Economics
Today
Sixteenth Edition
Roger LeRoy Miller
Research Professor of Economics
University of Texas–Arlington
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Library of Congress Cataloging-in-Publication Data
Miller, Roger LeRoy.
Economics today / Roger LeRoy Miller. —16th ed.
p. cm. — (The pearson series in economics)
Includes index.
ISBN 978-0-13-255461-9 (single volume edition; chapters 1-33) — ISBN 978-0-13-255451-0
(the macro view; chapters 1–18; 32–33) — ISBN 978-0-13-255441-1 (the micro view;
chapters 1–6; 19–33)
1. Economics. 2. Microeconomics. 3. Macroeconomics. I. Title.
HB171.5.M642 2012
330—dc22
2010049938
10 9 8 7 6 5 4 3 2 1
ISBN 10: 0-13-255461-5
ISBN 13: 978-0-13-255461-9
Brief Contents
Preface
PA RT I
Introduction
1
2
3
4
5
6
PA RT 2
The Macroeconomy: Unemployment, Inflation, and Deflation
Measuring the Economy’s Performance
Global Economic Growth and Development
Real GDP and the Price Level in the Long Run
Classical and Keynesian Macro Analyses
Consumption, Real GDP, and the Multiplier
Fiscal Policy
Deficit Spending and the Public Debt
Money, Banking, and Central Banking
Domestic and International Dimensions of Monetary Policy
Stabilization in an Integrated World Economy
Policies and Prospects for Global Economic Growth
415
435
462
The Firm: Cost and Output Determination
Perfect Competition
Monopoly
Monopolistic Competition
Oligopoly and Strategic Behavior
Regulation and Antitrust Policy in a Globalized Economy
483
507
532
555
573
594
Labor Resources and the Environment
28
29
30
31
PA RT 8
317
345
373
397
Market Structure, Resource Allocation, and Regulation
22
23
24
25
26
27
PA RT 7
209
229
250
277
298
Dimensions of Microeconomics
19 Demand and Supply Elasticity
20 Consumer Choice
21 Rents, Profits, and the Financial Environment of Business
PA RT 6
139
161
187
Money, Stabilization, and Growth
15
16
17
18
PA RT 5
1
26
48
74
98
121
Real GDP Determination and Fiscal Policy
10
11
12
13
14
PA RT 4
The Nature of Economics
Scarcity and the World of Trade-Offs
Demand and Supply
Extensions of Demand and Supply Analysis
Public Spending and Public Choice
Funding the Public Sector
Introduction to Macroeconomics and Economic Growth
7
8
9
PA RT 3
xx
The Labor Market: Demand, Supply, and Outsourcing
Unions and Labor Market Monopoly Power
Income, Poverty, and Health Care
Environmental Economics
618
642
663
688
Global Economics
32 Comparative Advantage and the Open Economy
33 Exchange Rates and the Balance of Payments
705
726
v
Contents
Preface
PA RT 1
Example
The Perceived Value of Gifts
Getting Directions
7
8
International Example
Indian Men Living in the United States
Become Ineligible Bachelors
5
Policy Example
The Government Gives Everyone an
Incentive to Own a Golf Cart
6
Example
Airlines Confront the Opportunity Cost
of Legroom on Planes
31
International Example
France Is the Sleeping Giant
30
Time as a Determinant of Comparative
Advantage
40
xx
Introduction
1 The Nature of Economics
2
2
3
5
7
Why Not… Try to Increase Blood Donations by Offering Small Payments
to 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
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
12
13
14
16
16
Appendix A Reading and Working with Graphs
Direct and Inverse Relationships
Constructing a Graph
Graphing Numbers in a Table
The Slope of a Line (A Linear Curve)
Summary: What You Should Know/Key Terms and
Key Figures/Where to Go to Practice
Problems
17
17
17
19
21
2 Scarcity and the World of Trade-Offs
26
Scarcity
Wants and Needs
Scarcity, Choice, and Opportunity Cost
The World of Trade-Offs
The Choices Society Faces
24
24
27
28
29
30
32
Why Not… Provide “Free” Health Care to Everyone in the United States?
