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Economics (with InfoTrac)

ISBN: 9780324236620 | 032423662X
Edition: 7th
Format: Hardcover
Publisher: Thomson Custom Publishing
Pub. Date: 12/23/2004

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SummaryTable of Contents
Offering a unique blend of solid theoretical content and student accessibility, this text: 1) covers all the basics of macroeconomics and microeconomics, 2) gives students a clear idea of how economists think about the world, 3) stresses the key concepts in economics, and 4) is extremely rich in intriguing applications that convey the prevalence of economics in everyday life. Many principles instructors are constantly challenged with the goal of getting students excited about realization that economics is everywhere! Arnold has taken this to an... MORE
Prefacexxix
Student Learning Guidexiv
An Introduction to Economics
Part 1: Economics: The Science of Scarcity
... MORE
What Economics Is About
1(24)
Definitions of Economics
2(1)
Economic Categories
2(2)
Positive and Normative Economics
3(1)
Microeconomics and Macroeconomics
3(1)
Key Concepts in Economics
4(12)
Thinking in Terms of Scarcity and Its Effects
4(2)
Thinking in Terms of Opportunity Cost
6(2)
Thinking in Terms of Costs and Benefits
8(1)
Thinking in Terms of Decisions Made at the Margin
9(1)
Thinking in Terms of Efficiency
10(2)
Thinking in Terms of Unintended Effects
12(1)
Thinking in Terms of Equilibrium
13(1)
Thinking in Terms of the Ceteris Paribus Assumption
14(1)
Thinking in Terms of the Difference Between Association and Causation
15(1)
Thinking in Terms of the Difference Between the Group and the Individual
15(1)
Economists Build and Test Theories
16(5)
What Is a Theory?
16(1)
Building and Testing a Theory
17(2)
How Do We Judge Theories?
19(1)
What to Ask a Theorist
20(1)
A Reader Asks
21(1)
Chapter Summary
21(2)
Key Terms and Concepts
23(1)
Questions and Problems
23(1)
Internet Activities
24(1)
Appendix A: Working With Diagrams
25(406)
Two-Variable Diagrams
25(1)
Slope of a Line
26(1)
Slope of a Line Is Constant
26(2)
Slope of a Curve
28(1)
The 45° Line
28(1)
Pie Charts
29(1)
Bar Graphs
29(1)
Line Graphs
30(2)
Appendix Summary
32(1)
Questions and Problems
32(1)
Economic Activities: Producing and Trading
33(27)
The Production Possibilities Frontier
34(7)
The Straight-Line PPF: Constant Opportunity Costs
34(1)
The Bowed-Outward (Concave-Downward) PPF: Increasing Opportunity Costs
35(1)
Law of Increasing Opportunity Costs
36(1)
Economic Concepts Within a PPF Framework
37(4)
Trade or Exchange
41(4)
The Purpose of Trade
41(1)
Periods Relevant to Trade
42(1)
Trade and the Terms of Trade
42(1)
Costs of Trades
43(2)
Trades and Third-Party Effects
45(1)
Production, Trade, and Specialization
45(4)
Producing and Trading
46(2)
Profit and a Lower Cost of Living
48(1)
A Benevolent and All-Knowing Dictator Versus the Invisible Hand
49(1)
Producing, Trading, and Economic Systems
49(4)
Economic Systems
49(2)
But First, a Warning
51(1)
Economic Systems and the PPF
51(1)
Three Economic Questions That Deal With Production
51(1)
Trade
52(1)
Prices
52(1)
Property Rights
53(3)
Economic Systems and Property Rights
53(1)
Do Property Rights Matter?
54(1)
Property Right and Scarce Resources
54(2)
A Reader Asks
56(1)
Chapter Summary
56(1)
Key Terms and Concepts
57(1)
Questions and Problems
57(1)
Working With Numbers and Graphs
58(1)
Internet Activities
59(1)
Supply and Demand: Theory
60(33)
A Note About Theory
61(1)
Demand
61(11)
The Law of Demand
61(1)
Four Ways to Represent the Law of Demand
62(1)
Absolute and Relative Price
63(1)
Why Quantity Demanded Goes Down as Price Goes Up
63(1)
Individual Demand Curve and Market Demand Curve
64(1)
A Change in Quantity Demanded Versus a Change in Demand
65(3)
What Factors Cause the Demand Curve to Shift?
68(4)
Supply
72(4)
The Law of Supply
72(1)
Why Most Supply Curves Are Upward-Sloping
72(1)
The Market Supply Curve
72(1)
Changes in Supply Mean Shifts in Supply Curves
73(1)
What Factors Cause the Supply Curve to Shift?
74(1)
A Change in Supply Versus a Change in Quantity Supplied
75(1)
The Market: Putting Supply and Demand Together
76(8)
Supply and Demand at Work at an Auction
77(1)
The Language of Supply and Demand: A Few Important Terms
78(1)
Moving to Equilibrium: What Happens to Price When There Is a Surplus or a Shortage?
78(1)
Speed of Moving to Equilibrium
79(1)
Moving to Equilibrium: Maximum Minimum Prices
80(1)
Equilibrium in Terms of Consumers' and Producers' Surplus
80(2)
What Can Change Equilibrium Price and Quantity?
82(2)
Price Controls
84(5)
Price Ceiling: Definition and Effects
84(3)
Do Buyers Prefer Lower Prices to Higher Prices?
