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PART ONE Introduction to Microeconomics1

CHAPTER 1 Introduction3

1.1 Wants and Scarcity4

Can Human Wants Ever Be Fully Satisfied？4

Scarcity：The Pervasive Economic Problem4

Example 1-1 More Health Care Means Less of Other Goods and Services5

1.2 Functions of an Economic System6

1.3 Microeconomic Theory and the Price System7

The Circular Flow of Economic Activity7

Determination and Function of Prices8

Example 1-2 Drought in Kansas Sends Wheat Prices Soaring10

What Role for the Government？10

Example 1-3 Economic Inefficiencies Cause Collapse of Communist Regimes11

1.4 The Margin：The Key Unifying Concept in Microeconomics12

The Crucial Importance of the Concept of the Margin12

Example 1-4 Marginal Analysis in TV Advertising13

Some Clarifications on the Use of the Margin15

1.5 Specialization，Exchange，and the International Framework of Microeconomics16

Specialization and Exchange16

The International Framework of Microeconomics16

Example 1-5 Even the IBM PC and the Boeing777Are Not All American！17

1.6 Models，Methodology，and Value Judgments18

Models and Methodology18

Positive and Normative Analysis19

At The Frontier Do Economists Ever Agree on Anything？20

Summary22

Key Terms22

Review Questions23

Problems23

Internet Site Addresses24

CHAPTER 2 Basic Demand and Supply Analysis25

2.1 Market Analysis25

2.2 Market Demand26

Demand Schedule and Demand Curve26

Changes in Demand28

2.3 Market Supply29

Supply Schedule and Supply Curve29

Changes in Supply30

2.4 When Is a Market in Equilibrium？31

2.5 Adjustment to Changes in Demand and Supply：Comparative Static Analysis33

Adjustment to Changes in Demand34

Adjustment to Changes in Supply34

Example 2-1 Changes in Demand and Supply and Coffee Prices35

2.6 Domestic Demand and Supply，Imports，and Prices37

Example 2-2 The Large U.S.Automotive Trade Deficit Keeps U.S.Auto Prices Down38

2.7 Interfering with versus Working through the Market39

Example 2-3 Rent Control Harms the Housing Market40

Example 2-4 The Economics of U.S.Farm Support Programs42

Example 2-5 Working through the Market with an Excise Tax44

Example 2-6 Fighting the Drug War by Reducing Demand and Supply46

At The Frontier Nonclearing Markets Theory47

Summary48

Key Terms49

Review Questions50

Problems50

Appendix The Algebra of Demand，Supply，and Equilibrium51

Market Equilibrium Algebraically52

Shifts in Demand and Supply，and Equilibrium53

The Effect of an Excise Tax53

Internet Site Addresses54

PART TWO Theory of Consumer Behavior and Demand55

CHAPTER 3 Consumer Preferences and Choice57

3.1 Utility Analysis58

Total and Marginal Utility58

Cardinal or Ordinal Utility？60

Example 3-1 Does Money Buy Happiness？61

3.2 Consumer’s Tastes：Indifference Curves62

Indifference Curves—What Do They Show？62

Characteristics of Indifference Curves64

The Marginal Rate of Substitution65

Some Special Types of Indifference Curves66

Example 3-2 How Ford Decided on the Characteristics of Its Taurus68

3.3 International Convergence of Tastes69

Example 3-3 Gillette Introduces the Sensor and Mach3 Razors—Two Truly Global Products69

3.4 The Consumer’s Income and Price Constraints：The Budget Line70

Definition of the Budget Line70

Changes in Income and Prices and the Budget Line72

Example 3-4 Time as a Constraint74

3.5 Consumer’s Choice74

Utility Maximization75

Example 3-5 Utility Maximization and Government Warnings on Junk Food76

Corner Solutions78

Example 3-6 Water Rationing in the West79

Marginal Utility Approach to Utility Maximization80

At The Frontier The Theory of Revealed Preference82

Summary84

Key Terms85

Review Questions85

Problems86

Internet Site Addresses87

CHAPTER 4 Consumer Behavior and Individual Demand88

4.1 Changes in Income and the Engel Curve89

Income-Consumption Curve and Engel Curve89

Example 4-1 Engel’s Law After a Century91

Normal and Inferior Goods92

Example 4-2 Many People Are Blowing Their Pension Money Long Before Retirement94

4.2 Changes in Price and the Individual Demand Curve95

Example 4-3 Higher Alcohol Prices Would Sharply Reduce Youth Alcohol Use and Traffic Deaths97

