Microeconomics:
Gespeichert in:
| Hauptverfasser: | , |
|---|---|
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Upper Saddle River, NJ
Pearson Prentice Hall
2008
|
| Ausgabe: | 2. ed., Pearson internat. ed. |
| Schlagworte: | |
| Online-Zugang: | Inhaltsverzeichnis |
| Beschreibung: | XLVIII, 628, [24] S. Ill., graph. Darst. |
| ISBN: | 0135036267 9780135036266 |
Internformat
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Datensatz im Suchindex
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| adam_text | IMAGE 1
MICROECONOMICS
SECOND EDITION
R. GLENN HUBBARD
ANTHONY PATRICK O BRIEN
PEARSON PRENTICE HALL
UPPER SADDLE RIVER, NEW JERSEY 07458
IMAGE 2
PREFACE
ACKNOWLEDGMENTS
PART 1: INTRODUCTION
VI
XXIV
CHAPTER 1:
AND MODELS ECONOMICS: FOUNDATIONS
WHAT HAPPENS WHEN U.S. HIGH-TECHNOLOGY FIRMS MOVE TO CHINA? 2
THREE KEY ECONOMIC IDEAS 4
PEOPLE ARE RATIONAL 5
PEOPLE RESPOND TO ECONOMIC INCENTIVES 5
MAKING THE CONNECTION: WILL WOMEN HAVE MORE
BABIES IF THE GOVERNMENT PAYS THEM TO? 5
OPTIMAL DECISIONS ARE MADE AT THE MARGIN 6
SOLVED PROBLEM 1-1: APPLE COMPUTER MAKES A DECISION AT THE MARGIN 7
THE ECONOMIC PROBLEM THAT EVERY SOCIETY MUST SOLVE 8
WHAT GOODS AND SERVICES WILL BE PRODUCED? 8
HOW WILL THE GOODS AND SERVICES BE PRODUCED? 8
WHO WILL RECEIVE THE GOODS AND SERVICES PRODUCED? 9
CENTRALLY PLANNED ECONOMIES VERSUS MARKET ECONOMIES 9 THE MODERN MIXED
ECONOMY 10
EFFICIENCY AND EQUITY 10
ECONOMIC MODELS 11
THE ROLE OF ASSUMPTIONS IN- ECONOMIC MODELS 12
FORMING AND TESTING HYPOTHESES IN ECONOMIC MODELS 12 M A K I NG THE
CONNECTION: WHEN ECONOMISTS DISAGREE:
A DEBATE OVER OUTSOURCING 13
NORMATIVE AND POSITIVE ANALYSIS 14
ECONOMICS AS A SOCIAL SCIENCE 14
DON T LET THIS H A P P EN TO YOU! DON T CONFUSE POSITIVE ANALYSIS WITH
NORMATIVE ANALYSIS 14
MICROECONOMICS AND MACROECONOMICS 14 A PREVIEW OF IMPORTANT ECONOMIC
TERMS 15 CONCLUSION 17
AN INSIDE LOOK: SHOULD THE UNITED STATES WORRY ABOUT HIGH-TECH
COMPETITION FROM INDIA AND CHINA? 18 KEY TERMS, SUMMARY, REVIEW
QUESTIONS, PROBLEMS AND APPLICATIONS 20
CHAPTER 1 APPENDIX: USING GRAPHS
AND FORMULAS 24
* * ?;
GRAPHS OF ONE VARIABLE
GRAPHS OF TWO VARIABLES SLOPES OF LINES
25 26 27
TAKING INTO ACCOUNT MORE THAN TWO VARIABLES ON A GRAPH 28 POSITIVE AND
NEGATIVE RELATIONSHIPS 28
DETERMINING CAUSE AND EFFECT 30
ARE GRAPHS OF ECONOMIC RELATIONSHIPS ALWAYS STRAIGHT
LINES? 31
SLOPES OF NONLINEAR CURVES 31
FORMULAS 32
FORMULA FOR A PERCENTAGE CHANGE 33
FORMULAS FOR THE AREAS OF A RECTANGLE AND A TRIANGLE 33 SUMMARY OF USING
FORMULAS 34
PROBLEMS AND APPLICATIONS 34
CHAPTER 2: TRADE-OFFS, COMPARATIVE
ADVANTAGE, AND THE MARKET SYSTEM 36 MANAGERS MAKING CHOICES AT BMW 36
PRODUCTION POSSIBILITIES FRONTIERS AND OPPORTUNITY COSTS 38
GRAPHING THE PRODUCTION POSSIBILITIES FRONTIER 38
SOLVED PROBLEM 2 - 1: DRAWING A PRODUCTION POSSIBILITIES FRONTIER FOR
ROSIE S BOSTON BAKERY 40
MAKING THE CONNECTION: TRADE-OFFS: HURRICANE KATRINA, TSUNAMI RELIEF,
AND CHARITABLE GIVING 41
INCREASING MARGINAL OPPORTUNITY COSTS 42
ECONOMIC GROWTH 43
COMPARATIVE ADVANTAGE AND TRADE 44
SPECIALIZATION AND GAINS FROM TRADE 44
ABSOLUTE ADVANTAGE VERSUS COMPARATIVE ADVANTAGE 46 COMPARATIVE ADVANTAGE
AND THE GAINS FROM TRADE 47 DON T LET THIS HAPPEN TO YOU! DON T CONFUSE
ABSOLUTE ADVANTAGE AND COMPARATIVE ADVANTAGE 48
SOLVED PROBLEM 2-2: COMPARATIVE ADVANTAGE AND THE GAINS FROM TRADE 48
THE MARKET SYSTEM 50
THE CIRCULAR FLOW OF INCOME 50
THE GAINS FROM FREE MARKETS 52
THE MARKET MECHANISM 52
MAKING THE CONNECTION: A STORY OF THE MARKET SYSTEM IN ACTION: HOW DO
YOU MAKE AN IPOD? 53
THE ROLE OF THE ENTREPRENEUR 53
THE LEGAL BASIS OF A SUCCESSFUL MARKET SYSTEM 54
MAKING THE CONNECTION: PROPERTY RIGHTS IN CYBERSPACE:
YOUTUBE AND MYSPACE 55
CONCLUSION 56
AN INSIDE LOOK: BMW MANAGERS CHANGE PRODUCTION STRATEGY 58
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 60
XXXIV
IMAGE 3
CONTENTS XXXV
CHAPTER 3: WHERE PRICES COME FROM:
THE INTERACTION OF DEMAND AND SUPPLY 66
APPLE AND THE DEMAND FOR IPODS 66
THE DEMAND SIDE OF THE MARKET 68
DEMAND SCHEDULES AND DEMAND CURVES 68
THE LAW OF DEMAND 69
WHAT EXPLAINS THE LAW OF DEMAND? 69
HOLDING EVERYTHING ELSE CONSTANT: THE CETERIS PARIBUS CONDITION 70
VARIABLES THAT SHIFT MARKET DEMAND 70
MAKING THE CONNECTION: WHY SUPERMARKETS NEED TO UNDERSTAND SUBSTITUTES
AND COMPLEMENTS 71 MAKING THE CONNECTION: COMPANIES RESPOND TO A GROWING
