Microeconomics : Principles and Policy (10 ANV)

Microeconomics : Principles and Policy (10 ANV)

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Full Description


This microeconomics text is well known for using the Keynesian model in the teaching of economics; yet in recent editions, the authors have expanded coverage of the growth model considerably to achieve more balanced coverage. The text uses the aggregate supply/ aggregate demand model as a fundamental tool for learning macroeconomics. It achieves the right level of rigor and detail, presenting complicated concepts in a relatively straightforward manner and using timely economic data. Using puzzles, issues, and well-developed examples, the authors provide a good balance of theory to application. Homework Xpress and Aplia are available with the Anniversary Tenth Edition and two new sets of end of chapter questions have been added as well to help students prepare for exams: "Test Yourself" and "Discussion Questions."

Table of Contents

Preface                                            xxiii
PART I GETTING ACQUAINTED WITH ECONOMICS 1 (74)
What is Economics? 3 (16)
Ideas for Beyond the Final Exam 4 (3)
Idea 1: How Much Does It Really Cost? 4 (1)
Idea 2: Attempts to Repeal the Laws of 5 (1)
Supply and Demand---The Market Strikes
Back
Idea 3: The Surprising Principle of 5 (1)
Comparative Advantage
Idea 4: Trade is a Win--Win Situation 5 (1)
Idea 5: The Importance of Thinking at 6 (1)
the Margin
Idea 6: Externalities---A Shortcoming 6 (1)
of the Market Cured by Market Methods
Idea 7: The Trade-Off between 7 (1)
Efficiency and Equality
Epilogue 7 (1)
Inside the Economist's Tool Kit 7 (5)
Economics as a Discipline 7 (1)
The Need for Abstraction 8 (2)
The Role of Economic Theory 10 (1)
What Is an Economic Model? 10 (1)
Reasons for Disagreements: Imperfect 11 (1)
Information and Value Judgments
Summary 12 (1)
Key Terms 12 (1)
Discussion Questions 12 (1)
Appendix: Using Graphs: A Review 13 (6)
Graphs Used in Economic Analysis 13 (1)
Two-Variable Diagrams 13 (1)
The Definition and Measurement of Slope 14 (1)
Rays Through the Origin and 45° 15 (1)
Lines
Squeezing Three Dimensions into Two: 16 (1)
Contour Maps
Summary 17 (1)
Key Terms 17 (1)
Test Yourself 18 (1)
The Economy: Myth and Reality 19 (16)
The American Economy: A Thumbnail Sketch 20 (3)
A Private-Enterprise Economy 21 (1)
A Relatively ``Closed'' Economy 21 (1)
A Growing Economy . . . 22 (1)
But with Bumps along the Growth Path 22 (1)
The Inputs: Labor and Capital 23 (5)
The American Workforce: Who Is in It? 23 (2)
The American Workforce: What Does It Do? 25 (2)
The American Workforce: What It Earns 27 (1)
Capital and Its Earnings 27 (1)
The Outputs: What Does America Produce? 28 (1)
The Central Role of Business Firms 28 (1)
What's Missing From the Picture? 29 (4)
Government
The Government as Referee 30 (1)
The Government as Business Regulator 30 (1)
Government Expenditures 31 (1)
Taxes in America 31 (1)
The Government as Redistributor 32 (1)
Conclusion: It's a Mixed Economy 33 (1)
Summary 33 (1)
Key Terms 33 (1)
Discussion Questions 33 (2)
The Fundamental Economic Problem: Scarcity 35 (16)
and Choice
Issue: What to Do about the Budget 36 (1)
Deficit?
