25
Models in Economics: Some Important Examples Page: 26
For Inquiring Minds: The Model That Ate the Economy Page: 26
Trade-offs: The Production Possibility Frontier Page: 27
Efficiency Page: 28
Opportunity Cost Page: 29
Economic Growth Page: 31
Comparative Advantage and Gains from Trade Page: 33
Comparative Advantage and International Trade, in Reality Page: 36
Global Comparision: Pajama Republics Page: 36
Transactions: The Circular-Flow Diagram Page: 37
Economics in Action: Rich Nation, Poor Nation Page: 39
Using Models Page: 40
Positive versus Normative Economics Page: 40
When and Why Economists Disagree Page: 41
For Inquiring Minds: When Economists Agree Page: 41
Economics in Action: Rich Nation, Poor Nation Page: 43
Business Case: Efficiency, Opportunity Cost and the Logic of Lean Production Page: 44
Summary Page: 46
Key Terms Page: 46
Problems Page: 46
Work It Out Page: 49
Chapter 2 Graphs in Economics Appendix Page: 51
Getting the Picture Page: 51
Graphs, Variables, and Economic Models Page: 51
How Graphs Work Page: 51
Two-Variable Graphs Page: 51
Curves on a Graph Page: 53
A Key Concept: The Slope of a Curve Page: 54
The Slope of a Linear Curve Page: 54
Horizontal and Vertical Curves and Their Slopes Page: 55
The Slope of a Nonlinear Curve Page: 56
Calculating the Slope Along a Nonlinear Curve Page: 56
The Arc Method of Calculating the Slope Page: 56
The Point Method of Calculating the Slope Page: 58
Maximum and Minimum Points Page: 58
Calculating the Area Below or Above a Curve Page: 59
Graphs That Depict Numerical Information Page: 60
Types of Numerical Graphs Page: 60
Problems in Interpreting Numerical Graphs Page: 62
Features of Construction Page: 62
Omitted Variables Page: 63
Reverse Causality Page: 64
Problems Page: 65
Work It Out Page: 66
Part 2 Supply and Demand Page: 66
Chapter 3 Supply and Demand Page: 67
A Natural Gas Boom Page: 67
Supply and Demand: A Model of a Competitive Market Page: 68
The Demand Curve Page: 69
The Demand Schedule and the Demand Curve Page: 69
Shifts of the Demand Curve Page: 70
Global Comparision: Pay More, Pump Less Page: 71
Pitfalls: Demand versus Quantity Demanded Page: 72
Understanding Shifts of the Demand Curve Page: 73
Changes in the Prices of Related Goods or Services Page: 74
Changes in Income Page: 74
Changes in Tastes Page: 75
Changes in Expectations Page: 75
Changes in the Number of Consumers Page: 75
Economics in Action: Beating the Traffic Page: 77
The Supply Curve Page: 79
The Supply Schedule and the Supply Curve Page: 79
Shifts of the Supply Curve Page: 80
Understanding Shifts of the Supply Curve Page: 81
Changes in Input Prices Page: 82
Changes in the Prices of Related Goods or Services Page: 82
Changes in Technology Page: 82
Changes in Expectations Page: 82
Changes in the Number of Producers Page: 83
Economics in Action: Only Creatures Small and Pampered Page: 84
Supply, Demand, and Equilibrium Page: 86
Finding the Equilibrium Price and Quantity Page: 86
Pitfalls: Bought and Sold? Page: 87
Why Do All Sales and Purchases in a Market Take Place at the Same Price? Page: 87
Why Does the Market Price Fall If It Is Above the Equilibrium Price? Page: 87
Why Does the Market Price Rise If It Is Below the Equilibrium Price? Page: 88
Using Equilibrium to Describe Markets Page: 89
Economics in Action: The Price of Admission Page: 89
Changes in Supply and Demand Page: 90
What Happens When the Demand Curve Shifts Page: 91
What Happens When the Supply Curve Shifts Page: 92
Pitfalls: Which Curve Is It, Anyway? Page: 92
Simultaneous Shifts of Supply and Demand Curves Page: 93
For Inquiring Minds: Tribulations on the Runway Page: 93
Economics in Action: The Cotton Panic and Crash of 2011 Page: 94
Competitive Markets—And Others Page: 96
Business Case: An Uber Way to Get a Ride Page: 96
