Contents
Preface: To the Student iii
Part I Introduction 1(1)
Chapter 1
Ten Principles of Economics 3(3)
1-1 How People Make Decisions 4(4)
1-1a Principle 1: People Face Trade-offs 4(4)
1-1b Principle 2: The Cost of Something
Is What You Give Up to Get It 5(5)
1-1c Principle 3: Rational People Think at the Margin 6(6)
1-1d Principle 4: People Respond to Incentives 7(7)
1-2 How People Interact 8(8)
1-2a Principle 5: Trade Can Make Everyone Better Off 8(8)
1-2b Principle 6: Markets Are Usually a Good Way to
Organize Economic Activity 9(9)
FYI: Adam Smith and the Invisible Hand 10(10)
Case Study: Adam Smith Would Have Loved Uber 11(11)
1-2c Principle 7: Governments Can Sometimes
Improve Market Outcomes 11(11)
1-3 How the Economy as a Whole Works 13(13)
1-3a Principle 8: A Country¡¯s Standard of Living Depends
on Its Ability to Produce Goods and Services 13(13)
1-3b Principle 9: Prices Rise When the Government
Prints Too Much Money 13(13)
1-3c Principle 10: Society Faces a Short-Run Trade-off
between Inflation and Unemployment 14(14)
1-4 Conclusion 15(15)
Summary 16(16)
Key Concepts 16(16)
Questions for Review 16(16)
Problems and Applications 17(17)
Chapter 2
Thinking Like an Economist 19(19)
2-1 The Economist as Scientist 20(20)
2-1a The Scientific Method: Observation,
Theory, and More Observation 20(20)
2-1b The Role of Assumptions 21(21)
2-1c Economic Models 22(22)
2-1d Our First Model: The Circular-Flow Diagram 22(22)
2-1e Our Second Model: The Production Possibilities Frontier 24(24)
2-1f Microeconomics and Macroeconomics 26(26)
2-2 The Economist as Policy Adviser 27(17)
2-2a Positive versus Normative Analysis 27(27)
2-2b Economists in Washington 28(28)
2-2c Why Economists¡¯ Advice Is Not Always Followed 29(29)
2-3 Why Economists Disagree 30(30)
2-3a Differences in Scientific Judgments 30(30)
2-3b Differences in Values 30(30)
2-3c Perception versus Reality 31(31)
ask the experts: Ticket Resale 32(32)
2-4 Let¡¯s Get Going 32(32)
In The News: Why You Should Study Economics 33(33)
Summary 34(34)
Key Concepts 34(34)
Questions for Review 35(35)
Problems and Applications 35(35)
Appendix Graphing: A Brief Review 37(37)
Chapter 3
Interdependence and the Gains
from Trade 47(47)
3-1 A Parable for the Modern Economy 48(48)
3-1a Production Possibilities 49(49)
3-1b Specialization and Trade 50(50)
3-2 Comparative Advantage: The Driving Force
of Specialization 52(52)
3-2a Absolute Advantage 52(52)
3-2b Opportunity Cost and Comparative Advantage 52(52)
3-2c Comparative Advantage and Trade 53(53)
3-2d The Price of the Trade 54(54)
FYI: The Legacy of Adam Smith and David Ricardo 55(55)
3-3 Applications of Comparative Advantage 55(55)
3-3a Should Serena Williams Mow Her Own Lawn 55(55)
In The News: Economics within a Marriage 56(56)
3-3b Should the United States Trade with Other Countries 56(56)
ask the experts: Trade between China and
the United States 58(58)
3-4 Conclusion 58(58)
Summary 59(59)
Key Concepts 59(59)
Questions for Review 60(60)
Problems and Applications 60(60)
Part II How Markets
Work 63(63)
Chapter 4
The Market Forces of Supply and
Demand 65(65)
4-1 Markets and Competition 66(66)
4-1a What Is a Market 66(66)
4-1b What Is Competition 66(66)
4-2 Demand 67(67)
4-2a The Demand Curve: The Relationship between
Price and Quantity Demanded 67(67)
4-2b Market Demand versus Individual Demand 68(68)
4-2c Shifts in the Demand Curve 69(69)
Case Study: Two Ways to Reduce the Quantity of Smoking Demanded 71(71)
4-3 Supply 73(73)
4-3a The Supply Curve: The Relationship between Price
and Quantity Supplied 73(73)
4-3b Market Supply versus Individual Supply 74(74)
4-3c Shifts in the Supply Curve 75(75)
4-4 Supply and Demand Together 76(76)
4-4a Equilibrium 76(76)