87(1)
Price Floor: Definition and Effects
88(1)
A Reader Asks
89(1)
Chapter Summary
89(1)
Key Terms and Concepts
90(1)
Questions and Problems
90(1)
Working With Numbers and Graphs
91(1)
Internet Activities
92(1)
Supply and Demand: Practice
93(28)
Application 1: Why Do Colleges Use GPAs, ACTs, and SATs for Purposes of Admission?
94(1)
Application 2: What Will Happen to the Price of Marijuana if the Purchase and Sale of Marijuana Are Legalized?
95(1)
Application 3: Where Did You Get That Music?
96(1)
Application 4: The Minimum Wage Law
97(1)
Application 5: Price Ceiling in the Kidney Market
98(2)
Application 6: Health Care and the Right to Sue Your HMO
100(2)
Application 7: If Gold Prices Are the Same Everywhere, Then Why Aren't House Prices?
102(1)
Application 8: Do You Pay for Good Weather?
103(1)
Application 9: Paying All Professors the Same Salary
103(2)
Application 10: Price Floors and Winners and Losers
105(1)
Application 11: College Superathletes
106(2)
Application 12: Supply and Demand on a Freeway
108(1)
Application 13: What Does Price Have to Do With Getting to Class on Time?
109(2)
Application 14: Aisle Seats on Commercial Airplanes
111(1)
Application 15:10 A.M. Classes in College
112(1)
Application 16: What Is the Price of an A?
113(1)
A Reader Asks
114(1)
Chapter Summary
115(1)
Key Terms and Concepts
116(1)
Questions and Problems
116(1)
Working With Numbers and Graphs
117(1)
Internet Activities
117(1)
Economics in Perspective: Musical Notes, Economic Notes
118(3)
Macroeconomics
Part 2: Macroeconomic Fundamentals
Macroeconomic Measurements, Part I: Prices and Unemployment
121(18)
Macroeconomic Measurements
122(1)
Measuring Prices
122(7)
Measuring Prices Using the CPI
122(2)
Inflation and the CPI
124(1)
How Is the CPI Used?
125(1)
The Substitution Bias in Fixed-Weighted Measures
126(1)
GDP Implicit Price Deflator
127(1)
Converting Dollars from One Year to Another
128(1)
Measuring Unemployment
129(7)
Who Are the Unemployed?
129(2)
The Unemployment and Employment Rates
131(1)
Reasons for Unemployment
132(1)
Discouraged Workers
132(1)
Types of Unemployment
133(1)
What Is Full Employment?
134(1)
Cyclical Unemployment
134(2)
A Reader Asks
136(1)
Chapter Summary
136(1)
Key Terms and Concepts
137(1)
Questions and Problems
137(1)
Working With Numbers and Graphs
137(1)
Internet Activities
138(1)
Macroeconomic Measurements, Part II: GDP and Real GDP
139(26)
Gross Domestic Product
140(4)
Three Ways to Compute GDP
140(1)
What Is the Difference Between GDP and GNP?
141(1)
What GDP Omits
142(1)
GDP Is Not Adjusted for Bads Generated in the Production of Goods
143(1)
Per Capita GDP
143(1)
Is Either GDP or Per Capita GDP a Measure of Happiness or Well-Being?
143(1)
The Expenditure Approach to Computing GDP for a Real-World Economy
144(3)
Expenditures in a Real-World Economy
144(1)
Computing GDP Using the Expenditure Approach
145(1)
An Easy Way to See That GDP = C + I + G + (EX -- IM)
146(1)
The Income Approach to Computing GDP for a Real-World Economy
147(5)
Computing National Income
147(3)
From National Income to GDP: Making Some Adjustments
150(2)
Other National Income Accounting Measurements
152(1)
Net Domestic Product
152(1)
Personal Income
152(1)
Disposable Income
153(1)
Real GDP
153(4)
Why We Need Real GDP
153(1)
Computing Real GDP
154(1)
The General Equation for Real GDP
155(1)
What Does It Mean if Real GDP Is Higher in One Year Than in Another Year?
155(1)
Real GDP, Economic Growth, and Business Cycles
156(1)
What Lies Ahead
157(1)
A Reader Asks
158(1)
Chapter Summary
159(1)
Key Terms and Concepts
160(1)
Questions and Problems
160(1)
Working With Numbers and Graphs
160(1)
Internet Activities
161(2)
Economics in Perspective: The Stories Behind the Numbers
163(2)
Part 3: Macroeconomic Stability, Instability, and Fiscal Policy
Aggregate Demand and Aggregate Supply
165(30)
The Two Sides to an Economy
166(1)
Aggregate Demand
166(12)
Why Does the Aggregate Demand Curve Slope Downward?
166(3)
A Change in the Quantity Demanded of Real GDP Versus a Change in Aggregate Demand
169(1)
Changes in Aggregate Demand---Shifts in the AD Curve
169(1)
How Spending Components Affect Aggregate Demand
170(1)
Factors That Can Change C, I, G, AND NX (EX -- IM), and Therefore Can Change AD
171(4)
The Interest Rate and the Loanable Funds Market
175(3)
Can a Change in the Money Supply Change Aggregate Demand?
178(1)
Short-Run Aggregate Supply
178(6)
Short-Run Aggregate Supply Curve: What It Is and Why It Is Upward-Sloping
179(2)
What Puts the ``Short Run'' In SRAS?