HISPANIC POPULATION 72
A CHANGE IN DEMAND VERSUS A CHANGE IN QUANTITY DEMANDED 73
MAKING THE CONNECTION: APPLE FORECASTS THE DEMAND FOR IPHONES AND OTHER
CONSUMER ELECTRONICS 75 THE SUPPLY SIDE OF THE MARKET 75
SUPPLY SCHEDULES AND SUPPLY CURVES 76
THE LAW OF SUPPLY 76
VARIABLES THAT SHIFT SUPPLY 77
A CHANGE IN SUPPLY VERSUS A CHANGE IN QUANTITY SUPPLIED 79 MARKET
EQUILIBRIUM: PUTTING DEMAND AND SUPPLY TOGETHER 79
HOW MARKETS ELIMINATE SURPLUSES AND SHORTAGES 80 DEMAND AND SUPPLY BOTH
COUNT 81
SOLVED PROBLEM 3-3: DEMAND AND SUPPLY BOTH COUNT: A TALE OF TWO LETTERS
81
THE EFFECT OF DEMAND AND SUPPLY SHIFTS ON EQUILIBRIUM 83
THE EFFECT OF SHIFTS IN SUPPLY ON EQUILIBRIUM 83
MAKING THE CONNECTION: THE FALLING PRICE OF LCD TELEVISIONS 83
THE EFFECT OF SHIFTS IN DEMAND ON EQUILIBRIUM 84
THE EFFECT OF SHIFTS IN DEMAND AND SUPPLY OVER TIME 85 SOLVED PROBLEM
3-4: HIGH DEMAND AND LOW PRICES IN THE LOBSTER MARKET? 86
SHIFTS IN A CURVE VERSUS MOVEMENTS ALONG A CURVE 88 DON T LET THIS
HAPPEN TO YOU! REMEMBER: A CHANGE IN A GOOD S PRICE DOES NOT CAUSE THE
DEMAND OR SUPPLY CURVE TO SHIFT 88
CONCLUSION 89
AN INSIDE LOOK: HOW DOES THE IPHONE HELP APPLE AND AT&T? 90
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 92
CHAPTER 4: ECONOMIC EFFICIENCY,
GOVERNMENT PRICE SETTING, AND TAXES 98
SHOULD THE GOVERNMENT CONTROL APARTMENT RENTS? 98 CONSUMER SURPLUS AND
PRODUCER SURPLUS 100 CONSUMER SURPLUS 100
MAKING THE CONNECTION: THE CONSUMER SURPLUS FROM SATELLITE TELEVISION
102
PRODUCER SURPLUS 103
WHAT CONSUMER SURPLUS AND PRODUCER SURPLUS MEASURE 105 THE EFFICIENCY OF
COMPETITIVE MARKETS 105 MARGINAL BENEFIT EQUALS MARGINAL COST IN
COMPETITIVE EQUILIBRIUM 105
ECONOMIC SURPLUS 106
DEADWEIGHT LOSS 106
ECONOMIC SURPLUS AND ECONOMIC EFFICIENCY 107
GOVERNMENT INTERVENTION IN THE MARKET: PRICE FLOORS AND PRICE CEILINGS
107
PRICE FLOORS: GOVERNMENT POLICY IN AGRICULTURAL MARKETS 108 MAKING THE
CONNECTION: PRICE FLOORS IN LABOR MARKETS: THE DEBATE OVER MINIMUM WAGE
POLICY 109 PRICE CEILINGS: GOVERNMENT RENT CONTROL POLICY
IN HOUSING MARKETS 110
DON T LET THIS HAPPEN TO YOU! DON T CONFUSE SCARCITY IWITH A
SHORTAGE 111
BLACK MARKETS 112
SOLVED PROBLEM 4-3: WHAT S THE ECONOMIC EFFECT OF A BLACK MARKET FOR
APARTMENTS? 112
MAKING THE CONNECTION: DOES HOLIDAY GIFT GIVING HAVE A DEADWEIGHT LOSS?
113
THE RESULTS OF GOVERNMENT PRICE CONTROLS: WINNERS, LOSERS, AND
INEFFICIENCY 114
POSITIVE AND NORMATIVE ANALYSIS OF PRICE CEILINGS AND PRICE FLOORS 114
THE ECONOMIC IMPACT OF TAXES 115
THE EFFECT OF TAXES ON ECONOMIC EFFICIENCY 115
TAX INCIDENCE: WHO ACTUALLY PAYS A TAX? 116
SOLVED PROBLEM 4-4: WHEN DO CONSUMERS PAY ALL OF A SALES TAX INCREASE?
117
MAKING THE CONNECTION: IS THE BURDEN OF THE SOCIAL SECURITY TAX REALLY
SHARED EQUALLY BETWEEN WORKERS AND FIRMS? 119
CONCLUSION 121
AN INSIDE LOOK AT POLICY: IS RENT CONTROL A LIFELINE OR STRANGLEHOLD?
122
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 124
CHAPTER 4 APPENDIX: QUANTITATIVE
DEMAND AND SUPPLY ANALYSIS 131 DEMAND AND SUPPLY EQUATIONS 131
CALCULATING CONSUMER SURPLUS AND PRODUCER SURPLUS 132
REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 134
IMAGE 4
XXXVI C O N T E N TS
RART2:
CHAPTER 5: EXTERNALITIES, ENVIRONMENTAL POLICY, AND PUBLIC GOODS 136
ECONOMIC POLICY AND THE ENVIRONMENT 136 EXTERNALITIES AND ECONOMIC
EFFICIENCY 138 THE EFFECT OF EXTERNALITIES 138
EXTERNALITIES MAY RESULT IN MARKET FAILURE 140
WHAT CAUSES EXTERNALITIES? 140
PRIVATE SOLUTIONS TO EXTERNALITIES: THE COASE THEOREM 141
THE ECONOMICALLY EFFICIENT LEVEL OF POLLUTION REDUCTION 142 MAKING THE
CONNECTION: THE CLEAN AIR ACT: HOW A GOVERNMENT POLICY REDUCED INFANT
MORTALITY 142 THE BASIS FOR PRIVATE SOLUTIONS TO EXTERNALITIES 144
DON T LET THIS HAPPEN TO YOU! REMEMBER THAT IT S THE NET BENEFIT THAT
COUNTS V 144
MAKING THE CONNECTION: THE FABLE OF THE BEES 146 DO PROPERTY RIGHTS
MATTER? 146
THE PROBLEM OF TRANSACTIONS COSTS 147
THE COASE THEOREM 147
GOVERNMENT POLICIES TO DEAL WITH EXTERNALITIES 147 SOLVED PROBLEM 5-3:
USING A TAX TO DEAL WITH A NEGATIVE EXTERNALITY 148
COMMAND AND CONTROL VERSUS TRADABLE EMISSIONS ALLOWANCES 150
ARE TRADABLE EMISSIONS ALLOWANCES LICENSES TO POLLUTE? 150 MAKING THE
CONNECTION: CAN TRADABLE PERMITS REDUCE GLOBAL WARMING? 151
FOUR CATEGORIES OF GOODS 152
MAKING THE CONNECTION: SHOULD THE GOVERNMENT RUN THE HEALTH CARE SYSTEM?