Summary Page: 98
Key Terms Page: 98
Problems Page: 99
Work It Out Page: 101
Chapter 4 Consumer and Producer Surplus Page: 103
Making Gains by the Book Page: 103
Consumer Surplus and the Demand Curve Page: 104
Willingness to Pay and the Demand Curve Page: 104
Willingness to Pay and Consumer Surplus Page: 104
How Changing Prices Affect Consumer Surplus Page: 107
For Inquiring Minds: A Matter of Life and Death Page: 109
Economics in Action: When Money Isn’t Enough Page: 110
Producer Surplus and the Supply Curve Page: 111
Cost and Producer Surplus Page: 111
How Changing Prices Affect Producer Surplus Page: 114
Economics in Action: High Times Down on the Farm Page: 115
Consumer Surplus, Producer Surplus, and the Gains from Trade Page: 116
The Gains from Trade Page: 116
The Efficiency of Markets Page: 117
Reallocate Consumption Among Consumers Page: 118
Reallocate Sales Among Sellers Page: 118
Change the Quantity Traded Page: 119
Equity and Efficiency Page: 121
Economics in Action: Take The Keys, Please Page: 121
A Market Economy Page: 122
Why Markets Typically Work So Well Page: 123
A Few Words of Caution Page: 124
Economics in Action: A Great Leap—Backward Page: 124
Business Case: StubHub Shows Up The Boss Page: 125
Summary Page: 127
Key Terms Page: 127
Problems Page: 127
Work It Out Page: 130
Chapter 5 Price Controls and Quotas: Meddling with Markets Page: 131
Big City, Not-so-Bright Ideas Page: 131
Why Governments Control Prices Page: 132
Price Ceilings Page: 132
Modeling a Price Ceiling Page: 133
How a Price Ceiling Causes Inefficiency Page: 134
Inefficiently Low Quantity Page: 134
For Inquiring Minds: Winners, Losers, and Rent Control Page: 135
Inefficient Allocation to Consumers Page: 136
Wasted Resources Page: 137
Inefficiently Low Quality Page: 138
For Inquiring Minds: Mumbai’s Rent-Control Millionaires Page: 138
Black Markets Page: 139
So Why Are There Price Ceilings? Page: 139
Economics in Action: Price Controls in Venezuela: “You Buy What They Have” Page: 139
Price Floors Page: 141
How a Price Floor Causes Inefficiency Page: 143
Inefficiently Low Quantity Page: 143
Pitfalls: Ceilings, Floors, and Quantities Page: 143
Inefficient Allocation of Sales Among Sellers Page: 143
Wasted Resources Page: 144
Inefficiently High Quality Page: 144
Global Comparision: Check Out Our Low, Low Wages! Page: 145
Illegal Activity Page: 145
So Why Are There Price Floors? Page: 146
Economics in Action: The Rise and Fall of the Unpaid Intern Page: 146
Controlling Quantities Page: 147
The Anatomy of Quantity Controls Page: 148
The Costs of Quantity Controls Page: 151
Economics in Action: Crabbing, Quotas, and Saving Lives in Alaska Page: 152
Business Case: Medallion Financial: Cruising Right Along Page: 153
Summary Page: 155
Key Terms Page: 155
Problems Page: 155
Work It Out Page: 159
Chapter 6 Elasticity Page: 161
Taken for a Ride Page: 161
Defining and Measuring Elasticity Page: 162
Calculating the Price Elasticity of Demand Page: 162
An Alternative Way to Calculate Elasticities: The Midpoint Method Page: 163
Economics in Action Estimating Elasticities Page: 165
Interpreting the Price Elasticity of Demand Page: 166
How Elastic Is Elastic? Page: 166
Price Elasticity Along the Demand Curve Page: 170
What Factors Determine the Price Elasticity of Demand? Page: 172
Whether the Good Is a Necessity or a Luxury Page: 172
The Availability of Close Substitutes Page: 172
Share of Income Spent on the Good Page: 172
Time Elapsed Since Price Change Page: 172
Economics in Action Responding to Your Tuition Bill Page: 173
Other Demand Elasticities Page: 174
The Cross-Price Elasticity of Demand Page: 174
The Income Elasticity of Demand Page: 175
For Inquiring Minds Will China Save the U.S. Farming Sector Page: 175
Global Comparision Food’s Bite in World Budgets Page: 176