4-4b Three Steps to Analyzing Changes in Equilibrium 78(78)
4-5 Conclusion: How Prices Allocate Resources 83(83)
ask the experts: Price Gouging 83(83)
In The News: Price Increases after Disasters 84(84)
Summary 86(86)
Key Concepts 86(86)
Questions for Review 87(87)
Problems and Applications 87(87)
Chapter 5
Elasticity and Its Application 89(89)
5-1 The Elasticity of Demand 90(90)
5-1a The Price Elasticity of Demand and Its Determinants 90(90)
5-1b Computing the Price Elasticity of Demand 91(91)
5-1c The Midpoint Method: A Better Way to Calculate
Percentage Changes and Elasticities 92(92)
5-1d The Variety of Demand Curves 93(93)
FYI: A Few Elasticities from the Real World 93(93)
5-1e Total Revenue and the Price Elasticity of Demand 95(95)
5-1f Elasticity and Total Revenue along a Linear
Demand Curve 96(96)
5-1g Other Demand Elasticities 98(98)
5-2 The Elasticity of Supply 99(99)
5-2a The Price Elasticity of Supply and Its Determinants 99(99)
5-2b Computing the Price Elasticity of Supply 99(99)
5-2c The Variety of Supply Curves 100(100)
5-3 Three Applications of Supply, Demand, and Elasticity 102(102)
5-3a Can Good News for Farming Be Bad News for
Farmers 102(102)
5-3b Why Did OPEC Fail to Keep the Price of Oil High 104(104)
5-3c Does Drug Interdiction Increase or Decrease
Drug-Related Crime 105(105)
5-4 Conclusion 107(107)
Summary 108(108)
Key Concepts 108(108)
Questions for Review 109(109)
Problems and Applications 109(109)
Chapter 6
Supply, Demand, and Government Policies 111(111)
6-1 Controls on Prices 112(112)
6-1a How Price Ceilings Affect Market Outcomes 112(112)
Case Study: Lines at the Gas Pump 114(114)
Case Study: Rent Control in the Short Run and the Long Run 115(115)
6-1b How Price Floors Affect Market Outcomes 116(116)
ask the experts: Rent Control 116(116)
Case Study: The Minimum Wage 118(118)
ask the experts: The Minimum Wage 119(119)
6-1c Evaluating Price Controls 120(120)
6-2 Taxes 120(120)
6-2a How Taxes on Sellers Affect Market Outcomes 121(121)
6-2b How Taxes on Buyers Affect Market Outcomes 122(122)
Case Study: Can Congress Distribute the Burden
of a Payroll Tax 124(124)
6-2c Elasticity and Tax Incidence 124(124)
Case Study: Who Pays the Luxury Tax 126(126)
6-3 Conclusion 127(127)
Summary 128(128)
Key Concepts 128(128)
Questions for Review 128(128)
Problems and Applications 129(129)
Part III Markets and
Welfare 131(131)
Chapter 7
Consumers, Producers, and the Efficiency of Markets 133(133)
7-1 Consumer Surplus 134(134)
7-1a Willingness to Pay 134(134)
7-1b Using the Demand Curve to Measure Consumer
Surplus 135(135)
7-1c How a Lower Price Raises Consumer Surplus 136(136)
7-1d What Does Consumer Surplus Measure 137(137)
7-2 Producer Surplus 139(139)
7-2a Cost and the Willingness to Sell 139(139)
7-2b Using the Supply Curve to Measure Producer Surplus 140(140)
7-2c How a Higher Price Raises Producer Surplus 141(141)
7-3 Market Efficiency 142(142)
7-3a The Benevolent Social Planner 143(143)
7-3b Evaluating the Market Equilibrium 144(144)
IN the News: The Invisible Hand Can Park Your Car 146(146)
Case Study: Should There Be a Market for Organs 147(147)
ask the experts: Supplying Kidneys 148(148)
7-4 Conclusion: Market Efficiency and Market Failure 148(148)
Summary 150(150)
Key Concepts 150(150)
Questions for Review 150(150)
Problems and Applications 150(150)
Chapter 8
Application: The Costs of Taxation 153(153)
8-1 The Deadweight Loss of Taxation 154(154)
8-1a How a Tax Affects Market Participants 155(155)
8-1b Deadweight Losses and the Gains from Trade 157(157)
8-2 The Determinants of the Deadweight Loss 158(158)
Case Study: The Deadweight Loss Debate 160(160)
8-3 Deadweight Loss and Tax Revenue as Taxes Vary 161(161)
Case Study: The Laffer Curve and Supply-Side
