Microeconomics- Private and Public Choice

Description

Cover......Page 1 Brief Contents......Page 6 Contents......Page 7 Preface......Page 16 Acknowledgments......Page 21 About the Authors......Page 23 Part 1: The Economic Way of Thinking......Page 24 Chapter 1: The Economic Approach......Page 25 1-1 What Is Economics About......Page 27 1-1a Scarcity and Poverty Are Not the Same......Page 28 1-1c The Method of Rationing Influences the Nature of Competition......Page 29 1-2a Eight Guideposts to Economic Thinking......Page 30 1-4a Violation of the Ceteris Paribus Condition Can Lead One to Draw the Wrong Conclusion......Page 36 1-4b Good Intentions Do Not Guarantee Desirable Outcomes......Page 37 1-4d The Fallacy of Composition: What’s True for One Might Not Be True for All......Page 38 Critical Analysis Questions......Page 39 Chapter 2: Some Tools of the Economist......Page 41 2-1a Opportunity Cost......Page 42 2-1b Opportunity Cost and the Real World......Page 43 2-2 Trade Creates Value......Page 44 2-2b The Middleman as a Cost Reducer......Page 45 2-3 The Importance of Property Rights......Page 46 2-3a Private Ownership and Markets......Page 49 2-4 Production Possibilities Curve......Page 51 2-4a Shifting the Production Possibilities Curve Outward......Page 53 2-4b Production Possibilities and Economic Growth......Page 55 2-5a Gains from Specialization and Division of Labor......Page 56 2-5c Gains from Innovation......Page 57 2-6 Human Ingenuity and the Creation of Wealth......Page 58 2-7b Political Organization......Page 59 Key Points......Page 60 Critical Analysis Questions......Page 61 Comparative Advantage, Specialization, and Gains from Trade......Page 62 Part 2: Markets and Government......Page 64 Chapter 3: Demand, Supply, and the Market Process......Page 65 3-1 Consumer Choice and the Law of Demand......Page 66 3-1a The Market Demand Schedule......Page 67 3-1b Consumer Surplus......Page 68 3-1c Responsiveness of Quantity Demanded to Price Changes: Elastic and Inelastic Demand Curves......Page 69 3-2 Changes in Demand versus Changes in Quantity Demanded......Page 70 3-3 Producer Choice and the Law ofSupply......Page 74 3-3a The Role of Profits and Losses......Page 75 3-3c Market Supply Schedule......Page 76 3-3d Producer Surplus......Page 77 3-3e Responsiveness of Quantity Supplied to Price Changes: Elastic and Inelastic Supply Curves......Page 78 3-4 Changes in Supply versus Changes inQuantity Supplied......Page 79 3-5 How Market Prices Are Determined: Demand and Supply Interact......Page 80 3-5a Market Equilibrium......Page 81 3-5b Efficiency and Market Equilibrium......Page 82 3-6 How Markets Respond to Changes inDemand and Supply......Page 84 3-6a Invisible Hand Principle......Page 86 3-6b Prices and Market Order......Page 87 3-6c Competition and Property Rights......Page 88 Key Points......Page 89 Critical Analysis Questions......Page 90 Chapter 4: Demand and Supply: Applications and Extensions......Page 91 4-1 The Link between Resource and Product Markets......Page 92 4-2 The Economics of Price Controls......Page 93 4-2a The Impact of Price Ceilings......Page 94 4-2b Rent Control: A Closer Look at a Price Ceiling......Page 96 4-2c The Impact of Price Floors......Page 97 4-2d Minimum Wage: A Closer Look at a Price Floor......Page 98 4-4 The Impact of a Tax......Page 101 4-4b Actual versus Statutory Incidence......Page 103 4-4c Elasticity and the Incidence of a Tax......Page 104 4-5 Tax Rates, Tax Revenues, and the Laffer Curve......Page 106 4-6 The Impact of a Subsidy......Page 110 4-6b Real-World Subsidy Programs......Page 111 Critical Analysis Questions......Page 113 Chapter 5: Difficult Cases for the Market, and the Role of Government......Page 115 5-1 A Closer Look at Economic Efficiency......Page 116 5-2 If It’s Worth Doing, It’s Worth Doing Imperfectly......Page 117 5-3a Protective Function of Government......Page 118 5-4a Lack of Competition......Page 119 5-4c External Costs......Page 121 5-4d External Benefits......Page 123 5-4e Public Goods and Why They Pose a Problem for the Market......Page 125 5-4f Potential Information Problems......Page 126 5-4g Information as a Profit Opportunity......Page 127 5-5 Market and Government Failure......Page 129 Critical Analysis Questions......Page 130 Chapter 6: The Economics of Political Action......Page 132 6-1 The Size and Growth of the U.S. Government......Page 133 6-2 Similarities and Differences between Political and Market Allocation......Page 135 6-3 Political Decision-Making: An Overview......Page 136 6-3a Incentives Confronted by the Voter......Page 137 6-3b Incentives Confronted by