Economics in Action Spending It Page: 176
The Price Elasticity of Supply Page: 177
Measuring the Price Elasticity of Supply Page: 178
What Factors Determine the Price Elasticity of Supply? Page: 179
The Availability of Inputs Page: 179
Time Page: 179
Economics in Action European Farm Surpluses Page: 180
An Elasticity Menagerie Page: 181
Business Case The Airline Industry: Fly Less, Charge More Page: 181
Summary Page: 183
Key Terms Page: 183
Problems Page: 183
Work it Out Page: 186
Part 3 Individuals and Markets Page: 186
Chapter 7 Taxes Page: 187
The Founding Taxers Page: 187
The Economics of Taxes: A Preliminary View Page: 188
The Effect of an Excise Tax on Quantities and Prices Page: 188
Price Elasticities and Tax Incidence Page: 190
When an Excise Tax Is Paid Mainly by Consumers Page: 191
When an Excise Tax Is Paid Mainly by Producers Page: 192
Putting It All Together Page: 193
Economics in Action Who Pays the FICA? Page: 193
The Benefits and Costs of Taxation Page: 194
The Revenue from an Excise Tax Page: 194
Tax Rates and Revenue Page: 195
For Inquiring Minds Will China Save the U.S. Farming Sector Page: 197
The Costs of Taxation Page: 197
Elasticities and the Deadweight Loss of a Tax Page: 200
Economics in Action Taxing the Marlboro Man Page: 202
Tax Fairness and Tax Efficiency Page: 203
Two Principles of Tax Fairness Page: 203
Equity versus Efficiency Page: 204
Economics in Action Federal Tax Philosophy Page: 205
Understanding the Tax System Page: 206
Tax Bases and Tax Structure Page: 206
Equity, Efficiency, and Progressive Taxation Page: 207
Taxes in the United States Page: 207
Global Comparision You Think You Pay High Taxes? Page: 208
Different Taxes, Different Principles Page: 209
For Inquiring Minds Taxing Income versus Taxing Consumption Page: 209
Economics in Action The Top Marginal Income Tax Rate Page: 209
Business Case Amazon versus BarnesandNoble.com Page: 210
Summary Page: 212
Key Terms Page: 212
Problems Page: 212
Work it Out Page: 215
Chapter 8 International Trade Page: 216
The Everywhere Phone Page: 217
Comparative Advantage and International Trade Page: 218
Production Possibilities and Comparative Advantage, Revisited Page: 219
The Gains from International Trade Page: 220
Comparative Advantage versus Absolute Advantage Page: 222
Global Comparision Productivity and Wages Around the World Page: 223
Sources of Comparative Advantage Page: 224
Differences in Climate Page: 224
Differences in Factor Endowments Page: 224
Differences in Technology Page: 225
For Inquiring Minds Increasing Returns to Scale and International Trade Page: 225
Economics in Action How Hong Kong Lost Its Shirts Page: 226
Supply, Demand, and International Trade Page: 227
The Effects of Imports Page: 227
The Effects of Exports Page: 230
International Trade and Wages Page: 231
Economics in Action Trade, Wages, and Land Prices in the Nineteenth Century Page: 233
The Effects of Trade Protection Page: 234
The Effects of a Tariff Page: 234
The Effects of an Import Quota Page: 236
Economics in Action Trade Protection in The United States Page: 237
The Political Economy of Trade Protection Page: 238
Arguments for Trade Protection Page: 238
The Politics of Trade Protection Page: 238
International Trade Agreements and the World Trade Organization Page: 239
For Inquiring Minds Tires Under Pressure Page: 239
Challenges to Globalization Page: 240
Globalization and Inequality Page: 240
Outsourcing Page: 241
Economics in Action Beefing Up Exports Page: 242
Business Case Li & Fung: From Guangzhou to You Page: 243
Summary Page: 245
Key Terms Page: 245
Problems Page: 246
Work it Out Page: 248
Part 4 Economics and Decision Making Page: 248
Chapter 9 Decision Making by Individuals and Firms Page: 249
Going Back to School Page: 249
Costs, Benefits, and Profits Page: 250