4.3 Substitution and Income Effects98

How Are the Substitution and Income Effects Separated？98

Example 4-4 The Substitution and Income Effects of a Gasoline Tax101

Substitution and Income Effects for Inferior Goods102

4.4 Substitution Between Domestic and Foreign Goods104

Example 4-5 What Is an “American” Car？105

4.5 Some Applications of Indifference Curve Analysis106

Is a Cash Subsidy Better Than Food Stamps？106

Consumer Surplus Measures Unpaid Benefits108

Benefits from Exchange110

At The Frontier The Characteristics Approach to Consumer Theory112

Summary115

Key Terms116

Review Questions116

Problems117

Appendix Index Numbers and Changes in Consumer Welfare118

Expenditure，Laspeyres，and Paasche Indices118

How Are Changes in Consumer Welfare Measured？119

Example 4-6 The Consumer Price Index，Inflation，and Changes in the Standard of Living121

Example 4-7 Comparing the Standard of Living in Different Countries122

Internet Site Addresses124

CHAPTER 5 Market Demand and Elasticities125

5.1 The Market Demand for a Commodity125

Example 5-1 The Demand for Big Macs127

5.2 Price Elasticity of Market Demand129

Measuring the Price Elasticity of Demand129

Price Elasticity Graphically131

Price Elasticity and Total Expenditures132

What Determines Price Elasticity？133

Example 5-2 The Price Elasticity for Clothing Increases with Time135

5.3 Income Elasticity of Demand136

Example 5-3 Transatlantic Air Travel Is a Luxury，Flour Is an Inferior Good138

5.4 Cross Elasticity of Demand139

Example 5-4 Margarine and Butter Are Substitutes，Cereals and Fresh Fish Are Complements140

5.5 Price and Income Elasticities of Imports and Exports141

Example 5-5 Price and Income Elasticities for Imports and Exports in the Real World142

5.6 Marginal Revenue and Elasticity143

Demand，Total Revenue，and Marginal Revenue143

Geometry of Marginal Revenue Determination144

Marginal Revenue，Price，and Elasticity146

Example 5-6 The U.S.Consumer Demand for Alcoholic Beverages148

At The Frontier The Marketing Revolution with Micromarketing149

Summary151

Key Terms152

Review Questions152

Problems153

Appendix Empirical Estimation of Demand by Regression Analysis155

Example 5-7 Estimating and Forecasting the U.S.Demand for Electricity157

Internet Site Addresses159

CHAPTER 6 Choice Under Uncertainty160

6.1 Risk and Uncertainty in Demand Choices160

Example 6-1 The Risk Faced by Coca-Cola in Changing Its Secret Formula161

6.2 Measuring Risk162

Probability Distributions162

The Standard Deviation164

Example 6-2 Risk and Crime Deterrence166

6.3 Utility Theory and Risk Aversion167

Different Preferences Toward Risk167

Maximizing Expected Utility168

Example 6-3 America’s Gambling Craze170

6.4 Insurance and Gambling171

Why Do Some Individuals Buy Insurance？171

Why Do Some Individuals Gamble？173

Example 6-4 Gambling and Insuring by the Same Individual—A Seeming Contradiction174

6.5 Risk Aversion and Indifference Curves175

Example 6-5 Spreading Risks in the Choice of a Portfolio177

6.6 Reducing Risk and Uncertainty178

Gathering More Information178

Diversification179

Insurance179

Example 6-6 Some Disasters as Nondiversifiable Risks180

At The Frontier Foreign Exchange Risks and Hedging181

Summary182

Key Terms183

Review Questions183

Problems184

Internet Site Addresses186

PART THREE Production，Costs，and Competitive Markets187

CHAPTER 7 Production Theory189

7.1 Relating Outputs to Inputs190

Organization of Production190

Classification of Inputs191

7.2 Production with One Variable Input192

Total，Average，and Marginal Product192

The Geometry of Average and Marginal Product Curves195

The Law of Diminishing Returns196

Example 7-1 Economics—The Dismal Science Because of Diminishing Returns197

7.3 Production with Two Variable Inputs198

What Do Isoquants Show？198

Derivation of Total Product Curves from the Isoquant Map199

7.4 The Shape of Isoquants201

Characteristics of Isoquants201

Economic Region of Production203

Fixed-Proportions Production Functions205

Example 7-2 Trading Traveling Time for Gasoline Consumption on the Nation’s Highways206

