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Preface | |
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Introduction to Economics | |
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The Scope and Method of Economics | |
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Why Study Economics? | |
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To Learn a Way of Thinking | |
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To Understand Society | |
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News Analysis: Economics and Global Affairs in 2005 | |
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To Understand Global Affairs | |
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To Be an Informed Voter | |
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The Scope of Economics | |
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Microeconomics and Macroeconomics | |
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The Diverse Fields of Economics | |
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Further Exploration: The Fields of Economics | |
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The Method of Economics | |
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Theories and Models | |
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Economic Policy | |
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An Invitation | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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How to Read and Understand Graphs | |
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The Economic Problem: Scarcity and Choice | |
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Scarcity, Choice, and Opportunity Cost | |
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Scarcity and Choice in a One-Person Economy | |
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News Analysis: Opportunity Costs and Internships | |
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Scarcity and Choice in an Economy of Two or More | |
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The Production Possibility Frontier | |
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Comparative Advantage and the Gains from Trade | |
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The Economic Problem | |
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Economic Systems | |
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Command Economies | |
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Laissez-Faire Economies: The Free Market | |
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Mixed Systems, Markets, and Governments | |
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Looking Ahead | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Demand, Supply, and Market Equilibrium | |
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Firms and Households: The Basic Decision-Making Units | |
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Input Markets and Output Markets: The Circular Flow | |
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Demand in Product/Output Markets | |
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Changes in Quantity Demanded Versus Changes in Demand | |
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Price and Quantity Demanded: The Law of Demand | |
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Other Determinants of Household Demand | |
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Shift of Demand versus Movement Along a Demand Curve | |
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From Household Demand to Market Demand | |
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Supply in Product/Output Markets | |
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Price and Quantity Supplied: The Law of Supply | |
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Other Determinants of Supply | |
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Shift of Supply versus Movement along a Supply Curve | |
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From Individual Supply to Market Supply | |
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Market Equilibrium | |
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Excess Demand | |
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Excess Supply | |
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Changes in Equilibrium | |
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Demand and Supply in Product Markets: A Review | |
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Looking Ahead: Markets and the Allocation of Resources | |
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News Analysis: Mad Cow Disease Cuts Demand for Cattle in 2005 | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Demand and Supply Applications | |
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The Price System: Rationing and Allocating Resources | |
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Price Rationing | |
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Constraints on the Market and Alternative Rationing Mechanisms | |
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News Analysis: Hurricane Katrina and Gasoline Prices in 2005 | |
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Prices and the Allocation of Resources | |
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Price Floors | |
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Supply and Demand Analysis: An Oil Import Fee | |
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Supply and Demand and Market Efficiency | |
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Consumer Surplus | |
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Producer Surplus | |
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Competitive Markets Maximize the Sum of Producer and Consumer Surplus | |
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Potential Causes of Deadweight Loss from Under- and Overproduction | |
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Further Exploration: The Drug Wars: A Matter of Supply and Demand | |
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Looking Ahead | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Elasticity | |
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Price Elasticity of Demand | |
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Slope and Elasticity | |
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Types of Elasticity | |
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News Analysis: Elasticity of Supply and House Prices | |
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Calculating Elasticities | |
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Calculating Percentage Changes | |
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Elasticity Is a Ratio of Percentages | |
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The Midpoint Formula | |
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Elasticity Changes along a Straight-Line Demand Curve | |
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Elasticity and Total Revenue | |
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The Determinants of Demand Elasticity | |
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Availability of Substitutes | |
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The Importance of Being Unimportant | |
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Further Exploration: London Newspapers and New York Restaurants Learn about Elasticity | |
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The Time Dimension | |
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Other Important Elasticities | |
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Income Elasticity of Demand | |
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Cross-Price Elasticity of Demand | |
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Elasticity of Supply | |
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Looking Ahead | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Point Elasticity (Optional) | |
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Foundations of Microeconomics: Consumers and Firms | |
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Household Behavior and Consumer Choice | |
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Household Choice in Output Markets | |
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The Determinants of Household Demand | |
