Microeconomics in Context, Fourth Edition

558 Pages·2019·15.273 MB·English

by  Goodwin, Neva, Jonathan M. Harris, Julie A. Nelson, Pratistha Joshi Rajkarnikar, Brian Roach, and Mariano Torras

“In my endorsement of the previous edition of Microeconomics in Context, I called it 'hands down the best'. is new
edition is even beer. Not only is it still very accessible to students, but it is even more highly relevant. e authors
present the economy as fully embedded in its wider context – social, political, historical, and environmental – and then
bring in a ri understanding of economic theory to help us not only to understand the world, but also to ange it.”
—Professor Judith Robinson, Castleton State College
“is textbook shis our thinking and teaing about microeconomics! e integration of cuing-edge economic insights
and applications to underexplored issues of unpaid labor, inequality, climate ange, and globalization makes the book
relevant and engaging. With this contextual approa and the tools offered, we are beer equipped to promote
improvements in societal well-being.”
—Professor Fiona MacPhail, University of Northern British Columbia
Microeconomics in Context
Microeconomics in Context lays out the principles of microeconomics in a manner that is thorough, up to date,
and relevant to students. Like its counterpart, Macroeconomics in Context, the book is uniquely auned to
economic, social, and environmental realities. e “In Context” books offer affordability, accessible presentation,
and engaging coverage of current policy issues from economic inequality and global climate ange to taxes and
globalization.
Key features include:
Clear explanations of basic concepts and analytical tools, with advanced models presented in optional
apter appendices;
Presentation of policy issues in historical, environmental, institutional, social, political, and ethical
contexts—an approa that fosters critical evaluation of the standard microeconomic models, su as
welfare analysis, labor markets, and market competition;
A powerful graphical presentation of various measures of well-being in the United States and other
countries, including income inequality, taxes, educational aainment, and environmental quality;
Broad definitions of well-being using both traditional economic metrics and factors su as
environmental quality, health, equity, and political inclusion;
Significantly revised apters on globalization and trade, economic and social inequality, labor markets,
and public goods;
Expanded coverage of high-interest topics su as behavioral economics, labor markets, and economic
discrimination;
Full complement of instructor and student support materials online.
is new edition also features more international data and analysis, and further material on the importance of
economic power in shaping policy. e latest addition to the “In Context” series combines real-world relevance
with a thorough grounding in multiple economic paradigms.
Neva Goodwin is Co-Director of the Global Development and Environment Institute (GDAE) at Tus
University, where she is the director of the electronic Social Science Library: Frontier inking in Sustainable
Development and Human Well-Being. Her current interests focus on ecological restoration, especially with
regard to soils.
Jonathan M. Harris is Senior Resear Associate at the Global Development and Environment Institute at Tus
University. His current resear focuses on the implications of large-scale environmental problems, especially
global climate ange, for macroeconomic theory and policy.
Julie A. Nelson is Professor of Economics at the University of Massauses Boston and Senior Resear
Fellow at the Global Development and Environment Institute at Tus University. Many of her books and
articles critique economic methodology from a feminist perspective. She has published in journals ranging from
Econometrica and the Journal of Political Economy to Hypatia: A Journal of Feminist Philosophy and Ecological
Economics.
Pratistha Joshi Rajkarnikar is a Postdoctoral Solar at the Global Development and Environment Institute at
Tus University. Her resear covers a broad range of topics on women’s empowerment, economic
development, and the impacts of globalization on developing economies. She has taught economics in visiting
positions at Trinity College and University of Massauses Boston.
Brian Roa is Director of the eory and Education Program at the Global Development and Environment
Institute at Tus University, and a lecturer at Tus and Brandeis Universities. He specializes in environmental
economics, and is co-author (with Jonathan Harris) of Environmental and Natural Resource Economics: A
Contemporary Approach.
Mariano Torras teaes economics at Adelphi University in Garden City, New York. A heterodox economist
who specializes in ecological and development economics, his recent resear has been in the areas of
institutional economics and economic methodology; particular aention has been on approaes to addressing
climate ange.