7.5 Constant，Increasing，and Decreasing Returns to Scale207

Example 7-3 General Motors Decides Smaller Is Better210

7.6 Technological Progress and International Competitiveness211

Meaning and Importance of Innovations211

Example 7-4 How Do Firms Get New Technology？212

Innovations and the International Competitiveness of U.S.Firms213

Example 7-5 How Xerox Lost and Regained，but Is Now Struggling to Remain Internationally Competitive214

Example 7-6 Score Card on American Industry215

At The Frontier The New Computer-Aided Production Revolution and the International Competitiveness of U.S.Firms216

Summary218

Key Terms218

Review Questions219

Problems219

Appendix The Cobb-Douglas Production Function221

The Formula221

Illustration221

Empirical Estimation223

Example 7-7 Output Elasticity of Labor and Capital and Returns to Scale in U.S.and Canadian Manufacturing224

Internet Site Addresses226

CHAPTER 8 Costs of Production227

8.1 The Nature of Production Costs227

Example 8-1 The Cost of Attending College228

8.2 Cost in the Short Run229

Total Costs230

Per-Unit Costs230

Geometry of Per-Unit Cost Curves232

Example 8-2 Per-Unit Cost Curves in Corn Production235

8.3 Cost in the Long Run236

Isocost Lines236

Least-Cost Input Combination238

Cost Minimization in the Long Run and in the Short Run239

Example 8-3 The Least-Cost Combination of Gasoline and Driving Time240

8.4 Expansion Path and Long-Run Cost Curves241

Expansion Path and the Long-Run Total Cost Curve242

Derivation of the Long-Run Average and Marginal Cost Curves242

The Relationship between Short- and Long-Run Average Cost Curves245

Example 8-4 Long-Run Average Cost Curve in Electricity Generation246

8.5 Shape of the Long-Run Average Cost Curve247

Example 8-5 The Shape of the Long-Run Average Cost Curves in Various Industries248

Example 8-6 The Minimum Efficient Scale in Various U.S.Food Industries249

8.6 Multiproduct Firms and Dynamic Changes in Costs250

Economies of Scope250

The Learning Curve251

Example 8-7 The Learning Curve for the Lockheed L-1011 Aircraft and for Semiconductors253

At The Frontier Minimizing Costs Internationally—The New Economies of Scale254

Summary256

Key Terms257

Review Questions257

Problems258

Appendix Extensions and Uses of Production and Cost Analysis259

Derivation of the Total Variable Cost Curve from the Total Product Curve259

Input Substitution in Production to Minimize Costs261

Example 8-8 The Elasticity of Substitution in Japanese Manufacturing Industries262

Input Prices and the Firm’s Cost Curves262

Internet Site Addresses263

CHAPTER 9 Price and Output Under Perfect Competition264

9.1 Market Structure：Perfect Competition265

Example 9-1 Competition in the New York Stock Market266

9.2 Price Determination in the Market Period267

9.3 Short-Run Equilibrium of the Firm268

Total Approach：Maximizing the Positive Difference between Total Revenue and Total Costs269

