Microeconomics : principles and policy / 7th ed.

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