Preface | p. xxi |
Geting Acquainted with Economics | p. 1 |
What is Economics? | p. 3 |
Ideas for Beyond the Final Exam | p. 4 |
Inside the Economist's Tool Kit | p. 8 |
Summary | p. 12 |
Key Terms | p. 13 |
Questions for Review | p. 13 |
Using Graphs: A Review | p. 13 |
Graphs Used in Economic Analysis | p. 13 |
Two-Variable Diagrams | p. 13 |
The Definition and Measurement of Slope | p. 14 |
Rays Through the Origin and 45[degree] Lines | p. 16 |
Squeezing Three Dimensions Into Two: Contour Maps | p. 17 |
Summary | p. 18 |
Key Terms | p. 18 |
Questions for Review | p. 18 |
Scarcity and Choice: The Economic Problem | p. 19 |
Issue: What to Do with the Budget Surplus? | p. 20 |
Scarcity, Choice, and Opportunity Cost | p. 20 |
Scarcity and Choice for a Single Firm | p. 22 |
Scarcity and Choice for the Entire Society | p. 24 |
Issue Revisited: Allocating the Budget Surplus | p. 25 |
The Concept of Efficiency | p. 25 |
The Three Coordination Tasks of Any Economy | p. 26 |
Specialization Fosters Efficient Resource Allocation | p. 27 |
Specialization Leads to Exchange | p. 28 |
Markets, Prices, and the Three Coordination Tasks | p. 29 |
Last Word: Don't Confuse Ends with Means | p. 30 |
Summary | p. 31 |
Key Terms | p. 31 |
Questions for Review | p. 31 |
Supply and Demand: An Initial Look | p. 33 |
Puzzle: What in the World Happened to Those Asian Currencies? | p. 34 |
The Invisible Hand | p. 34 |
Demand and Quantity Demanded | p. 35 |
Supply and Quantity Supplied | p. 39 |
Supply and Demand Equilibrium | p. 42 |
Effects of Demand Shifts on Supply-Demand Equilibrium | p. 44 |
Puzzle Revisited: The Fall of the Rupiah | p. 45 |
Supply Shifts and Supply-Demand Equilibrium | p. 45 |
Fighting the Invisible Hand: The Market Fights Back | p. 47 |
A Simple but Powerful Lesson | p. 52 |
Summary | p. 52 |
Key Terms | p. 53 |
Questions for Review | p. 53 |
The Building Blocks of Demand and Supply | p. 57 |
Consumer Choice: Individual and Market Demand | p. 59 |
Paradox: Should Water Be Worth More Than Diamonds? | p. 60 |
Scarcity and Demand | p. 60 |
Utility: A Tool to Analyze Purchase Decisions | p. 61 |
Consumer Choice as a Trade-Off: Opportunity Cost | p. 67 |
Resolving the Diamond-Water Paradox | p. 70 |
From Individual Demand Curves to Market Demand Curves | p. 71 |
Summary | p. 73 |
Key Terms | p. 73 |
Questions for Review | p. 73 |
Analyzing Consumer Choice Graphically: Indifference Curve Analysis | p. 74 |
Geometry of Available Choices: The Budget Line | p. 74 |
What the Consumer Prefers: Properties of the Indifference Curve | p. 76 |
The Slopes of Indifference Curves and Budget Lines | p. 77 |
Summary | p. 80 |
Key Terms | p. 81 |
Questions for Review | p. 81 |
Demand and Elasticity | p. 83 |
Issue: Will Taxing Cigarettes Make Teenagers Stop Smoking? | p. 84 |
Elasticity: The Measure of Responsiveness | p. 84 |
Price Elasticity of Demand: Its Effect on Total Revenue and Total Expenditure | p. 88 |
Issue Revisited: Will a Cigarette Tax Decrease Teenage Smoking Significantly? | p. 90 |
What Determines Demand Elasticity? | p. 91 |
Elasticity as a General Concept | p. 91 |
Changes in Demand: Movements Along the Demand Curve Versus Shifts in the Demand Curve | p. 94 |
The Time Period of the Demand Curve and Economic Decision Making | p. 95 |
Real-World Application: Polaroid Versus Kodak | p. 96 |
Summary | p. 97 |
Key Terms | p. 98 |
Questions for Review | p. 98 |
How Can We Find a Legitimate Demand Curve from the Statistics? | p. 99 |
An Illustration: Did the Advertising Program Work? | p. 100 |