Explicit versus Implicit Costs Page: 250
Accounting Profit versus Economic Profit Page: 251
Making “Either–Or” Decisions Page: 253
For Inquiring Minds A Tale of Two Invasions Page: 253
Pitfalls Why are There Only two Choices? Page: 253
Economics in Action Farming in the Shadow of Suburbia Page: 254
Making “How Much” Decisions: The Role of Marginal Analysis Page: 255
Marginal Cost Page: 256
Pitfalls Total Cost Versus Marginal Cost Page: 257
Marginal Benefit Page: 258
Marginal Analysis Page: 259
Global Comparision Portion Sizes Page: 261
Pitfalls Muddled at the Margin Page: 261
A Principle with Many Uses Page: 262
A Preview: How Consumption Decisions Are Different Page: 262
Economics in Action The Cost of a Life Page: 262
Sunk Costs Page: 263
Economics in Action A Billion Here, a Billion There … Page: 264
Behavioral Economics Page: 265
Rational, but Human, Too Page: 265
Concerns About Fairness Page: 265
Bounded Rationality Page: 266
Risk Aversion Page: 266
Irrationality: An Economist’s View Page: 266
Misperceptions of Opportunity Costs Page: 266
Overconfidence Page: 267
For Inquiring Minds In Praise of Hard Deadlines Page: 267
Unrealistic Expectations About Future Behavior Page: 267
Counting Dollars Unequally Page: 268
Loss Aversion Page: 268
Status Quo Bias Page: 268
Rational Models for Irrational People? Page: 269
Economics in Action “The Jingle Mail Blues” Page: 269
Business Case J. C. Penney’s One-Price Strategy Upsets Its Customers Page: 270
Summary Page: 272
Key Terms Page: 272
Problems Page: 273
Work it Out Page: 275
Chapter 9 How to Make Decisions Involving Time: Understanding Present Value Appendix Page: 276
How to Calculate the Present Value of a One-Year Project Page: 277
How to Calculate the Present Value of Multiyear Projects Page: 278
How to Calculate the Present Value of Projects with Revenues and Costs Page: 279
Key Terms Page: 279
Problems Page: 280
Part 5 The Consumer Page: 280
Chapter 10 The Rational Consumer Page: 281
The Absolute Last Bite Page: 281
Utility: Getting Satisfaction Page: 282
Utility and Consumption Page: 282
The Principle of Diminishing Marginal Utility Page: 282
For Inquiring Minds: Is Marginal Utility Really Diminishing? Page: 284
Economics in Action: Oysters versus Chicken Page: 284
Budgets and Optimal Consumption Page: 285
Budget Constraints and Budget Lines Page: 285
Optimal Consumption Choice Page: 287
For Inquiring Minds: Food for Thought on Budget Constraints Page: 288
Economics in Action: The Great Condiment Craze Page: 288
Spending the Marginal Dollar Page: 290
Marginal Utility per Dollar Page: 290
Optimal Consumption Page: 292
Pitfalls: The Right Marginal Comparison Page: 292
Economics in Action: Buying Your Way Out of Temptation Page: 293
From Utility to the Demand Curve Page: 294
Marginal Utility, the Substitution Effect, and the Law of Demand Page: 294
The Income Effect Page: 295
Economics in Action: Mortgage Rates and Consumer Demand Page: 296
Business Case: Having a Happy Meal at McDonald’s Page: 297
Summary Page: 299
Key Terms Page: 299
Problems Page: 299
Work it Out Page: 302
Chapter 10 Consumer Preferences and Consumer Choice Appendix Page: 303
Mapping the Utility Function Page: 303
Indifference Curves Page: 303
Properties of Indifference Curves Page: 305
Indifference Curves and Consumer Choice Page: 307
The Marginal Rate of Substitution Page: 307
The Tangency Condition Page: 311
The Slope of the Budget Line Page: 312
Prices and the Marginal Rate of Substitution Page: 313
Preferences and Choices Page: 314
Using Indifference Curves: Substitutes and Complements Page: 316
Perfect Substitutes Page: 316
Perfect Complements Page: 318
Less Extreme Cases Page: 318
Prices, Income, and Demand Page: 319
The Effects of a Price Increase Page: 319
Income and Consumption Page: 320