153
THE DEMAND FOR A PUBLIC GOOD 155
THE OPTIMAL QUANTITY OF A PUBLIC GOOD 156
SOLVED PROBLEM 5-5: DETERMINING THE OPTIMAL LEVEL OF PUBLIC GOODS 158
COMMON RESOURCES 160
CONCLUSION 163
AN INSIDE LOOK AT POLICY: PROBLEMS WITH CARBON TRADING 164
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 166
CHAPTER 6: ELASTICITY:
THE RESPONSIVENESS OF DEMAND AND SUPPLY 172
DO PEOPLE CARE ABOUT THE PRICES OF BOOKS? 172 THE PRICE ELASTICITY OF
DEMAND AND ITS MEASUREMENT 174
MEASURING THE PRICE ELASTICITY OF DEMAND 174
ELASTIC DEMAND AND INELASTIC DEMAND 175
AN EXAMPLE OF COMPUTING PRICE ELASTICITIES 175
THE MIDPOINT FORMULA 176
SOLVED PROBLEM 6-1: CALCULATING THE PRICE ELASTICITY OF DEMAND 177
WHEN DEMAND CURVES INTERSECT, THE FLATTER CURVE IS MORE ELASTIC 178
POLAR CASES OF PERFECTLY ELASTIC AND PERFECTLY INELASTIC DEMAND 178
DON T LET THIS HAPPEN TO YOU! DON T CONFUSE INELASTIC WITH PERFECTLY
INELASTIC 180
THE DETERMINANTS OF THE PRICE ELASTICITY OF DEMAND 180
AVAILABILITY OF CLOSE SUBSTITUTES 180
PASSAGE OF TIME 181
LUXURIES VERSUS NECESSITIES 181
DEFINITION OF THE MARKET 181
MAKING THE CONNECTION: THE PRICE ELASTICITY OF DEMAND FOR BREAKFAST
CEREAL 181
SHARE OF A GOOD IN A CONSUMER S BUDGET 182
IS THE DEMAND FOR BOOKS PERFECTLY INELASTIC? 182
THE RELATIONSHIP BETWEEN PRICE ELASTICITY OF DEMAND AND TOTAL REVENUE
182
ELASTICITY AND REVENUE WITH A LINEAR DEMAND CURVE 183 SOLVED PROBLEM
6-3: PRICE AND REVENUE DON T ALWAYS MOVE IN THE SAME DIRECTION 184
ESTIMATING PRICE ELASTICITY OF DEMAND 185
MAKING THE CONNECTION: DETERMINING THE PRICE ELASTICITY OF DEMAND FOR
DVDS BY MARKET EXPERIMENT 185 OTHER DEMAND ELASTICITIES 186
CROSS-PRICE ELASTICITY OF DEMAND 186
INCOME ELASTICITY OF DEMAND 187
MAKING THE CONNECTION: PRICE ELASTICITY, CROSS-PRICE ELASTICITY, AND
INCOME ELASTICITY IN THE MARKET FOR ALCOHOLIC BEVERAGES 188
USING ELASTICITY TO ANALYZE THE DISAPPEARING FAMILY FARM 189
SOLVED PROBLEM 6-5: USING PRICE ELASTICITY TO ANALYZE POLICY TOWARD
ILLEGAL DRUGS 190
THE PRICE ELASTICITY OF SUPPLY AND ITS MEASUREMENT 191
MEASURING THE PRICE ELASTICITY OF SUPPLY 191
DETERMINANTS OF THE PRICE ELASTICITY OF SUPPLY 192 MAKING THE
CONNECTION: WHY ARE OIL PRICES SO UNSTABLE? 192
POLAR CASES OF PERFECTLY ELASTIC AND PERFECTLY INELASTIC SUPPLY * 193
USING PRICE ELASTICITY OF SUPPLY TO PREDICT CHANGES IN PRICE 194
CONCLUSION 196
AN INSIDE LOOK: BORDERS CHANGES ITS REWARDS PROGRAM 198 KEY TERMS,
SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 200
IMAGE 5
CONTENTS XXXVII
CHAPTER 7: FIRMS, THE STOCK MARKET,
AND CORPORATE GOVERNANCE 208 GOOGLE: FROM DORM ROOM TO WALL STREET 208
TYPES OF FIRMS 210
WHO IS LIABLE? LIMITED AND UNLIMITED LIABILITY 210
MAKING THE CONNECTION: WHAT S IN A NAME ?
LLOYD S OF LONDON LEARNS ABOUT UNLIMITED LIABILITY THE HARD WAY 211
CORPORATIONS EARN THE MAJORITY OF REVENUE AND PROFITS 212 THE STRUCTURE
OF CORPORATIONS AND THE PRINCIPAL-AGENT PROBLEM 212
CORPORATE STRUCTURE AND CORPORATE GOVERNANCE 213 SOLVED PROBLEM 7-2:
DOES THE PRINCIPAL-AGENT PROBLEM APPLY TO THE RELATIONSHIP BETWEEN
MANAGERS AND WORKERS? 213
HOW FIRMS RAISE FUNDS 214
SOURCES OF EXTERNAL FUNDS 215
STOCK AND BOND MARKETS PROVIDE CAPITAL- AND INFORMATION 215
DON T LET THIS H A P P EN TO YOU! WHEN GOOGLE SHARES CHANGE HANDS,
GOOGLE DOESN T GET THE MONEY 216 MAKING THE CONNECTION: FOLLOWING
ABERCROMBIE & FIFCH S STOCK PRICE IN THE FINANCIAL PAGES 217
USING FINANCIAL STATEMENTS TO EVALUATE A CORPORATION 219
MAKING THE CONNECTION: A BULL IN CHINA S FINANCIAL
SHOP 219
THE INCOME STATEMENT . 220
THE BALANCE SHEET . 221
CORPORATE GOVERNANCE POLICY 221
SOLVED PROBLEM 7-5: WHAT MAKES A GOOD BOARD OF DIRECTORS? 223
CONCLUSION 225
AN INSIDE LOOK: EXECUTIVE COMPENSATION AT GOOGLE 226 KEY TERMS, SUMMARY,
REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 228
CHAPTER 7 APPENDIX: TOOLS
TO ANALYZE FIRMS FINANCIAL INFORMATION 233
USING PRESENT VALUE TO MAKE INVESTMENT DECISIONS 233
SOLVED PROBLEM 7 - 1: HOW TO RECEIVE YOUR CONTEST WINNINGS 235
USING PRESENT VALUE TO CALCULATE BOND PRICES 235
USING PRESENT VALUE TO CALCULATE STOCK PRICES 236
A SIMPLE FORMULA FOR CALCULATING STOCK PRICES 237
GOING DEEPER INTO FINANCIAL STATEMENTS 238 ANALYZING INCOME STATEMENTS
238
ANALYZING BALANCE SHEETS
KEY TERMS, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS
CHAPTER 8: COMPARATIVE
ADVANTAGE AND THE GAINS FROM INTERNATIONAL TRADE
239
240
242
IS USING TRADE POLICY TO HELP U.S. INDUSTRIES A GOOD IDEA? 242
THE UNITED STATES IN THE INTERNATIONAL ECONOMY 244
THE IMPORTANCE OF TRADE TO THE U.S. ECONOMY 244
U.S. INTERNATIONAL TRADE IN A WORLD CONTEXT 245
MAKING THE CONNECTION: HOW EXPANDING INTERNATIONAL TRADE HAS HELPED
BOEING 246
COMPARATIVE ADVANTAGE IN INTERNATIONAL TRADE 247 A BRIEF REVIEW OF
COMPARATIVE ADVANTAGE 247
COMPARATIVE ADVANTAGE IN INTERNATIONAL TRADE 247
HOW COUNTRIES GAIN FROM INTERNATIONAL TRADE 2 49 INCREASING CONSUMPTION
THROUGH TRADE 249
SOLVED PROBLEM 8-3: THE GAINS FROM TRADE 250
WHY DON T WE SEE COMPLETE SPECIALIZATION? 252
DOES ANYONE LOSE AS A RESULT OF INTERNATIONAL TRADE? 252 DON T LET THIS
HAPPEN TO YOU! REMEMBER THAT TRADE CREATES BOTH WINNERS AND LOSERS 252
WHERE DOES COMPARATIVE ADVANTAGE COME FROM? 253 MAKING THE CONNECTION:
WHY IS DALTON, GEORGIA, THE CARPET-MAKING CAPITAL OF THE WORLD? 253
COMPARATIVE ADVANTAGE OVER TIME: THE RISE AND FALL- AND RISE-OF THE U.S.
