Principles of Microeconomics 6e · 2019-01-24 · Firm Behavior and the organization oF industry 13...
Transcript of Principles of Microeconomics 6e · 2019-01-24 · Firm Behavior and the organization oF industry 13...
Firm Behavior and the organization oF industry
13 The Costs of Production
14 Firms in Competitive Markets
15 Monopoly
16 Monopolistic Competition
17 Oligopoly
The theory of the firm sheds light on the decisions that lie behind supply in competitive markets.
Firms with market power can cause market outcomes to be inefficient.
the economics oF LaBor markets
18 The Markets for the Factors of Production
19 Earnings and Discrimination
20 Income Inequality and Poverty
These chapters examine the special features of labor markets, in which most people earn most of their income.
topics For Further study
21 The Theory of Consumer Choice
22 Frontiers of Microeconomics
Additional topics in microeconomics include household decision making, asymmetric information, political economy, and behavioral economics.
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N. Gregory MankiwHARVARD UNIVERSITY
Sixth Edition
Principles ofPrinciples ofMicroeconomics
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To Catherine, Nicholas, and Peter,my other contributions to the next generation
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authorabout the
N. Gregory Mankiw is professor of economics at Harvard University. As a student, he studied eco-nomics at Princeton University and MIT. As a teach-er, he has taught macroeconomics, microeconomics, statistics, and principles of economics. He even spent one summer long ago as a sailing instructor on Long Beach Island. Professor Mankiw is a prolific writer and a regu-lar participant in academic and policy debates. His work has been published in scholarly journals, such as the American Economic Review, Journal of Political Economy, and Quarterly Journal of Economics, and in more popular forums, such as The New York Times and The Wall Street Journal. He is also author of
the best-selling intermediate-level textbook Macroeconomics (Worth Publishers). In addition to his teaching, research, and writing, Professor Mankiw has been a research associate of the National Bureau of Economic Research, an adviser to the Congressional Budget Office and the Federal Reserve Banks of Boston and New York, and a member of the ETS test development committee for the Advanced Placement exam in economics. From 2003 to 2005, he served as chairman of the President’s Council of Economic Advisers. Professor Mankiw lives in Wellesley, Massachusetts, with his wife, Deborah, three children, Catherine, Nicholas, and Peter, and their border terrier, Tobin.
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contentscontentsbrief
Part I Introduction 1 1 Ten Principles of Economics 3 2 Thinking Like an Economist 21 3 Interdependence and the Gains from Trade 49
Part II How Markets Work 63 4 The Market Forces of Supply and Demand 65 5 Elasticity and Its Application 89 6 Supply, Demand, and Government Policies 111
Part III Markets and Welfare 133 7 Consumers, Producers, and the Efficiency of Markets 135 8 Application: The Costs of Taxation 155 9 Application: International Trade 171
Part IV The Economics of the Public Sector 193 10 Externalities 195 11 Public Goods and Common Resources 217 12 The Design of the Tax System 233
Part V Firm Behavior and the Organization of Industry 257 13 The Costs of Production 259 14 Firms in Competitive Markets 279 15 Monopoly 299 16 Monopolistic Competition 329 17 Oligopoly 349
Part VI The Economics of Labor Markets 373 18 The Markets for the Factors of Production 375 19 Earnings and Discrimination 397 20 Income Inequality and Poverty 415
Part VII Topics for Further Study 437 21 The Theory of Consumer Choice 439 22 Frontiers of Microeconomics 467
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Economics is a study of mankind in the ordinary business of life.” So wrote Alfred Marshall, the great 19th-century economist, in his textbook, Principles of Economics. Although we have learned much about the economy since Marshall’s time, this definition of economics is as true today as it
was in 1890, when the first edition of his text was published. Why should you, as a student at the beginning of the 21st century, embark on the study of economics? There are three reasons. The first reason to study economics is that it will help you understand the world in which you live. There are many questions about the economy that might spark your curiosity. Why are apartments so hard to find in New York City? Why do airlines charge less for a round-trip ticket if the traveler stays over a Saturday night? Why is Johnny Depp paid so much to star in movies? Why are living stan-dards so meager in many African countries? Why do some countries have high rates of inflation while others have stable prices? Why are jobs easy to find in some years and hard to find in others? These are just a few of the questions that a course in economics will help you answer. The second reason to study economics is that it will make you a more astute participant in the economy. As you go about your life, you make many economic decisions. While you are a student, you decide how many years to stay in school. Once you take a job, you decide how much of your income to spend, how much to save, and how to invest your savings. Someday you may find yourself running a small business or a large corporation, and you will decide what prices to charge for your products. The insights developed in the coming chapters will give you a new perspective on how best to make these decisions. Studying economics will not by itself make you rich, but it will give you some tools that may help in that endeavor. The third reason to study economics is that it will give you a better understand-ing of both the potential and the limits of economic policy. Economic questions are always on the minds of policymakers in mayors’ offices, governors’ mansions, and the White House. What are the burdens associated with alternative forms of taxation? What are the effects of free trade with other countries? What is the best way to protect the environment? How does a government budget deficit affect the economy? As a voter, you help choose the policies that guide the allocation of society’s resources. An understanding of economics will help you carry out that responsibility. And who knows: Perhaps someday you will end up as one of those policymakers yourself. Thus, the principles of economics can be applied in many of life’s situations. Whether the future finds you reading the newspaper, running a business, or sit-ting in the Oval Office, you will be glad that you studied economics.
N. Gregory MankiwDecember 2010
“
to the studentto the studentpreface
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The Art of Instruction, The Power of Engagement, The Spark of Discovery
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Mankiw 6e Study Guide Completely revised for the Sixth Edition, this Study Guide covers chapter material comprehensively — and accurately. Very hands-on, each chapter thoroughly covers the material in the corresponding chapter of Mankiw. Every key word and con-cept is addressed within the Study Guide chapter — meaning you’ll feel confident that if you can do the study guide, you will understand all of the material in that chapter of Mankiw. The “types” of questions used in the Study Guide reflect what you find most useful when studying. Our student surveys show that students like you felt that fill-in-the-blank questions, matching questions, and questions without specific single answers were an inefficient use of their time — and the Mankiw Study Guide avoids these kinds of questions.
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acknowledgments
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acknowledgmentsacknowledgments
In writing this book, I benefited from the input of many talented people. Indeed, the list of people who have contributed to this project is so long, and their contributions so valuable, that it seems an injustice that only a single name appears on the cover.
Let me begin with my colleagues in the economics profession. The six editions of this text and its supplemental materials have benefited enormously from their input. In reviews and surveys, they have offered suggestions, identified challeng-es, and shared ideas from their own classroom experience. I am indebted to them for the perspectives they have brought to the text. Unfortunately, the list has be-come too long to thank those who contributed to previous editions, even though students reading the current edition are still benefiting from their insights. Most important in this process have been Ron Cronovich (Carthage College) and David Hakes (University of Northern Iowa). Ron and David, both dedicated teachers, have served as reliable sounding boards for ideas and hardworking part-ners with me in putting together the superb package of supplements. For this new edition, the following diary reviewers recorded their day-to-day experience over the course of a semester, offering detailed suggestions about how to improve the text.
Mark Abajian, San Diego Mesa CollegeJennifer Bailly, Long Beach City CollegeJ. Ulyses Balderas, Sam Houston State
UniversityAntonio Bos, Tusculum CollegeGreg Brock, Georgia Southern
UniversityDonna Bueckman, University of
Tennessee Knoxville
Rita Callahan, Keiser UniversityTina Collins, San Joaquin Valley CollegeBob Holland, Purdue UniversityTom Holmes, University of MinnesotaSimran Kahai, John Carroll UniversityMiles Kimball, University of MichiganJason C. Rudbeck, University of GeorgiaKent Zirlott, University of Alabama
Tuscaloosa
The following reviewers of the fifth edition provided suggestions for refining the content, organization, and approach in the sixth.
Mark Abajian, San Diego Mesa College Hamid Bastin, Shippensburg University Laura Jean Bhadra, Northern Virginia
Community CollegeBenjamin Blair, Mississippi State
UniversityLane Boyte, Troy University Greg Brock, Georgia Southern UniversityAndrew Cassey, Washington State
University Joni Charles, Texas State University -
San Marcos
Daren Conrad, Bowie State University Diane de Freitas, Fresno City College Veronika Dolar, Cleveland State
University Justin Dubas, Texas Lutheran
University Robert L Holland, Purdue University Andres Jauregui, Columbus State
University Miles Kimball, University of Michigan Andrew Kohen, James Madison
University
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xiiiACKNOWLEDGMENTS
Daniel Lee, Shippensburg University David Lindauer, Wellesley CollegeJoshua Long, Ivy Tech Community College James Makokha, Collin College Jim McAndrew, Luzerne County
Community College William Mertens, University of ColoradoCindy Munson, Western Technical
College David Mushinski, Colorado State
University Fola Odebunmi, Cypress College
Jeff Rubin, Rutgers University, New Brunswick
Lynda Rush, California State Polytechnic University Pomona
Naveen Sarna, Northern Virginia Community College
Jesse Schwartz, Kennesaw State University
Mark Showalter, Brigham Young University
Michael Tasto, Southern New Hampshire University
I received detailed feedback on specific elements in the text, including all end-of-chapter problems and applications, from the following instructors.