Marginal Approach：Equating Marginal Revenue and Marginal Cost269

Profit Maximization or Loss Minimization？273

9.4 Short-Run Supply Curve and Equilibrium274

Short-Run Supply Curve of the Firm and Industry274

Example 9-2 The Supply Curve of Petroleum from Tar Sands276

Example 9-3 The Short-Run World Supply Curve of Copper278

Short-Run Equilibrium of the Industry and Firm280

9.5 Long-Run Equilibrium of the Firm and Industry281

Long-Run Equilibrium of the Firm281

Long-Run Equilibrium of the Industry and Firm282

Efficiency Implications of Perfect Competition283

Example 9-4 Long-Run Adjustment in the U.S.Cotton Textile Industry284

9.6 Constant，Increasing，and Decreasing Cost Industries285

Constant Cost Industries285

Increasing Cost Industries286

Decreasing Cost Industries287

9.7 International Competition in the Domestic Economy288

9.8 Analysis of Competitive Markets290

Producer Surplus290

Consumers’ and Producers’ Surplus，and the Efficiency of Perfect Competition292

Welfare Effects of an Excise Tax293

Effects of an Import Tariff295

At The Frontier Auctioning Airwaves297

Summary299

Key Terms300

Review Questions300

Problems301

Appendix The Foreign Exchange Market and the Dollar Exchange Rate302

Example 9-5 Foreign Exchange Quotations304

Example 9-6 Depreciation of the U.S.Dollar and Profitability of U.S.Firms305

Internet Site Addresses306

Imperfectly Competitive Markets307

CHAPTER 10 Price and Output Under Pure Monopoly309

10.1 Pure Monopoly—The Opposite Extreme from Perfect Competition309

Definition and Sources of Monopoly310

Example 10-1 Barriers to Entry and Monopoly by Alcoa311

The Monopolist Faces the Market Demand Curve for the Commodity312

Example 10-2 De Beers Abandons It Diamond Monopoly314

10.2 Short-Run Equilibrium Price and Output315

Total Approach：Maximizing the Positive Difference between Total Revenue and Total Costs316

Marginal Approach：Equating Marginal Revenue and Marginal Cost318

Profit Maximization or Loss Minimization？320

Short-Run Marginal Cost and Supply322

10.3 Long-Run Equilibrium Price and Output323

Profit Maximization in the Long Run323

Example 10-3 Monopoly Profits in the New York City Taxi Industry324

Comparison with Perfect Competition：The Social Cost of Monopoly325

Example 10-4 Estimates of the Social Cost of Monopoly in the United States327

10.4 Profit Maximization by the Multiplant Monopolist328

Short-Run Equilibrium328

Long-Run Equilibrium329

10.5 Price Discrimination—A Monopolist’s Method of Increasing Profits330

Charging Different Prices for Different Quantities330

Example 10-5 First-Degree Price Discrimination in Undergraduate Financial Aid at American Colleges332

Charging Different Prices for Different Markets333

Example 10-6 Price Discrimination by Con Edison335

10.6 International Price Discrimination and Dumping336

Example 10-7 Kodak Antidumping Victory Over Fuji—But Kodak Still Faces Competitive Problems337

10.7 Two-Part Tariffs，Tying，and Bundling338

Two-Part Tariffs338

Tying and Bundling340

Example 10-8 Bundling in the Leasing of Movies341

10.8 Analysis of Monopoly Markets342

Per-Unit Tax：Perfect Competition and Monopoly Compared342

Price Discrimination and the Existence of the Industry343

Do Monopolists Suppress Inventions？343

At The Frontier Windows 95—A Software Near Monopoly—Lands Microsoft in the Courts346

Summary348

Key Terms349

Review Questions349

Problems349

Internet Site Addresses351

CHAPTER 11 Price and Output Under Monopolistic Competition and Oligopoly353

11.1 Monopolistic Competition：Many Sellers of a Differentiated Product354

11.2 Monopolistic Competition：Short-Run and Long-Run Analysis355

Price and Output Decisions Under Monopolistic Competition355

Product Variation and Selling Expenses357

Example 11-1 Advertisers Are Taking on Competitors by Name...and Are Being Sued358