181(1)
Changes in Short-Run Aggregate Supply---Shifts in the SRAS Curve
182(2)
Putting AD and SRAS Together: Short-Run Equilibrium
184(5)
How Short-Run Equilibrium in the Economy Is Achieved
184(1)
The Unemployment Rate in the Short Run
185(2)
Thinking in Terms of Short-Run Equilibrium Changes in the Economy
187(2)
Long-Run Aggregate Supply
189(2)
Going From the Short Run to the Long Run
189(1)
Short-Run Equilibrium, Long-Run Equilibrium, and Disequilibrium
190(1)
A Reader Asks
191(1)
Chapter Summary
191(1)
Key Terms and Concepts
192(1)
Questions and Problems
193(1)
Working with Numbers and Graphs
193(1)
Internet Activities
194(1)
The Self-Regulating Economy
195(20)
The Classical View
196(3)
Classical Economists and Say's Law
196(1)
Classical Economists and Interest Rate Flexibility
197(2)
Classical Economists on Prices and Wages
199(1)
Three States of the Economy
199(5)
Real GDP and Natural Real GDP: Three Possibilities
200(1)
The Labor Market and the Three States of the Economy
201(2)
One Nagging Question: How Can the Unemployment Rate Be Less Than the Natural Unemployment Rate?
203(1)
The Self-Regulating Economy
204(7)
What Happens if the Economy Is in a Recessionary Gap?
204(1)
What Happens if the Economy Is in an Inflationary Gap?
205(1)
The Self-Regulating Economy: A Recap
206(1)
Policy Implication of Believing the Economy Is Self-Regulating
207(1)
Changes in a Self-Regulating Economy: Short Run and Long Run
208(3)
A Reader Asks
211(1)
Chapter Summary
211(1)
Key Terms and Concepts
212(1)
Questions and Problems
212(1)
Working With Numbers and Graphs
213(1)
Internet Activities
213(2)
Economic Instability: A Critique of the Self-Regulating Economy
215(26)
Questioning the Classical Position
216(5)
Keynes's Criticism of Say's Law in a Money Economy
216(1)
Keynes on Wage Rates
217(1)
New Keynesians and Wage Rates
218(1)
Keynes on Prices
219(1)
Is It a Question of the Time It Takes for Wages and Prices to Adjust?
220(1)
The Simple Keynesian Model
221(6)
Assumptions
221(1)
The Consumption Function
222(1)
Consumption and Saving
223(1)
The Multiplier
224(2)
The Multiplier and Reality
226(1)
The Simple Keynesian Model in the AD-AS Framework
227(4)
Shifts in the Aggregate Demand Curve
227(1)
The Keynesian Aggregate Supply Curve
227(2)
The Economy in a Recessionary Gap
229(1)
Government's Role in the Economy
229(1)
The Theme of the Simple Keynesian Model
230(1)
The Simple Keynesian Model in the TE/TP Framework
231(6)
Deriving a Total Expenditures (TE) Curve
231(1)
What Will Shift the TE Curve?
231(6)
Comparing Total Expenditures (TE) and Total Production (TP)
237
Moving From Disequilibrium to Equilibrium
233(1)
The Graphical Representation of the Three States of the Economy in the TE/TP Framework
234(1)
The Economy in a Recessionary Gap and the Role of Government
234(1)
The Theme of the Simple Keynesian Model
235(2)
A Reader Asks
237(1)
Chapter Summary
237(1)
Key Terms and Concepts
238(1)
Questions and Problems
238(1)
Working With Numbers and Graphs
239(1)
Internet Activities
240(1)
The Federal Budget and Fiscal Policy
241(24)
The Federal Budget
242(6)
Government Expenditures
242(1)
Government Tax Revenues
243(1)
Budget Deficit, Surplus, or Balance
244(3)
Structural and Cyclical Deficits
247(1)
How Much Can the Federal Government Spend?
247(1)
The Public Debt
248(1)
Fiscal Policy
248(1)
Some Relevant Fiscal Policy Terms
248(1)
Two Important Notes
249(1)
Demand-Side Fiscal Policy
249(9)
Shifting the Aggregate Demand Curve
249(1)
Fiscal Policy: A Keynesian Perspective
249(1)
Crowding Out: Questioning Expansionary Fiscal Policy
250(3)
The New Classical View of Fiscal Policy
253(3)
Lags and Fiscal Policy
256(2)
Crowding Out, Lags, and the Effectiveness of Fiscal Policy
258(1)
Supply-Side Fiscal Policy
258(3)
Marginal Tax Rates and Aggregate Supply
258(1)
The Laffer Curve: Tax Rates and Tax Revenues
258(3)
A Reader Asks
261(1)
Chapter Summary
262(1)
Key Terms and Concepts
263(1)
Questions and Problems
263(1)
Working With Numbers and Graphs
263(1)
Internet Activities
264(1)
Part 4: Money, the Economy, and Monetary Policy
Money and Banking
265(19)
Money: What Is It and How Did It Come to Be?
266(4)
Money: A Definition
266(1)
Three Functions of Money
266(1)
From a Barter to a Money Economy: The Origins of Money
267(1)
Money in a Prisoner of War Camp
267(1)
Money, Leisure, and Output
268(2)
What Gives Money Its Value?
270(1)
Defining the Money Supply
270(2)
M1
270(1)
M2
271(1)
Where Do Credit Cards Fit In?
272(1)
How Banking Developed
272(2)
The Early Bankers
272(2)
The Federal Reserve System
274(1)
The Money Creation Process
274(7)
The Bank's Reserves and More
274(1)
The Banking System and the Money Expansion Process
275(3)
Why Maximum? Answer: No Cash Leakages and Zero Excess Reserves
278(1)
Who Created What?