Economics 162(162)
ask the experts: The Laffer Curve 163(163)
8-4 Conclusion 164(164)
Summary 165(165)
Key Concept 165(165)
Questions for Review 165(165)
Problems and Applications 165(165)
Chapter 9
Application: International Trade 167(167)
9-1 The Determinants of Trade 168(168)
9-1a The Equilibrium without Trade 168(168)
9-1b The World Price and Comparative Advantage 169(169)
9-2 The Winners and Losers from Trade 170(170)
9-2a The Gains and Losses of an Exporting Country 170(170)
9-2b The Gains and Losses of an Importing Country 171(171)
9-2c Effects of a Tariff 173(173)
FYI: Import Quotas: Another Way to Restrict Trade 175(175)
9-2d The Lessons for Trade Policy 175(175)
9-2e Other Benefits of International Trade 176(176)
IN the News: Trade as a Tool for Economic Development 177(177)
9-3 The Arguments for Restricting Trade 178(178)
9-3a The Jobs Argument 178(178)
IN the News: Should the Winners from Free Trade -Compensate the Losers 179(179)
9-3b The National-Security Argument 180(180)
9-3c The Infant-Industry Argument 180(180)
9-3d The Unfair-Competition Argument 181(181)
9-3e The Protection-as-a-Bargaining-Chip Argument 181(181)
Case Study: Trade Agreements and the World Trade Organization 181(181)
ask the experts: Trade Deals 182(182)
9-4 Conclusion 182(182)
Summary 184(184)
Key Concepts 184(184)
Questions for Review 184(184)
Problems and Applications 185(185)
Part IV The Economics of the Public Sector 187(187)
Chapter 10
Externalities 189(189)
10-1 Externalities and Market Inefficiency 191(191)
10-1a Welfare Economics: A Recap 191(191)
10-1b Negative Externalities 192(192)
10-1c Positive Externalities 193(193)
Case Study: Technology Spillovers, Industrial Policy,
and Patent Protection 194(194)
10-2 Public Policies toward Externalities 195(195)
10-2a Command-and-Control Policies: Regulation 195(195)
10-2b Market-Based Policy 1: Corrective Taxes and
Subsidies 196(196)
ASK THE EXPERTS: Vaccines 196(196)
Case Study: Why Is Gasoline Taxed So Heavily 197(197)
IN the News: What Should We Do about Climate
Change 199(199)
10-2c Market-Based Policy 2: Tradable Pollution
Permits 200(200)
ASK THE EXPERTS: Carbon Taxes 200(200)
10-2d Objections to the Economic Analysis of Pollution 202(202)
10-3 Private Solutions to Externalities 202(202)
10-3a The Types of Private Solutions 202(202)
10-3b The Coase Theorem 203(203)
10-3c Why Private Solutions Do Not Always Work 204(204)
IN the News: The Coase Theorem in Action 205(205)
10-4 Conclusion 206(206)
Summary 207(207)
Key Concepts 207(207)
Questions for Review 207(207)
Problems and Applications 208(208)
Chapter 11
Public Goods and Common
Resources 211(211)
11-1 The Different Kinds of Goods 212(212)
11-2 Public Goods 214(214)
11-2a The Free-Rider Problem 214(214)
11-2b Some Important Public Goods 214(214)
Case Study: Are Lighthouses Public Goods 216(216)
11-2c The Difficult Job of Cost¨CBenefit Analysis 216(216)
Case Study: How Much Is a Life Worth 217(217)
11-3 Common Resources 218(218)
11-3a The Tragedy of the Commons 218(218)
11-3b Some Important Common Resources 219(219)
ask the experts: Congesting Pricing 219(219)
IN the News: The Case for Toll Roads 220(220)
Case Study: Why the Cow Is Not Extinct 222(222)
11-4 Conclusion: The Importance of Property Rights 223(223)
Summary 224(224)
Key Concepts 224(224)
Questions for Review 224(224)
Problems and Applications 224(224)
Part V Firm Behavior and the Organization of Industry 227(245)
Chapter 13
The Costs of Production 229(247)
13-1 What Are Costs 230(248)
13-1a Total Revenue, Total Cost, and Profit 230(248)
13-1b Costs as Opportunity Costs 231(249)
13-1c The Cost of Capital as an Opportunity Cost 231(249)
13-1d Economic Profit versus Accounting Profit 232(250)