How Useful Is the Theory of Monopolistic Competition？359

11.3 Oligopoly：Interdependence Among the Few Producers in the Industry361

Example 11-2 Industrial Concentration in the United States362

11.4 The Cournot and the Kinked-Demand Curve Models363

The Cournot Model：Interdependence Not Recognized363

The Kinked-Demand Curve Model：Interdependence Recognized366

11.5 Collusion：Cartels and Price Leadership Models367

A Centralized Cartel Operates as a Monopolist368

Example 11-3 The Organization of Petroleum Exporting Countries （OPEC） Cartel369

Market-Sharing Cartel371

Example 11-4 The Market-Sharing Ivy Cartel372

Price Leadership373

11.6 Long-Run Adjustments and Efficiency Implications of Oligopoly376

Long-Run Adjustments in Oligopoly376

Nonprice Competition among Oligopolists377

Welfare Effects of Oligopoly377

Example 11-5 Firm Size and Profitability378

11.7 Other Oligopolistic Pricing Practices379

Limit Pricing as a Barrier to Entry379

Cost-Plus Pricing：A Common Short-Cut Pricing Practice381

At The Frontier The Art of Devising Air Fares382

11.8 The March of Global Oligopolists386

Example 11-6 Rising Competition in Global Banking388

Example 11-7 Globalization of the Pharmaceutical Industry389

Summary390

Key Terms392

Review Questions392

Problems393

Appendix The Cournot and Stackelberg Models394

The Cournot Model—An Extended Treatment394

The Stackelberg Model396

Internet Site Addresses398

CHAPTER 12 Game Theory and Oligopolistic Behavior399

12.1 Game Theory：Definition，Objectives，and Usefulness399

Example 12-1 Military Strategy and Strategic Business Decisions401

12.2 Dominant Strategy and Nash Equilibrium401

Dominant Strategy402

Nash Equilibrium403

Example 12-2 Dell Computers and Nash Equilibrium404

12.3 The Prisoners’ Dilemma，Price and Nonprice Competition，and Cartel Cheating405

The Prisoners’ Dilemma：Definition and Importance405

Price and Nonprice Competition，Cartel Cheating，and the Prisoners’ Dilemma406

Example 12-3 The Airlines’ Fare War and the Prisoners’ Dilemma408

12.4 Repeated Games and Tit-For-Tat Strategy409

12.5 Strategic Moves410

Threats，Commitments，and Credibility410

Entry Deterrence411

Example 12-4 Wal-Mart’s Preemptive Expansion Marketing Strategy412

12.6 Strategic Moves and International Competitiveness413

Example 12-5 Companies’ Strategic Mistakes and Failures415

At The Frontier The Virtual Corporation416

Summary417

Key Terms418

Review Questions418

Problems419

Internet Site Addresses420

CHAPTER 13 Market Structure，Efficiency，and Regulation421

13.1 Market Structure and Efficiency421

13.2 Measuring Monopoly Power423

The Lerner Index as a Measure of Monopoly Power423

Concentration and Monopoly Power：The Herfindahl Index424

Contestable Markets：Effective Competition Even with Few Firms426

At The Frontier Functioning of Markets and Experimental Economics427

13.3 Social Costs and Dynamic Benefits of Monopoly Power429

13.4 Controlling Monopoly Power：Antitrust Policy431

Example 13-1 Antitrust Policy in Action—The Breakup of AT＆T and the Creation of Competition in the Long-Distance Telephone Service433

Example 13-2 Regulation and the Price of International Telephone Calls in Europe433

13.5 Public-Utility Regulation434

Public Utilities as Natural Monopolies434

Difficulties in Public-Utility Regulation436

Example 13-3 Regulated Electricity Rates for Con Edison—A Thing of the Past437

13.6 The Deregulation Movement438

Example 13-4 Deregulation of the Airline Industry：An Assessment439

Example 13-5 Deregulation and the New Merger Boom440

13.7 Regulating International Competition：Voluntary Export Restraints442

Example 13-6 Voluntary Export Restraints on Japanese Automobiles to the United States442

13.8 Some Applications of Market Structure，Efficiency，and Regulation443

Regulating Monopoly Price443

Regulation and Peak-Load Pricing445

Regulation and Transfer Pricing447

Summary449

Key Terms450

Review Questions450

Problems450

Internet Site Addresses451

PART FIVE Pricing and Employment of Inputs453

CHAPTER 14 Input Price and Employment Under Perfect Competition455

14.1 Profit Maximization and Optimal Input Employment456

14.2 The Demand Curve of a Firm for an Input457

The Demand Curve of a Firm for One Variable Input457

The Demand Curve of a Firm for One of Several Variable Inputs459

14.3 The Market Demand Curve for an Input and Its Elasticity461

The Market Demand Curve for an Input461

Example 14-1 The Increase in the Demand for Temporary Workers463

Determinants of the Price Elasticity of Demand for an Input464

Example 14-2 Price Elasticity of Demand for Inputs in Manufacturing Industries465

