Contents
About the Author
Preface
Chapter 1. Supply, Demand, and Equilibrium
1.1 DEMAND
1.1.1 Demand versus Quantity Demanded
1.1.2 Demand Curves
1.1.3 Changes in Demand
1.1.4 Effect of a Sales Tax
1.1.5 Market Demand
1.1.6 The Shape of the Demand Curve
1.1.7 The Wide Scope of Economics
1.2 SUPPLY
1.2.1 Supply versus Quantity Supplied
1.2.2 Effect of an Excise Tax
1.3 EQUILIBRIUM
1.3.1 The Equilibrium Point
1.3.2 Changes in the Equilibrium Point
1.4 SUMMARY
REVIEW QUESTIONS
NUMERICAL EXERCISES
PROBLEM SET
Chapter 2. Prices, Costs, and the Gains from Trade
2.1 PRICES
2.1.1 Absolute versus Relative Prices
2.2 COSTS, EFFICIENCY, AND GAINS FROM TRADE
2.2.1 Costs and Efficiency
2.2.2 Specialization and the Gains from Trade
2.2.3 Why People Trade
2.3 SUMMARY
REVIEW QUESTIONS
NUMERICAL EXERCISES
PROBLEM SET
Chapter 3. The Behavior of Consumers
3.1 TASTES
3.1.1 Indifference Curves
3.1.2 Marginal Values
3.1.3 The Composite-Good Convention
3.2 THE BUDGET LINE AND THE CONSUMER'S CHOICE
3.2.1 The Budget Line
3.2.2 The Consumer's Choice
3.3 APPLICATIONS OF INDIFFERENCE CURVES
3.3.1 Standards of Living
3.3.2 Differences in Tastes
3.3.3 The Least Bad Tax
3.4 SUMMARY
REVIEW QUESTIONS
NUMERICAL EXERCISES
PROBLEM SET
Chapter 4. Consumers in the Marketplace
4.1 CHANGES IN INCOME
4.1.1 Changes in Income and Changes in the Budget Line
4.1.2 Changes in Income and Changes in the Optimum Point
4.1.3 The Engel Curve
4.2 CHANGES IN PRICE
4.2.1 Changes in the Price and Changes in the Budget Line
4.2.2 Changes in Price and Changes in the Optimum Point
4.2.3 The Demand Curve
4.3 INCOME AND SUBSTITUTION EFFECTS
4.3.1 Two Effects of a Price Increase
4.3.2 Why Demand Curves Slope Downward
4.3.3 The Compensated Demand Curve
4.4 ELASTICITIES
4.4.1 Income Elasticity of Demand
4.4.2 Price Elasticity of Demand
4.5 SUMMARY
REVIEW QUESTIONS
NUMERICAL EXERCISES
PROBLEM SET
Chapter 5. The Behavior of Firms
5.1 WEIGHING COSTS AND BENEFITS
5.1.1 A Farmer's Problem
5.1.2 The Equimarginal Principle
5.2 FIRMS IN THE MARKETPLACE
5.2.1 Revenue
5.2.2 Costs
5.3 SUMMARY
REVIEW QUESTIONS
NUMERICAL EXERCISES
PROBLEM SET
Chapter 6. Production and Costs
6.1 PRODUCTION AND COSTS IN THE SHORT RUN
6.1.1 The Total, Marginal, and Average Products of Labor
6.1.2 Costs in the Short Run
6.2 PRODUCTION AND COSTS IN THE LONG RUN
6.2.1 Isoquants
6.2.2 Choosing a Production Process
6.2.3 The Long-Run Cost Curves
6.2.4 Returns to Scale and the Shape of the Long-Run Cost Curves
6.3 RELATIONS BETWEEN THE SHORT RUN AND THE LONG RUN
6.3.1 From Isoquants to Short-Run Total Cost
6.3.2 From Isoquants to Long-Run Total Cost
6.3.3 Short-Run Total Cost versus Long-Run Total Cost
6.3.4 A Multitude of Short Runs
6.3.5 Short-Run Average Cost versus Long-Run Average Cost
6.4 SUMMARY
REVIEW QUESTIONS
PROBLEM SET
Chapter 7. Competition
7.1 THE COMPETITIVE FIRM
7.1.1 Revenue
7.1.2 The Firm's Supply Decision
7.1.3 Shutdowns
7.1.4 The Elasticity of Supply
7.2 THE COMPETITIVE INDUSTRY IN THE SHORT RUN
7.2.1 Defining the Short Run
7.2.2 The Competitive Industry's Short-Run Supply Curve
7.2.3 Supply, Demand, and Equilibrium
7.2.4 Competitive Equilibrium
7.2.5 The Industry's Costs
7.3 THE COMPETITIVE FIRM IN THE LONG RUN