279(1)
It Works in Reverse: The ``Money Destruction'' Process
279(1)
We Change Our Example
280(1)
A Reader Asks
281(1)
Chapter Summary
282(1)
Key Terms and Concepts
282(1)
Questions and Problems
282(1)
Working With Numbers and Graphs
283(1)
Internet Activities
283(1)
The Federal Reserve System
284(13)
The Federal Reserve System
285(3)
The Structure of the Fed
285(2)
Functions of the Federal Reserve System
287(1)
Fed Tools for Controlling the Money Supply
288(6)
Open Market Operations
288(2)
The Required Reserve Ratio
290(1)
The Discount Rate
291(2)
Which Tool Does the Fed Prefer to Use?
293(1)
A Reader Asks
294(1)
Chapter Summary
295(1)
Key Terms and Concepts
295(1)
Questions and Problems
295(1)
Working With Numbers and Graphs
296(1)
Internet Activities
296(1)
Money and the Economy
297(27)
Money and the Price Level
298(5)
The Equation of Exchange
298(1)
From the Equation of Exchange to the Simple Quantity Theory of Money
299(1)
The Simple Quantity Theory of Money in an AD-AS Framework
300(2)
Dropping the Assumptions That V and Q Are Constant
302(1)
Monetarism
303(4)
Monetarist Views
303(1)
Monetarism and AD-AS
304(2)
The Monetarist View of the Economy
306(1)
Inflation
307(7)
One-Shot Inflation
307(3)
Continued Inflation
310(4)
Money and Interest Rates
314(6)
What Economic Variables Are Affected by a Change in the Money Supply?
314(1)
The Money Supply, the Loanable Funds Market, and Interest Rates
315(3)
So, What Happens to the Interest Rate as the Money Supply Changes?
318(1)
The Nominal and Real Interest Rates
319(1)
A Reader Asks
320(1)
Chapter Summary
321(1)
Key Terms and Concepts
322(1)
Questions and Problems
322(1)
Working With Numbers and Graphs
322(1)
Internet Activities
323(1)
Monetary Policy
324(22)
The Money Market
325(2)
The Demand for Money
325(1)
The Supply of Money
325(1)
Equilibrium in the Money Market
326(1)
Transmission Mechanisms
327(5)
The Keynesian Transmission Mechanism: Indirect
327(1)
The Keynesian Mechanism May Get Blocked
328(3)
The Monetarist Transmission Mechanism: Direct
331(1)
Monetary Policy and the Problem of Inflationary and Recessionary Gaps
332(3)
Monetary Policy and the Activist-Nonactivist Debate
335(4)
The Case for Activist (or Discretionary) Monetary Policy
336(1)
The Case for Nonactivist (or Rules-Based) Monetary Policy
336(3)
Nonactivist Monetary Proposals
339(3)
A Constant-Money-Growth-Rate Rule
339(1)
A Predetermined-Money-Growth-Rate Rule
339(1)
The Fed and the Taylor Rule
340(2)
A Reader Asks
342(1)
Chapter Summary
343(1)
Key Terms and Concepts
343(1)
Questions and Problems
343(1)
Working With Numbers and Graphs
344(1)
Internet Activities
345(1)
Part 5: Expectations and Growth
Expectations Theory and the Economy
346(19)
Phillips Curve Analysis
347(1)
The Phillips Curve
347(1)
Samuelson and Solow: The Phillips Curve Is Americanized
348(1)
The Controversy Begins: Are There Really Two Phillips Curves?
348(5)
Things Aren't Always as We Thought
348(1)
Friedman and the Natural Rate Theory
348(3)
How Do People Form Their Expectations?
351(2)
Rational Expectations and New Classical Theory
353(6)
Rational Expectations
353(1)
Do People Anticipate Policy?
353(1)
New Classical Theory: The Effects of Unanticipated and Anticipated Policy
354(1)
Policy Ineffectiveness Proposition (PIP)
355(1)
Rational Expectations and Incorrectly Anticipated Policy
355(1)
How to Fall Into a Recession Without Really Trying
356(3)
New Keynesians and Rational Expectations
359(1)
Looking at Things From the Supply Side: Real Business Cycle Theorists
359(3)
A Reader Asks
362(1)
Chapter Summary
362(1)
Key Terms and Concepts
363(1)
Questions and Problems
363(1)
Working With Numbers and Graphs
364(1)
Internet Activities
364(1)
Economic Growth: Resources, Technology, and Ideas
365(20)
A Few Basics About Economic Growth
366(3)
Do Economic Growth Rates Matter?
366(1)
Growth Rates in Selected Countries
366(1)
Two Types of Economic Growth
367(1)
Economic Growth and the Price Level
368(1)
What Causes Economic Growth?
369(7)
Natural Resources
369(1)
Labor
370(1)
Capital
370(1)
Technological Advances
371(1)
Free Trade as Technology
371(1)
Property Rights Structure
372(1)
Economic Freedom
373(1)
Policies to Promote Economic Growth
373(1)
Economic Growth and Special Interest Groups
374(2)
New Growth Theory
376(3)
What Was Wrong With the Old Theory? Or, What's New With New Growth Theory?