Income and Substitution Effects Page: 322
Problems Page: 325
Work it Out Page: 328
Part 6 The Production Decision Page: 328
Chapter 11 Behind the Supply Curve: Inputs and Costs Page: 329
The Farmer’s Margin Page: 329
The Production Function Page: 330
Inputs and Output Page: 330
Global Comparision: Wheat Yields Around the World Page: 332
Pitfalls: What’s a Unit? Page: 333
From the Production Function to Cost Curves Page: 333
Economics in Action: The Mythical Man-Month Page: 336
Two Key Concepts: Marginal Cost and Average Cost Page: 337
Marginal Cost Page: 337
Average Total Cost Page: 339
Minimum Average Total Cost Page: 341
Does the Marginal Cost Curve Always Slope Upward? Page: 343
Economics in Action: Smart Grid Economics Page: 343
Short-Run versus Long-Run Costs Page: 345
Returns to Scale Page: 348
Summing Up Costs: The Short and Long of It Page: 349
Economics in Action: There’s No Business Like Snow Business Page: 349
Business Case: Kiva Systems’ Robots versus Humans: The Challenge of Holiday Order Fulfillment Page: 350
Summary Page: 352
Key Terms Page: 352
Problems Page: 352
Work it Out Page: 355
Chapter 12 Perfect Competition and the Supply Curve Page: 357
Deck the Halls Page: 357
Perfect Competition Page: 358
Defining Perfect Competition Page: 358
Two Necessary Conditions for Perfect Competition Page: 358
Free Entry and Exit Page: 359
For Inquiring Minds: What’s a Standardized Product? Page: 360
Economics in Action: Paid to Delay Page: 360
Production and Profits Page: 361
Using Marginal Analysis to Choose the Profit-Maximizing Quantity of Output Page: 361
Pitfalls: What if Marginal Revenue and Marginal Cost aren’t Exactly Equal? Page: 363
When Is Production Profitable? Page: 364
The Short-Run Production Decision Page: 367
Changing Fixed Cost Page: 370
Summing Up: The Perfectly Competitive Firm’s Profitability and Production Conditions Page: 370
Economics in Action: Farmers Move Up Their Supply Curves Page: 371
The Industry Supply Curve Page: 372
The Short-Run Industry Supply Curve Page: 372
The Long-Run Industry Supply Curve Page: 373
The Cost of Production and Efficiency in Long-Run Equilibrium Page: 376
Pitfalls: Economic Profit, Again Page: 377
Economics in Action: From Global Wine Glut to Shortage Page: 377
Business Case: Shopping Apps, Showrooming, and the Challenges Facing Brick-and-Mortar Retailers Page: 378
Summary Page: 380
Key Terms Page: 380
Problems Page: 381
Work It Out Page: 383
Part 7 Market Structure: Beyond Perfect Competition Page: 384
Chapter 13 Monopoly Page: 385
Everybody Must Get Stones Page: 385
Types of Market Structure Page: 386
The Meaning of Monopoly Page: 387
Monopoly: Our First Departure from Perfect Competition Page: 387
What Monopolists Do Page: 387
Why Do Monopolies Exist? Page: 388
1. Control of a Scarce Resource or Input Page: 389
2. Increasing Returns to Scale Page: 389
3. Technological Superiority Page: 389
4. Network Externality Page: 390
5. Government-Created Barrier Page: 390
Global Comparision: The Price We Pay Page: 391
Economics in Action: Newly Emerging Markets: A Diamond Monopolist’s Best Friend Page: 392
How a Monopolist Maximizes Profit Page: 393
The Monopolist’s Demand Curve and Marginal Revenue Page: 393
The Monopolist’s Profit-Maximizing Output and Price Page: 397
Pitfalls: Finding the Monopoly Price Page: 397
Pitfalls: Is There a Monopoly Supply Curve? Page: 397
Monopoly versus Perfect Competition Page: 398
Monopoly: The General Picture Page: 398
Economics in Action: Shocked by the High Price of Electricity Page: 399
Monopoly and Public Policy Page: 400
Welfare Effects of Monopoly Page: 401
Preventing Monopoly Page: 402
Dealing with Natural Monopoly Page: 402
1. Public Ownership Page: 403
2. Regulation Page: 403
Monopsony Page: 405
What to Do About Monopoly? Page: 405