7.3.1 Long-Run Marginal Cost and Supply
7.3.2 Profit and the Exit Decision
7.3.3 The Firm's Long-Run Supply Curve
7.4 THE COMPETITIVE INDUSTRY IN THE LONG RUN
7.4.1 The Industry's Long-Run Supply Curve
7.4.2 Equilibrium
7.4.3 Changes in Equilibrium
7.4.4 Application: The Government as a Supplier
7.4.5 Some Lessons Learned
7.5 RELAXING THE ASSUMPTIONS
7.5.1 The Break-Even Price
7.5.2 Constant-Cost Industries
7.5.3 Increasing-Cost Industries
7.5.4 Decreasing-Cost Industries
7.5.5 An Analogy
7.5.6 Equilibrium
7.6 APPLICATIONS
7.6.1 Removing a Rent Control
7.6.2 A Tax on Motel Rooms
7.6.3 Tipping the Dishwasher
7.7 USING THE COMPETITIVE MODEL
7.8 SUMMARY
REVIEW QUESTIONS
NUMERICAL EXERCISES
PROBLEM SET
Chapter 8. Welfare Economics and the Gains from Trade
8.1 MEASURING THE GAINS FROM TRADE
8.1.1 The Consumers' Surplus
8.1.2 The Producer's Surplus
8.1.3 Social Gain
8.2 THE EFFICIENCY CRITERION
8.2.1 Consumers' Surplus and the Efficiency Criterion
8.3 EXAMPLES AND APPLICATIONS
8.3.1 Subsidies
8.3.2 Price Ceilings
8.3.3 Tariffs
8.3.4 Theories of Value
8.4 GENERAL EQUILIBRIUM AND THE INVISIBLE HAND
8.4.1 The Fundamental Theorem of Welfare Economics
8.4.2 An Edgeworth Box Economy
8.4.3 General Equilibrium with Production
8.5 SUMMARY
REVIEW QUESTIONS
NUMERICAL EXERCISES
PROBLEM SET
Chapter 9. Knowledge and Information
9.1 THE INFORMATION CONTENT OF PRICES
9.1.1 Prices and Information
9.1.2 The Costs of Misallocation
9.2 ASYMMETRIC INFORMATION
9.2.1 Signaling: Should Colleges Be Outlawed?
9.2.2 Adverse Selection and the Market for Lemons
9.2.3 Moral Hazard
9.2.4 PrincipalβAgent Problems
9.2.5 A Theory of Unemployment
9.3 FINANCIAL MARKETS
9.3.1 Efficient Markets for Financial Securities
9.3.2 Stock Market Crashes
9.4 SUMMARY
REVIEW QUESTIONS
PROBLEM SET
Chapter 10. Monopoly
10.1 PRICE AND OUTPUT UNDER MONOPOLY
10.1.1 Monopoly Pricing
10.1.2 Elasticity and Marginal Revenue
10.1.3 Measuring Monopoly Power
10.1.4 Welfare
10.1.5 Monopoly and Public Policy
10.2 SOURCES OF MONOPOLY POWER
10.2.1 Natural Monopoly
10.2.2 Patents
10.2.3 Resource Monopolies
10.2.4 Economies of Scope
10.2.5 Legal Barriers to Entry
10.3 PRICE DISCRIMINATION
10.3.1 First-Degree Price Discrimination
10.3.2 Third-Degree Price Discrimination
10.3.3 Two-Part Tariffs
10.4 SUMMARY
REVIEW QUESTIONS
NUMERICAL EXERCISES
PROBLEM SET
Chapter 11. Market Power, Collusion, and Oligopoly
11.1 ACQUIRING MARKET POWER
11.1.1 Mergers
11.1.2 Horizontal Integration
11.1.3 Vertical Integration
11.1.4 Predatory Pricing
11.1.5 Resale Price Maintenance
11.2 COLLUSION AND THE PRISONER'S DILEMMA
11.2.1 Game Theory and the Prisoner's Dilemma
11.2.2 The Prisoner's Dilemma and the Breakdown of Cartels
11.3 REGULATION
11.3.1 Examples of Regulation
11.3.2 What Can Regulators Regulate?
11.3.3 Creative Response and Unexpected Consequences
11.3.4 Positive Theories of Regulation
11.4 OLIGOPOLY
11.4.1 Contestable Markets
11.4.2 Oligopoly with a Fixed Number of Firms
11.5 MONOPOLISTIC COMPETITION AND PRODUCT DIFFERENTIATION
11.5.1 Monopolistic Competition
11.5.2 The Economics of Location
11.6 SUMMARY
REVIEW QUESTIONS
NUMERICAL EXERCISES
PROBLEM SET
Chapter 12. The Theory of Games
12.1 GAME MATRICES
12.1.1 Pigs in a Box