376(1)
Discovery, Ideas, and Institutions
377(1)
Expanding Our Horizons
377(2)
A Reader Asks
379(1)
Chapter Summary
379(1)
Key Terms and Concepts
380(1)
Questions and Problems
380(1)
Working With Numbers and Graphs
381(1)
Internet Activities
381(1)
Economics in Perspective: Debates in Macroeconomics
382(3)
Microeconomics
Part 6: Microeconomic Fundamentals
Elasticity
385(27)
Elasticity: Part 1
386(9)
Price Elasticity of Demand
386(1)
Elasticity Is Not Slope
387(1)
From Perfectly Elastic to Perfectly Inelastic Demand
388(2)
Price Elasticity of Demand and Total Revenue (Total Expenditure)
390(3)
Agriculture: An Application of Price Elasticity of Demand
393(2)
Elasticity: Part 2
395(4)
Price Elasticity of Demand Along a Straight-Line Demand Curve
395(2)
Determinants of Price Elasticity of Demand
397(2)
Other Elasticity Concepts
399(9)
Cross Elasticity of Demand
399(1)
Income Elasticity of Demand
400(2)
Traffic Jams in Bangkok, Sao Paulo, and Cairo
402(1)
Price Elasticity of Supply
402(2)
Price Elasticity of Supply and Time
404(1)
The Relationship Between Taxes and Elasticity
404(4)
A Reader Asks
408(1)
Chapter Summary
409(1)
Key Terms and Concepts
410(1)
Questions and Problems
410(1)
Working With Numbers and Graphs
410(1)
Internet Activities
411(1)
Consumer Choice: Maximizing Utility and Behavioral Economics
412(19)
Utility Theory
413(5)
Utility, Total and Marginal
413(1)
Law of Diminishing Marginal Utility
413(3)
The Millionaire and the Pauper: What the Law Says and Doesn't Say
416(1)
The Solution to the Diamond-Water Paradox
417(1)
Is Gambling Worth the Effort?
417(1)
Consumer Equilibrium and Demand
418(6)
Equating Marginal Utilities per Dollar
418(1)
Consumer Equilibrium and the Law of Demand
419(1)
Income and Substitution Effects
420(2)
Should the Government Provide the Necessities of Life for Free?
422(2)
Behavioral Economics
424(4)
Are People Willing to Reduce Others' Incomes?
424(1)
Is $1 Always $1?
425(1)
Coffee Mugs and the Endowment Effect
426(1)
Does the Endowment Effect Hold Only for New Traders?
427(1)
A Reader Asks
428(1)
Chapter Summary
428(1)
Key Terms and Concepts
429(1)
Questions and Problems
429(1)
Working With Numbers and Graphs
430(1)
Internet Activities
430(1)
Appendix B: Budget Constraint and Indifference Curve Analysis
431(285)
The Budget Constraint
431(1)
Slope of the Budget Constraint
431(1)
What Will Change the Budget Constraint?
432(1)
Indifference Curves
432(4)
Constructing an Indifference Curve
433(1)
Characteristics of Indifference Curves
433(3)
The Indifference Map and the Budget Constraint Come Together
436(1)
From Indifference Curves to a Demand Curve
437(1)
Appendix Summary
438(1)
Questions and Problems
438(1)
The Firm
439(19)
Why Firms Exist
440(4)
The Market and the Firm: Invisible Hand Versus Visible Hand
440(1)
The Alchian and Demsetz Answer
440(1)
Shirking in a Team
440(1)
Ronald Coase on Why Firms Exist
441(2)
Markets: Outside and Inside the Firm
443(1)
The Questions the Firm Must Answer
444(1)
The Objective of the Firm
444(2)
Types of Business Firms
446(3)
Proprietorships
446(1)
Partnerships
447(1)
Corporations
448(1)
Some Financial Aspects of Firms
449(4)
The Balance Sheet of a Firm
449(1)
Financing Corporate Activity
450(3)
Nonprofit Firms
453(1)
A Reader Asks
454(1)
Chapter Summary
455(1)
Key Terms and Concepts
456(1)
Questions and Problems
456(1)
Working With Numbers and Graphs
457(1)
Internet Activities
457(1)
Production and Costs
458(26)
The Firm's Objective: Maximizing Profit
459(2)
Accounting Profit Versus Economic Profit
459(1)
Zero Economic Profit Is Not so Bad as It Sounds
460(1)
Production
461(5)
Production in the Short Run
462(1)
Marginal Physical Product and Marginal Cost
463(3)
Average Productivity
466(1)
Costs of Production: Total, Average, Marginal
466(10)
The AVC and ATC Curves in Relation to the MC Curve
469(2)
Tying Short-Run Production to Costs
471(1)
One More Cost Concept: Sunk Cost
471(5)
Production and Costs in the Long Run
476(4)
Long-Run Average Total Cost Curve
476(2)
Economies of Scale, Diseconomies of Scale, and Constant Returns to Scale
478(1)
Why Economies of Scale?
479(1)
Why Diseconomies of Scale?
479(1)
Minimum Efficient Scale and Number of Firms in an Industry
480(1)
Shifts in Cost Curves
480(1)
Taxes
480(1)
Input Prices
480(1)
Technology
480(1)
A Reader Asks
481(1)
Chapter Summary
481(1)
Key Terms and Concepts
482(1)
Questions and Problems
482(1)
Working With Numbers and Graphs
483(1)
Internet Activities
483(1)
Part 7: Product Markets and Policies
Perfect Competition
484(27)
Market Structures
485(1)
The Theory of Perfect Competition
485(4)
A Perfectly Competitive Firm Is a Price Taker
485(1)
The Demand Curve for a Perfectly Competitive Firm Is Horizontal
486(1)
The Marginal Revenue Curve of a Perfectly Competitive Firm Is the Same as Its Demand Curve
487(1)
Theory and Real-World Markets
488(1)
Perfect Competition in the Short Run
489(6)
What Level of Output Does the Profit-Maximizing Firm Produce?