Mark Abajian, San Diego Mesa CollegeAfolabi Adebayo, University of New
HampshireMehdi Afiat, College of Southern
NevadaDouglas Agbetsiafa, Indiana University
South BendRichard Agnello, University of
DelawareHenry Akian, Gibbs CollegeConstantine Alexandrakis, Hofstra
UniversityMichelle Amaral, University of the
PacificShahina Amin, University of Northern
IowaLarry Angel, South Seattle Community
CollegeKathleen Arano, Fort Hays State
UniversityJ. J. Arias, Georgia College & State
UniversityNestor Azcona, Babson CollegeSteve Balassi, St. Mary’s College/Napa
Valley CollegeJuventino Ulyses Balderas, Sam
Houston State UniversityTannista Banerjee, Purdue UniversityJason Barr, Rutgers University, NewarkAlan Barreca, Tulane UniversityHamid Bastin, Shippensburg UniversityTammy Batson, Northern Illinois
University / Rock Valley CollegeCarl Bauer, Oakton Community CollegeKlaus Becker, Texas Tech UniversityRobert Beekman, University of Tampa
Christian Beer, Cape Fear Community College
Gary Bennett, State University of New York Fredonia
Bettina Berch, Borough of Manhattan Community College
Thomas M. Beveridge, Durham Technical Community College
Abhijeet Bhattacharya, Illinois Valley Community College
Prasad Bidarkota, Florida International University
Jekab Bikis, Dallas Baptist UniversityMichael Bognanno, Temple UniversityCecil Bohanon, Ball State University Natalia Boliari, Manhattan CollegeMelanie Boyte, Troy UniversityCharles Braymen, Kansas StateWilliam Brennan, Minnesota State
University at MankatoGreg Brock, Georgia Southern
UniversityKen Brown, University of Northern
IowaLaura Bucila, Texas Christian
UniversityStan Buck, Huntington UniversityDonna Bueckman, University of
Tennessee KnoxvilleJoe Bunting, St. Andrews Presbyterian
CollegeRita Callahan, Keiser UniversityMichael G. Carew, Baruch CollegeJohn Carter, Modesto Junior CollegeKalyan Chakraborty, Emporia State
University
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Henry Check, Penn State UniversityXudong Chen, Baldwin-Wallace CollegeClifton M. Chow, Mass Bay
Community CollegeTina Collins, San Joaquin Valley CollegeValerie Collins, Sheridan CollegeSarah Cosgrove, University of
Massachusetts DartmouthDana Costea, Indiana University South
BendMaria DaCosta, University of Wisconsin
Eau ClaireMian Dai, Drexel UniversityJoel Dalafave, Bucks County
Community CollegeMaylene Damoense, Monash
University South AfricaLorie Darche, Southwest Florida CollegeDiane de Freitas, Fresno City CollegeEjigou Demissie, University of
Maryland Eastern ShoreRichard DePolt, Guilford Technical
Community CollegeAaron Dighton, University of
MinnesotaVeronika Dolar, Cleveland State
UniversityFisher Donna, Georgia Southern
UniversityHarold Elder, University of AlabamaJamie Emerson, Salisbury UniversityElena Ermolenko, Oakton Community
CollegePat Euzent, University of Central
FloridaYan Feng, Hunter College, Queens
College, CUNYDonna K. Fisher, Georgia Southern
UniversityPaul Fisher, Henry Ford Community
CollegeFred Foldvary, Santa Clara UniversityNikki Follis, Chadron State CollegeKent Ford, State University of New York /
Onondaga Community CollegeRyan Ford, Pasadena City CollegeTimothy Ford, California State
University SacramentoJohanna Francis, Fordham UniversityRobert Francis, Shoreline Community
CollegeMark Frascatore, Clarkson University
David Furst, University of South FloridaMonica Galizzi, University of
Massachusetts LowellJean-Philippe Gervais, North Carolina
State UniversityDipak Ghosh, Emporia State UniversityBill Goffe, State University of New York
OswegoRyan Gorka, University of Nebraska
LincolnMarshall Gramm, Rhodes CollegeElias C. Grivoyannis, Yeshiva
UniversityEleanor Gubins, Rosemont CollegeDarrin Gulla, University of KentuckyKaren Gulliver, Argosy UniversityRanganai Gwati, University of
Washington SeattleMike Haupert, University of Wisconsin
La CrosseL Jay Helms, University of California
DavisDr. David Hennessy, University of
DubuqueCurry Hilton, Guilford Technical
Community CollegeGeorge Hoffer, Virginia Commonwealth
UniversityMark Holmes, University of WaikatoCarl Hooker, Community College of
VermontDaniel Horton, Cleveland State UniversityScott Houser, Colorado School of the
MinesFanchang Huang, Washington
University in St LouisGregory Hunter, California State
Polytechnic University PomonaChristopher Hyer, University of New
MexicoLeke Ijiyode, St. Mary’s University of
MinnesotaChris Inama, Golden Gate UniversitySarbaum Jeff, University of North
Carolina GreensboroChad Jennings, Tennessee Temple
UniversityPhilipp Jonas, Kalamazoo Valley
Community CollegeRobert Jones, Rensselaer Polytechnic
InstitutePrathibha Joshi, Gordon College
ACKNOWLEDGMENTS
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James Jozefowicz, Indiana University of Pennsylvania
Mahbubul Kabir, Lyon CollegeSimran Kahai, John Carroll UniversityDavid Kalist, Shippensburg UniversityCamilla Kazimi, St. Mary’s CollegeChris Kelton, Naval Postgraduate SchoolBrian Kench, University of TampaHyeongwoo Kim, Auburn UniversityMiles Kimball, University of MichiganAlfreda L. King, Lawson State
Community CollegeElizabeth Knowles, –Univeristy of
Wisconsin La CrosseFred Kolb, University of Wisconsin Eau
ClaireRisa Kumazawa, Duquesne UniversitySumner La Croix, University of HawaiiChristopher Laincz, Drexel UniversityGhislaine Lang, San Jose State
UniversityCarolyn Langston, South Arkansas
Community CollegeRichard Le, Cosumnes River CollegeDaniel Lee, Shippensburg UniversityTom Lehman, Indiana Wesleyan
UniversityMegan Leonard, Hendrix CollegeLarry Lichtenstein, Canisius CollegeTad Lincoln, Middlesex Community
CollegeDavid Linthicum, Cecil College North
East Sam Liu, West Valley CollegeMelody Lo, University of Texas at San
AntonioVolodymyr Logovskyy, Georgia
Institute of TechnologyMin Lu, Robert Morris UniversityGennady Lyakir, Champlain CollegeBruce Madariaga, Montgomery
Community CollegeBrinda Mahalingam, University of
California RiversideRubana Mahjabeen, Truman State
UniversityBahman Maneshni, Paradise Valley
Community CollegeDenton Marks, University of Wisconsin-
WhitewaterTimothy Mathews, Kennesaw State
University
Frances Mc Donald, Northern Virginia Community College
Edward McGrath, Holyoke Community College
Shirley Ann Merchant, George Washington University
William Mertens, University of Colorado
Mitch Mitchell, Bladen Community College Mitch Mitchell, North Carolina Wesleyan Mike Mogavero, University of Notre
DameProf Ramesh Mohan, Bryant UniversityDaniel Monchuk, University of
Southern MississippiVasudeva Murthy, Creighton UniversityDavid Mushinsk, Colorado State
UniversityPaula Nas, University of Michigan FlintRuss Neal, Collin County Community
CollegeMegumi Nishimura, University of
ColoradoPeter Olson, Indiana UniversityEsen Onur, California State University
SacramentoStephen Onyeiwu, Allegheny CollegeMargaret Oppenheimer, DePaul
University Glenda Orosco, Oklahoma State
University Institute of TechnologyDavid Ortmeyer, Bentley UniversityThomas Owen, College of the RedwoodsJan Palmer, Ohio UniversityAmar Parai, State University of New
York at FredoniaNitin Paranjpe, Wayne State and
Oakland UniversityCarl Parker, Fort Hays State UniversityMichael Petrack, Oakland Community
CollegeGyan Pradhan, Eastern Kentucky
UniversityMichael Pries, University of Notre DameJoe Quinn, Boston CollegeMahesh Ramachandran, Clark
UniversityRatha Ramoo, Diablo Valley CollegeSurekha Rao, Indiana University
NorthwestRyan Ratcliff, University of San DiegoScott Redenius, Brandeis University
ACKNOWLEDGMENTS
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Susan Reilly, Florida State College at Jacksonville
Imke Reimers, University of MinnesotaChristopher Richardson, Merrillville
High SchoolArt Riegal, State University of New
York SullivanRichard Risinit, Middlesex Community
College Michael Rogers, Albany State
UniversityPaul Roscelli, Canada CollegeLarry Ross, University of Alaska
AnchorageJeff Rubin, Rutgers UniversityAllen Sanderson, University of ChicagoJeff Sarbaum, University of North
Carolina GreensboroDennis Shannon, Southwestern Illinois
CollegeXuguang Sheng, State University of
New York at FredoniaMark Showalter, Brigham Young
UniversityJohnny Shull, Central Carolina
Community CollegeSuann Shumaker, Las Positas
Community CollegeJonathan Silberman, Oakland UniversitySteven Skinner, Western Connecticut
State UniversityCatherine Skura, Sandhills Community
CollegeGary Smith, D’Youville CollegeWarren Smith, Keiser UniversityWilliam Snyder, Peru State CollegeKen Somppi, Southern Union State
Community CollegeDale Steinreich, Drury UniversityLiliana Stern, Auburn UniversityDerek Stimel, Menlo CollegeCarolyn Fabian Stumph, Indiana
University Purdue University Fort WayneBryce Sutton, University of Alabama at
BirminghamJustin Tapp, Southwest Baptist University
Dosse Toulaboe, Fort Hays State University
Richard Trainer, State University of New York at Nassau
Ngoc Bich Tran, San Jacinto CollegeSandra Trejos, Clarion University of
PennsylvaniaJulie Trivitt, Arkansas Tech UniversityArja Turunen-Red, University of New
OrleansDiane Tyndall, Craven Community
CollegeKay Unger, University of Montana Lee J. Van Scyoc, University of
Wisconsin OshkoshLisa Verissimo-Bates, Foothill CollegePriti Verma, Texas A&M University,
KingsvillePatrick Walsh, St. Michael’s CollegeJing Wang, Northeastern UniversityDonald Waters, Brayant and Stratton
College, Virginia Beach, Virgina Campus
Patrick Welle, Bemidji State UniversityElizabeth Wheaton, Southern Methodist
UniversityLuther White, Central Carolina
Community CollegeOxana Wieland, University of
Minnesota CrookstonJohn Winters, Auburn University at
MontgomerySuzanne Wisniewski, University of
St. ThomasPatricia Wiswell, Columbia-Greene
Community CollegeMark Witte, College of CharlestonLouis A. Woods, University of North
FloridaGuy Yamashiro, California State
University Long BeachBenhua Yang, Stetson UniversityLeslie Young, Kilian Community
CollegeKaren Zempel, Bryant and Stratton
College
ACKNOWLEDGMENTS
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xvii
The team of editors who worked on this book improved it tremendously. Jane Tufts, developmental editor, provided truly spectacular editing—as she always does. Mike Worls, economics executive editor, did a splendid job of overseeing the many people involved in such a large project. Jennifer Thomas (supervising devel-opmental editor) and Katie Yanos (supervising developmental editor) were crucial in assembling an extensive and thoughtful group of reviewers to give me feed-back on the previous edition, while putting together an excellent team to revise the supplements. Colleen Farmer, senior content project manager, and Malvine Litten, project manager, had the patience and dedication necessary to turn my manu-script into this book. Michelle Kunkler, senior art director, gave this book its clean, friendly look. Larry Moore, the illustrator, helped make the book more visually appealing and the economics in it less abstract. Sheryl Nelson, copyeditor, refined my prose, and Cindy Kerr, indexer, prepared a careful and thorough index. John Carey, senior marketing manager, worked long hours getting the word out to po-tential users of this book. The rest of the Cengage team was also consistently pro-fessional, enthusiastic, and dedicated: Allyn Bissmeyer, Darrell Frye, Sarah Greber, Betty Jung, Deepak Kumar, Kim Kusnerak, Sharon Morgan, Suellen Ruttkay, and Joe Sabatino. I am grateful also to Stacy Carlson and Daniel Norris, two star Harvard under-graduates, who helped me refine the manuscript and check the page proofs for this edition. Josh Bookin, a former Advanced Placement economics teacher and recently an extraordinary section leader for Harvard’s Ec 10, gave invaluable advice on some of the new material in this edition. As always, I must thank my “in-house” editor Deborah Mankiw. As the first reader of most things I write, she continued to offer just the right mix of criticism and encouragement. Finally, I would like to mention my three children Catherine, Nicholas, and Peter. Their contribution to this book was putting up with a father spending too many hours in his study. The four of us have much in common—not least of which is our love of ice cream (which becomes apparent in Chapter 4). Maybe sometime soon one of them will pick up my passion for economics as well.