Scarcity, Choice, and Opportunity Cost 36 (2)
Opportunity Cost and Money Cost 37 (1)
Optimal Choice: Not Just Any Choice 38 (1)
Scarcity and Choice for a Single Firm 38 (3)
The Production Possibilities Frontier 39 (1)
The Principle of Increasing Costs 40 (1)
Scarcity and Choice for the Entire Society 41 (2)
Scarcity and Choice Elsewhere in the 41 (1)
Economy
Issue Revisited: Coping with the Budget 42 (1)
Deficit
The Concept of Efficiency 43 (1)
The Three Coordination Tasks of Any 44 (1)
Economy
Specialization Fosters Efficient Resource 44 (2)
Allocation
The Wonders of the Division of Labor 44 (1)
The Amazing Principle of Comparative 45 (1)
Advantage
Specialization Leads to Exchange 46 (1)
Markets, Prices, and the Three 46 (2)
Coordination Tasks
Last Word: Don't Confuse Ends with Means 48 (1)
Summary 48 (1)
Key Terms 49 (1)
Test Yourself 49 (1)
Discussion Questions 49 (2)
Supply and Demand: An Initial Look 51 (24)
Puzzle: What Happened to Oil Prices? 52 (1)
The Invisible Hand 52 (1)
Demand and Quantity Demanded 53 (4)
The Demand Schedule 54 (1)
The Demand Curve 54 (1)
Shifts of the Demand Curve 54 (3)
Supply and Quantity Supplied 57 (3)
The Supply Schedule and the Supply Curve 57 (1)
Shifts of the Supply Curve 58 (2)
Supply and Demand Equilibrium 60 (2)
The Law of Supply and Demand 62 (1)
Effects of Demand Shifts on Supply-Demand 62 (1)
Equilibrium
Supply Shifts and Supply-Demand 63 (3)
Equilibrium
Those Leaping Oil Prices: Puzzle 64 (1)
Resolved
Application: Who Really Pays that Tax? 65 (1)
Battling the Invisible Hand: the Market 66 (6)
Fights Back
Restraining the Market Mechanism: Price 66 (2)
Ceilings
Case Study: Rent Controls in New York 68 (1)
City
Restraining the Market Mechanism: Price 69 (1)
Floors
Case Study: Farm Price Supports and the 69 (1)
Case of Sugar Prices
A Can of Worms 70 (2)
A Simple But Powerful Lesson 72 (1)
Summary 72 (1)
Key Terms 72 (1)
Test Yourself 73 (1)
Discussion Questions 74 (1)
PART II THE BUILDING BLOCKS OF DEMAND AND 75 (116)
SUPPLY
Consumer Choice: Individual and Market 77 (24)
Demand
Puzzle: Why Shouldn't Water Be Worth 78 (2)
More Than Diamonds?
Scarcity and Demand 80
Utility: A Tool to Analyze Purchase 79 (7)
Decisions
The Purpose of Utility Analysis: 79 (1)
Analyzing How People Behave, Not What
They Think
Total Versus Marginal Utility 80 (1)
The ``Law'' of Diminishing Marginal 80 (2)
Utility
Using Marginal Utility: The Optimal 82 (2)
Purchase Rule
From Diminishing Marginal Utility to 84 (2)
Downward-Sloping Demand Curves
Consumer Choice as a Trade-Off: 86 (3)
Opportunity Cost
Consumer's Surplus: The Net Gain from a 86 (2)
Purchase
Resolving the Diamond-Water Puzzle 88 (1)
Income and Quantity Demanded 89 (1)
From Individual Demand Curves to Market 89 (2)
Demand Curves
Market Demand as a Horizontal Sum 89 (1)
The ``Law'' of Demand 90 (1)
Exceptions to the ``Law'' of Demand 91 (1)
Summary 91 (1)
Key Terms 92 (1)
Test Yourself 92 (1)
Discussion Questions 92 (1)
Appendix: Analyzing Consumer Choice 93 (6)
Graphically: Indifference Curves
Geometry of Available Choices: The 93 (1)
Budget Line
Properties of the Budget Line 93 (1)
Changes in the Budget Line 94 (1)
What the Customer Prefers: Properties 95 (1)
of the Indifference Curve
The Slopes of Indifference Curves and 96 (1)
Budget Lines
Tangency Conditions 97 (1)
Consequences of Income Changes: 98 (1)
Inferior Goods
Consequences of Price Changes: Deriving 98 (1)
the Demand Curve
Summary 99 (1)
Key Terms 99 (1)
Test Yourself 100 (1)
Demand and Elasticity 101 (20)
Issue: Will Taxing Cigarettes Make 102 (1)
Teenagers Stop Smoking?
Elasticity: The Measure of Responsiveness 102 (5)
Price Elasticity of Demand and the 105 (2)
Shapes of Demand Curves
Price Elasticity of Demand: Its Effect on 107 (2)
Total Revenue and Total Expenditure
Issue Revisited: Will a Cigarette Tax 108 (1)
Decrease Teenage Smoking Significantly?