489(1)
The Perfectly Competitive Firm and Resource Allocative Efficiency
490(1)
To Produce or Not to Produce: That Is the Question
491(2)
The Perfectly Competitive Firm's Short-Run Supply Curve
493(1)
From Firm to Market (Industry) Supply Curve
493(1)
Why Is The Market Supply Curve Upward-Sloping?
494(1)
Perfect Competition in the Long Run
495(10)
The Conditions of Long-Run Competitive Equilibrium
495(3)
The Perfectly Competitive Firm and Productive Efficiency
498(1)
Industry Adjustment to an Increase in Demand
498(4)
What Happens as Firms Enter an Industry in Search of Profits?
502(1)
Industry Adjustment to a Decrease in Demand
503(1)
Differences in Costs, Differences in Profits: Now You See It, Now You Don't
503(1)
Profit and Discrimination
504(1)
Topics for Analysis Within the Theory of Perfect Competition
505(1)
Do Higher Costs Mean Higher Prices?
505(1)
Will the Perfectly Competitive Firm Advertise?
506(1)
Supplier-Set Price Versus Market-Determined Price: Collusion or Competition?
506(1)
A Reader Asks
506(1)
Chapter Summary
507(1)
Key Terms and Concepts
508(1)
Questions and Problems
508(1)
Working With Numbers and Graphs
509(1)
Internet Activities
509(2)
Monopoly
511(21)
The Theory of Monopoly
512(2)
Barriers to Entry: A Key to Understanding Monopoly
512(1)
What Is the Difference Between a Government Monopoly and a Market Monopoly?
513(1)
Monopoly Pricing and Output Decisions
514(5)
The Monopolist's Demand and Marginal Revenue
514(2)
The Monopolist's Demand and Marginal Revenue Curves Are Not the Same: Why Not?
516(1)
Price and Output for a Profit-Maximizing Monopolist
516(1)
If a Firm Maximizes Revenue, Does It Automatically Maximize Profit Too?
517(2)
Perfect Competition and Monopoly
519(2)
Price, Marginal Revenue, and Marginal Cost
519(1)
Monopoly, Perfect Competition, and Consumers' Surplus
519(1)
Monopoly or Nothing?
520(1)
The Case Against Monopoly
521(3)
The Deadweight Loss of Monopoly
521(1)
Rent Seeking
522(2)
X-Inefficiency
524(1)
Price Discrimination
524(5)
Types of Price Discrimination
524(1)
Why a Monopolist Wants to Price Discriminate
524(1)
Conditions of Price Discrimination
525(1)
Moving to P = MC Through Price Discrimination
525(2)
You Can Have the Comics, Just Give Me the Coupons
527(2)
A Reader Asks
529(1)
Chapter Summary
529(1)
Key Terms and Concepts
530(1)
Questions and Problems
530(1)
Working With Numbers and Graphs
530(1)
Internet Activities
531(1)
Monopolistic Competition, Oligopoly, and Game Theory
532(27)
The Theory of Monopolistic Competition
533(4)
The Monopolistic Competitor's Demand Curve
533(1)
The Relationship Between Price and Marginal Revenue for a Monopolistic Competitor
533(1)
Output, Price, and Marginal Cost for the Monopolistic Competitor
533(1)
Will There Be Profits in the Long Run?
534(1)
Excess Capacity: What Is It, and Is It ``Good'' or ``Bad''?
535(1)
The Monopolist Competitor and Two Types of Efficiency
536(1)
Advertising and Designer Labels
536(1)
Oligopoly: Assumptions and Real-World Behavior
537(1)
Price and Output Under Three Oligopoly Theories
538(6)
The Cartel Theory
538(2)
The Kinked Demand Curve Theory
540(2)
The Price Leadership Theory
542(2)
Game Theory, Oligopoly, and Contestable Markets
544(6)
Prisoner's Dilemma
544(2)
Oligopoly Firms Cartels, and Prisoner's Dilemma
546(1)
Are Markets Contestable?
547(3)
A Review of Market Structures
550(1)
Applications of Game Theory
551(4)
Grades and Partying
551(1)
The Arms Race
552(1)
Speed Limit Laws
553(1)
The Fear of Guilt as an Enforcement Mechanism
554(1)
A Reader Asks
555(1)
Chapter Summary
556(1)
Key Terms and Concepts
556(1)
Questions and Problems
557(1)
Working With Numbers and Graphs
557(1)
Internet Activities
558(1)
Government and Product Markets: Antitrust and Regulation
559(27)
Antitrust
560(11)
Antitrust Acts
560(1)
Unsettled Points in Antitrust Policy
561(3)
Antitrust and Mergers
564(1)
Eight Antitrust Cases and Actions
564(3)
Network Monopolies
567(2)
Civil Action No. 98-1232
569(2)
Regulation
571(9)
The Case of Natural Monopoly
571(1)
Regulating the Natural Monopoly
572(2)
Regulating Industries That Are Not Natural Monopolies
574(1)
Theories of Regulation
574(2)
The Costs and Benefits of Regulation
576(1)
Some Effects of Regulation Are Unintended
577(1)
Social Regulation
578(1)
Deregulation
579(1)
A Reader Asks
580(1)
Chapter Summary
581(1)
Key Terms and Concepts
581(1)
Questions and Problems
581(1)
Working With Numbers and Graphs
582(1)
Internet Activities
583(1)
Economics in Perspective: Intuition and Counterintuition
584(2)
Part 8: Factor Markets and Related Issues
Factor Markets: With Emphasis on the Labor Market
586(23)
Factor Markets
587(6)
The Demand for a Factor
587(1)
Marginal Revenue Product: Two Ways to Calculate It
587(1)
The MRP Curve Is the Firm's Factor Demand Curve
588(1)
Value Marginal Product
589(1)
An Important Question: Is MRP = VMP?