13-2 Production and Costs 233(251)
13-2a The Production Function 233(251)
13-2b From the Production Function to the Total-Cost
Curve 235(253)
13-3 The Various Measures of Cost 236(254)
13-3a Fixed and Variable Costs 237(255)
13-3b Average and Marginal Cost 255(237)
13-3c Cost Curves and Their Shapes 238(256)
13-3d Typical Cost Curves 240(258)
13-4 Costs in the Short Run and in the Long Run 241(259)
13-4a The Relationship between Short-Run and Long-Run Average Total Cost 242(260)
13-4b Economies and Diseconomies of Scale 243(261)
FYI: Lessons from a Pin Factory 243(261)
13-5 Conclusion 244(262)
Summary 245(263)
Key Concepts 246(264)
Questions for Review 246(264)
Problems and Applications 246(264)
Chapter 14
Firms in Competitive Markets 249(267)
14-1 What Is a Competitive Market 250(268)
14-1a The Meaning of Competition 250(268)
14-1b The Revenue of a Competitive Firm 251(269)
14-2 Profit Maximization and the Competitive Firm¡¯s
Supply Curve 252(270)
14-2a A Simple Example of Profit Maximization 252(270)
14-2b The Marginal-Cost Curve and the Firm¡¯s Supply
Decision 253(271)
14-2c The Firm¡¯s Short-Run Decision to Shut Down 255(273)
14-2d Spilt Milk and Other Sunk Costs 257(275)
Case Study: Near-Empty Restaurants and Off-Season Miniature Golf 257(275)
14-2e The Firm¡¯s Long-Run Decision to Exit or Enter a
Market 258(276)
14-2f Measuring Profit in Our Graph for the Competitive
Firm 259(277)
14-3 The Supply Curve in a Competitive Market 261(279)
14-3a The Short Run: Market Supply with a Fixed Number
of Firms 261(279)
14-3b The Long Run: Market Supply with Entry
and Exit 261(279)
14-3c Why Do Competitive Firms Stay in Business
If They Make Zero Profit 262(280)
14-3d A Shift in Demand in the Short Run and
Long Run 263(281)
14-3e Why the Long-Run Supply Curve Might Slope
Upward 264(282)
14-4 Conclusion: Behind the Supply Curve 266(284)
Summary 267(285)
Key Concepts 267(285)
Questions for Review 267(285)
Problems and Applications 268(286)
Chapter 15
Monopoly 271(289)
15-1 Why Monopolies Arise 272(290)
15-1a Monopoly Resources 273(291)
15-1b Government-Created Monopolies 273(291)
15-1c Natural Monopolies 274(292)
15-2 How Monopolies Make Production and Pricing
Decisions 275(293)
15-2a Monopoly versus Competition 275(293)
15-2b A Monopoly¡¯s Revenue 276(294)
15-2c Profit Maximization 278(296)
15-2d A Monopoly¡¯s Profit 280(298)
FYI: Why a Monopoly Does Not Have a Supply Curve 280(298)
Case Study: Monopoly Drugs versus Generic Drugs 281(299)
15-3 The Welfare Cost of Monopolies 282(300)
15-3a The Deadweight Loss 283(301)
15-3b The Monopoly¡¯s Profit: A Social Cost 285(303)
15-4 Price Discrimination 285(303)
15-4a A Parable about Pricing 286(304)
15-4b The Moral of the Story 287(305)
15-4c The Analytics of Price Discrimination 287(305)
15-4d Examples of Price Discrimination 288(306)
IN the News: Price Discrimination in Higher
Education 290(308)
15-5 Public Policy toward Monopolies 290(308)
15-5a Increasing Competition with Antitrust Laws 290(308)
15-5b Regulation 291(309)
ask the experts: Airline Mergers 291(309)
15-5c Public Ownership 292(310)
15-5d Doing Nothing 293(311)
15-6 Conclusion: The Prevalence of Monopolies 293(311)
Summary 295(313)
Key Concepts 295(313)
Questions for Review 296(314)
Problems and Applications 296(314)
Chapter 16
Monopolistic Competition 301(319)
16-1 Between Monopoly and Perfect Competition 302(320)
16-2 Competition with Differentiated Products 304(322)
16-2a The Monopolistically Competitive Firm in the
Short Run 304(322)
16-2b The Long-Run Equilibrium 305(323)
16-2c Monopolistic versus Perfect Competition 306(324)
16-2d Monopolistic Competition and the Welfare of
Society 309(327)
16-3 Advertising 310(328)
16-3a The Debate over Advertising 310(328)