N. Gregory MankiwDecember 2010
ACKNOWLEDGMENTS
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Preface: To the Student ix
Acknowledgments xii
PartI Introduction 1
Chapter 1
ten Principles of Economics 3How People Make Decisions 4
Principle 1: People Face Trade-offs 4Principle 2: The Cost of Something Is What You Give
Up to Get It 5Principle 3: Rational People Think at the Margin 6Principle 4: People Respond to Incentives 7Case Study: The Incentive Effects of Gasoline Prices 8In The News: Incentive Pay 9
How People Interact 10Principle 5: Trade Can Make Everyone Better Off 10Principle 6: Markets Are Usually a Good Way to Organize
Economic Activity 10Principle 7: Governments Can Sometimes Improve Market
Outcomes 11
FYI: Adam Smith and the Invisible Hand 12
How the Economy as a Whole Works 13Principle 8: A Country’s Standard of Living Depends on Its
Ability to Produce Goods and Services 13In The News: Why You Should Study Economics 14Principle 9: Prices Rise When the Government Prints Too
Much Money 15Principle 10: Society Faces a Short-Run Trade-off between
Inflation and Unemployment 16FYI: How to Read This Book 17
Conclusion 17
Chapter 2
thinking Like an Economist 21The Economist as Scientist 22
The Scientific Method: Observation, Theory, and More Observation 22
The Role of Assumptions 23Economic Models 24Our First Model: The Circular-Flow Diagram 24Our Second Model: The Production Possibilities
Frontier 26Microeconomics and Macroeconomics 29
The Economist as Policy Adviser 29FYI: Who Studies Economics? 30Positive versus Normative Analysis 30Economists in Washington 31In The News: The Economics of President
Obama 32Why Economists’ Advice Is Not Always Followed 32
Why Economists Disagree 34Differences in Scientific Judgments 34Differences in Values 34Perception versus Reality 35
Let’s Get Going 35In The News: Environmental Economics 37
APPENDIX Graphing: A Brief Review 40Graphs of a Single Variable 40Graphs of Two Variables: The Coordinate System 41Curves in the Coordinate System 42Slope 44Cause and Effect 46
xviii
table ofcontents
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xix
Chapter 3
Interdependence and the Gains from trade 49A Parable for the Modern Economy 50
Production Possibilities 50Specialization and Trade 52
Comparative Advantage: The Driving Force of Specialization 54Absolute Advantage 54Opportunity Cost and Comparative Advantage 54Comparative Advantage and Trade 55The Price of the Trade 56FYI: The Legacy of Adam Smith and David Ricardo 57
Applications of Comparative Advantage 57Should Tom Brady Mow His Own Lawn? 57Should the United States Trade with Other Countries? 58In The News: The Changing Face of International Trade 59
Conclusion 59
Market Demand versus Individual Demand 68Shifts in the Demand Curve 69Case Study: Two Ways to Reduce the Quantity of
Smoking Demanded 71
Supply 73The Supply Curve: The Relationship between Price and
Quantity Supplied 73Market Supply versus Individual Supply 73Shifts in the Supply Curve 74
Supply and Demand Together 77Equilibrium 77Three Steps to Analyzing Changes in Equilibrium 79In The News: Price Increases after Disasters 82
Conclusion: How Prices Allocate Resources 84
Chapter 5
Elasticity and Its application 89The Elasticity of Demand 90
The Price Elasticity of Demand and Its Determinants 90Computing the Price Elasticity of Demand 91The Midpoint Method: A Better Way to Calculate
Percentage Changes and Elasticities 91The Variety of Demand Curves 92FYI: A Few Elasticities from the Real World 94Total Revenue and the Price Elasticity of Demand 94Elasticity and Total Revenue along a Linear Demand Curve 96Other Demand Elasticities 97
The Elasticity of Supply 98The Price Elasticity of Supply and Its Determinants 98Computing the Price Elasticity of Supply 98The Variety of Supply Curves 99
Three Applications of Supply, Demand, and Elasticity 101Can Good News for Farming Be Bad News for Farmers? 101Why Did OPEC Fail to Keep the Price of Oil High? 103Does Drug Interdiction Increase or Decrease Drug-Related
Crime? 105
Conclusion 106
Chapter 6
Supply, Demand, and Government Policies 111Controls on Prices 112
How Price Ceilings Affect Market Outcomes 112Case Study: Lines at the Gas Pump 114Case Study: Rent Control in the Short Run and
the Long Run 115How Price Floors Affect Market Outcomes 116Case Study: The Minimum Wage 117Evaluating Price Controls 119In The News: Should Unpaid Internships Be Allowed? 120
Taxes 121How Taxes on Sellers Affect Market Outcomes 121
PartII How Markets Work 63
Chapter 4
the Market Forces of Supply and Demand 65Markets and Competition 66
What Is a Market? 66What Is Competition? 66
Demand 67The Demand Curve: The Relationship between Price and
Quantity Demanded 67
CONTENTS
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xx CONTENTS
How Taxes on Buyers Affect Market Outcomes 123Case Study: Can Congress Distribute the Burden of a Payroll
Tax? 124Elasticity and Tax Incidence 125Case Study: Who Pays the Luxury Tax? 127
Conclusion 128
The Deadweight Loss of Taxation 156How a Tax Affects Market Participants 157Deadweight Losses and the Gains from Trade 159
The Determinants of the Deadweight Loss 160Case Study: The Deadweight Loss Debate 162
Deadweight Loss and Tax Revenue as Taxes Vary 163Case Study: The Laffer Curve and Supply-Side Economics 165In The News: New Research on Taxation 166
Conclusion 166
Chapter 9
application: International trade 171The Determinants of Trade 172
The Equilibrium without Trade 172The World Price and Comparative Advantage 173
The Winners and Losers from Trade 174The Gains and Losses of an Exporting Country 174The Gains and Losses of an Importing Country 175The Effects of a Tariff 177FYI: Import Quotas: Another Way to Restrict Trade 179The Lessons for Trade Policy 179Other Benefits of International Trade 180In The News: Trade Skirmishes 181
The Arguments for Restricting Trade 182The Jobs Argument 182In The News: Should the Winners from Free Trade
Compensate the Losers? 183The National-Security Argument 184In The News: Second Thoughts about Free Trade 184The Infant-Industry Argument 185The Unfair-Competition Argument 186The Protection-as-a-Bargaining-Chip Argument 186Case Study: Trade Agreements and the World Trade
Organization 186
Conclusion 187
PartIII Markets and Welfare 133
Chapter 7
Consumers, Producers, and the Efficiency of Markets 135Consumer Surplus 136
Willingness to Pay 136Using the Demand Curve to Measure Consumer Surplus 137How a Lower Price Raises Consumer Surplus 138What Does Consumer Surplus Measure? 140
Producer Surplus 141Cost and the Willingness to Sell 141Using the Supply Curve to Measure Producer Surplus 142How a Higher Price Raises Producer Surplus 144
Market Efficiency 145The Benevolent Social Planner 145Evaluating the Market Equilibrium 146In The News: Ticket Scalping 148Case Study: Should There Be a Market in Organs? 149
Conclusion: Market Efficiency and Market Failure 150
Chapter 8
application: the Costs of taxation 155
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xxiCONTENTS
Chapter 12
the Design of the tax System 233A Financial Overview of the U.S. Government 234
The Federal Government 235Case Study: The Fiscal Challenge
Ahead 238State and Local Government 240
Taxes and Efficiency 242Deadweight Losses 242Case Study: Should Income or Consumption
Be Taxed? 243In The News: The Temporarily Disappearing
Estate Tax 244Administrative Burden 244Marginal Tax Rates versus Average
Tax Rates 245Lump-Sum Taxes 245
Taxes and Equity 246The Benefits Principle 246The Ability-to-Pay Principle 247Case Study: How the Tax Burden Is
Distributed 248Tax Incidence and Tax Equity 249Case Study: Who Pays the Corporate
Income Tax? 250In The News: The Value-Added Tax 250
Conclusion: The Trade-off between Equity and Efficiency 252
PartIV the Economics of the Public Sector 193
Chapter 10
Externalities 195Externalities and Market Inefficiency 197
Welfare Economics: A Recap 197Negative Externalities 198Positive Externalities 199In The News: The Externalities of Country
Living 200Case Study: Technology Spillovers, Industrial Policy, and
Patent Protection 201
Public Policies toward Externalities 202Command-and-Control Policies: Regulation 203Market-Based Policy 1: Corrective Taxes and
Subsidies 203Case Study: Why Is Gasoline Taxed So Heavily? 204Market-Based Policy 2: Tradable Pollution
Permits 205Objections to the Economic Analysis of Pollution 207In The News: Cap and Trade 208
Private Solutions to Externalities 209The Types of Private Solutions 210The Coase Theorem 210Why Private Solutions Do Not Always Work 211
Conclusion 212
Chapter 11
Public Goods and Common resources 217The Different Kinds of Goods 218
Public Goods 220The Free-Rider Problem 220Some Important Public Goods 220Case Study: Are Lighthouses Public
Goods? 222The Difficult Job of Cost–Benefit Analysis 223Case Study: How Much Is a Life Worth? 223
Common Resources 224The Tragedy of the Commons 224Some Important Common Resources 225In The News: The Case for Toll Roads 226Case Study: Why the Cow Is Not Extinct 228
Conclusion: The Importance of Property Rights 229
PartV Firm Behavior and the Organization of Industry 257
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xxii CONTENTS
Chapter 15
Monopoly 299Why Monopolies Arise 300
Monopoly Resources 301Government-Created Monopolies 301Natural Monopolies 302
How Monopolies Make Production and Pricing Decisions 303Monopoly versus Competition 303A Monopoly’s Revenue 304Profit Maximization 306A Monopoly’s Profit 308FYI: Why a Monopoly Does Not Have a Supply Curve 308Case Study: Monopoly Drugs versus Generic Drugs 309
The Welfare Cost of Monopolies 310The Deadweight Loss 311The Monopoly’s Profit: A Social Cost? 313
Price Discrimination 314A Parable about Pricing 314The Moral of the Story 315The Analytics of Price Discrimination 315Examples of Price Discrimination 317
Public Policy toward Monopolies 318In The News: TKTS and Other Schemes 318Increasing Competition with Antitrust Laws 319In The News: President Obama’s Antitrust
Policy 320Regulation 321Public Ownership 323Doing Nothing 323
Conclusion: The Prevalence of Monopolies 323
Chapter 16
Monopolistic Competition 329Between Monopoly and Perfect Competition 330
Competition with Differentiated Products 332The Monopolistically Competitive Firm in the Short Run 332The Long-Run Equilibrium 332Monopolistic versus Perfect Competition 335Monopolistic Competition and the Welfare of
Society 336In The News: Insufficient Variety as a Market
Failure 338
Advertising 338The Debate over Advertising 340Case Study: Advertising and the Price of Eyeglasses 340Advertising as a Signal of Quality 341FYI: Galbraith versus Hayek 342Brand Names 343
Conclusion 344
Chapter 13
the Costs of Production 259What Are Costs? 260
Total Revenue, Total Cost, and Profit 260Costs as Opportunity Costs 260The Cost of Capital as an Opportunity Cost 261Economic Profit versus Accounting Profit 262
Production and Costs 263The Production Function 263From the Production Function to the Total-Cost Curve 265
The Various Measures of Cost 265Fixed and Variable Costs 266Average and Marginal Cost 267Cost Curves and Their Shapes 268Typical Cost Curves 270
Costs in the Short Run and in the Long Run 271The Relationship between Short-Run and Long-Run Average
Total Cost 271Economies and Diseconomies of Scale 272FYI: Lessons from a Pin Factory 273
Conclusion 274
Chapter 14
Firms in Competitive Markets 279What Is a Competitive Market? 280
The Meaning of Competition 280The Revenue of a Competitive Firm 280
Profit Maximization and the Competitive Firm’s Supply Curve 282A Simple Example of Profit Maximization 282The Marginal-Cost Curve and the Firm’s Supply
Decision 283The Firm’s Short-Run Decision to Shut Down 285Spilt Milk and Other Sunk Costs 286Case Study: Near-Empty Restaurants and Off-Season
Miniature Golf 287The Firm’s Long-Run Decision to Exit or Enter a
Market 288Measuring Profit in Our Graph for the Competitive
Firm 288
The Supply Curve in a Competitive Market 289The Short Run: Market Supply with a Fixed
Number of Firms 290The Long Run: Market Supply with Entry and Exit 290Why Do Competitive Firms Stay in Business If They Make
Zero Profit? 292A Shift in Demand in the Short Run and Long Run 293Why the Long-Run Supply Curve Might Slope
Upward 293
Conclusion: Behind the Supply Curve 295
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xxiiiCONTENTS
Chapter 17
Oligopoly 349Markets with Only a Few Sellers 350
A Duopoly Example 350Competition, Monopolies, and Cartels 351In The News: Public Price Fixing 352The Equilibrium for an Oligopoly 353How the Size of an Oligopoly Affects the Market Outcome 354
The Economics of Cooperation 355The Prisoners’ Dilemma 355Oligopolies as a Prisoners’ Dilemma 357Case Study: OPEC and the World Oil Market 358Other Examples of the Prisoners’ Dilemma 358The Prisoners’ Dilemma and the Welfare of Society 360Why People Sometimes Cooperate 360Case Study: The Prisoners’ Dilemma Tournament 361
Public Policy toward Oligopolies 362Restraint of Trade and the Antitrust Laws 362Case Study: An Illegal Phone Call 363Controversies over Antitrust Policy 363Case Study: The Microsoft Case 365
Conclusion 366In The News: The Next Big Antitrust Target? 367
The Demand for Labor 376The Competitive Profit-Maximizing Firm 377The Production Function and the Marginal Product of