CONSUMER ELECTRONICS INDUSTRY 254 GOVERNMENT POLICIES THAT RESTRICT
INTERNATIONAL TRADE 255
TARIFFS 256
QUOTAS AND VOLUNTARY EXPORT RESTRAINTS 257
MEASURING THE ECONOMIC EFFECT OF THE SUGAR QUOTA 258 SOLVED PROBLEM 8-4:
MEASURING THE ECONOMIC EFFECT
OF A QUOTA 259
THE HIGH COST OF PRESERVING JOBS WITH TARIFFS AND QUOTAS 260 GAINS FROM
UNILATERAL ELIMINATION OF TARIFFS AND QUOTAS 261 OTHER BARRIERS TO TRADE
261
THE ARGUMENT OVER TRADE POLICIES AND GLOBALIZATION 262
WHY DO SOME PEOPLE OPPOSE THE WORLD TRADE ORGANIZATION? 262
MAKING THE CONNECTION: THE UNINTENDED CONSEQUENCES OF BANNING GOODS MADE
WITH CHILD LABOR 263
MAKING THE CONNECTION: HAS NAFTA HELPED OR HURT THE U.S.ECONOMY? 265
DUMPING 266
POSITIVE VERSUS NORMATIVE ANALYSIS (ONCE AGAIN) 2,66 CONCLUSION 267
AN INSIDE LOOK AT POLICY: THE UNITED STATES AND SOUTH KOREA REACH A
TRADE DEAL 268
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 270
IMAGE 6
XXXVIII CONTENTS
CHAPTER 8 APPENDIX:
MULTINATIONAL FIRMS 277
A BRIEF HISTORY OF MULTINATIONAL ENTERPRISES 277
STRATEGIC FACTORS IN MOVING FROM DOMESTIC TO FOREIGN MARKETS 278
MAKING THE CONNECTION: HAVE MULTINATIONAL CORPORATIONS REDUCED
EMPLOYMENT AND LOWERED WAGES IN THE UNITED STATES? 280
CHALLENGES TO U.S. FIRMS IN FOREIGN MARKETS 281
COMPETITIVE ADVANTAGES OF U.S. FIRMS 281
KEY TERMS, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 282
CHAPTER 9: CONSUMER CHOICE
AND BEHAVIORAL ECONOMICS 284 CAN JAY-Z GET YOU TO DRINK CHERRY COKE? 284
UTILITY AND CONSUMER DECISION MAKING 286 THE ECONOMIC MODEL OF CONSUMER
BEHAVIOR IN A NUTSHELL 286
UTILITY 286
THE PRINCIPLE OF DIMINISHING MARGINAL UTILITY 287
THE RULE OF EQUAL MARGINAL UTILITY PER DOLLAR SPENT 287 SOLVED PROBLEM 9
- 1: FINDING THE OPTIMAL LEVEL OF CONSUMPTION 291
WHAT IF THE RULE OF EQUAL MARGINAL UTILITY PER DOLLAR DOES NOT HOLD? 292
DON T LET THIS H A P P EN TO YOU! EQUALIZE MARGINAL UTILITIES PER DOLLAR
* 293
THE INCOME EFFECT AND SUBSTITUTION EFFECT OF A PRICE CHANGE 294
WHERE DEMAND CURVES COME FROM 295
SOCIAL INFLUENCES ON DECISION MAKING 298 THE EFFECTS OF CELEBRITY
ENDORSEMENTS 298
MAKING THE CONNECTION: WHY DO FIRMS PAY TIGER WOODS TO ENDORSE THEIR
PRODUCTS? 298
NETWORK EXTERNALITIES 299
DOES FAIRNESS MATTER? 300
MAKING THE CONNECTION: PROFESSOR KRUEGER GOES TO THE SUPER BOWL 302
BEHAVIORAL ECONOMICS: DO PEOPLE MAKE THEIR CHOICES RATIONALLY? 303
IGNORING NONMONETARY OPPORTUNITY COSTS 303
BUSINESS IMPLICATIONS OF CONSUMERS IGNORING NONMONETARY OPPORTUNITY
COSTS 304
MAKING THE CONNECTION: WHY DO HILTON HOTELS
AND OTHER FIRMS HIDE THEIR PRICES? 304
FAILING TO IGNORE SUNK COSTS 305
BEING UNREALISTIC ABOUT FUTURE BEHAVIOR 306
MAKING THE CONNECTION: WHY DON T STUDENTS STUDY MORE? 306
SOLVED PROBLEM 9-4: HOW DO YOU GET PEOPLE TO SAVE MORE OF THEIR INCOME?
CONCLUSION AN INSIDE LOOK: CAN MARIAH CAREY GET YOU TO BUY ELIZABETH
ARDEN PERFUME?
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS
CHAPTER 9 APPENDIX: USING
INDIFFERENCE CURVES AND BUDGET LINES TO UNDERSTAND CONSUMER BEHAVIOR
CONSUMER PREFERENCES
INDIFFERENCE CURVES THE SLOPE OF AN INDIFFERENCE CURVE CAN INDIFFERENCE
CURVES EVER CROSS?
THE BUDGET CONSTRAINT CHOOSING THE OPTIMAL CONSUMPTION OF PIZZA AND COKE
MAKING THE CONNECTION: DELL DETERMINES THE OPTIMAL
MIX OF PRODUCTS HOW A PRICE CHANGE AFFECTS OPTIMAL CONSUMPTION SOLVED
PROBLEM 9 A - 1: WHEN DOES A PRICE CHANGE MAKE A CONSUMER BETTER OFF?
