sixteenth edition - gbv
TRANSCRIPT
Sixteenth Edition
^ HP \\ (3o
Research Professor of EconomicsUniversity of Texas-Arlington
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Preface
PAtT 3
PART 4
7
PART 8
Introduction1 The Nature of Economics2 Scarcity and the World of Trade-Offs3 Demand and Supply4 Extensions of Demand and Supply Analysis5 Public Spending and Public Choice6 Funding the Public Sector
Introduction to Macroeconomics and Economic Growth7 The Macroeconomy: Unemployment, Inflation, and Deflation8 Measuring the Economy's Performance9 Global Economic Growth and Development
Real GDP Determination and Fiscal Policy10 Real GDP and the Price Level in the Long Run11 Classical and Keynesian Macro Analyses12 Consumption, Real GDP, and the Multiplier13 Fiscal Policy14 Deficit Spending and the Public Debt
Money, Stabilization, and Growth15 Money, Banking, and Central Banking16 Domestic and International Dimensions of Monetary Policy17 Stabilization in an Integrated World Economy18 Policies and Prospects for Global Economic Growth
Dimensions of Microeconomics19 Demand and Supply Elasticity20 Consumer Choice21 Rents, Profits, and the Financial Environment of Business
Market Structure, Resource Allocation, and Regulation22 The Firm: Cost and Output Determination23 Perfect Competition24 Monopoly25 Monopolistic Competition26 Oligopoly and Strategic Behavior27 Regulation and Antitrust Policy in a Globalized Economy
Labor Resources and the Environment28 The Labor Market: Demand, Supply, and Outsourcing29 Unions and Labor Market Monopoly Power30 Income, Poverty, and Health Care31 Environmental Economics
Global Economics32 Comparative Advantage and the Open Economy33 Exchange Rates and the Balance of Payments
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Preface
ExampleThe Perceived Value of GiftsGetting Directions
International ExampleIndian Men Living in the United States
Become Ineligible Bachelors
Policy ExampleThe Government Gives Everyone an
Incentive to Own a Golf Cart
0 The Nature of Economics 1The Power of Economic Analysis 2Defining Economics 2The Three Basic Economic Questions and Two Opposing Answers 3The Economic Approach: Systematic Decisions 5Economics as a Science 7
Why Not... Try to Increase Blood Donations by Offering Small Paymentsto Donors? 9
Positive Versus Normative Economics 10
You Are There A Movie Producer Responds to Incentives 11
Issues & Applications In Many U.S. Industries, Command and Control Rules 12Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 13
ProblemsEconomics on the NetAnswers to Quick Quizzes
Appendix A Reading and Working with GraphsDirect and Inverse RelationshipsConstructing a GraphGraphing Numbers in a TableThe Slope of a Line (A Linear Curve)
Summary: What You Should Know/Key Terms andKey Figures/Where to Go to Practice
Problems
141616
1717171921
2424
ExampleAirlines Confront the Opportunity Cost
ofLegroom on Planes . 31
International ExampleFrance Is the Sleeping Giant 30Time as a Determinant of Comparative
Advantage 40
2 Scarcity and the World of Trade-Offs 26Scarcity 27Wants and Needs , 28Scarcity, Choice, and Opportunity Cost 29The World of Trade-Offs 30The Choices Society Faces 32
Why Not... Provide "Free" Health Care to Everyone in the United States? 33Economic Growth and the Production Possibilities Curve 3 5The Trade-Off Between the Present and the Future 36Specialization and Greater Productivity 38Comparative Advantage and Trade Among Nations 40
You Are There Stopping Students' Thursday Night Partieswith Friday Classes 41
Issues & Applications Is Daylight Saving Time Efficient? 42Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 43
Problems 44Economics on the Net • 46
• Answers to Quick Quizzes 47VI
ExampleA Mistaken Price Change Confirms the Law
of Demand 50Why Even Low-Income Households Are
