Principles of Microeconomics

by Case, Karl E.; Fair, Ray C.; Oster, Sharon

• ISBN13: 9780131994850
• ISBN10: 0131994859
• Edition: 8th
• Format: Paperback
• Copyright: 2009-01-01
• Publisher: Prentice Hall

Summary

Case and Fair is the trusted Microeconomics text that teaches students through stories, graphs, and equations...and now, a new emphasis on excellence in assessment. These two highly-respected economists and educators have revised this best-selling Microeconomics book to include more current topics and events while maintaining its hallmark feature of teaching economics through stories, graphs, and equations; relevant to students with various learning styles (verbal, visual, and numerical).

Table of Contents

Preface	p. xvii
Introduction to Economics	p. 1
The Scope and Method of Economics	p. 1
Why Study Economics?	p. 2
To Learn a Way of Thinking	p. 2
To Understand Society	p. 4
News Analysis: Economics and Global Affairs in 2005	p. 5
To Understand Global Affairs	p. 6
To Be an Informed Voter	p. 6
The Scope of Economics	p. 7
Microeconomics and Macroeconomics	p. 8
The Diverse Fields of Economics	p. 8
Further Exploration: The Fields of Economics	p. 9
The Method of Economics	p. 10
Theories and Models	p. 11
Economic Policy	p. 14
An Invitation	p. 16
Summary	p. 16
Review Terms and Concepts	p. 16
Problem Set	p. 17
How to Read and Understand Graphs	p. 17
The Economic Problem: Scarcity and Choice	p. 25
Scarcity, Choice, and Opportunity Cost	p. 26
Scarcity and Choice in a One-Person Economy	p. 26
News Analysis: Opportunity Costs and Internships	p. 27
Scarcity and Choice in an Economy of Two or More	p. 28
The Production Possibility Frontier	p. 31
Comparative Advantage and the Gains from Trade	p. 36
The Economic Problem	p. 39
Economic Systems	p. 39
Command Economies	p. 39
Laissez-Faire Economies: The Free Market	p. 40
Mixed Systems, Markets, and Governments	p. 41
Looking Ahead	p. 42
Summary	p. 42
Review Terms and Concepts	p. 43
Problem Set	p. 43
Demand, Supply, and Market Equilibrium	p. 47
Firms and Households: The Basic Decision-Making Units	p. 48
Input Markets and Output Markets: The Circular Flow	p. 48
Demand in Product/Output Markets	p. 50
Changes in Quantity Demanded Versus Changes in Demand	p. 51
Price and Quantity Demanded: The Law of Demand	p. 51
Other Determinants of Household Demand	p. 54
Shift of Demand versus Movement Along a Demand Curve	p. 56
From Household Demand to Market Demand	p. 57
Supply in Product/Output Markets	p. 59
Price and Quantity Supplied: The Law of Supply	p. 60
Other Determinants of Supply	p. 61
Shift of Supply versus Movement along a Supply Curve	p. 62
From Individual Supply to Market Supply	p. 63
Market Equilibrium	p. 64
Excess Demand	p. 65
Excess Supply	p. 66
Changes in Equilibrium	p. 67
Demand and Supply in Product Markets: A Review	p. 70
Looking Ahead: Markets and the Allocation of Resources	p. 70
News Analysis: Mad Cow Disease Cuts Demand for Cattle in 2005	p. 71
Summary	p. 72
Review Terms and Concepts	p. 73
Problem Set	p. 73
Demand and Supply Applications	p. 77
The Price System: Rationing and Allocating Resources	p. 77
Price Rationing	p. 77
Constraints on the Market and Alternative Rationing Mechanisms	p. 79
News Analysis: Hurricane Katrina and Gasoline Prices in 2005	p. 83
Prices and the Allocation of Resources	p. 84
Price Floors	p. 84
Supply and Demand Analysis: An Oil Import Fee	p. 85
Supply and Demand and Market Efficiency	p. 86
Consumer Surplus	p. 87
Producer Surplus	p. 88
Competitive Markets Maximize the Sum of Producer and Consumer Surplus	p. 89