589(1)
Marginal Factor Cost---The Firm's Factor Supply Curve
589(1)
How Many Units of a Factor Should a Firm Buy?
590(1)
When There Is More Than One Factor, How Much of Each Factor Should the Firm Buy?
591(2)
The Labor Market
593(11)
Shifts in a Firm's MRP, or Factor Demand, Curve
593(1)
Market Demand for Labor
593(3)
The Elasticity of Demand for Labor
596(1)
Market Supply of Labor
597(1)
An Individual's Supply of Labor
598(1)
Shifts in the Labor Supply Curve
598(1)
Putting Supply and Demand Together
599(1)
Why Do Wage Rates Differ?
599(1)
Why Demand and Supply Differ in Different Labor Markets
600(2)
Why Did You Choose the Major That You Chose?
602(1)
Marginal Productivity Theory
602(2)
Labor Markets and Information
604(2)
Screening Potential Employees
604(1)
Promoting From Within
605(1)
Is It Discrimination or Is It an Information Problem?
605(1)
A Reader Asks
606(1)
Chapter Summary
606(1)
Key Terms and Concepts
607(1)
Questions and Problems
607(1)
Working With Numbers and Graphs
607(1)
Internet Activities
608(1)
Wages, Unions, and Labor
609(18)
The Facts and Figures of Labor Unions
610(1)
Types of Unions
610(1)
A Few Facts and Figures
610(1)
Objectives of Labor Unions
611(1)
Employment for All Members
611(1)
Maximizing the Total Wage Bill
611(1)
Maximizing Income for a Limited Number of Union Members
611(1)
Wage-Employment Tradeoff
612(1)
Practices of Labor Unions
612(4)
Affecting Elasticity of Demand for Union Labor
613(1)
Affecting the Demand for Union Labor
613(1)
Affecting the Supply of Union Labor
614(1)
Affecting Wages Directly: Collective Bargaining
615(1)
Strikes
615(1)
Effects of Labor Unions
616(8)
The Case of Monopsony
616(3)
Unions' Effects on Wages
619(2)
Unions' Effects on Prices
621(1)
Unions' Effects on Productivity and Efficiency: Two Views
621(3)
A Reader Asks
624(1)
Chapter Summary
624(1)
Key Terms and Concepts
625(1)
Questions and Problems
625(1)
Working With Numbers and Graphs
625(1)
Internet Activities
626(1)
The Distribution of Income and Poverty
627(22)
Some Facts About Income Distribution
628(5)
Who Are the Rich and How Rich Are They?
628(1)
Adjusting the Income Distribution
628(3)
The Effect of Age on the Income Distribution
631(1)
A Simple Equation
632(1)
Measuring Income Equality
633(3)
The Lorenz Curve
633(1)
The Gini Coefficient
634(1)
A Limitation of the Gini Coefficient
635(1)
Why Income Inequality Exists
636(4)
Factors Contributing to Income Inequality
636(2)
Income Differences: Some Are Voluntary, Some Are Not
638(2)
Normative Standards of Income Distribution
640(3)
The Marginal Productivity Normative Standard
640(2)
The Absolute Income Equality Normative Standard
642(1)
The Rawlsian Normative Standard
642(1)
Size of the Income Pies
643(1)
Poverty
643(3)
What Is Poverty?
643(1)
Limitations of the Official Poverty Income Statistics
644(1)
Who Are the Poor?
644(1)
What Is the Justification for Government Redistributing Income?
644(2)
A Reader Asks
646(1)
Chapter Summary
647(1)
Key Terms and Concepts
648(1)
Questions and Problems
648(1)
Working With Numbers and Graphs
648(1)
Internet Activities
648(1)
Interest, Rent, and Profit
649(18)
Interest
650(6)
Loanable Funds: Demand and Supply
650(2)
The Price for Loanable Funds and the Return on Capital Goods Tend to Equality
652(1)
Why Do Interest Rates Differ?
652(1)
Nominal and Real Interest Rates
653(1)
Present Value: What Is Something Tomorrow Worth Today?
654(1)
Deciding Whether or Not to Purchase a Capital Good
655(1)
Rent
656(5)
David Ricardo, the Price of Grain, and Land Rent
657(1)
The Supply Curve of Land Can Be Upward-Sloping
658(1)
Economic Rent and Other Factors of Production
659(1)
Economic Rent and Baseball Players: The Perspective From Which the Factor Is Viewed Matters
659(1)
Competing for Artificial and Real Rents
660(1)
Do People Overestimate Their Worth to Others, or Are They Simply Seeking Economic Rent?
660(1)
Profit
661(3)
Theories of Profit
661(1)
What Is Entrepreneurship?
662(1)
What Do a Microwave Oven and an Errand Runner Have in Common?