Economic Growth and the Production Possibilities Curve
The Trade-Off Between the Present and the Future
Specialization and Greater Productivity
Comparative Advantage and Trade Among Nations
33
35
36
38
40
You Are There Stopping Students’ Thursday Night Parties
with Friday Classes
41
Issues & Applications Is Daylight Saving Time Efficient?
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
vi
1
The Power of Economic Analysis
Defining Economics
The Three Basic Economic Questions and Two Opposing Answers
The Economic Approach: Systematic Decisions
Economics as a Science
42
43
44
46
47
CONTENTS
Example
A Mistaken Price Change Confirms the Law
of Demand
50
Why Even Low-Income Households Are
Rushing to Buy iPhones
51
An Income Drop Reveals That Divorce
Services Are a Normal Good
55
Computer Hardware Consumers Substitute
in Favor of “Clouds”
56
How “Fracking” for Natural Gas Has
Affected Its Supply
63
How the Housing Bust Created a Sawdust
Shortage
66
International Example
Why the Quantity of Brides Supplied Is
Rising in China
59
Policy Example
3 Demand and Supply
Demand
The Demand Schedule
Shifts in Demand
The Law of Supply
The Supply Schedule
vii
48
49
51
54
58
59
Why Not… Help College Students by Requiring Publishers to Reduce
Prices for All of the Textbooks They Currently Supply?
Shifts in Supply
Putting Demand and Supply Together
61
62
64
You Are There Adjusting to a Lower Market Clearing Price of Solar Cells
68
Issues & Applications How the Great Recession Identified Inferior Goods
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
68
69
71
73
73
4 Extensions of Demand and Supply Analysis
74
Should Shortages in the Ticket Market Be
Solved by Scalpers?
67
International Policy Example
The Rice Must Be White!
81
International Example
Assisting Scattered Emigrants Who Want to
Help Kin at Home
76
What Accounts for Rising Pork Prices in
China?
78
Policy Example
Bad Timing for Increasing the Minimum
Wage
87
The Price System and Markets
Changes in Demand and Supply
The Rationing Function of Prices
The Policy of Government-Imposed Price Controls
The Policy of Controlling Rents
75
76
79
80
82
Why Not… Require Owners of Residential Buildings to
Provide Low-Cost Housing So That All U.S. Residents
Can “Afford” Roofs over Their Heads?
Price Floors in Agriculture
Price Floors in the Labor Market
Quantity Restrictions
83
84
85
87
You Are There “Cash for Clunkers” Subsidies and the Market for
“Liquid Glass”
88
88
Issues & Applications Contemplating Two Ways to Tackle Water Shortages
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
90
91
93
93
Appendix B Consumer Surplus, Producer Surplus, and Gains
from Trade within a Price System
Consumer Surplus
Producer Surplus
Gains from Trade Within a Price System
Price Controls and Gains from Trade
94
94
95
96
97
viii
CONTENTS
Example
Space Age Litterbugs
Countdown to Private Production
of Space Travel
Valuable Charter School Services—
for Those Who Can Get Them
100
104
111
International Example
So Little Mail, So Little for So
Many Post Offices to Do
113
Policy Example
Seeking to Halt “Overuse” of
Massachusetts Health Care
110
International Policy Example
Ireland Collects Plenty of Corporate Taxes
with a Low Rate
130
Policy Example
Government Grinches Grab Gifts
Will U.S. Consumers Pour Their
Dollars into a Federal VAT?
What the Typical Taxpayer Owes
Out of the Next Dollar Earned
122
123
124
5 Public Spending and Public Choice
98
What a Price System Can and Cannot Do
Correcting for Externalities
The Other Economic Functions of Government
The Political Functions of Government
99
99
103
105
Why Not… Classify Broadband Internet Access as a
Government-Sponsored Good and Provide It to All U.S.
Residents?
Public Spending and Transfer Programs
Collective Decision Making: The Theory of Public Choice
106
106
111
You Are There A Town Confronts a Parked Externality
114
Issues & Applications Uncle Sam Becomes an Investor in
Clean-Energy Technology
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
Rethinking Rankings of
Top-Selling Films
Keeping Tabs on Economic
Sentiment
121
Paying for the Public Sector
Systems of Taxation
The Most Important Federal Taxes
Tax Rates and Tax Revenues
122
122
125
128
Why Not… Follow the Example of States such as Maryland
by Creating a “Millionaires” Tax Bracket with
Extra-High Tax Rates Applied to Incomes Exceeding
$1 Million per Year?