14.4 The Supply Curve of an Input466

The Supply of Labor by an Individual466

Substitution and Income Effects of a Wage Increase468

Example 14-3 Labor Force Participation Rates469

The Market Supply Curve for an Input470

Example 14-4 Backward-Bending Supply Curve of Physicians’ Services and Other Labor471

14.5 Pricing and Employment of an Input472

Example 14-5 Labor Productivity and Total Compensation in the United States and Abroad473

14.6 Input Price Equalization Among Industries，Regions，and Countries474

Input Price Equalization Among Industries and Regions of a Country475

Input Price Equalization Among Countries476

Example 14-6 Convergence in Hourly Compensation in the Leading Industrial Countries478

14.7 Economic Rent：An Unnecessary Payment to Bring Forth the Supply of an Input478

14.8 Analysis of Labor Markets Under Perfect Competition480

Substitution and Income Effects of a Wage Rate Change480

Overtime Pay and the Supply of Labor Services482

Wage Differentials483

Effect of Minimum Wages484

At The Frontier Do Minimum Wages Really Reduce Employment？486

Summary487

Key Terms489

Review Questions489

Problems489

Internet Site Addresses490

CHAPTER 15 Input Price and Employment Under Imperfect Competition491

15.1 Profit Maximization and Optimal Input Employment491

15.2 The Demand Curve of a Firm for an Input492

The Demand Curve of a Firm for One Variable Input492

The Demand Curve of a Firm for One of Several Variable Inputs494

15.3 The Market Demand Curve，and Input Price and Employment495

Example 15-1 The Dynamics of the Engineers’ Shortage496

15.4 Monopsony：A Single Firm Hiring an Input498

Example 15-2 Occupational Licensing，Mobility，and Imperfect Labor Markets500

15.5 Monopsony Pricing and Employment of One Variable Input501

Example 15-3 Monopsonistic Exploitation in Major League Baseball503

15.6 Monopsony Pricing and Employment of Several Variable Inputs505

Example 15-4 Imperfect Competition in Labor Markets and the Pay of Top Executives506

15.7 International Migration and the Brain Drain507

Example 15-5 British and Russian Brain Drain Is U.S.Brain Gain508

Example 15-6 The Debate Over U.S.Immigration Policy509

15.8 Analysis of Imperfect Input Markets510

Regulation of Monopsony510

Bilateral Monopoly：A Monopsonistic Buyer Facing a Monopolistic Seller511

Effect of Labor Unions on Wages513

Economics of Discrimination in Employment515

At The Frontier Discrimination，and Gender and Wage Differentials517

Summary518

Key Terms519

Review Questions520

Problems520

Internet Site Addresses521

CHAPTER 16 Financial Microeconomics：Interest，Investment，and the Cost of Capital522

16.1 Lending-Borrowing Equilibrium523

Lending523

Borrowing525

The Market Rate of Interest with Borrowing and Lending527

Example 16-1 Personal Savings in the United States529

16.2 Saving-Investment Equilibrium530

Saving-Investment Equilibrium without Borrowing and Lending530

Saving-Investment Equilibrium with Borrowing and Lending532

The Market Rate of Interest with Saving and Investment，Borrowing and Lending534

Example 16-2 Personal and Business Savings，and Gross and Net Private Domestic Investment in the United States535

16.3 Investment Decisions536

Net Present Value Rule for Investment Decisions：The Two-Period Case536

Net Present Value Rule for Investment Decisions：The Multiperiod Case537

Example 16-3 Fields of Education and Higher Lifetime Earnings in the United States540

16.4 Determinants of the Market Rates of Interest541

Example 16-4 Nominal and Real Interest Rates in the United States：1981-2001542

Example 16-5 Investment Risks and Returns in the United States543

16.5 The Cost of Capital544

Cost of Debt544

Cost of Equity Capital：The Risk-Free Rate Plus Premium545

Cost of Equity Capital：The Dividend Valuation Model546

Cost of Equity Capital：The Capital Asset Pricing Model （CAPM）546

Weighted Cost of Capital547

At The Frontier Derivatives：Useful but Dangerous548

16.6 Effects of Foreign Investments on the Receiving Nation550

Example 16-6 Fluctuations in the Flow of Foreign Direct Investments to the United States552