the Politician......Page 138 6-3c Incentives Confronted by the Government Bureaucrat......Page 139 6-4 When the Political Process Works Well......Page 140 6-5a Special-Interest Effect......Page 142 6-5c Rent-seeking......Page 146 6-5d Inefficiency of Government Operations......Page 147 6-6 Political Favoritism, Crony Capitalism, and Government Failure......Page 148 6-7 The Economic Way of Thinking about Markets and Government......Page 150 Key Points......Page 151 Critical Analysis Questions......Page 152 Part 3: Core Microeconomics......Page 154 Chapter 7: Consumer Choice and Elasticity......Page 155 7-1 Fundamentals of Consumer Choice......Page 156 7-2 Marginal Utility, Consumer Choice, and the Demand Curve of an Individual......Page 157 7-2a Consumer Equilibrium with Many Goods......Page 159 7-2c Time Costs and Consumer Choice......Page 160 7-2d Market Demand Reflects the Demand of Individual Consumers......Page 161 7-3 Elasticity of Demand......Page 162 7-3a Graphic Representation of Price Elasticity of Demand......Page 164 7-3b How Large Are the Demand Elasticities of Various Products......Page 165 7-3c Why Do the Price Elasticities of Demand Vary......Page 166 7-4 How Demand Elasticity and Price Changes Affect Total Expenditures (orRevenues) on a Product......Page 168 7-5 Income Elasticity......Page 169 7-6 Price Elasticity of Supply......Page 170 Critical Analysis Questions......Page 171 Chapter 8: Costs and the Supply of Goods......Page 173 8-1a Incentives, Cooperation, and the Nature of the Firm......Page 174 8-1b Three Types of Business Firms......Page 175 8-2 How Well Does the Corporate Structure Work......Page 176 8-3a Calculating Economic Costs and Profits......Page 177 8-4 Short-Run and Long-Run Time Periods......Page 178 8-5 Categories of Costs......Page 179 8-6 Output and Costs in the Short Run......Page 181 8-6a Diminishing Returns and Production in the Short Run......Page 182 8-6b Diminishing Returns and the Shape of the Cost Curves......Page 184 8-7a Economies and Diseconomies of Scale......Page 186 8-7b Alternative Shapes of the LRATC......Page 189 8-8a Prices of Resources......Page 190 8-9a What Are Sunk Costs......Page 191 Looking Ahead......Page 193 Critical Analysis Questions......Page 194 Chapter 9: Price Takers and the Competitive Process......Page 196 9-2 What Are the Characteristics of Price-Taker Markets......Page 197 9-3 How Does the Price Taker Maximize Profit......Page 199 9-3a Profit Maximizing—A Numeric Example......Page 200 9-3b Losses and When to Go Out of Business......Page 201 9-4 The Firm’s Short-Run Supply Curve......Page 203 9-6 Price and Output in Price-Taker Markets......Page 204 9-6a Long-Run Equilibrium......Page 205 9-6b How Will the Market Respond to an Increase in Demand......Page 206 9-6c How Will the Market Respond to a Decrease in Demand......Page 207 9-6d The Long-Run Market Supply Curve......Page 208 9-6e Supply Elasticity and the Role of Time......Page 209 9-7 The Role of Profits and Losses......Page 210 9-8 Competition Promotes Prosperity......Page 211 Looking Ahead......Page 212 Critical Analysis Questions......Page 213 Chapter 10: Price-Searcher Markets with Low Entry Barriers......Page 216 10-1a Price and Output in Competitive Price-Searcher Markets......Page 217 10-2 Contestable Markets and the Competitive Process......Page 220 10-3 Evaluating Competitive Price-Searcher Markets......Page 221 10-4 A Special Case: Price Discrimination......Page 223 10-5 Entrepreneurship and Economic Progress......Page 225 10-5a Dynamic Competition, Innovation, and Business Failures......Page 228 Looking Ahead......Page 230 Critical Analysis Questions......Page 231 Chapter 11: Price-Searcher Markets with High Entry Barriers......Page 234 11-1b Government Licensing and Other Legal Barriers to Entry......Page 235 11-2 Characteristics of a Monopoly......Page 236 11-2a Price and Output under Monopoly......Page 237 11-3b Substantial Economies of Scale......Page 240 11-4 Price and Output under Oligopoly......Page 241 11-4a The Incentive to Collude...and to Cheat......Page 242 11-4b Obstacles to Collusion......Page 244 11-4c Uncertainty and Oligopoly......Page 245 11-6 Defects of Markets with High Entry Barriers......Page 247 11-7a Antitrust Policy and Controlling the Structure of an Industry......Page 248 11-7c Regulate the Price......Page 249 11-7d Problems with Regulation......Page 250 11-7f Pulling It Together......Page 253 Looking Ahead......Page 254 Critical Analysis Questions......Page 255 Chapter 12: The Supply of and Demand for Productive Resources......Page 257 12-2 The Demand for Resources......Page 259 12-2b