Rushing to Buy iPhones 51An Income Drop Reveals That Divorce
Services Are a Normal Good 55Computer Hardware Consumers Substitute
in Favor of "Clouds" 56How 'Tracking" for Natural Gas Has
Affected Its Supply 63How the Housing Bust Created a Sawdust
Shortage 66
International ExampleWhy the Quantity of Brides Supplied Is
Rising in China 59
Policy ExampleShould Shortages in the Ticket Market Be
Solved by Scalpers? 61
CONTENTS VII
3 Demand and Supply 48Demand 49The Demand Schedule 51Shifts in Demand 54The Law of Supply 58The Supply Schedule 59
Why Not... Help College Students by Requiring Publishers to ReducePrices for All of the Textbooks They Currently Supply? 61
Shifts in Supply 62Putting Demand and Supply Together 64
You Are There Adjusting to a Lower Market Clearing Price of Solar Cells 68
Issues & Applications How the Great Recession Identified Inferior Goods 68Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 69
Problems 71Economics on the Net 73Answers to Quick Quizzes 73
International Policy ExampleThe Rice Must Be White! 81
International ExampleAssisting Scattered Emigrants Who Want to
Help Kin at Home 16What Accounts for Rising Pork Prices in
China? . 18
Policy ExampleBad Timing for Increasing the Minimum
81
4 Extensions of Demand and Supply Analysis 74The Price System and Markets 75Changes in Demand and Supply _, 76The Rationing Function of Prices 79The Policy of Government-Imposed Price Controls 80The Policy of Controlling Rents 82
Why Not... Require Owners of Residential Buildings toProvide Low-Cost Housing So That All U.S. ResidentsCan "Afford" Roofs over Their Heads? 83
Price Floors in Agriculture ' 84Price Floors in the Labor Market 85Quantity Restrictions 87
You Are There "Cash for Clunkers" Subsidies and the Market for"Liquid Glass" 88
issues & Applications Contemplating Two Ways to Tackle Water Shortages 88Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 90
Problems 91Economics on the Net 93Answers to Quick Quizzes 93
Appendix B Consumer Surplus, Producer Surplus, and Gainsfrom Trade within a Price System 94
Consumer Surplus 94Producer Surplus . 95Gains from Trade Within a Price System 96Price Controls and Gains from Trade 97
VIII CONTENTS
ExampleSpace Age Litterbugs 100Countdown to Private Production
of Space Travel 104Valuable Charter School Services—
for Those Who Can Get Them 111
International ExampleSo Little Mail, So Little for So
Many Post Offices to Do 113
Policy ExampleSeeking to Halt "Overuse" of
Massachusetts Health Care 110
5 Public Spending and Public Choice 98What a Price System Can and Cannot Do 99Correcting for Externalities 99The Other Economic Functions of Government 103The Political Functions of Government 105
Why Not... Classify Broadband Internet Access as aGovernment-Sponsored Good and Provide It to All U.S.Residents? 106
Public Spending and Transfer Programs 106Collective Decision Making: The Theory of Public Choice 111
You Are There A Town Confronts a Parked Externality 114
Issues & Applications Uncle Sam Becomes an Investor inClean-Energy Technology • [ 114
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice , 116
Problems 117Economics on the Net 119Answers to Quick Quizzes ~ 120
International Policy ExampleIreland Collects Plenty of Corporate Taxes
with a Low Rate 130
Policy ExampleGovernment Grinches Grab Gifts 122Will U.S. Consumers Pour Their
Dollars into a Federal VAT? 123What the Typical Taxpayer Owes
Out of the Next Dollar Earned 124
6 Funding the Public Sector 121Paying for the Public Sector 122Systems of Taxation ' 122The Most Important Federal Taxes 125Tax Rates and Tax Revenues " 128
Why Not... Follow the Example of States such as Marylandby Creating a "Millionaires" Tax Bracket witliExtra-High Tax Rates Applied to Incomes Exceeding$1 Million per Year? 130
Taxation from the Point of View of Producers and Consumers 131