DERIVING THE DEMAND CURVE THE INCOME EFFECT AND THE SUBSTITUTION EFFECT
OF A PRICE
CHANGE HOW A CHANGE IN INCOME AFFECTS OPTIMAL CONSUMPTION THE SLOPE OF
THE INDIFFERENCE CURVE, THE SLOPE OF THE BUDGET LINE, AND THE RULE OF
EQUAL
MARGINAL UTILITY PER DOLLAR SPENT THE RULE OF EQUAL MARGINAL UTILITY PER
DOLLAR SPENT REVISITED KEY TERMS, REVIEW QUESTIONS, PROBLEMS
AND APPLICATIONS
CHAPTER 10: TECHNOLOGY, ,
PRODUCTION, AND COSTS SONY USES A COST CURVE TO DETERMINE THE PRICE OF
RADIOS TECHNOLOGY: AN ECONOMIC DEFINITION
MAKING THE CONNECTION: IMPROVING INVENTORY CONTROL AT WAL-MART THE SHORT
RUN AND THE LONG RUN IN ECONOMICS THE DIFFERENCE BETWEEN FIXED COSTS AND
VARIABLE COSTS
MAKING THE CONNECTION: FIXED COSTS IN THE PUBLISHING INDUSTRY IMPLICIT
COSTS VERSUS EXPLICIT COSTS THE PRODUCTION FUNCTION A FIRST LOOK AT THE
RELATIONSHIP BETWEEN PRODUCTION
AND COST THE MARGINAL PRODUCT OF LABOR AND THE AVERAGE PRODUCT OF LABOR
THE LAW OF DIMINISHING RETURNS
307
309
310
312
317
317 317 318 319 319
320
321 322
323 324
325 326
327
328
330
332
332 334
334 335 335
336 336 337
338
339 339
IMAGE 7
CONTENTS XXXIX
GRAPHING PRODUCTION 340
MAKING THE CONNECTION: ADAM SMITH S FAMOUS ACCOUNT OF THE DIVISION OF
LABOR IN A PIN FACTORY 340 THE RELATIONSHIP BETWEEN MARGINAL AND AVERAGE
PRODUCT 341 AN EXAMPLE OF MARGINAL AND AVERAGE VALUES: COLLEGE
GRADES 342
THE RELATIONSHIP BETWEEN SHORT-RUN PRODUCTION AND SHORT-RUN COST 342
MARGINAL COST 343
WHY ARE THE MARGINAL AND AVERAGE COST CURVES U-SHAPED? 344
SOLVED PROBLEM 10-4: THE RELATIONSHIP BETWEEN MARGINAL COST AND AVERAGE
COST 345
GRAPHING COST CURVES 346
COSTS IN THE LONG RUN 346
ECONOMIES OF SCALE 347
LONG-RUN AVERAGE TOTAL COST CURVES FOR BOOKSTORES 348 SOLVED PROBLEM
10-6: USING LONG-RUN AVERAGE COST CURVES TO UNDERSTAND BUSINESS STRATEGY
349
MAKING THE CONNECTION: THE COLOSSAL RIVER ROUGE: DISECONOMIES OF SCALE
AT FORD MOTOR COMPANY 350 DON T LET THIS HAPPEN TO YOU! DON T CONFUSE
DIMINISHING RETURNS WITH DISECONOMIES OF SCALE 351 CONCLUSION 352
AN INSIDE LOOK: LOWER MANUFACTURING COSTS PUSH DOWN THE PRICE OF
FLAT-PANEL TVS 354
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 356
CHAPTER 10 APPENDIX: USING ISOQUANTS
AND ISOCOSTS TO UNDERSTAND PRODUCTION AND COST . 364
ISOQUANTS 364
AN ISOQUANT GRAPH 364
THE SLOPE OF AN ISOQUANT , 364
ISOCOST LINES 365
GRAPHING THE ISOCOST LINE 365
THE SLOPE AND POSITION OF THE ISOCOST LINE 365
CHOOSING THE COST-MINIMIZING COMBINATION OF CAPITAL AND LABOR 367
DIFFERENT INPUT PRICE RATIOS LEAD TO DIFFERENT INPUT CHOICES 367
MAKING THE CONNECTION: THE CHANGING INPUT MIX IN WALT DISNEY FILM
ANIMATION 368
ANOTHER LOOK AT COST MINIMIZATION 369
SOLVED PROBLEM 10A-1: DETERMINING THE OPTIMAL COMBINATION OF INPUTS 371
MAKING THE CONNECTION: DO NATIONAL FOOTBALL LEAGUE TEAMS BEHAVE
EFFICIENTLY? 372
THE EXPANSION PATH 372
KEY TERMS, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 373
MM
CHAPTER 11 : FIRMS IN PERFECTLY COMPETITIVE MARKETS . 376
PERFECT COMPETITION IN THE MARKET FOR ORGANIC APPLES 376
PERFECTLY COMPETITIVE MARKETS 379
A PERFECTLY COMPETITIVE FIRM CANNOT AFFECT THE MARKET PRICE 379
THE DEMAND CURVE FOR THE OUTPUT OF A PERFECTLY COMPETITIVE FIRM 380
DON T LET THIS HAPPEN TO YOU! DON T CONFUSE THE DEMAND CURVE FOR FARMER
PARKER S WHEAT WITH THE MARKET DEMAND CURVE FOR WHEAT 380
HOW A FIRM MAXIMIZES PROFIT IN A PERFECTLY COMPETITIVE MARKET 381
REVENUE FOR A FIRM IN A PERFECTLY COMPETITIVE MARKET 382 DETERMINING THE
PROFIT-MAXIMIZING LEVEL OF OUTPUT 382 ILLUSTRATING PROFIT OR LOSS ON THE
COST CURVE GRAPH 385
SHOWING A PROFIT ON THE GRAPH 385
*SOLVED PROBLEM 11-3: DETERMINING PROFIT-MAXIMIZING PRICE AND QUANTITY
386
DON T LET THIS HAPPEN TO YOU! REMEMBER THAT FIRMS MAXIMIZE TOTAL PROFIT,
NOT PROFIT PER UNIT 388
ILLUSTRATING WHEN A FIRM IS BREAKING EVEN OR OPERATING AT A LOSS 388
MAKING THE CONNECTION: LOSING MONEY IN THE MEDICAL SCREENING INDUSTRY
389
DECIDING WHETHER TO PRODUCE OR TO SHUT DOWN IN THE SHORT RUN 390
MAKING THE CONNECTION: WHEN TO CLOSE A LAUNDRY 390 THE SUPPLY CURVE OF A
FIRM IN THE SHORT RUN 391
THE MARKET SUPPLY CURVE IN A PERFECTLY COMPETITIVE INDUSTRY 392
IF EVERYONE CAN DO IT, YOU CAN T MAKE MONEY AT IT : THE ENTRY AND EXIT
OF FIRMS IN THE LONG RUN 393 ECONOMIC PROFIT AND THE ENTRY OR EXIT