Substitution in Consumption......Page 260 12-2d Shifts in the Demand for a Resource......Page 261 12-3a Using a Variable Resource with a Fixed Resource......Page 263 12-3c Multiple Resources and How Much to Use of Each......Page 265 12-3e Cost Minimization When Multiple Resources Are Used......Page 266 12-4 The Supply of Resources......Page 267 12-4a Short-Run versus Long-Run Resource Supply......Page 268 12-4b Short-Run Supply......Page 269 12-5 Supply, Demand, and Resource Prices......Page 270 12-5a The Coordinating Function of Resource Prices......Page 271 Critical Analysis Questions......Page 273 Chapter 13: Earnings, Productivity, and the Job Market......Page 275 13-1a Earnings Differentials Due to Nonidentical Workers......Page 276 13-1c Earnings Differentials Due to the Immobility of Labor......Page 281 13-1d Sources of Wage Differentials: A Summary......Page 282 13-2 The Economics of Employment Discrimination......Page 284 13-2a How Much Impact Does Employment Discrimination Have on Earnings......Page 285 13-3 The Link between Productivity and Earnings......Page 286 13-3a Productivity and Compensation: Measurement Problems......Page 287 Critical Analysis Questions......Page 290 Chapter 14: Investment, the Capital Market, and the Wealth of Nations......Page 292 14-1 Why People Invest......Page 293 14-2a How Interest Rates Are Determined......Page 294 14-2c Interest Rates and Risk......Page 296 14-3 The Present Value of Future Income and Costs......Page 297 14-4 Present Value, Profitability, and Investment......Page 299 14-4b Investors and Corporate Investments......Page 300 14-5 Investing in Human Capital......Page 301 14-6 Uncertainty, Entrepreneurship, and Profit......Page 302 14-6a Returns to Physical and Human Capital......Page 304 14-7 Why Is the Capital Market So Important......Page 305 Key Points......Page 307 Critical Analysis Questions......Page 308 Chapter 15: Income Inequality and Poverty......Page 309 15-1 How Much Income Inequality Exists in the United States......Page 310 15-1a The Factors Affecting Income Distribution......Page 311 15-1b Why Has Income Inequality Increased......Page 314 15-2 Income Mobility and Inequality in Economic Status......Page 315 15-3 Poverty in the United States......Page 317 15-3a Transfer Payments and the Poverty Rate......Page 318 15-3b Why Haven’t Anti-Poverty Programs Been More Effective......Page 320 15-4 Income Inequality: Some Concluding Thoughts......Page 322 Critical Analysis Questions......Page 325 Part 4: International Economics......Page 328 Chapter 16: Gaining from International Trade......Page 329 16-1 The Trade Sector of the United States......Page 330 16-2 Gains from Specialization and Trade......Page 331 16-2a How Trade Expands Consumption Possibilities......Page 333 16-2b Some Real-World Considerations......Page 335 16-3 Supply, Demand, and International Trade......Page 337 16-4a The Economics of Tariffs......Page 339 16-4b The Economics of Quotas......Page 340 16-5a The National-Defense Argument......Page 342 16-5d Special Interests and the Politics of Trade Restrictions......Page 343 16-6a Trade Fallacy 1: Trade Restrictions that Limit Imports Save Jobs and Expand Employment......Page 346 16-6b Trade Fallacy 2: Free Trade with Low-Wage Countries Like Mexico and China will Reduce the Wages of Americans......Page 347 16-7 Institutions and the Changing Nature of Global Trade......Page 348 Key Points......Page 349 Critical Analysis Questions......Page 350 Part 5: Applying the Basics: Special Topics in Economics......Page 352 Special Topic 1: Government Spending and Taxation......Page 353 Special Topic 2: The Economics of Social Security......Page 368 Special Topic 3: The Stock Market: Its Function, Performance, and Potential as an Investment Opportunity......Page 378 Special Topic 4: Keynes and Hayek: Contrasting Views on Sound Economics and the Role of Government......Page 388 Special Topic 5: The Great Recession of 2008–2009: Causes and Response......Page 394 Special Topic 6: Lessons from the Great Depression......Page 409 Special Topic 7: The Economics of Health Care......Page 423 Special Topic 8: Earnings Differences between Men and Women......Page 436 Special Topic 9: Do Labor Unions Increase the Wages of Workers......Page 443 Special Topic 10: The Question of Resource Exhaustion......Page 454 Special Topic 11: Difficult Environmental Cases and the Role of Government......Page 465 Appendix A: General Business and Economics Indicators for the United States......Page 474 Appendix B: Answers to Selected Critical Analysis Questions......Page 481 Glossary......Page 493 Index......Page 500