You Are There A Business Owner Responds to a Marginal Tax Rate Increase 133
Issues & Applications Raising Capital Gains Tax Rates Shrinksthe Tax Base 134
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 135
Problems • 136Economics on the Net 138Answers to Quick Quizzes 138
ExampleRethinking Rankings of
Top-Selling FilmsKeeping Tabs on Economic
Sentiment
141
154
International ExampleA Source of "Nonregularity" in Japans
Cyclical Unemployment 144
7 The Macroeconomy: Unemployment,Inflation, and Deflation 139Unemployment 140
Why Not... Provide Job Losers with UnemploymentBenefits Indefinitely? 142
The Major Types of Unemployment . 143Full Employment and the Natural Rate of Unemployment 145Inflation and Deflation 146Anticipated versus Unanticipated Inflation 150Changing Inflation and Unemployment: Business Fluctuations 152
You Are There A Family Restaurant Regretfully Boosts theUnemployment Rate 154
Issues & Applications Bad News from the Misery Index 155
CONTENTS IX
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice
ProblemsEconomics on the NetAnswers to Quick Quizzes
156158159160
ExampleIs Failing to Include Hidden Intangibles
Depressing Measured Business FixedInvestment? 169
Correcting GDP for Price Index Changes,2001-2011 116
International Policy ExampleThe French Government Seeks to
De-emphasize GDP 161
International ExamplePurchasing Power Parity Comparisons of
World Incomes 119
8 Measuring the Economy's Performance i6iThe Simple Circular Flow 162National Income Accounting 164Two Main Methods of Measuring GDP 167Other Components of National Income Accounting 172
" ' " Distinguishing Between Nominal and Real Values 175
Why Not... Always Use the Most Recent CompletedCalendar Year as the Base Year for ComputingReal GDP? 177
Comparing GDP Throughout the World 178
You Are There Questioning China's Official Real GDP Statistics 180
Issues & Applications Can More Per Capita Real GDP BuyAdditional Happiness? 180
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 181
Problems 183Economics on the Net •_ 186Answers to Quick Quizzes 186
International ExampleGrowth Rates Around the World 189Tracking a Global Economic Growth
Divergence 191The High Chinese Saving Rate and Its
Growth Implications 194What Economic Growth Success Stories
Have in Common 191
9 Global Economic Growth and Development 187, How Do We Define Economic Growth? 188Productivity Increases: The Heart of Economic Growth 192Saving: A Fundamental Determinant of Economic Growth 193New Growth Theory and the Determinants of Growth 195
Why Not... Promote Innovation by Awarding More Patents? 196Immigration, Property Rights, and Growth 199Economic Development 200
You Are There A Nonabsorbable Fat Finally Finds a Market Niche • 2 0 4
Issues & Applications China Discovers the GrowthBenefits of Patents 204
Summary: What You Should Know/Key Terms and KeyFigures/Where to Go to Practice 206
- Problems ' 207Economics on the Net 208Answers to Quick Quizzes 208
ExampleHow Much Might "Going Green" Reduce
U.S. Economic Growth? 212Explaining the Drop in Aggregate Demand
in the Late 2000s 211
and Fnscal Policy
30 Real GDP and t h e Price Level in t h eLong Run 209Output Growth and the Long-Run Aggregate Supply Curve 210Total Expenditures and Aggregate Demand 213Shifts in the Aggregate Demand Curve 216Long-Run Equilibrium and the Price Level 217Causes of Inflation 219
Why Not... Pass a Law That Prohibits Firms from Raising Their Prices? 219
You Are There Fighting Inflation in Pakistan 222
X CONTENTS
Issues & Applications Japan's Deflation Rate Switches fromSteady to Volatile 222
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 224
Problems ' 225Economics on the Net 227Answers to Quick Quizzes 228
ExampleThe U.S. Economy Experiences a Decline in
Aggregate Supply 242
18 Classical and Keynesian Macro Analyses 229The Classical Model 230