How Can We Find a Legitimate Demand Curve from the Statistics? | p. 100 |
Production, Inputs, and Cost: Building Blocks for Supply Analysis | p. 103 |
Puzzle: Right and Wrong Ways to Determine When Larger Firms Are More Efficient | p. 104 |
Short-Run Versus Long-Run Costs: What Makes an Input Variable? | p. 105 |
Production, Input Choice, and Cost with One Variable Input | p. 106 |
Multiple Input Decisions: The Choice of Optimal Input Combinations | p. 110 |
Cost and Its Dependence on Output | p. 113 |
Economies of Scale | p. 118 |
Resolving the Economies of Scale Puzzle | p. 121 |
Summary | p. 124 |
Key Terms | p. 124 |
Questions for Review | p. 124 |
Production Indifference Curves | p. 125 |
Characteristics of the Production Indifference Curves, or Isoquants | p. 126 |
The Choice of Input Combinations | p. 126 |
Cost Minimization, Expansion Path, and Cost Curves | p. 127 |
Effects of Changes in Input Prices | p. 128 |
Summary | p. 129 |
Key Terms | p. 129 |
Questions for Review | p. 129 |
Output, Price, and Profit: The Importance of Marginal Analysis | p. 131 |
Two Puzzles | p. 132 |
Price and Quantity: One Decision, Not Two | p. 133 |
Total Profit: Keep Your Eye on the Goal | p. 133 |
Marginal Analysis and Maximization of Total Profit | p. 138 |
Generalization: The Logic of Marginal Analysis and Maximization | p. 143 |
Puzzles Resolved: Marginal Analysis in Real Decision Problems | p. 145 |
Conclusion: The Fundamental Role of Marginal Analysis | p. 148 |
The Theory and Reality: A Word of Caution | p. 149 |
Summary | p. 149 |
Key Terms | p. 149 |
Questions for Review | p. 149 |
The Relationships Among Total, Average, and Marginal Data | p. 150 |
Graphical Representation of Marginal and Average Curves | p. 151 |
Markets, from Competition to Monopoly: Virtues and Vices | p. 153 |
The Firm and the Industry Under Perfect Competition | p. 155 |
Puzzle: Pollution Reduction Incentives That Actually Increase Pollution | p. 156 |
Perfect Competition Defined | p. 156 |
The Competitive Firm | p. 157 |
The Competitive Industry | p. 162 |
Perfect Competition and Economic Efficiency | p. 168 |
Puzzle Resolved: Which Is Better to Cut Pollution--The Carrot or the Stick? | p. 169 |
Summary | p. 171 |
Key Terms | p. 171 |
Questions for Review | p. 171 |
The Price System and the Case for Free Markets | p. 173 |
Puzzle: How High Should the Price to Cross the San Francisco-Oakland Bay Bridge Be? | p. 174 |
Efficient Resource Allocation and Pricing | p. 174 |
Scarcity and the Need to Coordinate Economic Decisions | p. 178 |
How Perfect Competition Achieves Efficiency | p. 185 |
San Francisco Bridge Pricing Revisited | p. 189 |
Toward Assessment of the Price Mechanism | p. 191 |
Summary | p. 191 |
Key Terms | p. 191 |
Questions for Review | p. 191 |
Monopoly | p. 193 |
Puzzle: Competition in Local Telephone Service Markets? | p. 194 |
Monopoly Defined | p. 194 |
The Monopolist's Supply Decision | p. 197 |
Can Anything Good Be Said About Monopoly? | p. 202 |
Price Discrimination Under Monopoly | p. 203 |
The Puzzle Resolved: Competitive Local Telephone Service | p. 206 |
Summary | p. 207 |
Key Terms | p. 207 |
Questions for Review | p. 207 |
Between Competition and Monopoly | p. 209 |
Some Puzzling Observations | p. 210 |
Monopolistic Competition | p. 211 |
The Puzzle Resolved: Explaining the Abundance of Retailers | p. 214 |
Oligopoly | p. 215 |
The Puzzle Resolved: Why Oligopolists Advertise but Perfectly Competitive Firms Generally Do Not | p. 215 |