Microeconomics in Context
Fourth Edition
Neva Goodwin, Jonathan M. Harris, Julie A. Nelson, Pratistha Joshi Rajkarnikar, Brian Roa, and
Mariano Torras
Fourth edition published 2019
by Routledge
711 ird Avenue, New York, NY 10017
and by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2019 Neva Goodwin, Jonathan M. Harris, Julie A. Nelson, Pratistha Joshi Rajkarnikar, Brian Roa, and Mariano
Torras
e right of Neva Goodwin, Jonathan M. Harris, Julie A. Nelson, Pratistha Joshi Rajkarnikar, Brian Roa, and
Mariano Torras to be identified as authors of this work has been asserted by them in accordance with sections 77 and
78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic,
meanical, or other means, now known or hereaer invented, including photocopying and recording, or in any
information storage or retrieval system, without permission in writing from the publishers.
First edition published by Cengage 2004
ird edition published by M.E. Sharpe 2014 and by Routledge 2015
Library of Congress Cataloging-in-Publication Data
A catalog record has been requested for this book
ISBN: 978-1-138-31451-1 (hbk)
ISBN: 978-1-138-31456-6 (pbk)
ISBN: 978-0-429-45689-3 (ebk)
Typeset in Bembo Std
by Apex CoVantage, LLC
Visit the companion website: hp://www.ase.tus.edu/gdae/publications/textbooks/microeconomics.html
Contents
List of Figures
List of Tables
Preface
Anowledgments
Sample Course Outlines
PART I:THE CONTEXT FOR ECONOMIC ANALYSIS
0 MICROECONOMICS AND WELL-BEING
1 ECONOMIC ACTIVITY IN CONTEXT
1. OUR STARTING POINT
2. THE GOALS OF AN ECONOMY
2.1 INTERMEDIATE AND FINAL GOALS
2.2 TRADITIONAL ECONOMIC GOALS
2.3 COMPONENTS OF WELL-BEING
2.4 ECONOMICS AND WELL-BEING
3. THE ISSUES THAT DEFINE ECONOMICS
3.1 THE FOUR ESSENTIAL ECONOMIC ACTIVITIES
3.2 THETHREE BASIC ECONOMIC QUESTIONS
4. ECONOMIC TRADEOFFS
4.1 SOCIETY'S PRODUCTION-POSSIBILITIES FRONTIER
4.2 TRADEOFFS OVER TIME
5. MICROECONOMICS IN CONTEXT
5.1 THE TRADITIONAL ECONOMIC MODEL
5.2 THE CONTEXTUAL APPROACH
2 MARKETS AND SOCIETY
1. THETHREE SPHERES OF ECONOMIC ACTIVITY
1.1 THE CORE SPHERE
1.2 THE PUBLIC PURPOSE SPHERE
1.3 THE BUSINESS SPHERE
1.4 THE SIZE OF THE THREE SPHERES
1.5 THE INFORMAL SPHERE AND LESS INDUSTRIALIZED
COUNTRIES
2. THE ROLE OF MARKETS
2.1 THREE DEFINITIONS OF MARKETS
2.2 INSTITUTIONAL REQUIREMENTS OF MARKETS
3. TYPES OF MARKETS
3.1 MARKETS DEFINED BY WHAT IS SOLD
3.2 MARKETS DEFINED BY HOW PRICES ARE DETERMINED
4. ADVANTAGES AND LIMITATIONS OF MARKETS
4.1 OVERVIEW OF ADVANTAGES AND DISADVANTAGES OF
MARKETS
4.2 ASSESSING MARKET OUTCOMES
PART II: BASIC ECONOMIC ANALYSIS
3 SUPPLY AND DEMAND
1. INTRODUCTION TO THE MICROECONOMIC MARKET MODEL
2. THE THEORY OF SUPPLY
2.1 THE SUPPLY SCHEDULE AND SUPPLY CURVE
2.2 CHANGES IN SUPPLY
2.3 NONPRICE DETERMINANTS OF SUPPLY
3. THE THEORY OF DEMAND