Why Not;.."Always Require Low Interest Rates to BoostInvestment Spending? 232
Keynesian Economics and the Keynesian Short-RunAggregate Supply Curve J 235
Output Determination Using Aggregate Demand andAggregate Supply: Fixed versus Changing PriceLevels in the Short Run 236
Shifts in the Aggregate Supply Curve 238Consequences of Changes in Aggregate Demand 239Explaining Short-Run Variations in Inflation 241
You Are There Putting More Weight on Stability Than Growth in Denmark 244
Issues & Applications Which Shocks Have the GreatestEffects on the Economy? " 245
Summary: What You Should Know/Key Terms and KeyFigures/Where to Go to Practice 246
Problems 247Economics on the Net 249Answers to Quick Quizzes 249
ExampleA Great Inventory Buildup During the
Great Recession 262
Policy Example \Why Knowing Consumer Sentiment Aids
Consumption Forecasts 255
82 Consumption, Real GDP, and theMultiplier 250Some Simplifying Assumptions in a Keynesian Model 251Determinants of Planned Consumption and Planned Saving 252
Why Not... Help the Economy by Taking from the Rich andGiving to the Poor? 257
Determinants of Investment 257Determining Equilibrium Real GDP 259Keynesian Equilibrium with Government and the
Foreign Sector Added 263The Multiplier 265How a Change in Real Autonomous Spending Affects
Real GDP When the Price Level Can Change 267The Relationship Between Aggregate Demand and
theC + / + G + XCurve 268
You Are There In Boise, Idaho, Inventories Accumulateas Desired Saving Rises 210
Issues & Applications Why U.S. Consumption SpendingDropped in the Late 2000s 270'
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 272
Problems 273Economics on the Net 275Answers to Quick Quizzes 275
Appendix C The Keynesian Model and the Multiplier 276
CONTENTS XI
Policy ExampleWinch Affects Real GDP
More—Spending or Tax Cuts?
13 Fiscal PolicyDiscretionary Fiscal Policy
Why Not... End Our Economic Troubles by Borrowing toFinance Additional Discretionary Government Spending?
Possible Offsets to Fiscal PolicyDiscretionary Fiscal Policy in Practice: Coping with Time LagsAutomatic StabilizersWhat Do We Really Know About Fiscal Policy?
You Are There Raising Tax Rates While Emerging from a Severe Recession
Issues & Applications Temporary Tax Rebates Prove to BeNonstimulating
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice
ProblemsEconomics on the NetAnswers to Quick Quizzes
Appendix D Fiscal Policy: A Keynesian PerspectiveChanges in Government SpendingChanges in TaxesThe Balanced-Budget MultiplierThe Fixed Price Level AssumptionProblems
International Policy ExampleWhy European Governments Are Paying
More Interest on Debt 304How Do U.S. Residents' Foreign Debt
Obligations Compare? 306
B4 Deficit Spending and the Public DebtPublic Deficits and Debts: Flows versus StocksGovernment Finance: Spending More Than Tax CollectionsEvaluating the Rising Public DebtFederal Budget Deficits in an Open EconomyGrowing U.S. Government Deficits: Implications for
U.S. Economic Performance
Why Not... Eliminate Deficits and the Debt by Taxing theRichest 1 Percent More?
You Are There Facing the Good News and the Bad
Issues & Applications The United States Is Vying for the"Lead" in Deficits and Debt
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice
ProblemsEconomics on the NetAnswers to Quick Quizzes
ExampleMobile Payments Are Catching On 326
International Policy ExampleVenezuela Promotes Private Moneys—with
Conditions Attached 321
Policy ExampleThe Never-Ending Battle Against
Counterfeiters 319
PkRT 4 Money, Stabilization, and Growth
15 Money, Banking, and Central BankingThe Functions of MoneyProperties of MoneyDefining MoneyFinancial Intermediation and BanksThe Federal Reserve System: The U.S. Central BankFractional Reserve Banking, the Federal Reserve,
and the Money SupplyWhy Not... Eliminate Open Market Operations?