16.7 Some Applications of Financial Microeconomics553

Investment in Human Capital554

Investment in Human Capital and Hours of Work555

Pricing of Exhaustible Resources556

Management of Nonexhaustible Resources558

Summary560

Key Terms561

Review Questions561

Problems562

Internet Site Addresses563

PART SIX General Equilibrium，Efficiency，and Public Goods565

CHAPTER 17 General Equilibrium and Welfare Economics567

17.1 Partial Versus General Equilibrium Analysis567

Example 17-1 Effect of a Reduction in Demand for Domestically Produced Automobiles in the United States569

17.2 General Equilibrium of Exchange and Production571

General Equilibrium of Exchange571

General Equilibrium of Production573

Derivation of the Production-Possibilities Frontier575

17.3 General Equilibrium of Production and Exchange and Pareto Optimality577

General Equilibrium of Production and Exchange Simultaneously577

Marginal Conditions for Economic Efficiency and Pareto Optimality580

17.4 Perfect Competition，Economic Efficiency，and Equity581

Perfect Competition and Economic Efficiency582

Efficiency and Equity583

Example 17-2 Watering Down Efficiency in the Pricing of Water584

17.5 General Equilibrium of Production and Exchange with International Trade585

Example 17-3 The Basis and the Gains from International Trade586

17.6 Welfare Economics and Utility-Possibilities Frontiers587

The Meaning of Welfare Economics587

Example 17-4 “The Painful Prescription：Rationing Hospital Care”588

Utility-Possibilities Frontier589

Grand Utility-Possibilities Frontier590

Example 17-5 From Welfare to Work—The Success of Welfare Reform in the United States592

17.7 Social Policy Criteria593

Measuring Changes in Social Welfare593

Arrow’s Impossibility Theorem595

At The Frontier The Hot Issue of Income Inequality in the United States596

17.8 Trade Protection and Economic Welfare598

Example 17-6 Welfare Effects of Removing U.S.Trade Restrictions599

Summary600

Key Terms601

Review Questions602

Problems602

Internet Site Addresses603

CHAPTER 18 Externalities，Public Goods，and the Role of Government605

18.1 Externalities605

Externalities Defined605

Externalities and Market Failure606

Example 18-1 The Case for Government Support for Basic Research608

18.2 Externalities and Property Rights609

Example 18-2 Commercial Fishing：Fewer Boats but Exclusive Rights？610

18.3 Public Goods611

Nature of Public Goods611

Example 18-3 The Economics of a Lighthouse and Other Public Goods613

Provision of Public Goods614

At The Frontier Efficiency Versus Equity in the U.S.Tax System615

18.4 Benefit-Cost Analysis616

Example 18-4 Benefit-Cost Analysis and the SST618

18.5 The Theory of Public Choice619

Meaning and Importance of Public-Choice Theory619

The Public-Choice Process620

Policy Implications of Public-Choice Theory622

18.6 Strategic Trade Policy623

Example 18-5 Strategic Trade and Industrial Policies in the United States624

18.7 Government Control and Regulation of Environmental Pollution625

Environmental Pollution625

Optimal Pollution Control626

Direct Regulation and Effluent Fees for Optimal Pollution Control627

Example 18-6 The Market for Dumping Rights628

Summary629

Key Terms630

Review Questions631

Problems631

Internet Site Addresses632

CHAPTER 19 The Economics of Information634

19.1 The Economics of Search634

Search Costs634

Searching for the Lowest Price635

Search and Advertising637

Example 19-1 No-Haggling Value Pricing in Car Buying638

At The Frontier The Internet and the Information Revolution639

19.2 Asymmetric Information：The Market for Lemons and Adverse Selection640

Asymmetric Information and the Market for Lemons641

The Insurance Market and Adverse Selection641

19.3 Market Signaling642

19.4 The Problem of Moral Hazard644

Example 19-2 Increased Disability Payments Reduce Labor-Force Participation645

Example 19-3 Medicare and Medicaid and Moral Hazard646

19.5 The Principal-Agent Problem647

Example 19-4 Do Golden Parachutes Reward Failure？648

19.6 The Efficiency Wage Theory649

Example 19-5 The Efficiency Wage at Ford651

Summary652

Key Terms653

Review Questions653

Problems653

Internet Site Addresses654

Appendix A Mathematical Appendix657

Appendix B Answers to Selected Problems668

Appendix C Glossary699

Name Index717

Subject Index719