662(1)
Profit and Loss as Signals
663(1)
A Reader Asks
664(1)
Chapter Summary
664(1)
Key Terms and Concepts
665(1)
Questions and Problems
665(1)
Working With Numbers and Graphs
665(1)
Internet Activities
666(1)
Part 9: Market Failure and Public Choice
Market Failure: Externalities, Public Goods, and Asymmetric Information
667(27)
Market Failure
668(1)
Externalities
668(6)
Costs and Benefits of Activities
668(1)
Marginal Costs and Benefits of Activities
669(1)
Social Optimality or Efficiency Conditions
669(1)
Three Categories of Activities
669(1)
Externalities in Consumption and in Production
670(1)
Diagram of a Negative Externality
670(2)
Diagram of a Positive Externality
672(2)
Internalizing Externalities
674(5)
Persuasion
674(1)
Taxes and Subsidies
674(1)
Assigning Property Rights
675(1)
Voluntary Agreements
676(1)
Combining Property Rights Assignments and Voluntary Agreements
676(2)
Beyond Internalizing: Setting Regulations
678(1)
Dealing With a Negative Externality in the Environment
679(3)
Is No Pollution Worse Than Some Pollution?
679(1)
Two Methods to Reduce Air Pollution
680(2)
Public Goods: Excludable and Nonexcludable
682(3)
Goods
682(1)
The Free Rider
683(1)
Nonexcludable Versus Nonrivalrous
684(1)
Asymmetric Information
685(5)
Asymmetric Information in a Product Market
685(1)
Asymmetric Information in a Factor Market
686(1)
Is There Market Failure?
686(1)
Adverse Selection
687(1)
Moral Hazard
688(2)
A Reader Asks
690(1)
Chapter Summary
691(1)
Key Terms and Concepts
692(1)
Questions and Problems
692(1)
Working With Numbers and Graphs
692(1)
Internet Activities
693(1)
Public Choice: Economic Theory Applied to Politics
694(22)
Public Choice Theory
695(1)
The Political Market
695(3)
Moving Toward the Middle: The Median Voter Model
695(1)
What Does the Theory Predict?
696(2)
Voters and Rational Ignorance
698(2)
The Costs and Benefits of Voting
698(1)
Rational Ignorance
699(1)
More About Voting
700(3)
Example 1: Voting for a Nonexcludable Public Good
700(2)
Example 2: Voting and Efficiency
702(1)
Special Interest Groups
703(8)
Information and Lobbying Efforts
703(2)
Congressional Districts as Special Interest Groups
705(1)
Public Interest Talk, Special Interest Legislation
705(1)
Special Interest Groups and Rent Seeking
706(5)
Government Bureaucracy
711(1)
A View of Government
712(1)
A Reader Asks
712(1)
Chapter Summary
713(1)
Key Terms and Concepts
714(1)
Questions and Problems
714(1)
Working With Numbers and Graphs
714(1)
Internet Activities
715(1)
Appendix C: The Economics of Transfers
716(5)
The Marginal Return of Transferring
716(1)
Ability to Effect Transfers
716(1)
The Transaction Costs of Transfers and ``Money for Nothing''
717(1)
Political Extortion and Transfers
717(1)
Voting and Transfers
718(3)
The World Economy
Part 10: International Economics: Theory and Policy International Trade
721(48)
International Trade Theory
722(17)
How Do Countries Know What to Trade?
722(3)
How Do Countries Know When They Have a Comparative Advantage?
725(1)
Trade Restrictions
725(10)
The Distributional Effects of International Trade
725(2)
Consumers' and Producers' Surplus
727(1)
The Benefits and Costs of Trade Restrictions
728(3)
If Free Trade Results in Net Gain, Why Do Nations Sometimes Restrict Trade?
731(3)
What Price Jobs?
734(1)
The World Trade Organization (WTO)
735(1)
A Reader Asks
735(1)
Chapter Summary
736(1)
Key Terms and Concepts
736(1)
Questions and Problems
737(1)
Working With Numbers and Graphs
737(1)
Internet Activities
738(1)
International Finance
739(30)
The Balance of Payments
740(6)
Current Account
740(4)
Capital Account
744(1)
Official Reserve Account
744(1)
Statistical Discrepancy
744(1)
What the Balance of Payments Equals
745(1)
The Foreign Exchange Market
746(2)
The Demand for Goods
746(1)
The Demand for and Supply of Currencies
747(1)
Flexible Exchange Rates
748(4)
The Equilibrium Exchange Rate
748(1)
Changes in the Equilibrium Exchange Rate
749(1)
Factors That Affect the Equilibrium Exchange Rate
750(2)
Fixed Exchange Rates
752(7)
Fixed Exchange Rates and Overvalued/Undervalued Currency
752(2)
What Is So Bad About an Overvalued Dollar?
754(1)
Government Involvement in a Fixed Exchange Rate System
755(1)
Options Under a Fixed Exchange Rate System
755(2)
The Gold Standard
757(2)
Fixed Exchange Rates Versus Flexible Exchange Rates
759(3)
Promoting International Trade
759(1)
Optimal Currency Areas
759(3)
The Current International Monetary System
762(2)
A Reader Asks
764(1)
Chapter Summary
764(1)
Key Terms and Concepts
765(1)
Questions and Problems
766(1)
Working With Numbers and Graphs
766(1)
Internet Activities
767(2)
Appendix D: Should You Major in Economics?
769(6)
Five Myths About Economics and an Economics Major
770(2)
What Awaits You as an Economics Major?
772(1)
What Do Economists Do?
773(1)
Places to Find More Information
774(1)
Concluding Remarks
774(1)
Self-Test Appendix775(22)
Glossary797(10)
Index807

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