Federal Deposit InsuranceYou Are There A River Currency for Riverwest, Wisconsin
XII CONTENTSIssues & Applications Entrepreneurs Boost FDIC Coverage—and
Moral Hazard 340Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 341
Problems 343Economics on the Net 344Answers to Quick Quizzes 344
International Policy ExampleNorth Korea Divides Its Money
by 100 354
86 Domestic and In ternat ional Dimensionsof Monetary Policy 345The Demand for Money 346How the Fed Influences Interest Rates 348Effects of an Increase in the Money Supply 349Open Economy Transmission of Monetary Policy 351Monetary Policy and Inflation 353Monetary Policy in Action: The Transmission Mechanism 355The Way Fed Policy Is Currently Implemented 357Selecting the Federal Funds Rate Target 360
Why Not... Just Follow the Taylor Rule? 362
You Are There How Zimbabwe Undercut Collectors' Hopes of Profits 363
Issues & Applications Explaining the Rise in the Quantity of Bank Reserves 363Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 365
Problems \ 367Economics on the Net ' 368Answers to Quick Quizzes 369
Appendix E Monetary Policy: A Keynesian Perspective 370Increasing the Money Supply 370Decreasing the Money Supply 371Arguments Against Monetary Policy ' 371Problems 371
ExampleThe U.S. Natural Rate of \
Unemployment 315Small Menu Costs in the U.S.
Market for Imported Beer 386
Policy ExampleModerating the Great Recession
Is Harder Than Anticipated 381
\1 Stabil ization in an IntegratedWor ld Economy 373Active versus Passive Policymaking 374The Natural Rate of Unemployment 374
Why Not... Ignore Newspaper Headlines About Inflation? 380Rational Expectations, the Policy Irrelevance Proposition, and Real
Business Cycles 381Modern Approaches to Justifying Active Policymaking 385Is There a New Keynesian Phillips Curve? 388Summing Up: Economic Factors Favoring Active versus
Passive Policymaking 390
You Are There Fed Discretion—Based on What the Fed Forecasts or What ItObserves? 391
Issues & Applications Inflation Expectations and the "5yr5yr Rate" 392Summary: What You Should Know/Key Terms and Key Figures/Whereto Go to Practice 393
Problems 394Economics on the Net 396Answers to Quick Quizzes 396
International Policy ExampleFreedom of Information and Growth in
Developing Nations 400
International ExampleHow Cellphones Are Fueling Economic
Development : 406
CONTENTS XIII
18 Policies and Prospects for GlobalEconomic Growth 397Labor Resources and Economic Growth 398Capital Goods and Economic Growth 400Private International Financial Flows as a Source
of Global Growth 403
Why Not... Direct More Foreign Aid to Poor Nations toHelp Them Grow Faster? 404
International Institutions and Policies for Global Growth 405
You Are There Putting Meager Capital to Work in India 408
Issues & Applications Supporting Private Entrepreneurs with Public Funds 409Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 410
Problems 411Economics on the Net 414Answers to Quick Quizzes 414
ExampleThe Price Elasticity of Demand
for Natural Gas 418What Do Real- World Price
Elasticities of Demand Look Like? 424The Income Elasticity of Demand
for Dental Services 421
International ExamplePrice Elasticities of Salmon Supply
in Norway 429
5 Oomemisoons of Microecopomocs
99 Demand and Supply Elasticity 415Price Elasticity 416Price Elasticity Ranges 418Elasticity and Total Revenues 419Determinants of the Price Elasticity of Demand 422
Why Not... Always Raise Prices When Demand Is Inelastic? 423Cross Price Elasticity of Demand 425Income Elasticity of Demand 426Price Elasticity of Supply 427
You Are There Pricing the iPad: Learning Lessons from the iPhone 430
Issues & Applications Measuring the Substitutability of Satelliteand Cable TV 430
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 431
Problems 433Economics on the Net 434Answers to Quick Quizzes 434
ExampleNewspaper Vending Machines
versus Candy Vending Machines 440Does Consuming More Expensive Items
Make People Happier? 442