Labor 377The Value of the Marginal Product and the Demand
for Labor 379What Causes the Labor-Demand Curve to Shift? 380FYI: Input Demand and Output Supply: Two Sides of the
Same Coin 381FYI: The Luddite Revolt 382
The Supply of Labor 383The Trade-off between Work and Leisure 383What Causes the Labor-Supply Curve to Shift? 383
Equilibrium in the Labor Market 384Shifts in Labor Supply 385In The News: The Economics of Immigration 386Shifts in Labor Demand 386Case Study: Productivity and Wages 387FYI: Monopsony 389
The Other Factors of Production: Land and Capital 389Equilibrium in the Markets for Land and Capital 390FYI: What Is Capital Income? 391Linkages among the Factors of Production 391Case Study: The Economics of the Black Death 392
Conclusion 393
Chapter 19
Earnings and Discrimination 397Some Determinants of Equilibrium Wages 398
Compensating Differentials 398Human Capital 398Case Study: The Increasing Value of Skills 399Ability, Effort, and Chance 400Case Study: The Benefits of Beauty 401An Alternative View of Education: Signaling 402The Superstar Phenomenon 402In The News: The Human Capital of Terrorists 403Above-Equilibrium Wages: Minimum-Wage Laws, Unions,
and Efficiency Wages 404
The Economics of Discrimination 405Measuring Labor-Market Discrimination 405Case Study: Is Emily More Employable than
Lakisha? 407Discrimination by Employers 407Case Study: Segregated Streetcars and the Profit
Motive 408Discrimination by Customers and Governments 408Case Study: Discrimination in Sports 409In The News: Gender Differences 410
Conclusion 411
PartVI the Economics of Labor Markets 373
Chapter 18
the Markets for the Factors of Production 375
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xxiv CONTENTS
Chapter 20
Income Inequality and Poverty 415The Measurement of Inequality 416
U.S. Income Inequality 416Inequality around the World 417The Poverty Rate 419Problems in Measuring Inequality 420Case Study: Alternative Measures of Inequality 421In The News: What’s Wrong with the Poverty Rate? 422Economic Mobility 423
The Political Philosophy of Redistributing Income 424Utilitarianism 424Liberalism 425Libertarianism 427
Policies to Reduce Poverty 427Minimum-Wage Laws 428Welfare 428Negative Income Tax 429In-Kind Transfers 430In The News: The Root Cause of a Financial Crisis 430Antipoverty Programs and Work Incentives 431
Conclusion 432
Preferences: What the Consumer Wants 441Representing Preferences with Indifference Curves 442Four Properties of Indifference Curves 443Two Extreme Examples of Indifference Curves 444
Optimization: What the Consumer Chooses 446The Consumer’s Optimal Choices 446FYI: Utility: An Alternative Way to Describe Preferences and
Optimization 447How Changes in Income Affect the Consumer’s
Choices 448How Changes in Prices Affect the Consumer’s
Choices 449Income and Substitution Effects 450Deriving the Demand Curve 452
Three Applications 453Do All Demand Curves Slope Downward? 453Case Study: The Search for Giffen Goods 454How Do Wages Affect Labor Supply? 454Case Study: Income Effects on Labor Supply: Historical
Trends, Lottery Winners, and the Carnegie Conjecture 457
In The News: Backward-sloping Labor Supply in Kiribati 458
How Do Interest Rates Affect Household Saving? 459
Conclusion: Do People Really Think This Way? 461
Chapter 22
Frontiers of Microeconomics 467Asymmetric Information 468
Hidden Actions: Principals, Agents, and Moral Hazard 468FYI: Corporate Management 469Hidden Characteristics: Adverse Selection and the
Lemons Problem 470Signaling to Convey Private Information 471Case Study: Gifts as Signals 471Screening to Uncover Private Information 472Asymmetric Information and Public Policy 473
Political Economy 473The Condorcet Voting Paradox 474Arrow’s Impossibility Theorem 475In The News: Arrow’s Problem in Practice 476The Median Voter Is King 478Politicians Are People Too 479
Behavioral Economics 480People Aren’t Always Rational 480People Care about Fairness 481In The News: Sin Taxes 482People Are Inconsistent over Time 484
Conclusion 485
Glossary 489Index 493
PartVII topics for Further Study 437
Chapter 21
the theory of Consumer Choice 439The Budget Constraint: What the Consumer
Can Afford 440
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glossary
489
aability-to-pay principle the idea that taxes should be levied on a person according to how well that person can shoulder the burden
absolute advantage the ability to pro-duce a good using fewer inputs than another producer
accounting profit total revenue minus total explicit cost
adverse selection the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party
agent a person who is performing an act for another person, called the principal
Arrow’s impossibility theorem a mathematical result showing that, under certain assumed conditions, there is no scheme for aggregating individual preferences into a valid set of social preferences
average fixed cost fixed cost divided by the quantity of output
average revenue total revenue divided by the quantity sold
average tax rate total taxes paid divided by total income
average total cost total cost divided by the quantity of output
average variable cost variable cost divided by the quantity of output
bbehavioral economics the subfield of economics that integrates the insights of psychology
benefits principle the idea that people should pay taxes based on the benefits they receive from government services
budget constraint the limit on the con-sumption bundles that a consumer can afford
business cycle fluctuations in econom-ic activity, such as employment and production
ccapital the equipment and structures used to produce goods and services
cartel a group of firms acting in unison
circular-flow diagram a visual model of the economy that shows how dollars flow through markets among house-holds and firms
club goods goods that are excludable but not rival in consumption
Coase theorem the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
collusion an agreement among firms in a market about quantities to produce or prices to charge
commodity money money that takes the form of a commodity with intrinsic value
common resources goods that are rival in consumption but not excludable
comparative advantage the ability to produce a good at a lower opportunity cost than another producer
compensating differential a difference in wages that arises to offset the non-monetary character istics of different jobs
competitive market a market with many buyers and sellers trading identi-cal products so that each buyer and seller is a price taker
complements two goods for which an increase in the price of one leads to a decrease in the demand for the other
Condorcet paradox the failure of majority rule to produce transitive preferences for society
constant returns to scale the property whereby long-run average total cost stays the same as the quantity of output changes
consumer surplus the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
corrective tax a tax designed to induce private decision makers to take account of the social costs that arise from a negative externality
cost the value of everything a seller must give up to produce a good
cost–benefit analysis a study that compares the costs and benefits to society of providing a public good
cross-price elasticity of demand a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good
ddeadweight loss the fall in total surplus that results from a market distortion, such as a tax
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490 GLOSSARY
demand curve a graph of the relation-ship between the price of a good and the quantity demanded
demand schedule a table that shows the relationship between the price of a good and the quantity demanded
diminishing marginal product the property whereby the marginal product of an input declines as the quantity of the input increases
discrimination the offering of different opportunities to similar indi-viduals who differ only by race, ethnic group, sex, age, or other personal characteristics
diseconomies of scale the prop-erty whereby long-run average total cost rises as the quantity of output increases
dominant strategy a strategy that is best for a player in a game regardless of the strategies chosen by the other players
eeconomic profit total revenue minus total cost, including both explicit and implicit costs
economics the study of how society manages its scarce resources
economies of scale the property whereby long-run average total cost falls as the quantity of output increases
efficiency the property of society getting the most it can from its scarce resources
efficient scale the quantity of output that minimizes average total cost
elasticity a measure of the responsive-ness of quantity demanded or quantity supplied to one of its determinants
equality the property of distributing economic prosperity uniformly among the members of society
equilibrium a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
equilibrium price the price that bal-ances quantity supplied and quantity demanded
equilibrium quantity the quantity supplied and the quantity demanded at the equilibrium price
excludability the property of a good whereby a person can be prevented from using it
explicit costs input costs that require an outlay of money by the firm
externality the uncompensated impact of one person’s actions on the well-being of a bystander
ffactors of production the inputs used to produce goods and services
fixed costs costs that do not vary with the quantity of output produced
free rider a person who receives the benefit of a good but avoids paying for it
ggame theory the study of how people behave in strategic situations
Giffen good a good for which an increase in the price raises the quantity demanded
hhorizontal equity the idea that taxpay-ers with similar abilities to pay taxes should pay the same amount
iimplicit costs input costs that do not require an outlay of money by the firm
incentive something that induces a person to act
income effect the change in consump-tion that results when a price change moves the consumer to a higher or lower indifference curve
income elasticity of demand a measure of how much the quantity demanded of a good responds to a change in consumers’ income, comput-ed as the percentage change in quantity demanded divided by the percentage change in income
indifference curve a curve that shows consumption bundles that give the con-sumer the same level of satisfaction
inferior good a good for which, other things equal, an increase in income leads to a decrease in demand
inflation an increase in the overall level of prices in the economy
in-kind transfers transfers to the poor given in the form of goods and services rather than cash
internalizing the externality altering incentives so that people take account of the external effects of their actions
llaw of demand the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
law of supply the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
law of supply and demand the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
liberalism the political philosophy according to which the government should choose policies deemed just, as evaluated by an impartial observer behind a “veil of ignorance”
libertarianism the political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistrib-ute income
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
491GLOSSARY
life cycle the regular pattern of income variation over a person’s life
lump-sum tax a tax that is the same amount for every person
mmacroeconomics the study of econ-omy-wide phenomena, including inflation, unemployment, and economic growth
marginal changes small incremental adjustments to a plan of action
marginal cost the increase in total cost that arises from an extra unit of production
marginal product the increase in out-put that arises from an additional unit of input
marginal product of labor the increase in the amount of output from an addi-tional unit of labor
marginal rate of substitution the rate at which a consumer is willing to trade one good for another
marginal revenue the change in total revenue from an additional unit sold
marginal tax rate the extra taxes paid on an additional dollar of income
market a group of buyers and sellers of a particular good or service
market economy an economy that allocates resources through the decen-tralized decisions of many firms and households as they interact in markets for goods and services
market failure a situation in which a market left on its own fails to allocate resources efficiently
market power the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
maximin criterion the claim that the government should aim to maximize the well-being of the worst-off person in society
median voter theorem a mathematical result showing that if voters are choos-ing a point along a line and each voter wants the point closest to his most preferred point, then majority rule will pick the most preferred point of the median voter
microeconomics the study of how households and firms make decisions and how they interact in markets
monopolistic competition a market structure in which many firms sell products that are similar but not identical