Taxation from the Point of View of Producers and Consumers
130
131
You Are There A Business Owner Responds to a Marginal Tax Rate Increase
133
PA RT 2
147
154
International Example
A Source of “Nonregularity” in Japan’s
Cyclical Unemployment
144
116
117
119
120
6 Funding the Public Sector
Issues & Applications Raising Capital Gains Tax Rates Shrinks
the Tax Base
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
Example
114
134
135
136
138
138
Introduction to Macroeconomics
and Economic Growth
7 The Macroeconomy: Unemployment,
Inflation, and Deflation
Unemployment
139
140
Why Not… Provide Job Losers with Unemployment
Benefits Indefinitely?
The Major Types of Unemployment
Full Employment and the Natural Rate of Unemployment
Inflation and Deflation
Anticipated versus Unanticipated Inflation
Changing Inflation and Unemployment: Business Fluctuations
142
143
145
146
150
152
You Are There A Family Restaurant Regretfully Boosts the
Unemployment Rate
154
Issues & Applications Bad News from the Misery Index
155
CONTENTS
Example
Is Failing to Include Hidden Intangibles
Depressing Measured Business Fixed
Investment?
169
Correcting GDP for Price Index Changes,
2001–2011
176
International Policy Example
The French Government Seeks to
De-emphasize GDP
167
International Example
Purchasing Power Parity Comparisons of
World Incomes
179
International Example
Growth Rates Around the World
Tracking a Global Economic Growth
Divergence
The High Chinese Saving Rate and Its
Growth Implications
What Economic Growth Success Stories
Have in Common
189
191
194
197
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
156
158
159
160
8 Measuring the Economy’s Performance
161
The Simple Circular Flow
National Income Accounting
Two Main Methods of Measuring GDP
Other Components of National Income Accounting
Distinguishing Between Nominal and Real Values
How Much Might “Going Green” Reduce
U.S. Economic Growth?
212
Explaining the Drop in Aggregate Demand
in the Late 2000s
217
162
164
167
172
175
Why Not… Always Use the Most Recent Completed
Calendar Year as the Base Year for Computing
Real GDP?
Comparing GDP Throughout the World
177
178
You Are There Questioning China’s Official Real GDP Statistics
180
Issues & Applications Can More Per Capita Real GDP Buy
Additional Happiness?
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
181
183
186
186
9 Global Economic Growth and Development
187
How Do We Define Economic Growth?
Productivity Increases: The Heart of Economic Growth
Saving: A Fundamental Determinant of Economic Growth
New Growth Theory and the Determinants of Growth
180
188
192
193
195
Why Not… Promote Innovation by Awarding More Patents?
Immigration, Property Rights, and Growth
Economic Development
196
199
200
You Are There A Nonabsorbable Fat Finally Finds a Market Niche
204
Issues & Applications China Discovers the Growth
Benefits of Patents
Summary: What You Should Know/Key Terms and Key
Figures/Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
Example
ix
PA RT 3
204
206
207
208
208
Real GDP Determination
and Fiscal Policy
10 Real GDP and the Price Level in the
Long Run
209
Output Growth and the Long-Run Aggregate Supply Curve
Total Expenditures and Aggregate Demand
Shifts in the Aggregate Demand Curve
Long-Run Equilibrium and the Price Level
Causes of Inflation
210
213
216
217
219
Why Not… Pass a Law That Prohibits Firms from Raising Their Prices?
219
You Are There Fighting Inflation in Pakistan
222
x
CONTENTS
Example
The U.S. Economy Experiences a Decline in
Aggregate Supply
242
Example
A Great Inventory Buildup During the
Great Recession
262
Policy Example
Why Knowing Consumer Sentiment Aids
Consumption Forecasts
255
Issues & Applications Japan’s Deflation Rate Switches from
Steady to Volatile
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
224
225
227
228
11 Classical and Keynesian Macro Analyses
229
The Classical Model
222
230
Why Not… Always Require Low Interest Rates to Boost
Investment Spending?