Economics in Action: Why Is Your Broadband So Slow? And Why Does It Cost So Much? Page: 406
Price Discrimination Page: 407
The Logic of Price Discrimination Page: 407
Price Discrimination and Elasticity Page: 409
Perfect Price Discrimination Page: 410
Economics in Action: Sales, Factory Outlets, and Ghost Cities Page: 412
Business Case: Amazon and Hachette Go to War Page: 413
Summary Page: 415
Key Terms Page: 415
Problems Page: 415
Work It Out Page: 418
Chapter 14 Oligopoly Page: 419
Caught in the Act Page: 419
The Prevalence of Oligopoly Page: 420
Economics in Action: Is It an Oligopoly or Not? Page: 420
Understanding Oligopoly Page: 422
A Duopoly Example Page: 422
Collusion and Competition Page: 423
Economics in Action: Bitter Chocolate? Page: 424
Games Oligopolists Play Page: 426
The Prisoners’ Dilemma Page: 426
Pitfalls: Playing Fair in the Prisoners’ Dilemma Page: 428
For Inquiring Minds: Prisoners of the Arms Race Page: 428
Overcoming the Prisoners’ Dilemma: Repeated Interaction and Tacit Collusion Page: 429
Economics in Action: The Rise and Fall and Rise of OPEC Page: 431
Oligopoly in Practice Page: 433
The Legal Framework Page: 433
Global Comparision: Contrasting Approaches to Antitrust Regulation Page: 433
Tacit Collusion and Price Wars Page: 435
Less Concentration Page: 435
Complex Products and Pricing Schemes Page: 435
Differences in Interests Page: 435
Bargaining Power of Buyers Page: 435
Product Differentiation and Price Leadership Page: 436
How Important Is Oligopoly? Page: 437
Economics in Action: The Price Wars of Christmas Page: 438
Business Case: Virgin Atlantic Blows the Whistle … or Blows It? Page: 439
Summary Page: 441
Key Terms Page: 441
Problems Page: 441
Work It Out Page: 444
Chapter 15 Monopolistic Competition and Product Differentiation Page: 445
Fast-Food Differentiation Page: 445
The Meaning of Monopolistic Competition Page: 446
Large Numbers Page: 446
Differentiated Products Page: 446
Free Entry and Exit in the Long Run Page: 446
Product Differentiation Page: 447
Differentiation by Style or Type Page: 447
Differentiation by Location Page: 448
Differentiation by Quality Page: 448
Economics in Action Any Color, So Long as It’s Black Page: 448
Understanding Monopolistic Competition Page: 449
Monopolistic Competition in the Short Run Page: 450
Monopolistic Competition in the Long Run Page: 451
For Inquiring Minds Hits and Flops Page: 452
Economics in Action The Housing Bust and the Demise of the 6% Commission Page: 453
Monopolistic Competition versus Perfect Competition Page: 455
Price, Marginal Cost, and Average Total Cost Page: 455
Is Monopolistic Competition Inefficient? Page: 456
Controversies About Product Differentiation Page: 457
The Role of Advertising Page: 457
Brand Names Page: 458
Economics in Action The Perfume Industry: Leading Consumers by the Nose Page: 459
Business Case Gillette versus Schick: A Case of Razor Burn? Page: 460
Summary Page: 462
Key Terms Page: 462
Problems Page: 462
Work it Out Page: 463
Part 8 Microeconomics and Public Policy Page: 463
Chapter 16 Externalities Page: 464
Trouble Underfoot Page: 465
External Costs and Benefits Page: 466
For Inquiring Minds Talking, Texting, and Driving Page: 466
Pollution: An External Cost Page: 466
The Socially Optimal Quantity of Pollution Page: 467
Why a Market Economy Produces Too Much Pollution Page: 468
Private Solutions to Externalities Page: 469
Economics in Action How Much Does Your Electricity Really Cost? Page: 470
Policies Toward Pollution Page: 472
Environmental Standards Page: 472
Emissions Taxes Page: 473
Global Comparision Economic Growth and Greenhouse Gases in Six Countries Page: 473
Tradable Emissions Permits Page: 474
Comparing Environmental Policies with an Example Page: 475
Economics in Action Cap and Trade Page: 477