monopoly a firm that is the sole seller of a product without close substitutes
moral hazard the tendency of a per-son who is imperfectly monitored to engage in dishonest or otherwise unde-sirable behavior
nNash equilibrium a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen
natural monopoly a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
negative income tax a tax system that collects revenue from high-income households and gives subsidies to low-income households
normal good a good for which, other things equal, an increase in income leads to an increase in demand
normative statements claims that attempt to prescribe how the world should be
ooligopoly a market structure in which only a few sellers offer similar or identical products
opportunity cost whatever must be given up to obtain some item
pperfect complements two goods with right-angle indifference curves
perfect substitutes two goods with straight-line indifference curves
permanent income a person’s normal income
political economy the study of gov-ernment using the analytic methods of economics
positive statements claims that attempt to describe the world as it is
poverty line an absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty
poverty rate the percentage of the population whose family income falls below an absolute level called the poverty line
price ceiling a legal maximum on the price at which a good can be sold
price discrimination the business practice of selling the same good at dif-ferent prices to different customers
price elasticity of demand a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demand-ed divided by the percentage change in price
price elasticity of supply a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price
price floor a legal minimum on the price at which a good can be sold
principal a person for whom another person, called the agent, is performing some act
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492 GLOSSARY
prisoners’ dilemma a particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial
private goods goods that are both excludable and rival in consumption
producer surplus the amount a seller is paid for a good minus the seller’s cost of providing it
production function the relationship between the quantity of inputs used to make a good and the quantity of out-put of that good
production possibilities frontier a graph that shows the combina-tions of output that the economy can possibly produce given the available factors of production and the available production technology
profit total revenue minus total cost
progressive tax a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers
property rights the ability of an indi-vidual to own and exercise control over scarce resources
proportional tax a tax for which high-income and low-income taxpayers pay the same fraction of income
public goods goods that are neither excludable nor rival in consumption
qquantity demanded the amount of a good that buyers are willing and able to purchase
quantity supplied the amount of a good that sellers are willing and able to sell
rrational people people who systemati-cally and purposefully do the best they can to achieve their objectives
regressive tax a tax for which high-income taxpayers pay a smaller fraction
of their income than do low-income taxpayers
rivalry in consumption the property of a good whereby one person’s use diminishes other people’s use
sscarcity the limited nature of society’s resources
screening an action taken by an unin-formed party to induce an informed party to reveal information
shortage a situation in which quantity demanded is greater than quantity supplied
signaling an action taken by an informed party to reveal private infor-mation to an uninformed party
social insurance government policy aimed at protecting people against the risk of adverse events
substitutes two goods for which an increase in the price of one leads to an increase in the demand for the other
substitution effect the change in con-sumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
sunk cost a cost that has already been committed and cannot be recovered
supply curve a graph of the relation-ship between the price of a good and the quantity supplied
supply schedule a table that shows the relationship between the price of a good and the quantity supplied
surplus a situation in which quan-tity supplied is greater than quantity demanded
ttariff a tax on goods produced abroad and sold domestically
tax incidence the manner in which the burden of a tax is shared among par-ticipants in a market
total cost the market value of the inputs a firm uses in production
total revenue (for firm) the amount a firm receives for the sale of its output
total revenue (in a market) the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold
Tragedy of the Commons a parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole
transaction costs the costs that parties incur in the process of agreeing to and following through on a bargain
uutilitarianism the political philosophy according to which the government should choose policies to maximize the total utility of everyone in society
utility a measure of happiness or satisfaction
vvalue of the marginal product the marginal product of an input times the price of the output
variable costs costs that vary with the quantity of output produced
vertical equity the idea that taxpay-ers with a greater ability to pay taxes should pay larger amounts
wwelfare government programs that supplement the incomes of the needy
welfare economics the study of how the allocation of resources affects eco-nomic well-being
willingness to pay the maximum amount that a buyer will pay for a good
world price the price of a good that prevails in the world market for that good
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index
493
aA Beautiful Mind (Nash), 353Ability-to-pay principle, 247, 247–248Absolute advantage, 54Absolute value, 91Accountants, economists vs., 262Accounting profit, 262Adverse selection, 470, 470–471Advertising, 338–344
as signal of quality, 341–343defense of, 340brand names, 343–344critique of, 340debate over, 340Galbraith vs. Hayek, 342price of eyeglasses and, 340–341signaling theory of, 402
Affluent Society, The (Galbraith), 342Agent, 468, 468–470Airlines, price discrimination, 317Alkire, Caroline, 37Alm, Richard, 421American Airlines, 363American Indians, 338–339Anarchy, State, and Utopia (Nozick), 427Andrews, Edmund L., 181Antipoverty programs, 427–432
benefits principle argument for, 247fighting poverty is public good, 222in-kind transfers, 430–431minimum-wage laws, 428negative income tax, 429–430welfare, 428–429work incentives and, 431–432
Antitrust compliance policies, 352Antitrust laws
Clayton Antitrust Act, 319–320, 362controversies over policy, 363–365Google as target of, 367increasing competition with, 319–321Microsoft case, 365–366oligopolies and, 363–365predatory pricing, 364–365resale price maintenance, 363–364restraint of trade, 362Sherman Antitrust Act, 319–320, 362tying, 365
Antitrust policy, Obama’s, 320–321Arbitrage, 315Arrow, Kenneth, 475Arrow’s impossibility theorem, 475, 476–477Assumptions, 23–24
Note: Page numbers in boldface refer to pages where key terms are defined
Asymmetric information, 467, 468–473adverse selection, 470–471agents, 468–470gifts as signals, 471–472hidden actions, 468–470hidden characteristics, 470–471lemons problem, 470–471moral hazards, 468–470principals, 468–470public policy and, 473screening to uncover private info, 472–473signaling to convey private info, 471
AT&T, 320, 322Automobile industry, safety laws, 7–8Average cost, 267–268
and marginal-cost curves, 269pricing, deadweight losses and, 322
Average fixed cost, 268, 274Average fixed cost (AFC) curve, 268, 270Average revenue, 281, 283
for competitive firm, 281monopoly, 304, 305
Average tax rate, 245Average total cost, 267, 274
related to marginal cost, 270in short-run vs. long-run, 271–272U-shaped, 269–270
Average total cost (ATC) curve, 268, 270, 283Average variable cost, 268, 274Average variable cost (AVC) curve, 268, 270
bBackward-sloping labor supply curve, 457Balinski, Michel, 476Bar graph, 40–41Barboza, David, 59Beauty premium, 401–402Behavioral economics, 458, 480, 480–485
fairness and, 481–484inconsistency and, 484–485rationality and, 480–481
Benefits of beauty, 401–402Benefits principle, 246, 246–247Benevolent social planner, 145–146Benham, Lee, 341Benmelech, Efraim, 403Bentham, Jeremy, 424Berrebi, Claude, 403Bertrand, Marianne, 407Bialik, Carl, 476–477Biddle, Jeff, 401–402
Black Death, economics of, 392Blacks
economics of discrimination, 405–410poverty and, 420
Blackstone, Brian, 166Blank, Rebecca M., 422–423Borda count, 475Botswana, elephants as private good, 229Brand names, economics of, 343–344Brand-name product, 309Braniff Airways, 363Brazil
income inequality in, 418tax burden in, 235
Broken window fallacy, 15Budget constraint, 440, 440–441Budget deficit, 238
Federal government and, 238–240fiscal challenge of, 238–240rising cost of healthcare, 238–240
Budget surplus, 238Bush, George W.
antitrust policy under, 320–321reduced highest tax rate, 252voting system and, 476
Business cycle, 16Business-stealing externality, 337Buyers
marginal, 137number of, and shifts in demand, 71taxes on, affect market outcomes,
123–124variables that influence, 71willingness to pay, 136
cCanada
income inequality in, 418NAFTA and, 187tax burden in, 235trade and distribution of income, 184
Cap and trade, 208–209Capital, 390
cost of, 261–262equilibrium in markets for, 390–391factor of production, 389–392human, 398–399, 403, 406–407
Capital income, 391Capone, Al, 233Carbon tax, 208–209Carnegie, Andrew, 457-458
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494 Index494
Cartel, 351. See also Organization of Petroleum Exporting Countries (OPEC)
markets with only few sellers, 351–352public price fixing, 352
Catan, Thomas, 320–321Cause and effect, 46–48Centrally planned economies, 10Chamberlin, Edward, 343Charities, private solution to
externalities, 210Chicago School of Economists, 320Chile, unilateral approach to free trade, 186China
game-playing factories, 59income inequality in, 418tariffs on Chinese tires, 181trade and distribution of income, 185
Choice. See Consumer choice; OptimizationCircular-flow diagram, 24, 24–26Clayton Antitrust Act, 319–320, 362Clean Air Act, 37, 207Clean air and water as common resource, 226Clinton, Bill
tax rates raised by, 252welfare reform bill signed by, 432
Club goods, 219, 302Coase, Ronald, 210Coase theorem, 210, 210–211Collusion, 351Combs, Sean (Diddy), 8–9Command-and-control policies, 202, 203Common resources, 217–218, 218, 218–229
animals as, 228–229as natural monopoly, 302clean air and water, 226congested roads, 227–228elephants, 229example of prisoners’ dilemma, 359–360importance of property rights, 229oceans least regulated, 228Tragedy of the Commons, 224–225wildlife as, 228
Communism, collapse in Soviet Union, 10Comparative advantage, 54–59, 55
absolute advantage, 54applications of, 57–58opportunity cost and, 54–55trade and, 55–56world price and, 173
Compensating differentials, 398wage differences and, 406
Competition, 66–67gender differences and, 410–411imperfect, 330international trade increases, 182markets and, 66–67, 351–352monopoly vs., 303–304, 324perfect, 330perfectly competitive markets, 66with differentiated products, 332–337
Competitive firmdemand for labor, 376–382
long-run decision to exit or enter a market, 288
long-run supply curve, 289marginal-cost curve, 283–285market supply with entry and exit,
290–292market supply with fixed number of, 290measuring profit in graph, 288–289profit maximization and, 282–289revenue of, 280–282shift in demand in short and long run, 293short-run decision to shut down, 285–286short-run supply curve, 287sunk costs and, 286–287supply curve, marginal cost as, 285supply decision, 283–285vs. monopoly, 303–304zero profit and, 292–293
Competitive market, 66, 280, 280–282characteristics of, 280demand shift in short and long run, 293firms in, 279–280long-run supply curve slope upward,
293–295market supply with entry and exit, 290–292market supply with fixed number of
firms, 290meaning of, 280revenue of competitive firm, 280–282supply curve in, 289–295zero profit and, 292–293
Complements, 70cross-price elasticity of demand, 98perfect, 445
Concentration ratio, 330Condorcet paradox, 474Condorcet, Marquis de, 474Congestion
common resource and, 227–228gas tax and, 204pricing, 226–227traffic and toll roads, 226–228
Congressional Budget Office, 31, 209Constant returns to scale, 273Consumer choice
budget constraint, 440–441consumer optimal choices, 446–447deriving demand curve, 452–453Giffen good, 453income changes and, 448–449income effect, 448–449, 450–452indifference curve, 442inferior good, 448interest rates and household saving,
459–461marginal rate of substitution (MRS), 442, 447normal good, 448optimization, 446–453perfect complements, 445perfect substitutes, 445preferences, 441–445price changes and, 449–450substitution effect, 450–452
theory of, 439–440, 453–461wages affect labor supply, 454–457
Consumer surplus, 136–141, 137evaluating market equilibrium, 146–149lower price raises, 138–139market efficiency and, 145–150measure, 140–141price affects, 140using demand curve to measure, 137–139willingness to pay, 136–137