Keynesian Economics and the Keynesian Short-Run
Aggregate Supply Curve
Output Determination Using Aggregate Demand and
Aggregate Supply: Fixed versus Changing Price
Levels in the Short Run
Shifts in the Aggregate Supply Curve
Consequences of Changes in Aggregate Demand
Explaining Short-Run Variations in Inflation
236
238
239
241
You Are There Putting More Weight on Stability Than Growth in Denmark
244
232
235
Issues & Applications Which Shocks Have the Greatest
Effects on the Economy?
Summary: What You Should Know/Key Terms and Key
Figures/Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
246
247
249
249
12 Consumption, Real GDP, and the
Multiplier
250
Some Simplifying Assumptions in a Keynesian Model
Determinants of Planned Consumption and Planned Saving
Why Not… Help the Economy by Taking from the Rich and
Giving to the Poor?
Determinants of Investment
Determining Equilibrium Real GDP
Keynesian Equilibrium with Government and the
Foreign Sector Added
The Multiplier
How a Change in Real Autonomous Spending Affects
Real GDP When the Price Level Can Change
The Relationship Between Aggregate Demand and
the C I G X Curve
You Are There In Boise, Idaho, Inventories Accumulate
as Desired Saving Rises
245
251
252
257
257
259
263
265
267
268
270
Issues & Applications Why U.S. Consumption Spending
Dropped in the Late 2000s
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
272
273
275
275
Appendix C The Keynesian Model and the Multiplier
276
270
CONTENTS
13 Fiscal Policy
Policy Example
Which Affects Real GDP
More—Spending or Tax Cuts?
284
International Policy Example
Why European Governments Are Paying
More Interest on Debt
304
How Do U.S. Residents’ Foreign Debt
Obligations Compare?
306
Discretionary Fiscal Policy
Mobile Payments Are Catching On
326
International Policy Example
Venezuela Promotes Private Moneys—with
Conditions Attached
321
Policy Example
The Never-Ending Battle Against
Counterfeiters
319
277
278
Why Not… End Our Economic Troubles by Borrowing to
Finance Additional Discretionary Government Spending?
Possible Offsets to Fiscal Policy
Discretionary Fiscal Policy in Practice: Coping with Time Lags
Automatic Stabilizers
What Do We Really Know About Fiscal Policy?
279
280
285
286
287
You Are There Raising Tax Rates While Emerging from a Severe Recession
288
Issues & Applications Temporary Tax Rebates Prove to Be
Nonstimulating
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
290
292
294
294
Appendix D Fiscal Policy: A Keynesian Perspective
Changes in Government Spending
Changes in Taxes
The Balanced-Budget Multiplier
The Fixed Price Level Assumption
Problems
295
295
296
296
297
297
14 Deficit Spending and the Public Debt
Public Deficits and Debts: Flows versus Stocks
Government Finance: Spending More Than Tax Collections
Evaluating the Rising Public Debt
Federal Budget Deficits in an Open Economy
Growing U.S. Government Deficits: Implications for
U.S. Economic Performance
289
298
299
300
302
306
308
Why Not… Eliminate Deficits and the Debt by Taxing the
Richest 1 Percent More?
309
You Are There Facing the Good News and the Bad
311
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
Problems
Economics on the Net
Answers to Quick Quizzes
Example
xi
PA RT 4
312
313
314
316
316
Money, Stabilization, and Growth
15 Money, Banking, and Central Banking
317
The Functions of Money
Properties of Money
Defining Money
Financial Intermediation and Banks
The Federal Reserve System: The U.S. Central Bank
Fractional Reserve Banking, the Federal Reserve,
and the Money Supply
318
320
322
323
327
331
Why Not… Eliminate Open Market Operations?
Federal Deposit Insurance
335
336
You Are There A River Currency for Riverwest, Wisconsin
339
xii
CONTENTS
International Policy Example
North Korea Divides Its Money
by 100
354
Example
The U.S. Natural Rate of
Unemployment
Small Menu Costs in the U.S.