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The Budget Constraint | |
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Further Exploration: Opportunity Costs-Then and Now | |
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The Equation of the Budget Constraint | |
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The Basis of Choice: Utility | |
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Diminishing Marginal Utility | |
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Allocating Income to Maximize Utility | |
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The Utility-Maximizing Rule | |
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Diminishing Marginal Utility and Downward-Sloping Demand | |
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Income and Substitution Effects | |
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The Income Effect | |
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News Analysis: Marginal Utility and the Capacity to Consume | |
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The Substitution Effect | |
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Consumer Surplus | |
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Household Choice in Input Markets | |
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The Labor Supply Decision | |
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The Price of Leisure | |
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Income and Substitution Effects of a Wage Change | |
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Saving and Borrowing: Present Versus Future Consumption | |
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A Review: Households in Output and Input Markets | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Indifference Curves | |
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The Production Process: The Behavior of Profit-Maximizing Firms | |
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The Behavior of Profit-Maximizing Firms | |
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Profits and Economic Costs | |
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News Analysis: An Idea, a Firm, and Profits in 2005 | |
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Short-Run versus Long-Run Decisions | |
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The Bases of Decisions: Market Price of Outputs, Available Technology, and Input Prices | |
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The Production Process | |
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Production Functions: Total Product, Marginal Product, and Average Product | |
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Production Functions with Two Variable Factors of Production | |
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Choice of Technology | |
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News Analysis: Increasing Substitution of Capital for Labor Raises Labor Productivity | |
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Looking Ahead: Cost and Supply | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Isoquants and Iscosts | |
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Short-Run Costs and Output Decisions | |
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Costs in the Short Run | |
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Fixed Costs | |
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Variable Costs | |
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Total Costs | |
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Short-Run Costs: A Review | |
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Output Decisions: Revenues, Costs, and Profit Maximization | |
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Total Revenue (TR) and Marginal Revenue (MR) | |
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Comparing Costs and Revenues to Maximize Profit | |
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Further Exploration: Case Study in Marginal Analysis: An Ice Cream Parlor | |
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The Short-Run Supply Curve | |
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Looking Ahead | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Long-Run Costs and Output Decisions | |
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Short-Run Conditions and Long-Run Directions | |
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Maximizing Profits | |
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Minimizing Losses | |
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The Short-Run Industry Supply Curve | |
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Long-Run Directions: A Review | |
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Long-Run Costs: Economies and Diseconomies of Scale | |
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Increasing Returns to Scale | |
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Further Exploration: Why Small Farmers Have Trouble Competing: Economies of Scale in Agriculture | |
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Constant Returns to Scale | |
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News Analysis: Economies of Scale in Banking, 2005 | |
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Decreasing Returns to Scale | |
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Long-Run Adjustments to Short-Run Conditions | |
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Short-Run Profits: Expansion to Equilibrium | |
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Short-Run Losses: Contraction to Equilibrium | |
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The Long-Run Adjustment Mechanism: Investment Flows Toward Profit Opportunities | |
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Further Exploration The Long-Run Average Cost Curve: Flat or U-Shaped | |
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Output Markets: A Final Word | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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External Economies and Diseconomies and the Long-Run Industry Supply Curve | |
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Input Demand: The Labor and Land Markets | |
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Input Markets: Basic Concepts | |
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Demand for Inputs: A Derived Demand | |
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Inputs: Complementary and Substitutable | |
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Diminishing Returns | |
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Marginal Revenue Product | |
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Labor Markets | |
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A Firm Using Only One Variable Factor of Production: Labor | |
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News Analysis: Baseball Salaries and Marginal Revenue Product in 2005 | |
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A Firm Employing Two Variable Factors of Production in the Short and Long Run | |
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Many Labor Markets | |
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Land Markets | |
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Rent and the Value of Output Produced on Land | |
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The Firm's Profit-Maximization Condition in Input Markets | |
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Input Demand Curves | |
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Shifts in Factor Demand Curves | |
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Resource Allocation and the Mix of Output in Competitive Markets | |
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The Distribution of Income | |
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Looking Ahead | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Input Demand: The Capital Market and the Investment Decision | |
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Capital, Investment, and Depreciation | |
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Capital | |
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Investment and Depreciation | |
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The Capital Market | |