What Determines Demand Elasticity? 109 (1)
Elasticity as a General Concept 110 (2)
Income Elasticity 110 (1)
Price Elasticity of Supply 111 (1)
Cross Elasticity of Demand 111 (1)
Changes in Demand: Movements Along the 112 (2)
Demand Curve Versus Shifts in the Demand
Curve
Demand Shifters 113 (1)
The Time Period of the Demand Curve and 114 (1)
Economic Decision Making
Real-World Application: Polaroid Versus 115 (1)
Kodak
In Conclusion 116 (1)
Summary 116 (1)
Key Terms 117 (1)
Test Yourself 117 (1)
Discussion Questions 117 (1)
Appendix: How Can We Find a Legitimate 118 (3)
Demand Curve From Historical Statistics?
An Illustration: Did the Advertising 119 (1)
Program Work?
How Can We Find a Legitimate Demand 119 (2)
Curve From the Statistics?
Production, Inputs, and Cost: Building 121 (28)
Blocks for Supply Analysis
Puzzle: How Can We Tell If Larger Firms 122 (1)
Are More Efficient?
Short-Run Versus Long-Run Costs: What 122 (2)
Makes an Input Variable?
The Economic Short Run Versus the 123 (1)
Economic Long Run
Fixed Costs and Variable Costs 123 (1)
Production, Input Choice, and Cost with 124 (3)
One Variable Input
Total, Average, and Marginal Physical 124 (1)
Products
Marginal Physical Product and the 125 (1)
``Law'' of Diminishing Marginal Returns
The Optimal Quantity of an Input and 126 (1)
Diminishing Returns
Multiple Input Decisions: The Choice of 127 (4)
Optimal Input Combinations
Substitutability: The Choice of Input 128 (1)
Proportions
The Marginal Rule for Optimal Input 129 (1)
Proportions
Changes in Input Prices and Optimal 130 (1)
Input Proportions
Cost and Its Dependence on Output 131 (5)
Input Quantities and Total, Average, 131 (3)
and Marginal Cost Curves
The Law of Diminishing Marginal 134 (1)
Productivity and the U-Shaped Average
Cost Curve
The Average Cost Curve in the Short and 135 (1)
Long Run
Economies of Scale 136 (5)
The ``Law'' of Diminishing Returns and 137 (1)
Returns to Scale
Historical Costs Versus Analytical Cost 138 (1)
Curves
Resolving the Economies of Scale Puzzle 139 (1)
Cost Minimization in Theory and Practice 140 (1)
Summary 141 (1)
Key Terms 142 (1)
Test Yourself 142 (1)
Discussion Questions 143 (1)
Appendix: Production Indifference Curves 143 (6)
Characteristics of the Production 143 (1)
Indifference Curves, or Isoquants
The Choice of Input Combinations 144 (1)
Cost Minimization, Expansion Path, and 145 (1)
Cost Curves
Summary 146 (1)
Key Terms 146 (1)
Test Yourself 147 (2)
Output, Price, and Profit: The Importance 149 (22)
of Marginal Analysis
Puzzle: Can a Company Make a Profit by 151 (1)
Selling Below its Costs?
Price and Quantity: One Decision, Not Two 151 (1)
Total Profit: Keep Your Eye on the Goal 152 (1)
Economic Profit and Optimal Decision 152 (5)
Making
Total, Average, and Marginal Revenue 153 (1)
Total, Average, and Marginal Cost 154 (1)
Maximization of Total Profit 155 (1)
Profit Maximization: A Graphical 156 (1)
Interpretation
Marginal Analysis and Maximization of 157 (4)
Total Profit
Marginal Revenue and Marginal Cost: 159 (1)
Guides to Optimization
Finding the Optimal Price from Optimal 160 (1)
Output
Generalization: The Logic of Marginal 161 (3)
Analysis and Maximization
Application: Fixed Cost and the 162 (1)
profit-Maximizing Price
Puzzle Resolved: Using Marginal 163 (1)
Analysis to Unravel the Case of the
``Unprofitable'' Calculator
Conclusion: The Fundamental Role of 164 (1)
Marginal Analysis
The Theory and Reality: A Word of Caution 165 (1)
Summary 165 (1)
Key Terms 166 (1)
Test Yourself 166 (1)
Discussion Questions 166 (1)
Appendix: The Relationships Among Total, 167 (4)
Average, and Marginal Data
Graphical Representation of Marginal 168 (1)
and Average Curves
Test Yourself 169 (2)
Investing in Business: Stocks and Bonds 171 (20)
Puzzle #1: What in the World Happened 172 (1)
to the Stock Market?