Market for Imported Beer
375
386
Policy Example
Moderating the Great Recession
Is Harder Than Anticipated
387
Issues & Applications Entrepreneurs Boost FDIC Coverage—and
Moral Hazard
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
341
343
344
344
16 Domestic and International Dimensions
of Monetary Policy
345
The Demand for Money
How the Fed Influences Interest Rates
Effects of an Increase in the Money Supply
Open Economy Transmission of Monetary Policy
Monetary Policy and Inflation
Monetary Policy in Action: The Transmission Mechanism
The Way Fed Policy Is Currently Implemented
Selecting the Federal Funds Rate Target
340
346
348
349
351
353
355
357
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
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
363
365
367
368
369
Appendix E Monetary Policy: A Keynesian Perspective
Increasing the Money Supply
Decreasing the Money Supply
Arguments Against Monetary Policy
Problems
370
370
371
371
371
17 Stabilization in an Integrated
World Economy
373
Active versus Passive Policymaking
The Natural Rate of Unemployment
Why Not… Ignore Newspaper Headlines About Inflation?
Rational Expectations, the Policy Irrelevance Proposition, and Real
Business Cycles
Modern Approaches to Justifying Active Policymaking
Is There a New Keynesian Phillips Curve?
Summing Up: Economic Factors Favoring Active versus
Passive Policymaking
You Are There Fed Discretion—Based on What the Fed Forecasts or What It
Observes?
Issues & Applications Inflation Expectations and the “5yr5yr Rate”
Summary: What You Should Know/Key Terms and Key Figures/Where
to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
374
374
380
381
385
388
390
391
392
393
394
396
396
CONTENTS
International Policy Example
Freedom of Information and Growth in
Developing Nations
400
International Example
How Cellphones Are Fueling Economic
Development
406
418
424
427
International Example
Price Elasticities of Salmon Supply
in Norway
Labor Resources and Economic Growth
Capital Goods and Economic Growth
Private International Financial Flows as a Source
of Global Growth
429
Newspaper Vending Machines
versus Candy Vending Machines
440
Does Consuming More Expensive Items
Make People Happier?
442
398
400
403
404
405
You Are There Putting Meager Capital to Work in India
408
Issues & Applications Supporting Private Entrepreneurs with Public Funds
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
409
410
411
414
414
Dimensions of Microeconomics
19 Demand and Supply Elasticity
415
Price Elasticity
Price Elasticity Ranges
Elasticity and Total Revenues
Determinants of the Price Elasticity of Demand
416
418
419
422
Why Not… Always Raise Prices When Demand Is Inelastic?
Cross Price Elasticity of Demand
Income Elasticity of Demand
Price Elasticity of Supply
423
425
426
427
You Are There Pricing the iPad: Learning Lessons from the iPhone
430
Issues & Applications Measuring the Substitutability of Satellite
and Cable TV
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
Example
397
Why Not… Direct More Foreign Aid to Poor Nations to
Help Them Grow Faster?
International Institutions and Policies for Global Growth
PA RT 5
Example
The Price Elasticity of Demand
for Natural Gas
What Do Real-World Price
Elasticities of Demand Look Like?
The Income Elasticity of Demand
for Dental Services
18 Policies and Prospects for Global
Economic Growth
xiii
20 Consumer Choice
Utility Theory
Graphical Analysis
Diminishing Marginal Utility
Optimizing Consumption Choices
430
431
433
434
434
435
436
437
439
440
Why Not… Make Consumers Happier by Requiring Them
to Purchase the Quantities the Government Chooses?
How a Price Change Affects Consumer Optimum
The Demand Curve Revisited
Behavioral Economics and Consumer Choice Theory
443
443
445
446
You Are There Signing Up for “Free” Trial Offers with TrialPay
447
Issues & Applications Is the Utility from Using Credit Cards
Really Negative?
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
448
449
450
451
452
xiv
CONTENTS
Appendix F More Advanced Consumer Choice Theory
On Being Indifferent
Properties of Indifference Curves
The Marginal Rate of Substitution
The Indifference Map
The Budget Constraint
Consumer Optimum Revisited
Deriving the Demand Curve
Summary: What You Should Know/Key Terms and Key
Figures/Where to Go to Practice
Problems
Example
Do Entertainment Superstars Make
Super Economic Rents?