The Puzzle Resolved: The Kinked Demand Curve Model | p. 221 |
Monopolistic Competition, Oligopoly, and Public Welfare | p. 226 |
A Glance Backward: Comparing the Four Market Forms | p. 228 |
Summary | p. 229 |
Key Terms | p. 229 |
Questions for Review | p. 229 |
The Market Mechanism: Shortcomings and Remedies | p. 231 |
Puzzle: Why Are Health-Care Costs in Canada Rising? | p. 232 |
What Does the Market do Poorly? | p. 232 |
Efficient Resource Allocation: A Review | p. 232 |
Externalities: Getting the Prices Wrong | p. 234 |
Provision of Public Goods | p. 237 |
Allocation of Resources Between Present and Future | p. 238 |
Market Failure and Government Failure | p. 240 |
The Cost Disease of the Service Sector | p. 242 |
The Puzzle Resolved: Explaining the Rising Costs of Canadian Health Care | p. 246 |
Some Other Sources of Market Failure | p. 246 |
The Market System On Balance | p. 248 |
Epilogue: The Unforgiving Market, Its Gift of Abundance, and Its Dangerous Friends | p. 249 |
Summary | p. 249 |
Key Terms | p. 250 |
Questions for Review | p. 250 |
Microeconomics of "The New Economy": Innovation and Growth | p. 251 |
The Big Puzzle: What Accounts for the Free Market's Incredible Growth Record? | p. 252 |
What's New About the New Economy? | p. 254 |
Solving the Big Puzzle: Why Do All Rival Economic Systems Trail So Far Behind Free-Market Growth Rates? | p. 261 |
The Firm and Innovation | p. 262 |
Three Growth-Creating Properties of Innovation | p. 265 |
Do Free Markets Spend Enough on R&D Activities? | p. 268 |
Conclusion: The New Economy and the Innovation Assembly Line | p. 272 |
Summary | p. 272 |
Key Terms | p. 273 |
Questions for Review | p. 273 |
Real Firms and Their Financing: Stocks and Bonds | p. 275 |
What in the World Happened to the Stock Market? | p. 276 |
The Stock Market's Unpredictability | p. 276 |
Corporations and Their Financing | p. 277 |
Financing Corporate Activity: Stocks and Bonds | p. 279 |
Buying Stocks and Bonds | p. 282 |
Stock Exchanges and Their Functions | p. 284 |
Speculation | p. 287 |
Puzzle #2 Resolved: Unpredictable Stock Prices as "Random Walks" | p. 290 |
Puzzle #1: Redux: The Boom and Bust of the U.S. Stock Market | p. 292 |
Summary | p. 293 |
Key Terms | p. 294 |
Questions for Review | p. 294 |
The Distribution of Income | p. 295 |
Pricing the Factors of Production | p. 297 |
The Principle of Marginal Productivity | p. 298 |
Inputs and Their Derived Demand Curves | p. 299 |
Investment, Capital, and Interest | p. 300 |
The Determination of Rent | p. 305 |
Payments to Entrepreneurship: Are Profits Too High or Too Low? | p. 311 |
Criticisms of Marginal Productivity Theory | p. 314 |
Summary | p. 315 |
Key Terms | p. 316 |
Questions for Review | p. 316 |
Discounting and Present Value | p. 316 |
Summary | p. 318 |
Key Terms | p. 318 |
Questions for Review | p. 318 |
Labor: The Human Input | p. 319 |
Issue: Do Cheap Foreign Labor and Technological Progress Contribute to Lagging Wages? | p. 321 |
Wage Determination in Competitive Labor Markets | p. 321 |
The Supply of Labor | p. 324 |
Why Do Wages Differ? | p. 328 |
Unions and Collective Bargaining | p. 334 |
Issue Revisited: Foreign Competition, Technology, and American Jobs: Are Union Fears Justified? | p. 340 |
Summary | p. 341 |
Key Terms | p. 341 |
Questions for Review | p. 341 |
Poverty, Inequality, and Discrimination | p. 343 |
Issue: Ending Welfare as We Knew It | p. 344 |
The Facts: Poverty | p. 344 |
The Facts: Inequality | p. 347 |
Some Reasons for Unequal Incomes | p. 349 |