Puzzle #2: The Stock Market's 172 (1)
Unpredictability
Corporations and Their Unique 173 (1)
Characteristics
Financing Corporate Activity: Stocks and 174 (3)
Bonds
Plowback, or Retained Earnings 176 (1)
What Determines Stock Prices? The Role 177 (1)
of Expected Company Earnings
Buying Stocks and Bonds 177 (3)
Selecting a Portfolio: Diversification 178 (1)
Following a Portfolio's Performance 179 (1)
Stock Exchanges and Their Functions 180 (4)
Regulation of the Stock Market 182 (1)
Stock Exchanges and Corporate Capital 182 (2)
Needs
Speculation 184 (4)
Puzzle #2 Resolved: Unpredictable Stock 185 (3)
Prices as ``Random Walks''
Puzzle #1 Redux: The Boom and Bust of 188 (1)
the U.S. Stock Market
Summary 188 (1)
Key Terms 189 (1)
Test Yourself 189 (1)
Discussion Questions 189 (2)
PART III MARKETS AND THE PRICE SYSTEM 191 (88)
The Firm and the Industry Under Perfect 193 (18)
Competition
Puzzle: Pollution Reduction Incentives 194 (1)
That Actually Increase Pollution
Perfect Competition Defined 194 (1)
The Perfectly Competitive Firm 195 (5)
The Firm's Demand Curve under Perfect 195 (1)
Competition
Short-Run Equilibrium for the Perfectly 196 (1)
Competitive Firm
Short-Run Profit: Graphic Representation 197 (1)
The Case of Short-Term Losses 198 (1)
Shutdown and Break-Even Analysis 198 (2)
The Perfectly Competitive Firm's 200 (1)
Short-Run Supply Curve
The Perfectly Competitive Industry 200 (7)
The Perfectly Competitive Industry's 200 (1)
Short-Run Supply Curve
Industry Equilibrium in the Short Run 201 (1)
Industry and Firm Equilibrium in the 202 (3)
Long Run
Zero Economic Profit: The Opportunity 205 (1)
Cost of Capital
The Long-Run Industry Supply Curve 206 (1)
Perfect Competition and Economic 207 (2)
Efficiency
Puzzle Resolved: Which Is Better to Cut 208 (1)
Pollution--The Carrot or the Stick?
Summary 209 (1)
Key Terms 210 (1)
Test Yourself 210 (1)
Discussion Questions 210 (1)
Monopoly 211 (18)
Puzzle: What Happened to AT&T's 212 (1)
``Natural Monopoly'' in Telephone
Service?
Monopoly Defined 212 (3)
Sources of Monopoly: Barriers to Entry 213 (1)
and Cost Advantages
Natural Monopoly 214 (1)
The Monopolist's Supply Decision 215 (5)
Determining the Profit-Maximizing Output 216 (1)
Comparing Monopoly and Perfect 217 (2)
Competition
Monopoly Is Likely to Shift Demand 219 (1)
Monopoly Is Likely to Shift Cost Curves 220 (1)
Can Anything Good Be Said About Monopoly? 220 (1)
Monopoly May Aid Innovation 220 (1)
Natural Monopoly: Where Single-firm 221 (1)
Production is Cheapest
Price Discrimination Under Monopoly 221 (4)
Is Price Discrimination Always 223 (1)
Undesirable?
The Puzzle Resolved: Competition in 224 (1)
Telephone Service
Summary 225 (1)
Key Terms 226 (1)
Test Yourself 226 (1)
Discussion Questions 226 (3)
Between Competition and Monopoly 229 (28)
Three Puzzling Observations 230 (1)
Puzzle 1: Why Are There So Many 230 (1)
Retailers?
Puzzle 2: Why Do Oligopolists Advertise 230 (1)
More Than ``More Competitive'' Firms?