464
Higher Future Taxes Reduce the
Discounted Present Value of Profits 473
International Example
British Law Firms Adopt Corporate
Structures
467
Policy Example
The Insider-Trading Regulator’s
Insiders Require Regulating
476
21 Rents, Profits, and the Financial
Environment of Business
Economic Rent
Firms and Profits
Interest
Corporate Financing Methods
The Markets for Stocks and Bonds
462
463
465
470
474
475
475
You Are There Why New York City Provides the Homeless with
One-Way Tickets
477
Example
PA RT 6
Virtualization Expands Feasible Production
at Many Firms
485
New Technologies Reshape the LAC Curve in
Book Publishing
497
Why “Big-Box” Retailer Best Buy Has
Begun to Shrink Its Stores
500
22 The Firm: Cost and Output Determination
Pulling New Weapons off the Computer
Games Shelf
491
460
461
Why Not…Compare Average Stock Prices Today with
Average Stock Prices in Years Past?
Issues & Applications The Recent Stock Market Meltdown versus
Past Meltdowns
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
Policy Example
453
453
454
455
456
457
458
459
477
479
480
482
482
Market Structure, Resource Allocation,
and Regulation
Short Run versus Long Run
The Relationship Between Output and Inputs
Diminishing Marginal Product
Short-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 Product
and Cost Curves
Long-Run Cost Curves
Why the Long-Run Average Cost Curve Is U-Shaped
Minimum Efficient Scale
You Are There During Hard Times for Borrowers, a Repo Man Also
Has It Tough
Issues & Applications Why Small Nuclear Reactors
Are 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
484
485
487
488
489
493
496
498
499
501
501
502
504
506
506
CONTENTS
23 Perfect Competition
Example
Why Firms Stubbornly Produced
Aluminum in the Late 2000s
517
International Example
A Global Plunge in the Price of Iron Ore
Leads to Shutdowns
516
Characteristics of a Perfectly Competitive Market Structure
The Demand Curve of the Perfect Competitor
How Much Should the Perfect Competitor Produce?
Using Marginal Analysis to Determine the
Profit-Maximizing Rate of Production
Short-Run Profits
The Short-Run Break-Even Price and the Short-Run
Shutdown Price
The Supply Curve for a Perfectly Competitive Industry
Price Determination Under Perfect Competition
The Long-Run Industry Situation: Exit and Entry
Long-Run Equilibrium
Inducing Patients to Switch from One
Patented Drug to Another
536
Why Students Pay Different Prices to
Attend College
545
International Example
A Mexican Cement Monopoly
Finds a Way to Incur Losses
544
Policy Example
Congress Decides to License Tax
Preparers
535
Example
Is Punxsutawny Phil Hogging Too Much
Attention?
557
507
508
508
509
511
513
515
517
519
520
523
Why Not… Eliminate Economic Profits Entirely?
Competitive Pricing: Marginal Cost Pricing
524
524
You Are There The Coal Mining Industry Confronts a Changing
Cost Structure
525
Issues & Applications A Higher Price Sets Off a
New California Gold Rush
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
Example
xv
24 Monopoly
Definition of a Monopolist
Barriers to Entry
526
527
529
531
531
532
533
533
Why Not…Stop Erecting Government Barriers to Entry?
The Demand Curve a Monopolist Faces
Elasticity and Monopoly
Costs and Monopoly Profit Maximization
Calculating Monopoly Profit
On Making Higher Profits: Price Discrimination
The Social Cost of Monopolies
534
536
538
539
542
544
546
You Are There A Texas Veterinary Board Whittles Down Vets’ Competition
547
Issues & Applications This Medallion Is Not Simply a Decorative Pendant
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
548
549
551
552
552
Appendix G Consumer Surplus and the Deadweight Loss Resulting
from Monopoly
Consumer Surplus in a Perfectly Competitive Market
How Society Loses from Monopoly
553
553
554
25 Monopolistic Competition
555
Monopolistic Competition
Price and Output for the Monopolistic Competitor
Comparing Perfect Competition with Monopolistic Competition
Brand Names and Advertising
556
558
560
561
Why Not…Outlaw Persuasive Advertising?
Information Products and Monopolistic Competition
563
564
You Are There Stimulating Candy Sales by Adding Caffeine
567
xvi
CONTENTS
Example
Market Concentration in the Cellphone
Industry
576
The Prisoners’ Dilemma
578
Policy Example
The U.S. Government Protects an
Oligopoly—Or Is It a Cartel?