Potential Causes of Deadweight Loss from Under- and Overproduction	p. 89
Further Exploration: The Drug Wars: A Matter of Supply and Demand	p. 90
Looking Ahead	p. 91
Summary	p. 91
Review Terms and Concepts	p. 92
Problem Set	p. 92
Elasticity	p. 95
Price Elasticity of Demand	p. 96
Slope and Elasticity	p. 96
Types of Elasticity	p. 97
News Analysis: Elasticity of Supply and House Prices	p. 99
Calculating Elasticities	p. 100
Calculating Percentage Changes	p. 100
Elasticity Is a Ratio of Percentages	p. 101
The Midpoint Formula	p. 101
Elasticity Changes along a Straight-Line Demand Curve	p. 102
Elasticity and Total Revenue	p. 104
The Determinants of Demand Elasticity	p. 105
Availability of Substitutes	p. 105
The Importance of Being Unimportant	p. 105
Further Exploration: London Newspapers and New York Restaurants Learn about Elasticity	p. 106
The Time Dimension	p. 106
Other Important Elasticities	p. 107
Income Elasticity of Demand	p. 107
Cross-Price Elasticity of Demand	p. 107
Elasticity of Supply	p. 107
Looking Ahead	p. 108
Summary	p. 108
Review Terms and Concepts	p. 109
Problem Set	p. 109
Point Elasticity (Optional)	p. 110
Foundations of Microeconomics: Consumers and Firms	p. 113
Household Behavior and Consumer Choice	p. 113
Household Choice in Output Markets	p. 116
The Determinants of Household Demand	p. 116
The Budget Constraint	p. 116
Further Exploration: Opportunity Costs-Then and Now	p. 119
The Equation of the Budget Constraint	p. 120
The Basis of Choice: Utility	p. 122
Diminishing Marginal Utility	p. 122
Allocating Income to Maximize Utility	p. 123
The Utility-Maximizing Rule	p. 125
Diminishing Marginal Utility and Downward-Sloping Demand	p. 125
Income and Substitution Effects	p. 126
The Income Effect	p. 126
News Analysis: Marginal Utility and the Capacity to Consume	p. 127
The Substitution Effect	p. 128
Consumer Surplus	p. 128
Household Choice in Input Markets	p. 130
The Labor Supply Decision	p. 130
The Price of Leisure	p. 131
Income and Substitution Effects of a Wage Change	p. 131
Saving and Borrowing: Present Versus Future Consumption	p. 133
A Review: Households in Output and Input Markets	p. 134
Summary	p. 134
Review Terms and Concepts	p. 135
Problem Set	p. 135
Indifference Curves	p. 137
The Production Process: The Behavior of Profit-Maximizing Firms	p. 143
The Behavior of Profit-Maximizing Firms	p. 146
Profits and Economic Costs	p. 146
News Analysis: An Idea, a Firm, and Profits in 2005	p. 148
Short-Run versus Long-Run Decisions	p. 149
The Bases of Decisions: Market Price of Outputs, Available Technology, and Input Prices	p. 150
The Production Process	p. 151
Production Functions: Total Product, Marginal Product, and Average Product	p. 151
Production Functions with Two Variable Factors of Production	p. 154
Choice of Technology	p. 155
News Analysis: Increasing Substitution of Capital for Labor Raises Labor Productivity	p. 156
Looking Ahead: Cost and Supply	p. 157
Summary	p. 157
Review Terms and Concepts	p. 158
Problem Set	p. 158
Isoquants and Iscosts	p. 159
Short-Run Costs and Output Decisions	p. 165
Costs in the Short Run	p. 165
Fixed Costs	p. 166
Variable Costs	p. 168
Total Costs	p. 174
Short-Run Costs: A Review	p. 176
Output Decisions: Revenues, Costs, and Profit Maximization	p. 176
Total Revenue (TR) and Marginal Revenue (MR)	p. 177
Comparing Costs and Revenues to Maximize Profit	p. 178
Further Exploration: Case Study in Marginal Analysis: An Ice Cream Parlor	p. 180
The Short-Run Supply Curve	p. 181
Looking Ahead	p. 182
Summary	p. 183
Review Terms and Concepts	p. 183
Problem Set	p. 184