Case Study: Advertising and the Price of Eyeglasses 311(329)
16-3b Advertising as a Signal of Quality 312(330)
16-3c Brand Names 313(331)
16-4 Conclusion 314(332)
Summary 315(333)
Key Concepts 316(334)
Questions for Review 316(334)
Problems and Applications 316(334)
Chapter 17
Oligopoly 319(337)
17-1 Markets with Only a Few Sellers 320(338)
17-1a A Duopoly Example 320(338)
17-1b Competition, Monopolies, and Cartels 321(339)
17-1c The Equilibrium for an Oligopoly 322(340)
17-1d How the Size of an Oligopoly Affects the Market Outcome 323(341)
ASK THE EXPERTS: Nash Equilibrium 323(341)
17-2 The Economics of Cooperation 324(342)
17-2a The Prisoners¡¯ Dilemma 325(343)
17-2b Oligopolies as a Prisoners¡¯ Dilemma 326(344)
Case Study: OPEC and the World Oil Market 327(345)
17-2c Other Examples of the Prisoners¡¯ Dilemma 328(346)
17-2d The Prisoners¡¯ Dilemma and the Welfare of Society 329(347)
17-2e Why People Sometimes Cooperate 330(348)
Case Study: The Prisoners¡¯ Dilemma Tournament 330(348)
17-3 Public Policy toward Oligopolies 331(349)
17-3a Restraint of Trade and the Antitrust Laws 331(349)
Case Study: An Illegal Phone Call 332(350)
17-3b Controversies over Antitrust Policy 332(350)
Case Study: The Microsoft Case 334(352)
IN the News: Europe versus Google 336(354)
17-4 Conclusion 336(354)
Summary 337(355)
Key Concepts 338(356)
Questions for Review 338(356)
Problems and Applications 338(356)
Part VI The Economics
of Labor Markets 341(359)
Chapter 18
The Markets for the Factors
of Production 343(361)
18-1 The Demand for Labor 344(362)
18-1a The Competitive Profit-Maximizing Firm 345(363)
18-1b The Production Function and the Marginal Product of Labor 345(363)
18-1c The Value of the Marginal Product and the Demand for Labor 347(365)
18-1d What Causes the Labor-Demand Curve to Shift 348(366)
FYI: Input Demand and Output Supply: Two Sides
of the Same Coin 349(367)
18-2 The Supply of Labor 350(368)
18-2a The Trade-off between Work and Leisure 350(368)
18-2b What Causes the Labor-Supply Curve to Shift 350(368)
ASK THE EXPERTS: Immigration 351(369)
18-3 Equilibrium in the Labor Market 351(369)
18-3a Shifts in Labor Supply 352(370)
18-3b Shifts in Labor Demand 352(371)
IN the News: The Economics of Immigration 354(372)
Case Study: Productivity and Wages 355(373)
FYI: Monopsony 356(374)
18-4 The Other Factors of Production: Land and Capital 357(375)
18-4a Equilibrium in the Markets for Land and Capital 357(375)
FYI: What Is Capital Income 358(376)
18-4b Linkages among the Factors of Production 359(377)
Case Study: The Economics of the Black Death 359(377)
18-5 Conclusion 360(378)
Summary 361(379)
Key Concepts 361(379)
Questions for Review 361(379)
Problems and Applications 362(380)
Chapter 19
Earnings and Discrimination 365(383)
19-1 Some Determinants of Equilibrium Wages 366(384)
19-1a- Compensating Differentials 366(384)
19-1b- Human Capital 367(385)
Case Study: The Increasing Value of Skills 367(385)
ASK THE EXPERTS: Inequality and Skills 368(386 )
IN the News: Schooling as a Public Investment 369(387)
19-1c- Ability, Effort, and Chance 370(388)
Case Study: The Benefits of Beauty 370(388)
19-1d- An Alternative View of Education: Signaling 371(389)
19-1e The Superstar Phenomenon 372(390)
19-1f- Above-Equilibrium Wages: Minimum-Wage Laws, Unions, and Efficiency Wages 372(390)
19-2 The Economics of Discrimination 373(391)
19-2a- Measuring Labor-Market Discrimination 373(391)
Case Study: Is Emily More Employable than
Lakisha 375(393)
19-2b- Discrimination by Employers 375(393)
19-2c- Discrimination by Customers and
Governments 376(394)
19-3 Conclusion 377(395)
Summary 378(396)
Key Concepts 378(396)
Questions for Review 378(396)
Problems and Applications 379(397)