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Capital Income: Interest and Profits | |
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Financial Markets in Action | |
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Capital Accumulation and Allocation | |
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News Analysis: Putting Their Money Where the Future Is in 2005 | |
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The Demand for New Capital and the Investment Decision | |
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Forming Expectations | |
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Comparing Costs and Expected Return | |
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A Final Word on Capital | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Calculating Present Value | |
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General Equilibrium and the Efficiency of Perfect Competition | |
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General Equilibrium Analysis | |
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An Early Technological Advance: The Electronic Calculator | |
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News Analysis: The Dot-Com Bust and the Labor Market: 2003 | |
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Market Adjustment to Changes in Demand | |
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Formal Proof of a General Competitive Equilibrium | |
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Allocative Efficiency and Competitive Equilibrium | |
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Pareto Efficiency | |
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The Efficiency of Perfect Competition | |
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Perfect Competition versus Real Markets | |
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The Sources of Market Failure | |
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Imperfect Markets | |
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Public Goods | |
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Externalities | |
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Imperfect Information | |
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Evaluating the Market Mechanism | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Market Imperfections and the Role of Government | |
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Monopoly and Antitrust Policy | |
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Imperfect Competition and Market Power: Core Concepts | |
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Defining Industry Boundaries | |
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Barriers to Entry | |
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Price: The Fourth Decision Variable | |
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News Analysis: The Drug Wars in 2005 | |
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Price and Output Decisions in Pure Monopoly Markets | |
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Demand in Monopoly Markets | |
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Perfect Competition and Monopoly Compared | |
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Collusion and Monopoly Compared | |
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The Social Costs of Monopoly | |
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Inefficiency and Consumer Loss | |
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Rent-Seeking Behavior | |
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Price Discrimination | |
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Examples of Price Discrimination | |
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Remedies for Monopoly: Antitrust Policy | |
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The Development of Antitrust Law: Historical Background | |
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Landmark Antitrust Legislation | |
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The Enforcement of Antitrust Law | |
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Initiating Antitrust Actions | |
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Sanctions and Remedies | |
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News Analysis: Price-Fixing Cases in 2005 | |
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A Natural Monopoly | |
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Do Natural Monopolies Still Exist? | |
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News Analysis: From a Natural Monopoly to Near-Perfect Competition | |
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Imperfect Markets: A Review and A Look Ahead | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Monopolistic Competition and Oligopoly | |
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Monopolistic Competition | |
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Product Differentiation, Advertising, and Social Welfare | |
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Price and Output Determination in Monopolistic Competition | |
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Economic Efficiency and Resource Allocation | |
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Oligopoly | |
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Oligopoly Models | |
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Further Exploration: Regulation of Mergers by the Department of Justice and the Federal Trade Commission | |
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Game Theory | |
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Repeated Games | |
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A Game with Many Players: Collective Action Can Be Blocked by a Prisoners' Dilemma | |
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Contestable Markets | |
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Oligopoly and Economic Performance | |
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Industrial Concentration and Technological Change | |
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The Role of Government | |
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Regulation of Mergers | |
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News Analysis: Footwear Giant Adidas Buys Reebok in 2005 | |
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A Proper Role? | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Externalities, Public Goods, Imperfect Information, and Social Choice | |
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Externalities and Environmental Economics | |
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Marginal Social Cost and Marginal-Cost Pricing | |
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Private Choices and External Effects | |
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Internalizing Externalities | |
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News Analysis: Externalities Are All Around Us | |
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Further Exploration: Global Warming: A Global Externality? | |
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Public (Social) Goods | |
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The Characteristics of Public Goods | |
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Income Distribution As a Public Good? | |
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Public Provision of Public Goods | |
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Optimal Provision of Public Goods | |
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Local Provision of Public Goods: Tiebout Hypothesis | |
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Mixed Goods | |
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Imperfect Information | |
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Adverse Selection: Asymmetric Information | |
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Moral Hazard | |
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Market Solutions | |
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Government Solutions | |
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Social Choice | |
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The Voting Paradox | |
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Government Inefficiency: Theory of Public Choice | |