Puzzle 3: Why Do Oligopolists Seem to 230 (1)
Change Their Prices So Infrequently?
Monopolistic Competition 230 (5)
Characteristics of Monopolistic 231 (1)
Competition
Price and Output Determination Under 232 (1)
Monopolistic Competition
The Excess Capacity Theorem and 233 (1)
Resource Allocation
1st Puzzle Resolved: Explaining the 234 (1)
Abundance of Retailers
Oligopoly 235 (14)
2nd Puzzle Resolved: Why Oligopolists 235 (1)
Advertise but Perfectly Competitive
Firms Generally Do Not
Why Oligopolistic Behavior Is So 236 (1)
Difficult to Analyze
A Shopping List 236 (4)
Sales Maximization: An Oligopoly Model 240 (1)
with Interdependence Ignored
3rd Puzzle Resolved: The Kinked Demand 241 (2)
Curve Model
The Game-Theory Approach 243 (1)
Games with Dominant Strategies 244 (2)
Games without Dominant Strategies 246 (1)
Other Strategies: The Nash Equilibrium 246 (1)
Zero-Sum Games 247 (1)
Repeated Games 247 (2)
Monopolistic Competition, Oligopoly, and 249 (2)
Public Welfare
A Glance Backward: Comparing the Four 251 (2)
Market Forms
Summary 253 (1)
Key Terms 254 (1)
Test Yourself 254 (1)
Discussion Questions 254 (3)
Limiting Market Power: Regulation and 257 (22)
Antitrust
The Public Interest Issue: Monopoly Power 258 (1)
Versus Mere Size
Part 1: Regulation 259 (1)
What Is Regulation? 259 (1)
Puzzle: Why Do Regulators Often Raise 260 (1)
Prices?
Some Objectives of Regulation 260 (2)
Control of Market Power Resulting from 260 (1)
Economies of Scale and Scope
Universal Service and Rate Averaging 261 (1)
Two Key Issues That Face Regulators 262 (3)
Setting Prices to Protect Consumers' 262 (1)
Interests and Allow Regulated Firms to
Cover Their Costs
Marginal versus Average Cost Pricing 262 (2)
Preventing Monopoly Profit but Keeping 264 (1)
Incentives for Efficiency and Innovation
The Pros and Cons of ``Bigness'' 265 (1)
Economies of Large Size 265 (1)
Required Scale for Innovation 265 (1)
Deregulation 266 (3)
The Effects of Deregulation 266 (2)
The Puzzle Revisited: Why Regulators 268 (1)
Often Push Prices Upward
Part 2: Antitrust Laws and Policies 269 (1)
Measuring Market Power: Concentration 270 (3)
Concentration: Definition and 270 (2)
Measurement---The Herfindahl-Hirschman
Index
The Evidence of Concentration in Reality 272 (1)
A Crucial Problem for Antitrust: The 273 (1)
Resemblance of Monopolization and
Vigorous Competition
Anticompetitive Practices and Antitrust 273 (2)
Predatory Pricing 273 (1)
The Microsoft Case: Bottlenecks, 274 (1)
Bundling, and Network Externalities
Use of Antitrust Laws to Prevent 275 (1)
Competition
Concluding Observations 276 (1)
Summary 277 (1)
Key Terms 278 (1)
Discussion Questions 278 (1)
PART IV THE VIRTUES AND LIMITATIONS OF MARKETS 279 (112)
The Case for Free Markets I: The Price 281 (24)
System
Puzzle: Crossing the San 282 (1)
Francisco-Oakland Bay Bridge: Is the
Price Right?
Efficient Resource Allocation and Pricing 282 (4)
Pricing to Promote Efficiency: An 283 (1)
Example
Can Price Increases Ever Serve the 284 (2)
Public Interest?
Scarcity and the Need to Coordinate 286 (7)
Economic Decisions
Three Coordination Tasks in the Economy 287 (3)
Input-Output Analysis: The Near 290 (2)
Impossibility of Perfect Central
Planning
Which Buyers and Which Sellers Get 292 (1)
Priority?