20 Consumer Choice 435Utility Theory 436Graphical Analysis 43 7Diminishing Marginal Utility 439Optimizing Consumption Choices 440
Why Not... Make Consumers Happier by Requiring Themto Purchase the Quantities the Government Chooses? 443
How a Price Change Affects Consumer Optimum 443The Demand Curve Revisited 445Behavioral Economics and Consumer Choice Theory 446
You Are There Signing Up for "Free" Trial Offers with TrialPay ^Al
Issues & Applications Is the Utility from Using Credit CardsReally Negative? 448
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 449
Problems 450Economics on the Net 451Answers to Quick Quizzes 452
XIV CONTENTS
Appendix F More Advanced Consumer Choice TheoryOn Being IndifferentProperties of Indifference CurvesThe Marginal Rate of SubstitutionThe Indifference MapThe Budget Constraint
,- Consumer Optimum RevisitedDeriving the Demand Curve
Summary: What You Should Know/Key Terms and KeyFigures/Where to Go to Practice
Problems
453453454455456457458459
460
461
ExampleDo Entertainment Superstars Make
Super Economic Rents? 464Higher Future Taxes Reduce the
Discounted Present Value of Profits 413
International ExampleBritish Law Firms Adopt Corporate
Structures 461
Policy ExampleThe Insider-Trading Regulator's
Insiders Require Regulating 416
2 B Rents, Profits, and the FinancialEnvironment of Business 462Economic Rent 463Firms and Profits 465Interest 470Corporate Financing Methods 474The Markets for Stocks and Bonds 475
Why Not...Compare Average Stock Prices Today withAverage Stock Prices in Years Past? 475
You Are There Why New York City Provides the Homeless withOne-Way Tickets 477
Issues & Applications The Recent Stock Market Meltdown versusPast Meltdowns Ml
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 479
Problems 480Economics on the Net 482Answers to Quick Quizzes 482
ExampleVirtualization Expands Feasible Production
at Many Firms 485New Technologies Reshape the LAC Curve in
Book Publishing 491Why "Big-Box" Retailer Best Buy Has
Begun to Shrink Its Stores 500
Policy ExamplePulling New Weapons off the Computer
Games Shelf 491
IPAIRT 6 Market Stryctuire, [Resoyirce Allocation,
22 The Firm: Cost and Output DeterminationShort Run versus Long RunThe Relationship Between Output and InputsDiminishing Marginal ProductShort-Run Costs to the Firm
Why Not...Force Firms to Reduce Their Fixed and, Hence,Total Costs by Cutting Their Energy Use?
The Relationship Between Diminishing Marginal Productand Cost Curves
Long-Run Cost CurvesWhy the Long-Run Average Cost Curve Is U-ShapedMinimum Efficient Scale
You Are There During Hard Times for Borrowers, a Repo Man AlsoHas It Tough
issues & Applications Why Small Nuclear ReactorsAre Fueling Big Dreams
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice
Problems' Economics on the Net
Answers to Quick Quizzes
483
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489
493496498499
501
501
502504506506
ExampleWhy Firms Stubbornly Produced
Aluminum in the Late 2000s 511
International ExampleA Global Plunge in the Price of Iron Ore
Leads to Shutdowns 516
CONTENTS XV
23 Perfect Compet i t ion 507Characteristics of a Perfectly Competitive Market Structure 508The Demand Curve of the Perfect Competitor 508How Much Should the Perfect Competitor Produce? 509Using Marginal Analysis to Determine the
Profit-Maximizing Rate of Production 511Short-Run Profits 513The Short-Run Break-Even Price and the Short-Run
Shutdown Price 515The Supply Curve for a Perfectly Competitive Industry 517Price Determination Under Perfect Competition 519The Long-Run Industry Situation: Exit and Entry 520
. - -Long-Run Equilibrium 523
Why Not... Eliminate Economic Profits Entirely? 524Competitive Pricing: Marginal Cost Pricing 524
You Are There The Coal Mining Industry Confronts a ChangingCost Structure 525
Issues & Applications. I Higher Price Sets Off aNew California Gold Rush 526
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 527
Problems 529Economics on the Net 531Answers to Quick Quizzes 531