The Facts: Discrimination | p. 351 |
The Economic Theory of Discrimination | p. 351 |
The Optimal Amount of Inequality | p. 354 |
The Trade-Off Between Equality and Efficiency | p. 354 |
Policies to Combat Poverty | p. 356 |
Other Policies to Combat Inequality | p. 359 |
Policies to Combat Discrimination | p. 360 |
A Look Back | p. 361 |
Summary | p. 361 |
Key Terms | p. 362 |
Questions for Review | p. 362 |
The Government and the Economy | p. 363 |
Limiting Market Power: Regulation and Antitrust | p. 365 |
The Public Interest Issue: Monopoly Power Versus Mere Size | p. 366 |
Regulation | p. 367 |
What is Regulation and Who Regulates What? | p. 367 |
Puzzle: Why Do Regulators Often Raise Prices? | p. 368 |
Some Objectives of Regulation | p. 368 |
Two Key Issues That Face Regulators | p. 372 |
The Pros and Cons of "Bigness" | p. 375 |
Deregulation | p. 376 |
The Puzzle Revisited: The Reason Why Regulators Often Push Prices Upward | p. 379 |
Antitrust Laws and Policies | p. 380 |
The Antitrust Laws | p. 380 |
Measuring Market Power: Concentration | p. 382 |
A Crucial Problem for Antitrust: The Resemblance of Monopolization and Vigorous Competition | p. 386 |
Anticompetitive Practices and Antitrust | p. 386 |
Mergers and Competition | p. 388 |
Use of Antitrust Laws to Prevent Competition | p. 390 |
Concluding Observations | p. 391 |
Summary | p. 391 |
Key Terms | p. 392 |
Questions for Review | p. 392 |
Taxation and Resource Allocation | p. 395 |
Issue: Was the 2001 Tax Cut Sound Policy? | p. 396 |
The Level and Types of Taxation | p. 396 |
The Federal Tax System | p. 398 |
The State and Local Tax System | p. 401 |
The Concept of Equity in Taxation | p. 402 |
The Concept of Efficiency in Taxation | p. 404 |
Shifting the Tax Burden: Tax Incidence | p. 406 |
When Taxation Can Improve Efficiency | p. 409 |
Equity, Efficiency, and the Optimal Tax | p. 410 |
Issue Revisited: The Pros and Cons of the Bush Tax Cuts | p. 410 |
Summary | p. 411 |
Key Terms | p. 412 |
Questions for Review | p. 412 |
Externalities, the Environment, and Natural Resources | p. 415 |
The Economics of Environmental Protection | p. 416 |
Externalities: A Critical Shortcoming of the Market Mechanism | p. 416 |
Supply-Demand Analysis of Environmental Externalities | p. 422 |
Basic Approaches to Environmental Policy | p. 423 |
Two Cheers for the Market | p. 428 |
The Economics of Natural Resources | p. 429 |
Puzzle: Those Resilient Resource Supplies | p. 431 |
Economic Analysis: The Free Market and Pricing of Depletable Resources | p. 431 |
Actual Resource Prices in the 20th Century | p. 433 |
Growing Reserves of Exhaustible Resources: The Puzzle Revisited | p. 437 |
Summary | p. 437 |
Key Terms | p. 438 |
Questions for Review | p. 438 |
International Trade and Comparative Advantage | p. 441 |
Issue: How Can Americans Compete with "Cheap Foreign Labor"? | p. 442 |
Why Trade? | p. 443 |
International Versus Intranational Trade | p. 444 |
The Law of Comparative Advantage | p. 445 |
Issue Resolved: Comparative Advantage Exposes the "Cheap Foreign Labor" Fallacy | p. 448 |
Supply, Demand, and Pricing in World Trade | p. 449 |
Tariffs, Quotas, and Other Interferences with Trade | p. 450 |
Why Inhibit Trade? | p. 454 |
Other Arguments for Protection | p. 455 |
Can Cheap Imports Hurt a Country? | p. 458 |
A Last Look at the "Cheap Foreign Labor" Argument | p. 458 |
Summary | p. 460 |
Key Terms | p. 460 |
Questions for Review | p. 460 |
Glossary | p. 461 |
Index | p. 470 |
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