DECISION 393 LONG-RUN EQUILIBRIUM IN A PERFECTLY COMPETITIVE MARKET *
395
THE LONG-RUN SUPPLY CURVE IN A PERFECTLY COMPETITIVE MARKET 397
INCREASING-COST AND DECREASING-COST INDUSTRIES 398 PERFECT COMPETITION
AND EFFICIENCY 398 MAKING THE CONNECTION: THE DECLINE OF APPLE
PRODUCTION IN NEW YORK STATE 398
PRODUCTIVE EFFICIENCY 399
SOLVED PROBLEM 11-6: HOW PRODUCTIVE EFFICIENCY BENEFITS CONSUMERS 399
ALLOCATIVE EFFICIENCY 401
CONCLUSION 401
AN INSIDE LOOK: WHY ARE ORGANIC FARMERS WORRIED ABOUT WAL-MART? 402
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 404
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XL
CONTENTS
CHAPTER 12: MONOPOLISTIC
COMPETITION: THE COMPETITIVE MODEL IN A MORE REALISTIC SETTING 410
STARBUCKS: GROWTH THROUGH PRODUCT DIFFERENTIATION 410 DEMAND AND
MARGINAL REVENUE FOR A FIRM
IN A MONOPOLISTICALLY COMPETITIVE MARKET 412 THE DEMAND CURVE FOR A
MONOPOLISTICALLY COMPETITIVE FIRM 412
MARGINAL REVENUE FOR A FIRM WITH A DOWNWARD-SLOPING DEMAND CURVE 413
HOW A MONOPOLISTICALLY COMPETITIVE FIRM MAXIMIZES PROFITS IN THE SHORT
RUN 415
SOLVED PROBLEM 12-2: HOW NOT TO MAXIMIZE PROFITS AT A PUBLISHING COMPANY
416
WHAT HAPPENS TO PROFITS IN THE LONG RUN? 417 HOW DOES THE ENTRY OF NEW
FIRMS AFFECT THE PROFITS OF EXISTING FIRMS? 417
DON T LET THIS HAPPEN TO YOU! DON T CONFUSE ZERO ECONOMIC PROFIT WITH
ZERO ACCOUNTING PROFIT 418 MAKING THE CONNECTION: THE RISE AND FALL OF
APPLE S MACINTOSH COMPUTER 419
SOLVED PROBLEM 12-3: THE SHORT RUN AND THE LONG RUN FOR THE MACINTOSH
420
IS ZERO ECONOMIC PROFIT INEVITABLE IN THE LONG RUN? 421 IS ZERO ECONOMIC
PROFIT INEVITABLE IN THE LONG RUN? 421 MAKING THE CONNECTION: STAYING
ONE STEP AHEAD OF THE COMPETITION: EUGENE SCHUELLER AND L OREAL 422
COMPARING PERFECT COMPETITION AND MONOPOLISTIC COMPETITION 423
EXCESS CAPACITY UNDER MONOPOLISTIC COMPETITION 423 IS MONOPOLISTIC
COMPETITION INEFFICIENT? 424
HOW CONSUMERS BENEFIT FROM MONOPOLISTIC COMPETITION 424 MAKING THE
CONNECTION: ABERCROMBIE & FITCH: CAN THE PRODUCT BE TOO DIFFERENTIATED?
425
HOW MARKETING DIFFERENTIATES PRODUCTS 425 BRAND MANAGEMENT 426
ADVERTISING 426
DEFENDING A BRAND NAME 426
WHAT MAKES A FIRM SUCCESSFUL? 427
MAKING THE CONNECTION: IS BEING THE FIRST FIRM IN THE MARKET A KEY TO
SUCCESS? 428
CONCLUSION 429
AN INSIDE LOOK: CAN DUNKIN DONUTS REALLY COMPETE WITH STARBUCKS? 430
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 432
CHAPTER 13: OLIGOPOLY: FIRMS
IN LESS COMPETITIVE MARKETS 440 COMPETING WITH WAL-MART 440
OLIGOPOLY AND BARRIERS TO ENTRY 442
BARRIERS TO ENTRY 443
USING GAME THEORY TO ANALYZE OLIGOPOLY 445 A DUOPOLY GAME: PRICE
COMPETITION BETWEEN TWO FIRMS 445
MAKING THE CONNECTION: A BEAUTIFUL MIND:
GAME THEORY GOES TO THE MOVIES 447
DON T LET THIS HAPPEN TO YOU! DON T MISUNDERSTAND WHY EACH MANAGER ENDS
UP CHARGING A PRICE OF $400 447
FIRM BEHAVIOR AND THE PRISONERS DILEMMA 448
SOLVED PROBLEM 13-2: IS ADVERTISING A PRISONERS DILEMMA FOR COCA-COLA
AND PEPSI? 448
MAKING THE CONNECTION: IS THERE A DOMINANT STRATEGY FOR BIDDING ON EBAY?
449
CAN FIRMS ESCAPE THE PRISONERS DILEMMA? 450
MAKING THE CONNECTION: AMERICAN AIRLINES AND NORTHWEST AIRLINES FAIL TO
COOPERATE ON A PRICE INCREASE 451
CARTELS: THE CASE OF OPEC 452
SEQUENTIAL GAMES AND BUSINESS STRATEGY 454 DETERRING ENTRY 454
SOLVED PROBLEM 13-3: IS DETERRING ENTRY ALWAYS A GOOD IDEA? 4*55
BARGAINING 456
THE FIVE COMPETITIVE FORCES MODEL 457
COMPETITION FROM EXISTING FIRMS 458
THE THREAT FROM POTENTIAL ENTRANTS 458
COMPETITION FROM SUBSTITUTE GOODS OR SERVICES 459 THE BARGAINING POWER
OF BUYERS 459
THE BARGAINING POWER OF SUPPLIERS 459
MAKING THE CONNECTION: IS SOUTHWEST S BUSINESS STRATEGY MORE IMPORTANT
THAN THE STRUCTURE OF THE AIRLINE INDUSTRY? 459
CONCLUSION 461
AN INSIDE LOOK: CAN TARGET COMPETE WITH WAL-MART IN THE MARKET FOR
GENERIC DRUGS? 462
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 464
CHAPTER 14: MONOPOLY
AND ANTITRUST POLICY 472
TIME WARNER RULES MANHATTAN 472
IS ANY FIRM EVER REALLY A MONOPOLY? 474 MAKING THE CONNECTION: IS XBOX
360 A CLOSE SUBSTITUTE FOR PLAYSTATION 3? 474
WHERE DO MONOPOLIES COME FROM? 475
ENTRY BLOCKED BY GOVERNMENT ACTION 475
MAKING THE CONNECTION: THE END OF THE CHRISTMAS PLANT MONOPOLY 476
CONTROL OF A KEY RESOURCE 477
MAKING THE CONNECTION: ARE DIAMOND PROFITS FOREVER?
