sixteenth edition - gbv

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


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


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


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


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


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'



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



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



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


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


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


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



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



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



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


Problems' Economics on the Net

Answers to Quick Quizzes

483

484485487488

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



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


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


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


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


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


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



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



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-



Answers to Odd-Numbered Problems

Glossary

Index

A-l

G-l

1-1

sixteenth edition - gbv

Documents