How Perfect Competition Achieves 293 (3)
Efficiency: A Graphic Analysis
How Perfect Competition Achieves Optimal 296 (5)
Output: A Marginal Analysis
The Invisible Hand at Work 298 (1)
Other Roles of Prices: Income 298 (2)
Distribution and Fairness
Yet Another Free-Market Achievement: 300 (1)
Growth versus Efficiency
San Francisco Bridge Pricing Revisited 300 (1)
Toward Assessment of the Price Mechanism 301 (1)
Summary 302 (1)
Key Terms 302 (1)
Test Yourself 302 (1)
Discussion Questions 303 (2)
The Shortcomings of Free Markets 305 (24)
Puzzle: Why Are Health-Care Costs in 306 (1)
Canada Rising?
What Does the Market Do Poorly? 306 (1)
Efficient Resource Allocation: A Review 306 (2)
Externalities: Getting the Prices Wrong 308 (4)
Externalities and Inefficiency 308 (2)
Externalities Are Everywhere 310 (1)
Government Policy and Externalities 311 (1)
Provision of Public Goods 312 (1)
Allocation of Resources Between Present 313 (2)
and Future
The Role of the Interest Rate 313 (1)
How Does It Work in Practice? 314 (1)
Some Other Sources of Market Failure 315 (4)
Imperfect Information: ``Caveat Emptor'' 315 (1)
Rent Seeking 315 (1)
Moral Hazard 316 (1)
Principals, Agents, and Recent Stock 317 (2)
Option Scandals
Market Failure and Government Failure 319 (1)
The Cost Disease of the Service Sector in 320 (5)
the Economy
Deteriorating Personal Services 320 (1)
Personal Services Are Getting More 321 (1)
Expensive
Why Are These ``In-Person'' Services 322 (1)
Costing So Much More?
Uneven Labor Productivity Growth in the 322 (1)
Economy
A Future of More Goods but Fewer 323 (1)
Services: Is It Inevitable?
Government May Make the Problem Worse 324 (1)
The Puzzle Resolved: Explaining the 324 (1)
Rising Costs of Canadian Health Care
The Market System on Balance 325 (1)
Epilogue: The Unforgiving Market, Its 326 (1)
Gift of Abundance, and Its Dangerous
Friends
Summary 327 (1)
Key Terms 327 (1)
Test Yourself 328 (1)
Discussion Questions 328 (1)
The Case for Free Markets II: Innovation 329 (22)
and Growth
The Market Economy's Incredible Growth 330 (2)
Record
Innovation, Not Invention, is the Unique 332 (1)
Free-Market Accomplishment
The Big Puzzle: What Accounts for the 332 (1)
Free Market's Incredible Growth Record?
Sources of Free-Market Innovation: Role 333 (7)
of the Entrepreneur
Breakthrough Invention and the 334 (2)
Entrepreneurial Firm
The Large Enterprises and Their 336 (3)
Innovation ``Assembly Lines''
The Market Economy and the Speedy 339 (1)
Dissemination of New Technology
Microeconomic Analysis of the Innovative 340 (5)
Firm
Financing the Innovation ``Arms Race'': 340 (1)
Firms with High R&D Costs and Low
Marginal Costs
The Profits of Innovation 341 (1)
How Much Will a Profit-Maximizing Firm 342 (1)
Spend on Innovation?
A Kinked Revenue Curve Model of 343 (1)
Spending on Innovation
Innovation as a Public Good 344 (1)
Effects of Process Research on Outputs 344 (1)
and Prices
Do Free Markets Spend Enough on R&D 345 (2)
Activities?
Innovation as a Beneficial Externality 346 (1)
Why the Shortfall in Innovation 347 (1)
Spending May Not Be So Big After All
Conclusion: The Market Economy and Its 347 (2)
Innovation Assembly Line
Toward Solution of the Puzzle: How the 348 (1)
Market Achieved its Unprecedented Growth
Summary 349 (1)
Key Terms 349 (1)
Discussion Questions 350 (1)
Externalities, the Environment, and Natural 351 (22)
Resources
Puzzle: Those Resilient Natural 352 (1)
Resource Supplies
Part 1: The Economics of Environmental 352 (1)
Protection
Externalities: A Critical Shortcoming of 352 (7)
the Market Mechanism
The Facts: Is the World Really Getting 353 (3)
Steadily More Polluted?