THE DE BEERS DIAMOND MONOPOLY 477
NETWORK EXTERNALITIES 478
NATURAL MONOPOLY 479
SOLVED PROBLEM 14-2: IS THE PROXY BUSINESS A NATURAL MONOPOLY? 480
HOW DOES A MONOPOLY CHOOSE PRICE AND OUTPUT? 481 MARGINAL REVENUE ONCE
AGAIN 481
PROFIT MAXIMIZATION FOR A MONOPOLIST 483
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CONTENTS
XLI
SOLVED PROBLEM 14-3: FINDING PROFIT-MAXIMIZING PRICE AND OUTPUT FOR A
MONOPOLIST 484
DOES MONOPOLY REDUCE ECONOMIC EFFICIENCY? 485 COMPARING MONOPOLY AND
PERFECT COMPETITION 485
DON T LET THIS H A P P EN TO YOU! DON T ASSUME THAT CHARGING A HIGHER
PRICE IS ALWAYS MORE PROFITABLE FOR A MONOPOLIST 485
MEASURING THE EFFICIENCY LOSSES FROM MONOPOLY 486 HOW LARGE ARE THE
EFFICIENCY LOSSES DUE TO MONOPOLY? 487 MARKET POWER AND TECHNOLOGICAL
CHANGE 488
GOVERNMENT POLICY TOWARD MONOPOLY 488 ANTITRUST LAWS AND ANTITRUST
ENFORCEMENT 488
MERGERS: THE TRADE-OFF BETWEEN MARKET POWER AND EFFICIENCY 489
THE DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION MERGER GUIDELINES
491
MAKING THE CONNECTION: SHOULD THE GOVERNMENT PREVENT BANKS FROM BECOMING
TOO BIG? 493
REGULATING NATURAL MONOPOLIES 494
CONCLUSION 495
AN INSIDE LOOK AT POLICY: AS BARRIERS FALL, WILL CABLE TV COMPETITION
RISE? 496
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 498
CHAPTER 15: PRICING STRATEGY 506
GETTING INTO WALT DISNEY WORLD: ONE PRICE DOES NOT FIT ALL 506
PRICING STRATEGY, THE LAW OF ONE PRICE, AND ARBITRAGE 508
ARBITRAGE 508
SOLVED PROBLEM 15-1: IS ARBITRAGE JUST A RIP-OFF? 509 WHY DON T ALL
FIRMS CHARGE THE SAME PRICE? 509
PRICE DISCRIMINATION: CHARGING DIFFERENT PRICES FOR THE SAME PRODUCT 510
DON T LET THIS H A P P EN TO YOU! DON T CONFUSE PRICE DISCRIMINATION
WITH OTHER TYPES OF DISCRIMINATION 510 THE REQUIREMENTS FOR SUCCESSFUL
PRICE DISCRIMINATION 511 SOLVED PROBLEM 15-2: HOW DELL COMPUTER USES
PRICE
DISCRIMINATION TO INCREASE PROFITS 512
AIRLINES: THE KINGS OF PRICE DISCRIMINATION 513
MAKING THE CONNECTION: HOW COLLEGES USE YIELD MANAGEMENT 515
PERFECT PRICE DISCRIMINATION 515
PRICE DISCRIMINATION ACROSS TIME 517
CAN PRICE DISCRIMINATION BE ILLEGAL? 517
MAKING THE CONNECTION: PRICE DISCRIMINATION WITH A TWIST AT NETFLIX 518
OTHER PRICING STRATEGIES 519
ODD PRICING: WHY IS THE PRICE $2.99 INSTEAD OF $3.00? 519 WHY DO FIRMS
USE COST-PIUS PRICING? 520
MAKING THE CONNECTION: COST-PIUS PRICING IN THE PUBLISHING INDUSTRY 520
PRICING WITH TWO-PART TARIFFS 522
CONCLUSION 525
AN INSIDE LOOK: COLLEGE TUITION: ONE PRICE DOES NOT FIT ALL 526
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 528
CHAPTER 16: THE MARKETS FOR LABOR
AN OTHER FACTORS OF PRODUCTION 534 WHY ARE THE CHICAGO CUBS PAYING
ALFONSO SORIANO $18 MILLION PER YEAR? 534
THE DEMAND FOR LABOR 536
THE MARGINAL REVENUE PRODUCT OF LABOR , 536
SOLVED PROBLEM 16-1: HIRING DECISIONS BY A FIRM THAT IS A PRICE MAKER *
538
THE MARKET DEMAND CURVE FOR LABOR 539
FACTORS THAT SHIFT THE MARKET DEMAND CURVE FOR LABOR 539
THE SUPPLY OF LABOR 540
THE MARKET SUPPLY CURVE OF LABOR 541
FACTORS THAT SHIFT THE MARKET SUPPLY CURVE OF LABOR 542 EQUILIBRIUM IN
THE LABOR MARKET 543
THE EFFECT ON EQUILIBRIUM WAGES OF A SHIFT IN LABOR DEMAND 543
MAKING THE CONNECTION: WILL YOUR FUTURE INCOME DEPEND ON WHICH COURSES
YOU TAKE IN COLLEGE? 544 THE EFFECT ON EQUILIBRIUM WAGES OF A SHIFT IN
LABOR SUPPLY 545
MAKING THE CONNECTION: IMMIGRATION AND WAGES, THEN AND NOW 546
EXPLAINING DIFFERENCES IN WAGES 548
DON T LET THIS H A P P EN TO YOU! REMEMBER THAT PRICES AND WAGES ARE
DETERMINED AT THE MARGIN 549
MAKING THE CONNECTION: TECHNOLOGY AND THE EARNINGS OF SUPERSTARS 549
COMPENSATING DIFFERENTIALS 550
DISCRIMINATION 551
SOLVED PROBLEM 16-4: IS COMPARABLE WORTH LEGISLATION THE ANSWER TO
CLOSING THE GAP BETWEEN MEN S AND WOMEN S PAY? 553
LABOR UNIONS 556
PERSONNEL ECONOMICS 557
SHOULD WORKERS PAY DEPEND ON HOW MUCH THEY WORK OR ON HOW MUCH THEY
PRODUCE? 557
MAKING THE CONNECTION: RAISING PAY, PRODUCTIVITY, AND PROFITS AT
SAFELITE AUTOGLASS 558
OTHER CONSIDERATIONS IN SETTING COMPENSATION SYSTEMS 559
THE MARKETS FOR CAPITAL AND NATURAL RESOURCES 560 THE MARKET FOR CAPITAL
560
THE MARKET FOR NATURAL RESOURCES 561
MONOPSONY 562
THE MARGINAL PRODUCTIVITY THEORY OF INCOME DISTRIBUTION 562
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XLII
CONTENTS
CONCLUSION 563
AN INSIDE LOOK: ARE RACE CAR DRIVERS ATHLETS? WE DON T KNOW, BUT THE
PIT-CREW MEMBERS ARE 564 KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS
AND APPLICATIONS 566
CHAPTER 17: THE ECONOMICS
OF INFORMATION 574
WHY DOES STATE FARM CHARGE YOUNG MEN SO MUCH MORE THAN YOUNG WOMEN FOR
AUTO INSURANCE? 574 ASYMMETRIC INFORMATION 576
ADVERSE SELECTION AND THE MARKET FOR LEMONS 576 REDUCING ADVERSE
SELECTION IN THE CAR MARKET: WARRANTIES AND REPUTATIONS 577
ASYMMETRIC INFORMATION IN THE MARKET FOR INSURANCE 577
REDUCING ADVERSE SELECTION IN THE INSURANCE MARKET 577 MAKING THE
CONNECTION: DOES ADVERSE SELECTION EXPLAIN WHY SOME PEOPLE DO NOT HAVE
HEALTH INSURANCE? 578
MORAL HAZARD 580
DON T LET THIS HAPPEN TO YOU! DON T CONFUSE ADVERSE SELECTION WITH MORAL
HAZARD 580
ADVERSE SELECTION AND MORAL HAZARD IN FINANCIAL MARKETS 581
REDUCING ADVERSE SELECTION AND MORAL HAZARD IN FINANCIAL MARKETS 581
MAKING THE CONNECTION: USING GOVERNMENT POLICY TO REDUCE MORAL HAZARD IN
INVESTMENTS 582
ADVERSE SELECTION AND MORAL HAZARD IN LABOR MARKETS 583
SOLVED PROBLEM 17-3: CHANGING WORKERS COMPENSATION TO REDUCE ADVERSE
SELECTION AND MORAL HAZARD 584
THE WINNER S CURSE: WHEN IS IT BAD TO WIN AN AUCTION? 585
MAKING THE CONNECTION: IS THERE A WINNER S CURSE IN THE MARRIAGE MARKET?