Consumptiongap, 422tax, 243, 482–483rivalry in, 218–219trade expands set of opportunities, 53
Consumption-saving decision, 459Coordinate system, 41–44Coordination problems, 273Copyright, 299Copyright laws, 301–302Corporate income tax, 241, 250–251Corporate management, 469Corporation, 236
principal-agent problem, 469Corrective taxes, 203
equivalence of pollution permits and, 207market-based policy, 203–205pollution permits and, 207
Correlation, positive and negative, 42Cost-benefit analysis, 223, 223–224Cost curves. See Total-cost curve
and their shapes, 268–270typical, 270–271
Cost(s), 141, 260–262average fixed, 268, 274average total, 267, 271–272, 274, 290average variable, 268, 274, 367–368budget deficit and healthcare, 239different costs produce upward-sloping
supply curve, 295economic profit vs. accounting profit, 262economies of scale and, 180–182explicit, 261, 274fixed, 266, 266–267, 274implicit, 261, 274in short run and long run, 271–273marginal. See Marginal costof capital, 261–262of possible sellers, 141of taxation, 155–156opportunity. See Opportunity costproduction, 259–260, 263–265social, 198, 313sunk, 285, 286, 286–287total, 260, 263, 274transaction, 212types of, 274variable, 266, 266–267, 274various measures of, 265–271welfare, 310–313willingness to sell and, 141–142
Council of Economic Advisers, 31Cox, Michael, 421
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495Index
Crandall, Robert, 363Cross-price elasticity of demand, 97, 97–98Curves, 42–44
movements along, 43–44shifts of, 43–44slope of, 44–46
dDairy industry, competitive market, 280Davies, Kert, 37Deadweight loss, 159
changes in welfare, 159debate, 162–163determinants of, 160–163elasticity and, 160–163gains from trade and, 159–160monopoly and, 311–313of taxation, 156–160tariffs and, 178tax effects on market participants,
157–159tax revenue and, 163–166taxes cause, 234, 242–243triangle, 312–313
DeBeers, 301Deficit, budget. See Budget deficitDemand, 67–73
applications of, 101–106change in, 79, 81decrease in, 69elastic, 90, 92elasticity of. See Demand elasticityequilibrium of supply and, 77–79excess, 78expectations and, 71for labor, 376–382income changes, 70increase, 69, 80, 294individual, 68–69inelastic, 90, 92law of, 67, 79, 453market, 68–69market forces of supply and, 65number of buyers and, 71perfectly elastic, 92perfectly inelastic, 92price elasticity of, 93prices of related goods and, 70reducing smoking, 71–73relationship between price and quantity
demanded, 67–68supply and, 77–84, 111–112, 377tastes and, 70
Demand curve(s), 42–44, 67–68, 68demand schedule and, 138deriving, 452–453difference between competitive firm and
monopoly, 303–304elasticity of linear, 96for monopoly, 306measuring consumer surplus with, 139
price elasticity of demand and, 92–94shifts in, 69–73shifts in vs. movements along, 72slope of, 453using to measure consumer surplus, 137–138variety of, 92–94
Demand elasticity, 90–98Demand schedule, 67
demand curve and, 68, 138for water, 350–351
Department of Justice, antitrust laws, 319Derived demand, 376Dictators, 175Diminishing marginal product, 265, 378Diminishing marginal utility, 447
assumption of, 425Discount coupons, 317Discounting, 318–319Discrimination, 405
by customers and governments, 408–409by employers, 407–408earnings and, 397–398economics of, 405–410in labor market, 407in sports, 409–410price, 314–318profit motive and, 408
Diseconomies of scale, 272, 272–273Distribution
neoclassical theory of, 393of income in U.S., 416
Dominant strategy, 356Downs, Anthony, 226Duopoly, 350
eEarned Income Tax Credit (EITC), 121,
429–430, 432Economic growth, production possibilities
frontier and, 27–29Economic life cycle, 421Economic mobility, 423–424Economic models, 24–29Economic profit, 262Economic Report of the President, 31Economic welfare
price discrimination and, 315total surplus and, 145–146
Economics, 4. See Welfare economicsbehavioral, 480, 480–489environmental, 37of Black Death, 392of brand names, 343–344of cooperation, 355–362of discrimination, 405–410of immigration, 386–387of President Obama, 32–33reasons for studying, 14–15supply-side, and Laffer curve, 165–166ten principles of, 3–4
Economies of scale, 272, 272–273as causes of monopoly, 302lower costs through, 180–182specialization and, 273
Economistsas policy adviser, 29–34as scientist, 22–29disagreement among, 34–35green, 37in Washington, 31–32propositions which most agree about, 36thinking like, 21–22vs. accountants, 262
Economycentrally planned, 10market, 10–11parable for modern, 50–54political, 473, 473–479U.S. deep economic downturn, 16underground, 163
Ecuador, OPEC as cartel, 358Education
alternative view of, 402and success are linked, 403as positive externality, 199cost of college, 5–6signaling theory of, 402social optimum and, 200state and local spending for, 241terrorists and, 403type of human capital, 399wages and, 399
Efficiency, 5, 145, 242–246government intervention and, 12–13lump-sum taxes, 245–246marginal tax rates vs. average tax rates, 245market. See Market efficiencymonopoly and, 311–313of equilibrium quantity, 147production possibilities frontier and, 27total surplus and, 145–146trade-off between equity and, 251
Efficiency wages, 404, 404–405Efficient scale, 270, 291, 336Effort, wages and, 400–401Einstein, Albert, 22Elasticity, 90
along a linear demand curve, 96–97applications of, 89–106deadweight loss and, 160–163income elasticity of demand, 97linear demand curve, 96of demand. See Demand elasticityof supply, 98–101real world, 94tax incidence and, 125–127
Employers, discrimination by, 407–408Employment, moral hazard, 468–470Entry/exit into market
firm’s long-run decision to, 288free, 331long run market supply with, 290–292monopoly, 300–303
Environmental Defense, 37
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496 Index496
Environmental economics, 37Environmental Protection Agency (EPA), 37,
203–204, 205–207Environmental regulations, 203Equality, 5, 146
government intervention and, 13Equilibrium, 77, 77–79
analyzing changes in, 79–84consumer and producer surplus in
market, 146decrease in supply affects, 81for an oligopoly, 353–354in labor market, 384–389in markets for land and capital, 390–391increase in demand affects, 80long-run, 332–335markets not in, 78Nash, 353of supply and demand,77zero-profit, 292–293
Equilibrium without international trade, 172–173
Equilibrium price, 77Equilibrium quantity, 77, 147Equity
horizontal, 247, 249tax, 249–251taxes and, 246–251trade-off between efficiency and, 252vertical, 247, 247–248
Estate tax, 244European Central Bank, 166Excess capacity, 335–336Excess demand, 78Excess supply, 77–78Excise taxes, 237Excludability, 218, 218–219Explicit costs, 261, 274Exports, 58. See also International trade
gains/losses of exporting country, 174–175Externality, 12, 12–13, 196, 151, 195–213
carbon tax, 208–209Coase theorem, 210–211command-and-control policies, 202, 203corrective taxes and subsidies, 203–205education as, 199gas tax and, 204–205internalizing, 199market inefficiency and, 197–202negative, 196, 198–199of country living, 200–201positive, 196, 199–202private solutions to, 209–212public policies toward, 202–209technology spillovers, 201–202tradable pollution permits, 205–207transaction costs, 212
fFactors of production, 24–26, 376
competitive profit-maximizing firm, 377
demand for labor, 376–382equilibrium in labor market, 384–389land and capital, 389–392linkages among, 391–392marginal product of labor, 377–378markets for, 24–26, 375–393shifting labor-demand curve, 380–382supply of labor, 383–384value of marginal product and demand
for labor, 379–380Fair Labor Standards Act of 1938, 117Fairness, behavioral economics and, 481–484Farming, applications of supply, demand,
and elasticity, 101–103Federal government
budget deficit, 238–240financial overview of, 234–241receipts of, 235–237spending, 237–240
Federal income tax rates (2010), 236Federal Reserve, 32Federal tax burden, 248FICA (Federal Insurance Contributions Act),
124Financial aid, price discrimination, 317Financial crisis, 430-431Firms. See Competitive firm
as a natural monopoly, 302–303in circular-flow diagram, 24–26marginal, 295market supply with fixed number of, 290profit-maximizing, 377
Fixed costs, 266, 266–267, 274Food Stamp program, 221–222, 237, 430, 432Ford Motor Company, 271–272Ford, Gerald, 15France, tax burden in, 235Franklin, Ben, 233Free rider, 220Free trade, 171–188
gGains from trade
comparative advantage, 54–59deadweight losses and, 159–160of exporting country, 174–175of importing country, 175–177production possibilities, 50–52specialization, 52–54
Galbraith, John Kenneth, 342Game theory, 349, 349–350
cooperation and, 360–361dominant strategy, 356prisoners’ dilemma, 355–357tit-for-tat strategy, 361
Game-playing factories, 59Gasoline prices, incentive effects of, 8–9Gasoline tax
as corrective tax, 204–205
benefits principle and, 246–247road congestion and, 204
Gates, Bill, 365–366GDP (gross domestic product)
government revenue as percentage of, 234government tax revenue as percentage
of, 235Gender differences, 410–411General Agreement on Tariffs and Trade
(GATT), 187Germany
income inequality in, 418inflation in, 15tax burden in, 235tax rate and labor taxes, 166
Giffen good, 453, 454Giffen, Robert, 453Gifts as signals, 471–472Glaeser, Edward L., 200–201Good(s), 70
club, 219, 302complements, 70different kinds of, 218–219excludability of, 218–219Giffen, 453, 454inferior, 70, 97, 448, 449international trade, 180marginal utility of, 447markets for, 24–26normal, 70, 97, 448private, 218, 218–219public, 217–218, 218, 218–219, 220–224related, 70rivalry in consumption, 218–219substitutes, 70types of, 219
Goolsbee, Austan, 9, 403Goulder, Lawrence, 37Government. See also Federal government
benefits of, 11–13discrimination by, 408–409regulation, 300revenue as percentage of GDP, 234tax revenue as percentage of GDP, 235
Government policiesprice control and, 112–121supply, demand, and, 111–112taxes and, 121–127
Graphs, 40–48cause and effect, 46–48curves in, 42–44measuring profit in, 288–289of single variable, 40–41of two variables, 41–42slope of, 44–46
Great Britain, unilateral approach to free trade, 186
Green economists, 37Greenhouse, Steven, 120Greenpeace, 37Greenspan, Alan, 243“Guns and butter” tradeoff, 5
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497Index
hHamermesh, Daniel, 401–402Harris, Richard, 458Hayek, Friedrich, 342Health, federal spending and, 237–238Healthcare, 239Hispanics, poverty and, 420Holmes, Oliver Wendell, Jr., 155Homo economics, 480Hong Kong, distribution of income, 185Horizontal equity, 247, 249Horwitz, Jeff, 367Housing, rent control, 115–116Human capital of terrorists, 403Human capital, 398–399, 399
education as, 399role of, 406–407
Human life, value of, 223–224Human organs, market for, 149–150Human-capital theory, 402
iImmigration
causes labor-supply curve to shift, 384economics of, 386–387illegal, 387size of immigrant population in U.S.,
386–387Imperfect competition, 330Implicit costs, 261, 274Import quota, 35
compared to tariff, 179Imports, 58. See also International trade
gains and losses of importing country, 175–177Incentives, 7, 7–9
brand name quality, 343–344incentive pay, 9work, 431–432
Incomecapital, 391consumer choice effects, 448–449economic life cycle, 421increase in, 448in-kind transfers as, 420–421permanent, 421political philosophy of redistributing,
424–427shifts in demand and, 70transitory vs. permanent, 421U.S. distribution of, 416
Income effect, 450, 450–452on labor supply, 457–458
Income elasticity of demand, 97Income inequality
alternative measures of, 421–423around world, 417–418economic mobility, 423–424in U.S., 416–417
measurement of, 416–424poverty and, 415–416, 419–420
Income tax, 243corporate, 241, 250–251negative, 429, 429–430individual, 241
India, income inequality in, 418Indifference curve(s), 442
extreme examples of, 444–445four properties of, 443–444income effect, 450-452perfect complements, 445perfect substitutes, 445representing preferences, 442substitution effect, 450–452
Individual demand, 68–69vs. market demand, 68–69
Individual income tax, 241Individual supply vs. market supply, 73–74Indonesia, OPEC as cartel, 358Industrial organization, 260Industrial policy, 201–202Inefficiency
externalities and, 197–202of monopoly, 312–313
Inelastic demand, 90, 92Inelastic supply, 98Inequality
alternative measures of, 421–423around world, 417–418
Infant-industry argument for trade restrictions, 185–186
Inferior good, 70, 448, 449income elasticity of demand and, 97
Inflation, 15–16In-kind transfers, 420, 420–421
measuring inequality, 420–421policies to reduce poverty, 430–431
Input demand and output supply, 381Input prices and supply, 74–76An Inquiry into the Nature and Causes of the
Wealth of Nations (Smith), 11, 57, 273Instant runoff, 476–477Insurance
adverse selection, 470moral hazard, 470social, 426
Interest rate(s), 459–461Internalizing the externality, 199International trade, 171–188
analysis of oligopoly and, 355benefits of, 180–182changing face of, 59comparative advantage, 173determinants of, 172–173effects of tariffs, 177–179equilibrium without, 172–173gains and losses of exporting country,