The Role of Individuals and Governments 356 (1)
in Environmental Damage
Pollution and the Law of Conservation 356 (3)
of Matter and Energy
Supply-Demand Analysis of Environmental 359 (1)
Externalities
Basic Approaches to Environmental Policy 359 (5)
Emissions Taxes versus Direct Control 361 (2)
Another Financial Device to Protect the 363 (1)
Environment: Emissions Permits
Two Cheers for the Market 364 (1)
Part 2: The Economics of Natural Resources 365 (1)
Economic Analysis: The Free Market and 365 (2)
Pricing of Depletable Resources
Scarcity and Rising Prices 365 (1)
Supply-Demand Analysis and Consumption 366 (1)
Actual Resource Prices in the Twentieth 367 (4)
Century
Interferences with Price Patterns 368 (2)
Is Price Interference Justified? 370 (1)
On the Virtues of Rising Prices 371 (1)
Growing Reserves of Exhaustible Natural 371 (1)
Resources: The Puzzle Revisited
Summary 371 (1)
Key Terms 372 (1)
Test Yourself 372 (1)
Discussion Questions 372 (1)
Taxation and Resource Allocation 373 (18)
Issue: Were the Tax Cuts of 2001-2003 374 (1)
Sound Policy?
The Level and Types of Taxation 374 (1)
Progressive, Proportional, and 375 (1)
Regressive Taxes
Direct versus Indirect Taxes 375 (1)
The Federal Tax System 375 (4)
The Federal Personal Income Tax 375 (2)
The Payroll Tax 377 (1)
The Corporate Income Tax 377 (1)
Excise Taxes 377 (1)
The Payroll Tax and the Social Security 377 (2)
System
The State and Local Tax System 379 (1)
Sales and Excise Taxes 379 (1)
Property Taxes 379 (1)
Fiscal Federalism 380 (1)
The Concept of Equity in Taxation 380 (1)
Horizontal Equity 380 (1)
Vertical Equity 380 (1)
The Benefits Principle 381 (1)
The Concept of Efficiency in Taxation 381 (2)
Tax Loopholes and Excess Burden 383 (1)
Shifting the Tax Burden: Tax Incidence 383 (4)
The Incidence of Excise Taxes 385 (1)
The Incidence of the Payroll Tax 386 (1)
When Taxation Can Improve Efficiency 387 (1)
Equity, Efficiency, and the Optimal Tax 387 (1)
Issue Revisited: The Pros and Cons of 388 (1)
the Bush Tax Cuts
Summary 388 (1)
Key Terms 389 (1)
Test Yourself 389 (1)
Discussion Questions 390 (1)
PART V THE DISTRIBUTION OF INCOME 391 (68)
Pricing the Factors of Production 393 (22)
Puzzle: Why Does a Higher Return to 394 (1)
Savings Reduce the Amount Some People
Save?
The Principle of Marginal Productivity 394 (1)
Inputs and Their Derived Demand Curves 395 (2)
Investment, Capital, and Interest 397 (4)
The Demand for Funds 398 (1)
The Downward-Sloping Demand Curve for 399 (1)
Funds
The Supply of Funds: The Puzzle Resolved 400 (1)
The Issue of Usury Laws: Are Interest 400 (1)
Rates Too High?
The Determination of Rent 401 (6)
Land Rents: Further Analysis 402 (2)
Generalization: Economic Rent Seeking 404 (1)
Rent as a Component of an Input's 405 (1)
Compensation
An Application of Rent Theory: Salaries 406 (1)
of Professional Athletes
Rent Controls: The Misplaced Analogy 407 (1)
Payments to Entrepreneurship: Are Profits 407 (3)
Too High or Too Low?
What Accounts for Profits? 408 (2)
Taxing Profits 410 (1)
Criticisms of Marginal Productivity Theory 410 (1)
Summary 411 (1)
Key Terms 412 (1)
Test Yourself 412 (1)
Discussion Questions 412 (1)
Appendix: Discounting and Present Value 413 (2)
Summary 414 (1)
Key Terms 414 (1)
Test Yourself 414 (1)
Labor: The Human Input 415 (24)
Issue: Do Cheap Foreign Labor and 417 (1)
Technological Progress Contribute to
Lagging Wages?