Long-Run Costs and Output Decisions	p. 187
Short-Run Conditions and Long-Run Directions	p. 188
Maximizing Profits	p. 188
Minimizing Losses	p. 190
The Short-Run Industry Supply Curve	p. 192
Long-Run Directions: A Review	p. 194
Long-Run Costs: Economies and Diseconomies of Scale	p. 194
Increasing Returns to Scale	p. 195
Further Exploration: Why Small Farmers Have Trouble Competing: Economies of Scale in Agriculture	p. 197
Constant Returns to Scale	p. 197
News Analysis: Economies of Scale in Banking, 2005	p. 198
Decreasing Returns to Scale	p. 199
Long-Run Adjustments to Short-Run Conditions	p. 200
Short-Run Profits: Expansion to Equilibrium	p. 200
Short-Run Losses: Contraction to Equilibrium	p. 201
The Long-Run Adjustment Mechanism: Investment Flows Toward Profit Opportunities	p. 202
Further Exploration The Long-Run Average Cost Curve: Flat or U-Shaped	p. 203
Output Markets: A Final Word	p. 204
Summary	p. 204
Review Terms and Concepts	p. 205
Problem Set	p. 205
External Economies and Diseconomies and the Long-Run Industry Supply Curve	p. 207
Input Demand: The Labor and Land Markets	p. 211
Input Markets: Basic Concepts	p. 211
Demand for Inputs: A Derived Demand	p. 211
Inputs: Complementary and Substitutable	p. 213
Diminishing Returns	p. 213
Marginal Revenue Product	p. 213
Labor Markets	p. 215
A Firm Using Only One Variable Factor of Production: Labor	p. 215
News Analysis: Baseball Salaries and Marginal Revenue Product in 2005	p. 217
A Firm Employing Two Variable Factors of Production in the Short and Long Run	p. 219
Many Labor Markets	p. 221
Land Markets	p. 221
Rent and the Value of Output Produced on Land	p. 222
The Firm's Profit-Maximization Condition in Input Markets	p. 223
Input Demand Curves	p. 224
Shifts in Factor Demand Curves	p. 224
Resource Allocation and the Mix of Output in Competitive Markets	p. 225
The Distribution of Income	p. 226
Looking Ahead	p. 226
Summary	p. 226
Review Terms and Concepts	p. 227
Problem Set	p. 227
Input Demand: The Capital Market and the Investment Decision	p. 231
Capital, Investment, and Depreciation	p. 231
Capital	p. 232
Investment and Depreciation	p. 233
The Capital Market	p. 234
Capital Income: Interest and Profits	p. 235
Financial Markets in Action	p. 237
Capital Accumulation and Allocation	p. 238
News Analysis: Putting Their Money Where the Future Is in 2005	p. 239
The Demand for New Capital and the Investment Decision	p. 240
Forming Expectations	p. 240
Comparing Costs and Expected Return	p. 241
A Final Word on Capital	p. 243
Summary	p. 244
Review Terms and Concepts	p. 245
Problem Set	p. 245
Calculating Present Value	p. 246
General Equilibrium and the Efficiency of Perfect Competition	p. 251
General Equilibrium Analysis	p. 253
An Early Technological Advance: The Electronic Calculator	p. 253
News Analysis: The Dot-Com Bust and the Labor Market: 2003	p. 254
Market Adjustment to Changes in Demand	p. 256
Formal Proof of a General Competitive Equilibrium	p. 258
Allocative Efficiency and Competitive Equilibrium	p. 258
Pareto Efficiency	p. 259
The Efficiency of Perfect Competition	p. 260
Perfect Competition versus Real Markets	p. 263
The Sources of Market Failure	p. 263
Imperfect Markets	p. 263
Public Goods	p. 264
Externalities	p. 265
Imperfect Information	p. 266
Evaluating the Market Mechanism	p. 266
Summary	p. 267
Review Terms and Concepts	p. 268
Problem Set	p. 268
Market Imperfections and the Role of Government	p. 271
Monopoly and Antitrust Policy	p. 271
Imperfect Competition and Market Power: Core Concepts	p. 271
Defining Industry Boundaries	p. 272