174–175gains and losses of importing country, 175–177import quota compared to tariff, 179lessons for policy of, 179–180multilateral approach to free trade, 186–187
of United States, 58outsourcing and, 184–185relative demand for skilled and unskilled
labor and, 399–400restriction of, 179winners and losers from, 174–182world price, 173
Intuit, 319Investment in people, 399Invisible hand, 11–13, 32, 149Iraq, 237, 358Israel, shifts in labor supply and, 385–386
jJacoby, Jeff, 82Japan
income inequality in, 418trade and distribution of income, 184
Jensen, Robert, 454Jobs
argument for trade restrictions, 182–183characteristics of, 398–405
kKahn, Mathew, 200–201Kennedy, John F., 419Kenya, elephant poaching, 229Key resource, 300, 301Keynes, John Maynard, 32–33Krugman, Paul, 184–185Kuwait, OPEC as cartel, 358
lLabor
demand for, 376–382, 379–380international trade and demand for skilled
and unskilled, 309–400jobs argument for trade restrictions, 182–183marginal product of, 377–378, 381supply of, 383–384taxes on, 162–163technology and demand for skilled and
unskilled, 400Labor demand
minimum wage and, 119shifts in, 386–387, 388
Labor demand curveoutput price, 380–381shifting, 380–382supply of other factors, 382technological change and, 381–382
Labor marketadverse selection, 470discrimination, measuring, 405–407
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498 Index498
equilibrium in, 384–389minimum wage affects, 118racial discrimination in, 407
Labor supplyincome effects on, 457–458shifts in, 385–386wages and, 454–457
Labor supply curvebackward-sloping, 457, 458changes in alternative opportunities, 383changes in tastes, 383immigration, 384
Labor taxdeadweight loss of, 162–163new research on taxation, 166
Labor-saving technological change, 381–382
Laffer curve, 165–166Laffer, Arthur, 165, 166Laissez faire, 148Land, 389–392Landsburg, Steven E., 183Laraki, Rida, 476Law of demand, 67, 453Law of supply, 73Law of supply and demand, 79Leisure, trade-off between work and, 383Leslie, Philip, 318–319Liberalism, 425, 425–426Libertarianism, 427Libya, OPEC as cartel, 358Life cycle, 421Lighthouses as public goods, 222–223Lindsay, Alistair, 352Linear demand curve, 96–97Local government, 240–241Logic of self-interest, 353Long run
costs in, 271–273decision to exit or enter a market, 288equilibrium, 332–335market supply with entry and exit,
290–292rent control, 115–116shift in demand, 293supply curve slopes upward, 293–295
Losses. See also Deadweight lossof exporting country, 174–175of importing country, 175–177
Ludd, Ned, 382Luddite revolt, 382Lump-sum tax, 245, 245–246Luxuries
income elasticity of demand and, 97price elasticity of demand and, 90
Luxury tax, 127
mMacroeconomics, 29Malawi, elephants as private good, 229
Marginal benefits, 6Marginal buyer, 137Marginal change, 6Marginal cost (MC), 267–268, 268, 274, 381
markup over, monopolistic vs. perfect competition, 336
pricing as regulatory system, 322pricing for natural monopoly, 322relationship average total cost to, 270relationship between price and, 336rising, 268–269
Marginal cost (MC) curve, 268, 270, 283and average-cost curves, 269firm’s supply decision and, 283–285
Marginal firm, 295Marginal product, 264
demand for labor and value of, 379–380diminishing, 265, 378
Marginal product of labor (MPL), 378, 381production function and, 377–378value of, 380
Marginal rate of substitution (MRS), 442, 447Marginal revenue (MR), 282, 283
curve for monopoly, 306for competitive firm, 281monopoly, 304, 305
Marginal seller, 143Marginal tax rate, 162, 236, 245Marginal utility, 425, 447Market(s), 66. See Competitive market
adverse selection and, 470–471competition and, 66–67definition of, 90–91efficiency of, 135–136firm’s long-run decision to exit or enter, 288for goods and services, 24–26for land and capital, equilibrium in, 390–391free entry and exit of, 331perfectly competitive, 66tyranny of, 338–339with only few sellers, 350–355
Market demand, 68–69Market economy, 10, 10–11Market efficiency, 145–150, 150–151Market equilibrium, evaluating, 146–149Market failure, 12, 12–13, 150–151, 323. See
also Externalityinsufficient variety as, 338–339
Market power, 13, 151, 280, 301Market supply
as sum of individual supplies, 75vs. individual supply, 73–74with entry and exit, long run, 290–292with fixed number of firms, short run, 290
Markup over marginal cost, 336Maximin criterion, 426McTeer, Robert D., Jr., 14–15Median annual earnings by race and sex, 405Median voter theorem, 478, 478–479Medicaid, 430, 432Medicare, 124, 236
budget deficit and, 238–240
federal spending and, 237–238rise in government spending for, 238–239tax, 162
Mexicoincome inequality in, 418living standards in, 13NAFTA and, 187
Microeconomics, 29, 467–468Microsoft Corporation, 299–300, 319
antitrust case against, 365–366Sherman Antitrust Act and, 320
Midpoint method, 91–92Mill, John Stuart, 424Miller, Nolan, 454Minimum wage, 117–119Minimum-wage laws, 428
determinant of equilibrium wages, 404–405evaluating price controls, 120–121policies to reduce poverty, 428
Money supply, inflation and, 15Monopolistic competition, 329–330, 330
advertising, 338–344characteristics of, 334–335excess capacity, 335–336in short run, 332long-run equilibrium, 332–335markup over marginal cost, 336vs. perfect competition, 330–332, 335–336, 345welfare of society and, 336–337with differentiated products, 332–337
Monopoly, 67, 299–300, 300, 300–303antitrust laws, 319–321competition vs., 324deadweight loss and, 311–313drugs vs. generic drugs, 309–310economies of scale as, 302government-created, 301–302inefficiency of, 312–313markets with only few sellers, 351–352natural, 219, 302–303perfect competition and, 330–332, 345prevalence of, 323–324price discrimination, 314–318production and pricing decisions, 303–310profit maximization, 306–308profit of, 308–309public ownership, 323,public policy toward, 318–323regulation, 321–322resources, 300, 301revenue of, 304–306social cost, 313supply curve and, 308vs. competition, 303–304welfare cost of, 310–313
Monopsony, 389Moral hazard, 468, 468–470Morris, Eric A., 226Movie industry, example of price
discrimination, 317Mullainathan, Sendhil, 407Muskie, Edmund, 207
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499Index
nNader, Ralph, 7, 476NAFTA. See North American Free Trade
AgreementNamibia, elephants as private good, 229Nash equilibrium, 353Nash, John, 353National defense
important public goods, 221spending, 237
National Highway Traffic Safety Administration, 204
National Institutes of Health, 221, 238National Science Foundation, 221National-security argument for trade
restrictions, 184–185Natural disasters, price and, 82–83Natural monopoly, 219, 302, 302–303Necessities
income elasticity of demand and, 97price elasticity of demand and, 90
Negative correlation. 42Negative externality, 196, 198–199, 208Negative income tax, 429, 429–430Neoclassical theory of distribution, 393Newton, Isaac, 22Nigeria
income inequality in, 418living standards in, 13OPEC as cartel, 358
Nike, 338Normal good, 70, 448
income change and, 448income elasticity of demand and, 97
Normative statements, 30–31, 31North American Free Trade Agreement
(NAFTA), 187Nozick, Robert, 427
oObama, Barack, 16, 181, 208–209, 252
antitrust policy, 320–321, 322healthcare reform bill, 239
Observation, 22–23Oceans, common resources, 228Oil industry
OPEC and price of oil, 103–105OPEC and world oil market, 358price ceilings and lines at gas pump,
114–115Oligopoly, 330, 349
analysis of, and international trade, 355cartels and, 351–352competition and, 351–352concentration ratio, 330duopoly example, 350economics of cooperation, 355–362equilibrium for, 353–354game theory and, 357
markets with only few sellers, 350–355monopolies, 351–352OPEC as cartel, 358predatory pricing, 364–365prisoners’ dilemma, 355–357public policy toward, 362–366public price fixing, 352resale price maintenance, 363–364restraint of trade and antitrust laws, 362size affects market outcome, 354–355tying, 365
Omitted variable, 46–47OPEC. See Organization of Petroleum
Exporting CountriesOpportunity cost(s), 6, 54, 54–55, 260–262Optimization, 446–453Optimum
consumer’s, 446social, 198, 200
Ordered pair, 41Organization of Petroleum Exporting
Countries (OPEC)application of supply, demand, and
elasticity, 103–105failure to keep price of oil high, 103–105increase in price of crude oil, 114–115nations in, 358world oil market and, 358
Organs (human), market for, 149–150Origin, of graph, 41Orrenius, Pia, 386–387Output
effect, 305, 354efficient level of, 311levels of, 307price, 380–381supply, input demand and, 381
Outsourcing, 183, 184–185
pPatent, expiration of, 310Patent laws, government-created
monopolies and, 301–302Patent protection, 201–202Patterson, David A., 482Payroll tax, 236
burden of, 124–125Peltzman, Sam, 8Perception vs. reality, 35Perfect competition
monopolistic vs., 335–336monopoly and, 330–332, 345
Perfect complements, 445Perfect price discrimination, 315–316Perfect substitutes, 445Perfectly competitive markets, 66, 280Perfectly elastic demand, 92Perfectly elastic supply, 99Perfectly inelastic demand, 92
Perfectly inelastic supply, 99Permanent income, 421Pharmaceutical vs. generic drugs, 309Pie chart, 40Pigou, Arthur, 203Pigovian taxes, 203Political economy, 468, 473, 473–479
Arrow’s impossibility theorem, 475Condorcet voting paradox, 474median voter theorem, 478–479politician’s behavior, 479
Political philosophy of redistributing income, 424–427
liberalism, 425–426libertarianism, 427utilitarianism, 424–425
Pollutionas negative externality, 226cap and trade, 208–209clean air and water as common resource,
226corrective taxes and, 203–204EPA, 203–204gas tax, 205objections to economic analysis of, 207regulation and, 203social optimum and, 198tradable pollution permits, 205–207
Positive correlation, 42Positive externalities, 196, 199–202Positive statements, 30–31, 31Poverty
correlated with age, race, and family composition, 420
fighting, as public good, 221–222income inequality and, 415–416in-kind transfers and, 420–421measures, 422–423policies to reduce, 427–432
Poverty line, 419Poverty rate, 419, 419–420, 422–423Predatory pricing, 364–365Prescott, Edward C., 251Price(s)
advertising effect on, 340–341allocation of resources and, 84change in, 449–450control on, 112–121equilibrium, 77high raises producer surplus,
144–145input prices and supply, 74–76low raises consumer surplus, 138–139marginal cost and, 336market-clearing, 77natural disasters and, 82–83of related goods and demand,, 70of trade, 56output, 380–381purchase, of land or capital, 390quantity demanded and, 67–68quantity supplied and, 73, 74relative, 447
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500 Index500
Price(s) (Continued)rental, of land or capital, 390shortages and, 78surplus and, 77–78when supply and demand shifts, 83willingness to pay, 136–137world, 173
Price ceiling, 112binding constraint, 112lines at gas pump, 114–115market outcomes and, 112–113not binding, 112rent control, 115–116
Price discrimination, 314, 314–318analytics of, 315–317economic welfare and, 315examples of, 317–318moral of story, 315parable about pricing, 314–315rational strategy for a profit-maximizing
monopolist, 315willingness to pay and, 315
Price effect, 305, 354Price elasticity of demand, 90, 90–91
computing, 91determinants of, 90–91elasticity and total revenue along a linear
demand curve, 96–97midpoint method, 91–92total revenue and, 94–96variety of demand curves, 92–94
Price elasticity of supply, 98computing, 98–99determinants of, 98variety of supply curves, 99–101
Price fixing, public, 352Price floor, 112
market outcomes and, 116–117minimum wage as, 117
Price maker, 299Price takers, 66, 174, 280, 299Price-gouging, 83Pricing
average-cost, 322congestion, 226–227dynamics of pricing tickets, 318–319marginal-cost, 322predatory, 364–365resale price maintenance, 363–364tying, 365value, 226–227
Principal, 468, 468–470Principal-agent problem of corporation, 469Principles of Political Economy and Taxation
(Ricardo), 57Prisoners’ dilemma, 355, 355–357
dominant strategy, 356economics of cooperation, 355–357examples of, 358–360oligopoly as, 357tit-for-tat strategy, 361tournament, 361welfare of society and, 360
Private goods, 218, 218–219Procter & Gamble Co., 322Producer surplus, 141, 141–145
cost and willingness to sell, 141–142evaluating market equilibrium, 146higher price raises, 144–145market efficiency and, 145–150using supply curve to measure, 142
Product differentiation, 331Production
cost of, 259–260, 263–265decisions, monopoly and, 303–310factors of, 24–26, 376process, 301resources, limited quantities of, 293–295
Production function, 263, 263–265, 378, 379marginal product of labor and, 377–378to total-cost curve, 265total cost and, 263
Production possibilities frontier, 26, 26–29, 50–52
Productivity, 14, 387–388Products
advertising as signal of quality, 341–343brand-name, 309competition with differentiated, 332–337
Profit, 260accounting, 262as area between price and average total
cost, 290economic, 262measuring in graph for competitive firm,
288–289of monopoly, 308–309
Profit maximization, 282–289, 306–308Progressive tax, 247, 248
Property rights, 11importance of, 229technology and, 202
Property taxes, 240–241Proportional tax, 247, 248Protection-as-a-bargaining-chip argument
for trade restrictions, 186Public choice, 473Public good(s), 217–218, 218, 218–219,