ExampleInducing Patients to Switch from One
Patented Drug to Another 536Why Students Pay Different Prices to
Attend College 545
International ExampleA Mexican Cement Monopoly
Finds a Way to Incur Losses 544
Policy ExampleCongress Decides to License Tax \
Preparers 535
24 Monopoly 532Definition of a Monopolist 533Barriers to Entry 533
Why Not...Stop Erecting Government Barriers to Entry? 534The Demand Curve a Monopolist Faces 536Elasticity and Monopoly 538Costs and Monopoly Profit Maximization 539Calculating Monopoly Profit 542On Making Higher Profits: Price Discrimination 544The Social Cost of Monopolies 546
You Are There A Texas Veterinary Board Whittles Down Vets' Competition 547
Issues & Applications This Medallion Is Not Simply a Decorative Pendant 548Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 549
Problems 551Economics on the Net 552Answers to Quick Quizzes 552
Appendix G Consumer Surplus and the Deadweight Loss Resultingfrom Monopoly 553
Consumer Surplus in a Perfectly Competitive Market 553How Society Loses from Monopoly 554
ExampleIs Punxsutawny Phil Hogging Too Much
Attention? v 551
25 Monopol ist ic Compet i t ion 555Monopolistic Competition 556Price and Output for the Monopolistic Competitor 558Comparing Perfect Competition with Monopolistic Competition 560Brand Names and Advertising 561
Why Not...Outlaw Persuasive Advertising? 563Information Products and Monopolistic Competition 564
You Are There Stimulating Candy Sales by Adding Caffeine 567
XVI CONTENTS
Issues & Applications Finding a Band Name Between ABBA and ZZ Top 568Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 569
Problems 570Economics on the Net 572Answers to Quick Quizzes 572
ExampleMarket Concentration in the Cellphone
Industry 516The Prisoners' Dilemma 518
Policy ExampleThe U.S. Government Protects an
Oligopoly—Or Is It a Cartel? 581
2 6 Ol igopoly and Strategic Behavior 573Oligopoly 574Strategic Behavior and Game Theory 577The Cooperative Game: A Collusive Cartel 580•Network Effects 582Product Compatibility in Multiproduct Oligopolies
Facing Network Effects 583
Why Not...Require Companies to Make Their Products Compatible? 586
Comparing Market Structures 588
You Are There Apple Puts Adobe on Hold 588
Issues & Applications More Companies are "Going Vertical" 589Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 590
Problems 592Economics on the Net ' 593Answers to Quick Quizzes 593
International Policy ExampleAntitrust Authorities Fine Intel for
Its Low Prices 609
Policy ExampleFood Makers Respond to Regulation by
Replacing Trans Fats 604The Tobacco Industry Sees Benefits in
Regulation 604
27 Regulation and Antitrust Policyin a Globalized Economy 594Forms of Industry Regulation 595Regulating Natural Monopolies 597Regulating Nonmonopolistic Industries 600Incentives and Costs of Regulation 603Antitrust Policy 606Antitrust Enforcement 609
Why Not... Outlaw All Mergers Between Firms That
Sell Similar Items? 610
You Are There A Church Loses a Pie Fight with Pennsylvania 611
Issues & Applications Food-Labeling Regulations Multiply 612Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 613
Problems . 615Economics on the Net 616Answers to Quick Quizzes 617
International ExampleGlobalization of Tasks and the Elasticity
of U.S. Labor Demand 625An Increase in the Demand for Services
of Icelandic Translators 621
Policy ExamplePayroll Regulations Spur the Hiring of
Independent Contractors 635
2 8 The Labor M a r k e t : D e m a n d , Supply,and Outsourc ing 618Labor Demand for a Perfectly Competitive Firm • . 619The Market Demand for Labor 62 3Wage Determination in a Perfectly Competitive Labor Market 625Labor Outsourcing, Wages, and Employment 628
Why Not...Prohibit U.S. Firms from Outsourcing? 631^ Monopoly in the Product Market 631
The Utilization of Other Factors of Production 634
You Are There At Staples, the Demand for Robotic Inputs Is Increasing 636
CONTENTS XVII