Positive Externalities Page: 478
Preserved Farmland: An External Benefit Page: 478
Positive Externalities in Today’s Economy Page: 480
Economics in Action The Impeccable Economic Logic of Early-Childhood Intervention Programs Page: 480
Network Externalities Page: 481
The External Benefits of a Network Externality Page: 481
Economics in Action The Microsoft Case Page: 483
Business Case Are We Still Friends? A Tale of Facebook, MySpace, and Friendster Page: 484
Summary Page: 486
Key Terms Page: 486
Problems Page: 486
Work it Out Page: 488
Chapter 17 Public Goods and Common Resources Page: 489
The Great Stink Page: 489
Private Goods—and Others Page: 490
Characteristics of Goods Page: 490
Why Markets Can Supply Only Private Goods Efficiently Page: 491
Pitfalls Marginal Cost of What Exactly? Page: 491
Economics in Action From Mayhem to Renaissance Page: 492
Public Goods Page: 493
Providing Public Goods Page: 493
How Much of a Public Good Should Be Provided? Page: 494
For Inquiring Minds Voting as a Public Good Page: 495
Global Comparision Voting as a Public Good: The Global Perspective Page: 496
Cost-Benefit Analysis Page: 497
Economics in Action Old Man River Page: 498
Common Resources Page: 499
The Problem of Overuse Page: 499
For Inquiring Minds When Fertile Farmland Turned to Dust Page: 500
The Efficient Use and Maintenance of a Common Resource Page: 501
Economics in Action Saving the Oceans with ITQs Page: 502
Artificially Scarce Goods Page: 503
Economics in Action Blacked-Out Games Page: 504
Business Case Mauricedale Game Ranch and Hunting Endangered Animals to Save Them Page: 505
Summary Page: 507
Key Terms Page: 507
Problems Page: 507
Work it Out Page: 510
Chapter 18 The Economics of the Welfare State Page: 511
The Coming of Obamacare Page: 511
Poverty, Inequality, and Public Policy Page: 512
The Logic of the Welfare State Page: 512
1. Alleviating Income Inequality Page: 512
2. Alleviating Economic Insecurity Page: 512
For Inquiring Minds Justice and the Welfare State Page: 513
3. Reducing Poverty and Providing Access to Health Care Page: 513
The Problem of Poverty Page: 513
Trends in Poverty Page: 514
Who Are the Poor? Page: 514
What Causes Poverty? Page: 515
Consequences of Poverty Page: 515
Global Comparision Income, Redistribution, and Inequality in Rich Countries Page: 516
Economic Inequality Page: 516
Mean versus Median Household Income Page: 517
The Gini Coefficient Page: 518
Economic Insecurity Page: 519
Economics in Action Long-term Trends in Income Inequality in the United States Page: 519
The U.S. Welfare State Page: 521
Means-Tested Programs Page: 522
Social Security and Unemployment Insurance Page: 523
The Effects of the Welfare State on Poverty and Inequality Page: 523
Economics in Action Welfare State Programs and Poverty Rates in the Great Recession, 2007-2010 Page: 524
The Economics of Health Care Page: 525
The Need for Health Insurance Page: 525
Private Health Insurance Page: 525
Employment-Based Health Insurance Page: 526
For Inquiring Minds A California Death Spiral Page: 527
Government Health Insurance Page: 527
The Problem of the Uninsured Before the Affordable Care Act Page: 528
Health Care in Other Countries Page: 529
The Affordable Care Act Page: 530
Covering the Uninsured Page: 531
Cost Control Page: 532
The ACA’s launch Page: 532
Economics in Action What Medicaid Does Page: 533
The Debate over the Welfare State Page: 534
Problems with the Welfare State Page: 534
The Politics of the Welfare State Page: 535
For Inquiring Minds “We Are the 99%!” Page: 535
Economics in Action French Family Values Page: 536
Business Case Welfare State Entrepreneurs Page: 537
Summary Page: 539
Key Terms Page: 539
Problems Page: 540
Work it Out Page: 541
Part 9 Factor Markets and Risk Page: 542
Chapter 19 Factor Markets and the Distribution of Income Page: 543