3.1 THE DEMAND SCHEDULE AND DEMAND CURVE
3.2 CHANGES IN DEMAND
3.3 NONPRICE DETERMINANTS OF DEMAND
4. THE THEORY OF MARKET ADJUSTMENT
4.1 SURPLUS, SHORTAGE, AND EQUILIBRIUM
4.2 MARKET FORCES AND OTHER CONSIDERATIONS
4.3 SHIFTS IN SUPPLY AND DEMAND
5. TOPICS IN MARKET ANALYSIS
5.1 REAL-WORLD PRICES
5.2 MARKETS AND EQUITY
5.3 SHORTAGE, SCARCITY, AND INADEQUACY
5.4 PRECISION VERSUS ACCURACY
4 ELASTICITY
1. THE PRICE ELASTICITY OF DEMAND
1.1 PRICE-INELASTIC DEMAND
1.2 PRICE-ELASTIC DEMAND
1.3 MEASURING PRICE ELASTICITY
1.4 TWO EXTREME CASES
1.5 DEMAND CURVES AND ELASTICITY
1.6 ELASTICITY AND REVENUES
1.7 PRICE ELASTICITY OF DEMAND IN THE REAL WORLD
2. THE PRICE ELASTICITY OF SUPPLY
3. INCOME ELASTICITY OF DEMAND
4. INCOME AND SUBSTITUTION EFFECTS OF A PRICE CHANGE
5. SHORT-RUN VERSUS LONG-RUN ELASTICITY
5 WELFARE ANALYSIS
1. WELFARE ECONOMICS
2. CONSUMER SURPLUS
2.1 QUANTIFYING CONSUMER BENEFITS
2.2 CONSUMER SURPLUS AND DEMAND CURVES
2.3 CONSUMER SURPLUS IN AN ENTIRE MARKET
3. PRODUCER SURPLUS
3.1 QUANTIFYING PRODUCER BENEFITS
3.2 PRODUCER SURPLUS AND SUPPLY CURVES
3.3 PRODUCER SURPLUS IN AN ENTIRE MARKET
4. SOCIAL EFFICIENCY
4.1 MARKET EQUILIBRIUM AND SOCIAL EFFICIENCY
4.2 PRICE CEILINGS
4.3 PRICE FLOORS
5. POLICY INFERENCES FROM WELFARE ANALYSIS
5.1 LAISSEZ-FAIRE ECONOMICS
5.2 MARKET FAILURE
6 INTERNATIONAL TRADE AND TRADE POLICY
1. TRADE, SPECIALIZATION, AND PRODUCTIVITY
2. GAINS FROM TRADE
2.1 THE THEORY OF COMPARATIVE ADVANTAGE
2.2 FACTOR PRICE EQUALIZATION
2.3 OTHER BENEFITS OF FREETRADE
3. DRAWBACKS OF FREE TRADE
3.1 VULNERABILITY AND LOCK-IN
3.2 POWER DIFFERENTIALS
3.3 TRADE AND THE ENVIRONMENT
3.4 INEQUALITY AND OTHER SOCIAL IMPACTS OF TRADE
4. GLOBALIZATION AND POLICY
4.1 GLOBALIZATION DATA AN D TRENDS
4.2 NATIONAL TRADE POLICIES
4.3 INTERNATIONAL TRADE AGREEMENTS
5. CONCLUSION: FREE TRADE AND FAIR TRADE
APPENDIX: A FORMAL THEORY OF GAINS FROM TRADE
PART III: ECONOMICS AND SOCIETY
7 ECONOMIC BEHAVIOR AND RATIONALITY
1. HISTORICAL PERSPECTIVES ON ECONOMIC BEHAVIOR
1.1 CLASSICAL ECONOMIC VIEWS OF HUMAN NATURE
1.2 THE NEOCLASSICAL MODEL
2. MODERN PERSPECTIVES ON ECONOMIC BEHAVIOR
2.1 BEHAVIORAL ECONOMICS
2.2 THE ROLE OF TIME IN ECONOMIC DECISIONS
2.3 THE ROLE OF EMOTIONS IN ECONOMIC DECISIONS
2.4 THE ROLE OF INFLUENTIAL FACTORS
2.5 SELFISHNESS AND ALTRUISM
2.6 INSIGHTS FROM NEUROECONOMICS
3. ECONOMIC BEHAVIOR IN CONTEXTUAL ECONOMICS
3.1 ALTERNATIVES TO MAXIMIZING BEHAVIOR
3.2 THE MODEL OF ECONOMIC BEHAVIOR IN CONTEXTUAL
ECONOMICS
4. POLICY INFERENCES FROM OUR MODEL OF ECONOMIC BEHAVIOR
4.1 PREDICTABLE IRRATIONALITY AND NUDGES
4.2 GOVERNMENT POLICY EXAMPLES
4.3 CONCLUDING THOUGHTS
8 CONSUMPTION AND THE CONSUMER SOCIETY
1. ECONOMIC THEORY AND CONSUMPTION
1.1 CONSUMER SOVEREIGNTY
1.2 THE BUDGET LINE
1.3 CONSUMER UTILITY
1.4 LIMITATIONS OFTHE STANDARD CONSUMER MODEL