220–224antipoverty programs, 222as natural monopoly, 302basic research, 221cost-benefit analysis, 223–224free-rider problem, 220importance of property rights, 229lighthouses as, 222–223national defense, 221value of human life, 223–224
Public ownership, public policy toward monopolies, 323
Public policies toward externalities, 202–209Public policy, 13. See also Antitrust lawsPublic policy, asymmetric information and,
473Public policy toward monopolies, 318–323
doing nothing, 323
increasing competition with antitrust laws, 319–321
public ownership, 323regulation, 321–322
Public policy toward oligopolies, 362–366controversies over antitrust policy,
363–365restraint of trade and antitrust laws, 362
Public price fixing, 352Putnam, Howard, 363
qQatar, OPEC as cartel, 358Quantity
discounts, example of price discrimination, 318
equilibrium, 77when supply and demand shifts, 83
Quantity demanded, 67change in, 80–81relationship between price and, 67–68
Quantity supplied, 73relationship between price and, 73
Quintiles, 248Quotas, import, 35
compared to tariff, 179
rRace
discrimination in labor market, 407discrimination in sports, 409–410median annual earnings by, 405poverty correlated with, 420segregated streetcars and, 408
Rajan, Raghuram, 430–431Rational people, 6Rationality, behavioral economics and, 480–481Rawls, John, 425–426Reagan, Ronald, 34
tax cuts under, 165, 252Regressive tax, 247, 248Regulation
of externalities, 203public policy toward monopolies,
321–322Reis, Ricardo, 500Relative price
budget constraints and, 440–441consumer’s choice and, 447
Rent control, 35evaluating price controls, 120–121in short run and long run, 115–116price ceiling, 115–116
Rent subsidies, 120–121Rental price of land or capital, 390Resale price maintenance, 363–364Research, basic, as public good, 221
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501Index
Resourcescommon, 217–218, 218, 218–219, 224–229, 302limited quantities of production, 293–295monopoly, 300, 301prices and allocation of, 84prisoners’ dilemma, 359–360scarcity of, 4
Revenue. See Total revenueaverage, 281marginal, 282of competitive firm, 280–282of monopoly, 304–306tax, 157
Reverse causality, 47–48Rhodes, Cecil, 301Ricardo, David, 57Rickard, Lisa, 320Rivalry in consumption, 218, 218–219Road congestion, gasoline tax and, 204Road to Serfdom, The (Hayek), 342Roback Jennifer, 408Russia
income inequality in, 418tax burden in, 235
sSales taxes, 240–241Satisficers, 481Saudi Arabia, OPEC as cartel, 358Saunders, Laura, 244Savings, interest rates affect household,
459–461Scarcity, 4Scatterplot, 41Schumpeter, Joseph, 33Scientific judgments, differences among
economists in, 34Scientific method, 22–23Screening, 472, 472–473Segregation, streetcars and profit motive, 408Self-interest, logic, 353Sellers
number of, and shifts in supply curve, 76taxes on, affect market outcomes,
121–123variables that influence, 76
Services, markets for, 24–26Shaw, George Bernard, 34Sherman Antitrust Act, 319–320, 362Short run
costs in, 271–273decision to shut down, 285–286increase in demand, 294market supply with fixed number of
firms, 290monopolistic competitors in, 333monopolistically competitive firm in,
332rent control, 115–116shift in demand, 293
Shortage, 78lines at gas pump, 114–115price ceilings and, 113
Shutdown, 285competitive firm’s short-run decision to,
285–286near-empty restaurants and, 287off-season miniature golf and, 287
Sierra Club, 210Signaling, 402, 471
to convey private information, 471Signaling theory, 402
of advertising, 402of education, 402
Simon, Herbert, 480Sin taxes, 482–483Singapore, trade and distribution of
income, 185Skills
immigration and, 386–387increasing value of, 399–400
Slope, 44–46Smith, Adam, 11, 12, 32–33, 57, 149, 273, 363Smith, M. Patricia, 120Smoking, reducing, 71–73Social Choice and Individual Values
(Arrow), 475Social cost, 198
monopoly’s profit, 313Social insurance, 426
taxes, 236Social Security, 124, 236, 249
budget deficit and, 238–240federal spending and, 237rise in government spending for, 238–239tax, 162
South Africa, income inequality in, 418South Korea
trade and distribution of income, 185unilateral approach to free trade, 186
Soviet Unionarms race and Cold War, 358–359collapse of communism in, 10
Specializationdriving force of, 54–59economies of scale and, 273trade and, 52–54
Specific technological knowledge, 221Specter, Arlen, 322Sports, discrimination in, 409–410Standard of living, 13–14Standard Oil, Sherman Antitrust Act and,
320State government
receipts of, 240–241spending of, 241
Stein, Charles, 148Stigler, George, 323Still Stuck in Traffic Coping With Peak-Hour
Traffic Congestion (Downs), 226Stockman, David, 165Strike, 404
Subsidiesmarket-based policy, 203–205rent, 120–121wage, 120–121
Substitutes, 70cross-price elasticity of demand, 98perfect, 445price elasticity of demand and, 90
Substitutioneffect, 450, 450–452marginal rate of, 442, 447
Summers, Lawrence H., 32–33Sunk cost, 285, 286, 286–287Superstar phenomenon, 402–404Supplemental Security Income (SSI), 428Supply, 73–76
applications of, 101–106change in, 80–81decrease in, 74, 81elasticity of, 98–101equilibrium of demand and, 77–79excess, 77–78increase in, 74, 102individual, 73–74inelastic, 98input prices and, 74–76law of, 73market vs. individual, 73–74number of sellers and, 76of labor, 383–384perfectly elastic, 99perfectly inelastic, 99price elasticity of, 98–99, 100, 101relationship between price and quantity
supplied, 73technology and, 76
Supply and demand, 77–84, 111–112equilibrium of, 77law of, 79market forces of, 65shift in, 82versatility of, 377
Supply curve(s), 73in competitive market, 289–295monopoly and, 308price elasticity of supply, 99–101shifts in, 74–76shifts in vs. movements along, 79–80supply schedule and, 74, 142using to measure producer surplus, 142–143variety of, 99–101
Supply schedule, 73supply curve and, 74, 142
Supply-side economics and Laffer curve, 165–166
Surplus, 77Surplus. See also Budget surplus; Consumer
surplus; Producer surplus; Total surplusprice floors and, 117
SwedenLaffer curve, 166tax burden in, 235
Synergies, 320–321
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502 Index502
tTaiwan, trade and distribution of income, 185Tanzania, elephant poaching, 229Tariffs, 35, 177–181Tax burden
distribution of, 248–249divided, 126of U.S. compared to European companies,
235Tax cuts under Ronald Reagan, 252Tax equity, 249–251Tax incidence, 121, 249–251
elasticity and, 125–127flypaper theory of, 249–251
Tax ratesaverage, 245George W. Bush reduced highest tax rate,
252marginal, 245raised by Bill Clinton, 252
Tax revenue, 157deadweight loss and, 163–166
Tax systems, 247administrative burden of, 244–245design of, 233–234
Taxation, costs of, 155–156Taxes, 121–127, 242–246
ability-to-pay principle, 247–248Barack Obama’s pledged to raise taxes, 252benefits principle and gasoline, 246–247benefits principle, 246–247carbon, 208–209consumption, 243, 482–483corporate income, 241, 250–251corrective, 203cuts under Reagan, 165deadweight loss of taxation, 156–160,
163–166, 234, 242–243equity and, 246–251estate, 244excise, 237gas, 204–205incidence, 121income, 243individual income, 241Laffer curve and supply-side economics,
165–166lump-sum tax, 245, 245–246luxury, 127negative income, 429–430new research on taxation, 166on buyers, market outcomes and, 123–124on labor, 162–163on sellers, market outcomes and, 121–123payroll, 124–125Pigovian, 203progressive, 247, 248property, 240–241proportional, 247, 248regressive, 247regressive, 248
sales, 240–241sin, 482–483social insurance, 236value-added, 243, 250–251
Technological change, 381–382Technological progress, 382Technology
demand for skilled and unskilled labor and, 400
shifts in supply curve and, 76spillovers, 201–202
Teenage labor market, minimum wage and, 118–119
Temporary Assistance for Needy Families (TANF), 221, 237, 428
Textile market, 172–188Theory, 22–23Theory of consumer choice, 439–440
application of, 453–461Theory of Justice (Rawls), 425Ticket scalping, force in free market, 148–149Time horizon, price elasticity of demand, 91Time-series graph, 40, 41Tit-for-tat strategy, 361Toll roads, 226–227Total cost, 260, 274
average, 267, 274production function and, 263
Total revenuealong a linear demand curve, 96–97for competitive firm, 281
Total revenue, 94, 95, 260monopoly, 304, 305price elasticity of demand and, 94–96
Total surplus, 145–146, 148Total-cost curve, 265, 267
from production function to, 265production function and, 264
Tradable permits, 37Tradable pollution permits, market-based
policy, 205–207Trade. See also Free trade; Gains from trade;
International tradeagreements and World Trade
Organization, 186–187benefits of, 10comparative advantage and, 55–56deadweight losses and gains from, 159–160equilibrium without international, 172–173interdependence and gains from, 49–50price of, 56restraint of, 362specialization and, 52–54
Trade barriers, 35Trade restriction
arguments for, 182–187infant-industry argument for, 185–186jobs argument for, 182–183national-security argument, 184–185protection-as-a-bargaining-chip
argument, 186
tariffs, 35unfair-competition argument for, 186
Trade skirmishes, 181Trade-offs, 4–5
between equity and efficiency, 252between inflation and unemployment, 16policy decisions and, 31production possibilities frontier and, 27–28
Traffic, congested roads as public goods or common resources, 227–228
Tragedy of the Commons, 224, 224–225Transaction costs, 212Transfer payments, 237, 249Transitivity, 474, 475Truman, Harry, 31Trustbusters, 320–321Tying, 365
central issues in Microsoft antitrust case, 366Tyranny of market, 338–339Tyranny of the Market, The (Waldfogel), 338
uUganda, elephant poaching, 229Underground economy, 163Unemployment, short-run trade-off between
inflation and, 16Unfair-competition argument for trade
restrictions, 186Union, 404
determinant of equilibrium wages, 404–405Unit elasticity, 92United Arab Emirates, OPEC as cartel, 358United Kingdom
income inequality in, 418tax burden in, 235
United Statescap and trade, 208–209carbon tax, 208–209distribution of income in, 416income inequality, 416–417, 418inflation in, 15international trade with, 58labor taxes, 166living standards in, 13–14NAFTA and, 187tax burden compared to European
countries, 235trade and distribution of income, 184–185various laws to manage use of fish and
other wildlife, 228Unpaid internships, 120Unsafe at Any Speed (Nader), 7Urbanization, carbon emissions and,
200–201U.S. Chamber Institute for Legal Reform, 320U.S. Justice Department, 362, 365–366U.S. Supreme Court, antitrust laws, 320U-shaped average total cost, 269–270Utilitarianism, 424, 424–425Utility, 424, 447
Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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503Index
vValue of marginal product, 379, 379–380Value pricing, 226–227Value-added (VAT) tax, 243, 250–251Values, differences among economists in,
34–35Variable costs, 266, 266–267, 274
average, 268, 274Variable tolling, 226–227Variables
graphs of single, 40–41graphs of two, 41–42omitted, 46–47that influence buyers, 71that influence sellers, 76
Varian, Hal R., 318–319, 410–411Vascellaro, Jessica E., 37Venezuela, OPEC as cartel, 358Verizon Communications Inc., 322Vertical equity, 247, 247–248Volcker, Paul A., 250Voting systems, 474–478
wWage subsidies, 120–121Wages
ability, effort, and chance, 400–401adverse selection and, 470beauty and, 401–402Black Death and, 392compensating differentials, 398determinants of equilibrium, 398–405education and, 399
efficiency, 404–405free trade and, 184–185human capital, 398–399immigration and, 386–387labor supply and, 454–457minimum, 117–119minimum-wage laws, unions, and
efficiency wages, 404–405productivity and, 387–388signaling, 402superstar phenomenon, 402–404
Waldfogel, Joel, 338–339Walsh, Sheila, 458Water distribution as natural monopoly, 302Wealth of Nations, The (Smith), 12, 363Welfare, 237, 249, 428, 428–429, 432
effects of free trade, 174effects of tariffs, 178in monopolized market, 313policies to reduce poverty, 428–429tax affects, 158
Welfare cost of monopoly, 310–313deadweight loss, 311–313
Welfare economics, 136, 197benevolent social planner, 145–146consumer surplus measures, 140–141cost and willingness to sell, 141–142evaluating market equilibrium, 146–149higher price raises producer surplus, 144–145lower price raises consumer surplus, 138–139market efficiency and market failure, 150–151taxes and, 157–159using demand curve to measure consumer
surplus, 137–138using supply curve to measure producer
surplus, 142–123willingness to pay, 136–137
Welfare of societymonopolistic competition and, 336–337prisoners’ dilemma and, 360
Welfare reform bill signed by Bill Clinton, 432Welfare system, 221–222Willingness to pay, 136, 136–137, 315Willingness to sell, cost and, 141–142Women, gender differences in competition,
410–411Work and leisure, trade-off between, 383Work incentives, antipoverty programs and,
431–432Workfare, 432World price, 173World Trade Organization (WTO), 181, 186
xX-coordinate, 41
yY-coordinate, 41
zZero economic profit, 334Zero profit, competitive firms, 292–293Zero-profit condition, 336Zero-profit equilibrium, 292–293Zimbabwe, elephants as private good, 229
Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.