The Value of a Degree Page: 543
The Economy’s Factors of Production Page: 544
The Factors of Production Page: 544
Why Factor Prices Matter: The Allocation of Resources Page: 544
Factor Incomes and the Distribution of Income Page: 544
Pitfalls What is a Factor, Anyway? Page: 544
For Inquiring Minds The Factor Distribution of Income and Social Change in the Industrial Revolution Page: 544
Economics in Action The Factor Distribution of Income in the United States Page: 545
Marginal Productivity and Factor Demand Page: 546
Value of the Marginal Product Page: 546
Value of the Marginal Product and Factor Demand Page: 548
Shifts of the Factor Demand Curve Page: 550
1. Changes in Price of Output Page: 550
2. Changes in Supply of Other Factors Page: 550
3. Changes in Technology Page: 551
The Marginal Productivity Theory of Income Distribution Page: 551
The Markets for Land and Capital Page: 553
The Marginal Productivity Theory of Income Distribution Page: 554
Pitfalls Getting Marginal Productivity Theory Right Page: 555
Economics in Action Help Wanted! Page: 555
Is the Marginal Productivity Theory of Income Distribution Really True? Page: 556
Wage Disparities in Practice Page: 557
Marginal Productivity and Wage Inequality Page: 557
Market Power Page: 559
Efficiency Wages Page: 560
Discrimination Page: 561
For Inquiring Minds How Labor Works the German Way Page: 562
So Does Marginal Productivity Theory Work? Page: 562
Economics in Action Marginal Productivity and the “1%” Page: 562
The Supply of Labor Page: 563
Work versus Leisure Page: 563
Wages and Labor Supply Page: 564
For Inquiring Minds Why You Can’t Find a Cab When It’s Raining Page: 566
Shifts of the Labor Supply Curve Page: 566
Changes in Preferences and Social Norms Page: 566
Changes in Population Page: 566
Global Comparision The Overworked American? Page: 567
Changes in Opportunities Page: 567
Changes in Wealth Page: 567
Economics in Action The Decline of the Summer Job Page: 567
Business Case Wages and Workers at Costco and Walmart Page: 568
Summary Page: 570
Key Terms Page: 570
Problems Page: 571
Work it Out Page: 573
Chapter 19 Indifference Curve Analysis of Labor Supply Appendix Page: 575
The Time Allocation Budget Line Page: 575
The Effect of a Higher Wage Rate Page: 576
Indifference Curve Analysis Page: 579
Problems Page: 580
Work it Out Page: 580
Chapter 20 Uncertainty, Risk, and Private Information Page: 581
Extreme Weather Page: 581
The Economics of Risk Aversion Page: 582
Expectations and Uncertainty Page: 582
The Logic of Risk Aversion Page: 583
For Inquiring Minds The Paradox of Gambling Page: 586
Pitfalls Before the Fact Versus After the Fact Page: 587
Paying to Avoid Risk Page: 587
Economics in Action Warranties Page: 588
Buying, Selling, and Reducing Risk Page: 588
Trading Risk Page: 589
Making Risk Disappear: The Power of Diversification Page: 591
For Inquiring Minds Those Pesky Emotions Page: 594
The Limits of Diversification Page: 594
Economics in Action When Lloyd’s Almost Lost It Page: 595
Private Information: What You Don’t Know Can Hurt You Page: 596
Adverse Selection: The Economics of Lemons Page: 597
Moral Hazard Page: 599
Economics in Action Franchise Owners Try Harder Page: 600
Business Case The Agony of AIG Page: 601
Summary Page: 603
Key Terms Page: 603
Problems Page: 604
Work it Out Page: 606
Solutions to Check Your Understanding Questions Page: S1
Glossary Page: S27
Index Page: G-10
A Page: G-10
B Page: I-1
C Page: I-2
D Page: I-3
E Page: I-3
F Page: I-4
G Page: I-5
H Page: I-5
I Page: I-6
J Page: I-7
K Page: I-7
L Page: I-7
M Page: I-7
N Page: I-9
O Page: I-9
P Page: I-9
Q Page: I-11
R Page: I-11
S Page: I-12
T Page: I-13
U Page: I-13
V Page: I-14
W Page: I-14
X Page: I-14
Y Page: I-14
Z Page: I-14
Back Cover Page: I-14