Barriers to Entry	p. 272
Price: The Fourth Decision Variable	p. 274
News Analysis: The Drug Wars in 2005	p. 275
Price and Output Decisions in Pure Monopoly Markets	p. 275
Demand in Monopoly Markets	p. 276
Perfect Competition and Monopoly Compared	p. 282
Collusion and Monopoly Compared	p. 284
The Social Costs of Monopoly	p. 284
Inefficiency and Consumer Loss	p. 284
Rent-Seeking Behavior	p. 286
Price Discrimination	p. 287
Examples of Price Discrimination	p. 287
Remedies for Monopoly: Antitrust Policy	p. 288
The Development of Antitrust Law: Historical Background	p. 289
Landmark Antitrust Legislation	p. 289
The Enforcement of Antitrust Law	p. 292
Initiating Antitrust Actions	p. 292
Sanctions and Remedies	p. 292
News Analysis: Price-Fixing Cases in 2005	p. 294
A Natural Monopoly	p. 294
Do Natural Monopolies Still Exist?	p. 295
News Analysis: From a Natural Monopoly to Near-Perfect Competition	p. 296
Imperfect Markets: A Review and A Look Ahead	p. 296
Summary	p. 297
Review Terms and Concepts	p. 298
Problem Set	p. 298
Monopolistic Competition and Oligopoly	p. 301
Monopolistic Competition	p. 302
Product Differentiation, Advertising, and Social Welfare	p. 303
Price and Output Determination in Monopolistic Competition	p. 306
Economic Efficiency and Resource Allocation	p. 310
Oligopoly	p. 310
Oligopoly Models	p. 311
Further Exploration: Regulation of Mergers by the Department of Justice and the Federal Trade Commission	p. 313
Game Theory	p. 314
Repeated Games	p. 317
A Game with Many Players: Collective Action Can Be Blocked by a Prisoners' Dilemma	p. 318
Contestable Markets	p. 319
Oligopoly and Economic Performance	p. 320
Industrial Concentration and Technological Change	p. 321
The Role of Government	p. 321
Regulation of Mergers	p. 321
News Analysis: Footwear Giant Adidas Buys Reebok in 2005	p. 323
A Proper Role?	p. 323
Summary	p. 324
Review Terms and Concepts	p. 325
Problem Set	p. 325
Externalities, Public Goods, Imperfect Information, and Social Choice	p. 327
Externalities and Environmental Economics	p. 328
Marginal Social Cost and Marginal-Cost Pricing	p. 328
Private Choices and External Effects	p. 330
Internalizing Externalities	p. 332
News Analysis: Externalities Are All Around Us	p. 334
Further Exploration: Global Warming: A Global Externality?	p. 338
Public (Social) Goods	p. 338
The Characteristics of Public Goods	p. 338
Income Distribution As a Public Good?	p. 339
Public Provision of Public Goods	p. 340
Optimal Provision of Public Goods	p. 340
Local Provision of Public Goods: Tiebout Hypothesis	p. 343
Mixed Goods	p. 344
Imperfect Information	p. 344
Adverse Selection: Asymmetric Information	p. 345
Moral Hazard	p. 345
Market Solutions	p. 346
Government Solutions	p. 346
Social Choice	p. 347
The Voting Paradox	p. 347
Government Inefficiency: Theory of Public Choice	p. 349
Rent-Seeking Revisited	p. 350
Government and the Market	p. 350
Summary	p. 351
Review Terms and Concepts	p. 352
Problem Set	p. 352
Income Distribution and Poverty	p. 355
The Utility Possibilities Frontier	p. 355
The Sources of Household Income	p. 357
Wages and Salaries	p. 357
Income from Property	p. 359
Income from the Government: Transfer Payments	p. 359
The Distribution of Income	p. 360
Income Inequality in the United States	p. 360
Poverty	p. 363
The Distribution of Wealth	p. 364
News Analysis: Hunger in the United States in 2003	p. 365
The Redistribution Debate	p. 366
Arguments against Redistribution	p. 366
Arguments in Favor of Redistribution	p. 367
Redistribution Programs and Policies	p. 369
Financing Redistribution Programs: Taxes	p. 369