581
International Policy Example
Antitrust Authorities Fine Intel for
Its Low Prices
609
Policy Example
Food Makers Respond to Regulation by
Replacing Trans Fats
604
The Tobacco Industry Sees Benefits in
Regulation
604
International Example
Globalization of Tasks and the Elasticity
of U.S. Labor Demand
625
An Increase in the Demand for Services
of Icelandic Translators
627
Policy Example
Payroll Regulations Spur the Hiring of
Independent Contractors
635
568
Issues & Applications Finding a Band Name Between ABBA and ZZ Top
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
569
570
572
572
26 Oligopoly and Strategic Behavior
573
Oligopoly
Strategic Behavior and Game Theory
The Cooperative Game: A Collusive Cartel
Network Effects
Product Compatibility in Multiproduct Oligopolies
Facing Network Effects
574
577
580
582
583
Why Not…Require Companies to Make Their Products Compatible?
Comparing Market Structures
586
588
You Are There Apple Puts Adobe on Hold
588
Issues & Applications More Companies are “Going Vertical”
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
589
590
592
593
593
27 Regulation and Antitrust Policy
in a Globalized Economy
594
Forms of Industry Regulation
Regulating Natural Monopolies
Regulating Nonmonopolistic Industries
Incentives and Costs of Regulation
Antitrust Policy
Antitrust Enforcement
595
597
600
603
606
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
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
612
PA RT 7
613
615
616
617
Labor Resources and the Environment
28 The Labor Market: Demand, Supply,
and Outsourcing
Labor Demand for a Perfectly Competitive Firm
The Market Demand for Labor
Wage Determination in a Perfectly Competitive Labor Market
Labor Outsourcing, Wages, and Employment
618
619
623
625
628
Why Not…Prohibit U.S. Firms from Outsourcing?
Monopoly in the Product Market
The Utilization of Other Factors of Production
631
631
634
You Are There At Staples, the Demand for Robotic Inputs Is Increasing
636
CONTENTS
Issues & Applications The Incentives to Outsource Labor Internationally
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
International Example
The Chinese Union Monopoly Expands to
Include Employees of Foreign Firms 644
Policy Example
Can Minimum Wage Laws Ever Boost
Employment?
654
Women Discover Payoffs from Extra
Education and Training
669
International Example
The U.S. Health Care Program’s Benefits
for Indian Workers
681
International Example
Fisheries Hook a Solution to the Common
Property Problem
698
Policy Example
Why Higher Cigarette Taxes Might Be
Preferable to Smoking Bans
692
636
638
639
641
641
29 Unions and Labor Market
Monopoly Power
642
Industrialization and Labor Unions
Union Goals and Strategies
Economic Effects of Labor Unions
643
646
650
Why Not…Require Firms to Pay Union Wages to
Nonunionized Workers?
Monopsony: A Buyer’s Monopoly
650
651
You Are There Caught Up in an Unusual Jurisdictional Dispute in Michigan
656
Issues & Applications Tax Dollars Increasingly Pay Union Wages
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
657
30 Income, Poverty, and Health Care
Example
xvii
Income
Determinants of Income Differences
Theories of Desired Income Distribution
Poverty and Attempts to Eliminate It
Health Care
658
660
661
662
663
664
667
670
671
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?
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
682
684
685
686
687
31 Environmental Economics
688
Private versus Social Costs
Correcting for Externalities
Pollution
Common Property
Reducing Humanity’s Carbon Footprint: Restraining
Pollution-Causing Activities
689
691
692
694
696
Why Not…Eliminate Nearly All U.S. Carbon Emissions?
Wild Species, Common Property, and Trade-Offs
697
697
You Are There Fuel Efficiency Rules and the “Rebound Effect”
698
Issues & Applications Human Activities and Honeybee Colony
Collapse Disorder
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
699
700
702
703
704
xviii
CONTENTS
International Policy Example
Does the Spread of Regional Trade Blocs
Reduce Protectionism?
720
International Example
Gains from International Trade in Used
Merchandise
711
Can Africa’s International Competitiveness
Be Improved?
713
PA RT 8
Global Economics
32 Comparative Advantage and the Open
Economy
The Worldwide Importance of International Trade
Why We Trade: Comparative Advantage and Mutual Gains from
Exchange
Current Account Balances and
Currency Values
739
706
707
Why Not…Obtain Gains from Trade by Subsidizing Exports and
Discouraging Imports?