Wage Determination in Competitive Labor 417 (4)
Markets
The Demand for Labor and the 418 (1)
Determination of Wages
Influences on MRPL: Shifts in the 418 (1)
Demand for Labor
Technical Change, Productivity Growth, 419 (1)
and the Demand for Labor
The Service Economy and the Demand for 420 (1)
Labor
The Supply of Labor 421 (3)
Rising Labor-Force Participation 421 (1)
An Important Labor Supply Conundrum 422 (1)
The Labor Supply Conundrum Resolved 423 (1)
Why Do Wages Differ? 424 (5)
Labor Demand in General 425 (1)
Labor Supply in General 425 (1)
Ability and Earnings: The Rent 426 (1)
Component of Wages
Investment in Human Capital 426 (1)
Education and Earnings: Dissenting Views 427 (1)
The Effects of Minimum Wage Legislation 428 (1)
Unions and Collective Bargaining 429 (8)
Unions as Labor Monopolies 431 (2)
Monopsony and Bilateral Monopoly 433 (1)
Collective Bargaining and Strikes 434 (2)
Issue Revisited: Foreign Competition, 436 (1)
Technology, and American Jobs: Are
Union Fears Justified?
Summary 437 (1)
Key Terms 438 (1)
Test Yourself 438 (1)
Discussion Questions 438 (1)
Poverty, Inequality, and Discrimination 439 (20)
Issue: Were the Bush Tax Cuts Unfair? 440 (1)
The Facts: Poverty 440 (3)
Counting the Poor: The Poverty Line 441 (1)
Absolute versus Relative Poverty 442 (1)
The Facts: Inequality 443 (1)
Some Reasons for Unequal Incomes 444 (2)
The Facts: Discrimination 446 (1)
The Trade-Off Between Equality and 447 (2)
Efficiency
Policies to Combat Poverty 449 (3)
Education as a Way Out 449 (1)
The Welfare Debate and the Trade-Off 449 (1)
The Negative Income Tax 450 (2)
Other Policies to Combat Inequality 452 (1)
The Personal Income Tax 452 (1)
Death Duties and Other Taxes 452 (1)
Policies to Combat Discrimination 452 (2)
A Look Back 454 (1)
Summary 454 (1)
Key Terms 455 (1)
Test Yourself 455 (1)
Discussion Questions 455 (1)
Appendix: The Economic Theory of 456 (1)
Discrimination
Discrimination by Employers 456 (1)
Discrimination by Fellow Workers 456 (1)
Statistical Discrimination 456 (1)
The Roles of the Market and the Government 457 (1)
Summary 458 (1)
Key Term 458 (1)
PART VI THE UNITED STATES IN THE WORLD ECONOMY 459 (24)
International Trade and Comparative 461 (22)
Advantage
Issue: How Can Americans Compete with 462 (1)
``Cheap Foreign Labor''?
Why Trade? 463 (1)
Mutual Gains from Trade 463 (1)
International Versus Intranational Trade 464 (1)
Political Factors in International Trade 464 (1)
The Many Currencies Involved in 464 (1)
International Trade
Impediments to Mobility of Labor and 464 (1)
Capital
The Law of Comparative Advantage 465 (4)
The Arithmetic of Comparative Advantage 465 (1)
The Graphics of Comparative Advantage 466 (3)
Issue Resolved: Comparative Advantage 469 (1)
Exposes the ``Cheap Foreign Labor''
Fallacy
Tariffs, Quotas, and Other Interferences 469 (2)
with Trade
Tariffs versus Quotas 471 (1)
Why Inhibit Trade? 471 (4)
Gaining a Price Advantage for Domestic 471 (1)
Firms
Protecting Particular Industries 472 (1)
National Defense and Other Noneconomic 473 (1)
Considerations
The Infant-Industry Argument 474 (1)
Strategic Trade Policy 474 (1)
Can Cheap Imports Hurt a Country? 475 (2)
A Last Look at the ``Cheap Foreign 476 (1)
Labor'' Argument
Summary 477 (1)
Key Terms 478 (1)
Test Yourself 478 (1)
Discussion Questions 478 (1)
Appendix: Supply, Demand, and Pricing in 479 (4)
World Trade
How Tariffs and Quotas Work 480 (1)
Summary 481 (1)
Test Yourself 481 (2)
Glossary 483 (8)
Index 491