Expenditure Programs	p. 370
News Analysis: The Lack of Health Care Insurance	p. 372
How Effective Are Antipoverty Programs?	p. 373
Government or the Market? A Review	p. 373
Summary	p. 374
Review Terms and Concepts	p. 375
Problem Set	p. 375
Public Finance: The Economics of Taxation	p. 377
The Economics of Taxation	p. 377
Taxes: Basic Concepts	p. 377
Tax Equity	p. 381
What is the "Best" Tax Base?	p. 382
The Gift and Estate Tax	p. 384
Tax Incidence: Who Pays?	p. 385
The Incidence of Payroll Taxes	p. 385
The Incidence of Corporate Profits Taxes	p. 389
The Overall Incidence of Taxes in the United States: Empirical Evidence	p. 390
Excess Burdens and the Principle of Neutrality	p. 391
How Do Excess Burdens Arise?	p. 391
The Principle of Second Best	p. 393
News Analysis: President Bush's Advisory Panel on Federal Tax Reform	p. 394
Measuring Excess Burdens	p. 395
Excess Burdens and the Degree of Distortion	p. 395
Summary	p. 396
Review Terms and Concepts	p. 397
Problem Set	p. 398
The World Economy	p. 399
International Trade, Comparative Advantage, and Protectionism	p. 399
Trade Surpluses and Deficits	p. 400
The Economic Basis for Trade: Comparative Advantage	p. 400
Absolute Advantage versus Comparative Advantage	p. 401
Terms of Trade	p. 405
Exchange Rates	p. 406
The Sources of Comparative Advantage	p. 408
The Heckscher-Ohlin Theorem	p. 409
Other Explanations for Observed Trade Flows	p. 409
Trade Barriers: Tariffs, Export Subsidies, and Quotas	p. 409
News Analysis: New Trade Agreement with Central America and the Dominican Republic-2005	p. 412
Free Trade or Protection?	p. 413
The Case for Free Trade	p. 413
The Case for Protection	p. 414
Further Exploration: A Petition	p. 416
An Economic Consensus	p. 417
Summary	p. 417
Review Terms and Concepts	p. 419
Problem Set	p. 419
Globalization	p. 421
The Global Circular Flow	p. 421
A Brief History of Economic Globalization	p. 423
The Benefits and Costs of Globalization	p. 424
The Free-Trade Debate Revisited	p. 424
Trade, Growth, and Poverty	p. 426
The Globalization of Labor Markets: The Economics of Immigration and Outsourcing	p. 427
Capital Mobility	p. 430
News Analysis: Outsourcing Is Not Just Customer Service Reps in India	p. 431
Public Policy and Globalization	p. 432
Global Externalities and Public Goods	p. 432
Nongovernmental Organizations and International Economics: The Washington Consensus	p. 433
Globalization, Capitalism, and Democracy	p. 434
A Final Word	p. 435
Summary	p. 435
Review Terms and Concepts	p. 436
Problem Set	p. 436
Economic Growth in Developing and Transitional Economies	p. 437
Life in the Developing Nations: Population and Poverty	p. 438
Economic Development: Sources and Strategies	p. 439
The Sources of Economic Development	p. 439
Strategies for Economic Development	p. 441
News Analysis: Trade and Development in Africa-2003	p. 444
Growth versus Development: The Policy Cycle	p. 445
Issues in Economic Development	p. 445
Population Growth	p. 446
Developing-Country Debt Burdens	p. 448
Economies in Transition	p. 449
Political Systems and Economic Systems: Socialism, Capitalism, and Communism	p. 450
Central Planning versus The Market	p. 451
The End of the Soviet Union	p. 452
The Transition to a Market Economy	p. 452
Six Basic Requirements for Successful Transition	p. 452
News Analysis: Russia's Economy in 2005	p. 453
Summary	p. 457
Review Terms and Concepts	p. 458
Problem Set	p. 458
Glossary	p. G-1
Solutions to Even-Numbered Problems	p. S-1
Index	p. I-2
Photo Credits	P-1
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