12.1.2 The Prisoner's Dilemma Revisited
12.1.3 Pigs in a Box Revisited
12.1.4 The Copycat Game
12.1.5 Nash Equilibrium as a Solution Concept
12.1.6 Mixed Strategies
12.1.7 Pareto Optima
12.1.8 Pareto Optima Versus Nash Equilibria
12.2 SEQUENTIAL GAMES
12.2.1 An Oligopoly Problem
12.3 SUMMARY
PROBLEM SET
Chapter 13. External Costs and Benefits
13.1 THE PROBLEM OF POLLUTION
13.1.1 Private Costs, Social Costs, and Externalities
13.1.2 Government Policies
13.2 THE COASE THEOREM
13.2.1 The Doctor and the Confectioner
13.2.2 The Coase Theorem
13.2.3 The Coase Theorem in the Marketplace
13.2.4 External Benefits
13.2.5 Income Effects and the Coase Theorem
13.3 TRANSACTIONS COSTS
13.3.1 Trains, Sparks, and Crops
13.3.2 The Reciprocal Nature of the Problem
13.3.3 Sources of Transactions Costs
13.4 THE LAW AND ECONOMICS
13.4.1 The Law of Torts
13.4.2 A Positive Theory of the Common Law
13.4.3 Normative Theories of the Common Law
13.4.4 Optimal Systems of Law
13.5 SUMMARY
REVIEW QUESTIONS
PROBLEM SET
Chapter 14. Common Property and Public Goods
14.1 THE TRAGEDY OF THE COMMONS
14.1.1 The Springfield Aquarium
14.1.2 It Can Pay to Be Different
14.1.3 Common Property
14.2 PUBLIC GOODS
14.2.1 Market Failures
14.2.2 The Provision of Public Goods
14.2.3 The Role of Government
14.2.4 Schemes for Eliciting Information
14.3 SUMMARY
REVIEW QUESTIONS
NUMERICAL EXERCISES
PROBLEM SET
Chapter 15. The Demand for Factors of Production
15.1 THE FIRM'S DEMAND FOR FACTORS IN THE SHORT RUN
15.1.2 The Algebra of Profit Maximization
15.1.3 The Effect of Plant Size
15.2 THE FIRM'S DEMAND FOR FACTORS IN THE LONG RUN
15.2.1 Constructing the Long-Run Labor Demand Curve
15.2.2 Substitution and Scale Effects
15.2.3 Relationships Between the Short Run and the Long Run
15.3 THE INDUSTRY'S DEMAND CURVE FOR FACTORS OF PRODUCTION
15.3.1 Monopsony
15.4 THE DISTRIBUTION OF INCOME
15.4.1 Factor Shares and Rents
15.4.2 Producers' Surplus
15.5 SUMMARY
REVIEW QUESTIONS
NUMERICAL EXERCISES
PROBLEM SET
Chapter 16. The Market for Labor
16.1 INDIVIDUAL LABOR SUPPLY
16.1.1 Consumption versus Leisure
16.1.2 Changes in the Budget Line
16.1.3 The Worker's Supply of Labor
16.2 LABOR MARKET EQUILIBRIUM
16.2.1 Changes in Nonlabor Income
16.2.2 Changes in Productivity
16.3 DIFFERENCES IN WAGES
16.3.1 Human Capital
16.3.2 Compensating Differentials
16.3.3 Access to Capital
16.4 DISCRIMINATION
16.4.1 Theories of Discrimination
16.4.2 Wage Differences Due to Worker Preferences
16.4.3 Human Capital Inheritance
16.5 SUMMARY
REVIEW QUESTIONS
PROBLEM SET
Chapter 17. Allocating Goods Over Time
17.1 BONDS AND INTEREST RATES
17.2 THE MARKET FOR CURRENT CONSUMPTION
17.3 PRODUCTION AND INVESTMENT
17.4 SUMMARY
REVIEW QUESTIONS
PROBLEM SET
Chapter 18. Risk and Uncertainty
18.1 ATTITUDES TOWARD RISK
18.2 THE MARKET FOR INSURANCE
18.3 FUTURES MARKETS
18.4 MARKET FOR RISKY ASSETS
18.5 RATIONAL EXPECTATIONS
18.6 SUMMARY
REVIEW QUESTIONS
PROBLEM SET
Chapter 19. What is Economics?
19.1 THE NATURE OF ECONOMIC ANALYSIS
19.2 THE RATIONALITY ASSUMPTION
19.3 WHAT IS AN ECONOMIC EXPLANATION?
19.4 THE SCOPE OF ECONOMIC ANALYSIS
PROBLEM SET
Appendix A. Answers to All the Exercises
Appendix B. Answers to Selected Problems
Glossary