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Rent-Seeking Revisited | |
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Government and the Market | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Income Distribution and Poverty | |
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The Utility Possibilities Frontier | |
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The Sources of Household Income | |
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Wages and Salaries | |
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Income from Property | |
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Income from the Government: Transfer Payments | |
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The Distribution of Income | |
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Income Inequality in the United States | |
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Poverty | |
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The Distribution of Wealth | |
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News Analysis: Hunger in the United States in 2003 | |
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The Redistribution Debate | |
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Arguments against Redistribution | |
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Arguments in Favor of Redistribution | |
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Redistribution Programs and Policies | |
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Financing Redistribution Programs: Taxes | |
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Expenditure Programs | |
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News Analysis: The Lack of Health Care Insurance | |
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How Effective Are Antipoverty Programs? | |
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Government or the Market? A Review | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Public Finance: The Economics of Taxation | |
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The Economics of Taxation | |
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Taxes: Basic Concepts | |
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Tax Equity | |
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What is the "Best" Tax Base? | |
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The Gift and Estate Tax | |
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Tax Incidence: Who Pays? | |
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The Incidence of Payroll Taxes | |
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The Incidence of Corporate Profits Taxes | |
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The Overall Incidence of Taxes in the United States: Empirical Evidence | |
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Excess Burdens and the Principle of Neutrality | |
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How Do Excess Burdens Arise? | |
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The Principle of Second Best | |
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News Analysis: President Bush's Advisory Panel on Federal Tax Reform | |
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Measuring Excess Burdens | |
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Excess Burdens and the Degree of Distortion | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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The World Economy | |
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International Trade, Comparative Advantage, and Protectionism | |
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Trade Surpluses and Deficits | |
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The Economic Basis for Trade: Comparative Advantage | |
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Absolute Advantage versus Comparative Advantage | |
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Terms of Trade | |
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Exchange Rates | |
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The Sources of Comparative Advantage | |
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The Heckscher-Ohlin Theorem | |
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Other Explanations for Observed Trade Flows | |
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Trade Barriers: Tariffs, Export Subsidies, and Quotas | |
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News Analysis: New Trade Agreement with Central America and the Dominican Republic-2005 | |
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Free Trade or Protection? | |
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The Case for Free Trade | |
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The Case for Protection | |
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Further Exploration: A Petition | |
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An Economic Consensus | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Globalization | |
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The Global Circular Flow | |
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A Brief History of Economic Globalization | |
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The Benefits and Costs of Globalization | |
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The Free-Trade Debate Revisited | |
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Trade, Growth, and Poverty | |
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The Globalization of Labor Markets: The Economics of Immigration and Outsourcing | |
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Capital Mobility | |
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News Analysis: Outsourcing Is Not Just Customer Service Reps in India | |
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Public Policy and Globalization | |
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Global Externalities and Public Goods | |
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Nongovernmental Organizations and International Economics: The Washington Consensus | |
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Globalization, Capitalism, and Democracy | |
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A Final Word | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Economic Growth in Developing and Transitional Economies | |
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Life in the Developing Nations: Population and Poverty | |
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Economic Development: Sources and Strategies | |
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The Sources of Economic Development | |
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Strategies for Economic Development | |
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News Analysis: Trade and Development in Africa-2003 | |
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Growth versus Development: The Policy Cycle | |
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Issues in Economic Development | |
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Population Growth | |
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Developing-Country Debt Burdens | |
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Economies in Transition | |
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Political Systems and Economic Systems: Socialism, Capitalism, and Communism | |
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Central Planning versus The Market | |
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The End of the Soviet Union | |
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The Transition to a Market Economy | |
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Six Basic Requirements for Successful Transition | |
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News Analysis: Russia's Economy in 2005 | |
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Summary | |
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Review Terms and Concepts | |
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Problem Set | |
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Glossary | |
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Solutions to Even-Numbered Problems | |
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Index | |
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Photo Credits | |