Issues & Applications The Incentives to Outsource Labor Internationally 636Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 638
Problems 639Economics on the Net 641Answers to Quick Quizzes 641
International ExampleThe Chinese Union Monopoly Expands to
Include Employees of Foreign Firms 644
Policy ExampleCan Minimum Wage Laws Ever Boost
Employment? 654
29 Unions and Labor MarketMonopoly Power 642Industrialization and Labor Unions 643Union Goals and Strategies 646
.' - -Economic Effects of Labor Unions 650
Why Not...Require Firms to Pay Union Wages to r
Nonunionized Workers? 650Monopsony: A Buyer's Monopoly 651
You Are There Caught Up in an Unusual Jurisdictional Dispute in Michigan 656
Issues & Applications Tax Dollars Increasingly Pay Union Wages 657Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 658
Problems 660Economics on the Net 661Answers to Quick Quizzes 662
ExampleWomen Discover Payoffs from Extra
Education and Training 669
International ExampleThe U.S. Health Care Program's Benefits
for Indian Workers 681
3 0 Income, Poverty, and Heal th Care 663Income 664Determinants of Income Differences 667Theories of Desired Income Distribution 670Poverty and Attempts to Eliminate It 671Health Care 675
Why Not...Have All Physicians Work for the Federal Government? 680
You Are There In Massachusetts, Public Health Care Means Price Controls 682
Issues & Applications Is Your College Degree Worth $1 Million? 682Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 684
Problems 685Economics on the Net 686Answers to Quick Quizzes 687
International ExampleFisheries Hook a Solution to the Common
Property Problem 698
Policy ExampleWhy Higher Cigarette Taxes Might Be
Preferable to Smoking Bans 692
3 0 Env i ronmenta l Economics 688Private versus Social Costs 689Correcting for Externalities 691Pollution 692Common Property 694Reducing Humanity's Carbon Footprint: Restraining
Pollution-Causing Activities . 696
Why Not...Eliminate Nearly All U.S. Carbon Emissions? 697
Wild Species, Common Property, and Trade-Offs 697
You Are There Fuel Efficiency Rules and the "Rebound Effect"' 698
Issues & Applications Human Activities and Honeybee ColonyCollapse Disorder 699
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 700
Problems 702Economics on the Net 703Answers to Quick Quizzes 704
XVIII CONTENTS
International Policy ExampleDoes the Spread of Regional Trade Blocs
Reduce Protectionism? 120
International ExampleGains from International Trade in Used
Merchandise 111Can Africa's International Competitiveness
Be Improved? 713'.
32 Comparat ive Advantage and t h e OpenEconomy 705The Worldwide Importance of International Trade 706Why We Trade: Comparative Advantage and Mutual Gains from
Exchange 707
Why Not...Obtain Gains from Trade by Subsidizing Exports andDiscouraging Imports? 712
The Relationship Between Imports and Exports 713International Competitiveness ^ 713Arguments Against Free Trade 714Ways to Restrict Foreign Trade 716International Trade Organizations . 718
You Are There Union Workers Find Themselves on Opposing Sides on Trade 720
Issues & Applications A U.S. Effort to Expand ExportsWhile Reducing Imports 721
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 722
Problems 723Economics on the Net 725Answers to Quick Quizzes 725
International ExampleCurrent Account Balances and
Currency Values 139
33 Exchange Rates and the Balanceof Payments 726The Balance of Payments and International Capital Movements 727Determining Foreign Exchange Rates 732
Why Not...Encourage U.S. Exports by Forcing the Dollar'sValue to Fall? 737
The Gold Standard and the International Monetary Fund 740Fixed versus Floating Exchange Rates 740
You Are There Trading in the Real Estate Business for Trading Currencies 743
Issues & Applications Will the Euro's Global CurrencyStatus Be Short-Lived? 744-
Summary: What You Should Know/Key Terms and Key Figures/Where to Go to Practice 745
Problems 747Economics on the Net 748Answers to Quick Quizzes 748
Answers to Odd-Numbered Problems
Glossary
Index
A-l
G-l
1-1