The Relationship Between Imports and Exports
International Competitiveness
Arguments Against Free Trade
Ways to Restrict Foreign Trade
International Trade Organizations
712
713
713
714
716
718
You Are There Union Workers Find Themselves on Opposing Sides on Trade
720
Issues & Applications A U.S. Effort to Expand Exports
While Reducing Imports
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
International Example
705
33 Exchange Rates and the Balance
of Payments
The Balance of Payments and International Capital Movements
Determining Foreign Exchange Rates
721
722
723
725
725
726
727
732
Why Not…Encourage U.S. Exports by Forcing the Dollar’s
Value to Fall?
The Gold Standard and the International Monetary Fund
Fixed versus Floating Exchange Rates
737
740
740
You Are There Trading in the Real Estate Business for Trading Currencies
743
Issues & Applications Will the Euro’s Global Currency
Status Be Short-Lived?
Summary: What You Should Know/Key Terms and Key Figures/
Where to Go to Practice
Problems
Economics on the Net
Answers to Quick Quizzes
745
747
748
748
Answers to Odd-Numbered Problems
A-1
Glossary
G-1
Index
744
I-1
One-Semester Course Outline
MACROECONOMIC EMPHASIS
THE MACRO VIEW
MICROECONOMIC EMPHASIS
THE MICRO VIEW
1. The Nature of Economics
2. Scarcity and the World of
Trade-Offs
3. Demand and Supply
4. Extensions of Demand and
Supply Analysis
5. Public Spending and Public
Choice
6. Funding the Public Sector
7. The Macroeconomy.
Unemployment, Inflation,
and Deflation
8. Measuring the Economy’s
Performance
9. Global Economic Growth and
Development
10. Real GDP and the Price Level
in the Long Run
11. Classical and Keynesian Macro
Analyses
12. Consumption, Real GDP, and
the Multiplier
13. Fiscal Policy
14. Deficit Spending and the Public
Debt
1. The Nature of Economics
2. Scarcity and the World of
Trade-Offs
3. Demand and Supply
4. Extensions of Demand and
Supply Analysis
5. Public Spending and Public
Choice
6. Funding the Public Sector
19. Demand and Supply Elasticity
20. Consumer Choice
21. Rents, Profits, and the Financial
Environment of Business
22. The Firm: Cost and Output
Determination
23. Perfect Competition
24. Monopoly
25. Monopolistic Competition
26. Oligopoly and Strategic
Behavior
27. Regulation and Antitrust Policy
in a Globalized Economy
28. The Labor Market: Demand,
Supply, and Outsourcing
29. Unions and Labor Market
Monopoly Power
30. Income, Poverty, and Health
Care
31. Environmental Economics
32. Comparative Advantage and the
Open Economy
33. Exchange Rates and the Balance
of Payments
15. Money, Banking, and Central
Banking
16. Domestic and International
Dimensions of Monetary Policy
17. Stabilization in an Integrated
World Economy
18. Policies and Prospects for
Global Economic Growth
32. Comparative Advantage and the
Open Economy
33. Exchange Rates and the
Balance of Payments
BALANCED MICRO-MACRO
1. The Nature of Economics
2. Scarcity and the World of
Trade-Offs
3. Demand and Supply
4. Extensions of Demand and
Supply Analysis
5. Public Spending and Public
Choice
6. Funding the Public Sector
20. Consumer Choice
21. Rents, Profits, and the Financial
Environment of Business
22. The Firm: Cost and Output
Determination
23. Perfect Competition
24. Monopoly
28. The Labor Market: Demand,
Supply, and Outsourcing
29. Unions and Labor Market
Monopoly Power
7. The Macroeconomy.
Unemployment, Inflation,
and Deflation
10. Real GDP and the Price Level
in the Long Run
11. Classical and Keynesian Macro
Analyses
12. Consumption, Real GDP, and
the Multiplier
13. Fiscal Policy
14. Deficit Spending and the Public
Debt
15. Money, Banking, and Central
Banking
16. Domestic and International
Dimensions of Monetary Policy
32. Comparative Advantage and the
Open Economy
33. Exchange Rates and the
Balance of Payments
xix
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