586
WHEN DOES THE WINNER S CURSE APPLY? 586
SOLVED PROBLEM 17-4: AUCTIONS, AVAILABLE INFORMATION, AND THE WINNER S
CURSE 587
PACIFIC TEIESIS USES THE WINNER S CURSE TO ITS OWN ADVANTAGE 587
MAKING THE CONNECTION: WANT TO MAKE SOME MONEY?
TRY AUCTIONING A JAR OF COINS 588
CONCLUSION 589
AN INSIDE LOOK AT POLICY: SHOULD BAD CREDIT INCREASE YOUR CAR INSURANCE
RATE? 590
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 592
CHAPTER 18: PUBLIC CHOICE, TAXES,
AND THE DISTRIBUTION OF INCOME 598 SHOULD THE GOVERNMENT USE THE TAX
SYSTEM TO REDUCE INEQUALITY? 598
PUBLIC CHOICE 6 00
HOW DO WE KNOW THE PUBLIC INTEREST? MODELS OF VOTING 600 GOVERNMENT
FAILURE? 602
IS GOVERNMENT REGULATION NECESSARY? 604
THE TAX SYSTEM 604
AN OVERVIEW OF THE U.S. TAX SYSTEM 605
PROGRESSIVE AND REGRESSIVE TAXES 606
MAKING THE CONNECTION: WHICH GROUPS PAY THE MOST IN FEDERAL TAXES? 607
MARGINAL AND AVERAGE INCOME TAX RATES 608
THE CORPORATE INCOME TAX 608
INTERNATIONAL COMPARISON OF CORPORATE INCOME TAXES 609 EVALUATING TAXES
609
MAKING THE CONNECTION: SHOULD THE UNITED STATES SHIFT FROM AN INCOME TAX
TO A CONSUMPTION TAX? 611 TAX INCIDENCE REVISITED: THE EFFECT OF PRICE
ELASTICITY 612
DON T LET THIS HAPPEN TO YOU! REMEMBER NOT TO CONFUSE WHO PAYS THE TAX
WITH WHO BEARS THE BURDEN OF THE TAX 613
MAKING THE CONNECTION: DO CORPORATIONS REALLY BEAR THE BURDEN OF THE
FEDERAL CORPORATE INCOME TAX? 614 SOLVED PROBLEM 18-3: THE EFFECT OF
PRICE ELASTICITY ON THE EXCESS BURDEN OF A TAX 614
INCOME DISTRIBUTION AND POVERTY 615
MEASURING THE INCOME DISTRIBUTION AND POVERTY 616 EXPLAINING INCOME
INEQUALITY 617
SHOWING THE INCOME DISTRIBUTION WITH A LORENZ CURVE 618 PROBLEMS IN
MEASURING POVERTY AND THE DISTRIBUTION OF INCOME 619
SOLVED PROBLEM 18-4: ARE MANY INDIVIDUALS STUCK IN POVERTY? 621
INCOME DISTRIBUTION AND POVERTY AROUND THE WORLD 621
CONCLUSION 623
AN INSIDE LOOK AT POLICY: BALANCING FLEXIBLE MARKETS AND A GOVERNMENT
SAFETY NET 624
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 626
GLOSSARY G-L
COMPANY INDEX 1-1
SUBJECT INDEX 1-3
CREDITS C-1
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IMAGE 1
MICROECONOMICS
SECOND EDITION
R. GLENN HUBBARD
ANTHONY PATRICK O'BRIEN
PEARSON PRENTICE HALL
UPPER SADDLE RIVER, NEW JERSEY 07458
IMAGE 2
PREFACE
ACKNOWLEDGMENTS
PART 1: INTRODUCTION
VI
XXIV
CHAPTER 1:
AND MODELS ECONOMICS: FOUNDATIONS
WHAT HAPPENS WHEN U.S. HIGH-TECHNOLOGY FIRMS MOVE TO CHINA? 2
THREE KEY ECONOMIC IDEAS 4
PEOPLE ARE RATIONAL 5
PEOPLE RESPOND TO ECONOMIC INCENTIVES 5
MAKING THE CONNECTION: WILL WOMEN HAVE MORE
BABIES IF THE GOVERNMENT PAYS THEM TO? 5
OPTIMAL DECISIONS ARE MADE AT THE MARGIN 6
SOLVED PROBLEM 1-1: APPLE COMPUTER MAKES A DECISION AT THE MARGIN 7
THE ECONOMIC PROBLEM THAT EVERY SOCIETY MUST SOLVE 8
WHAT GOODS AND SERVICES WILL BE PRODUCED? 8
HOW WILL THE GOODS AND SERVICES BE PRODUCED? 8
WHO WILL RECEIVE THE GOODS AND SERVICES PRODUCED? 9
CENTRALLY PLANNED ECONOMIES VERSUS MARKET ECONOMIES 9 THE MODERN "MIXED"
ECONOMY 10
EFFICIENCY AND EQUITY 10
ECONOMIC MODELS 11
THE ROLE OF ASSUMPTIONS IN- ECONOMIC MODELS 12
FORMING AND TESTING HYPOTHESES IN ECONOMIC MODELS 12 M A K I NG THE
CONNECTION: WHEN ECONOMISTS DISAGREE:
A DEBATE OVER OUTSOURCING 13
NORMATIVE AND POSITIVE ANALYSIS 14
ECONOMICS AS A SOCIAL SCIENCE 14
DON'T LET THIS H A P P EN TO YOU! DON'T CONFUSE POSITIVE ANALYSIS WITH
NORMATIVE ANALYSIS 14
MICROECONOMICS AND MACROECONOMICS 14 A PREVIEW OF IMPORTANT ECONOMIC
TERMS 15 CONCLUSION 17
AN INSIDE LOOK: SHOULD THE UNITED STATES WORRY ABOUT HIGH-TECH
COMPETITION FROM INDIA AND CHINA? 18 KEY TERMS, SUMMARY, REVIEW
QUESTIONS, PROBLEMS AND APPLICATIONS 20
CHAPTER 1 APPENDIX: USING GRAPHS
AND FORMULAS 24
* * ?;
GRAPHS OF ONE VARIABLE
GRAPHS OF TWO VARIABLES SLOPES OF LINES
25 26 27
TAKING INTO ACCOUNT MORE THAN TWO VARIABLES ON A GRAPH 28 POSITIVE AND
NEGATIVE RELATIONSHIPS 28
DETERMINING CAUSE AND EFFECT 30
ARE GRAPHS OF ECONOMIC RELATIONSHIPS ALWAYS STRAIGHT
LINES? 31
SLOPES OF NONLINEAR CURVES 31
FORMULAS 32
FORMULA FOR A PERCENTAGE CHANGE 33
FORMULAS FOR THE AREAS OF A RECTANGLE AND A TRIANGLE 33 SUMMARY OF USING
FORMULAS 34
PROBLEMS AND APPLICATIONS 34
CHAPTER 2: TRADE-OFFS, COMPARATIVE
ADVANTAGE, AND THE MARKET SYSTEM 36 MANAGERS MAKING CHOICES AT BMW 36
PRODUCTION POSSIBILITIES FRONTIERS AND OPPORTUNITY COSTS 38
GRAPHING THE PRODUCTION POSSIBILITIES FRONTIER 38
SOLVED PROBLEM 2 - 1: DRAWING A PRODUCTION POSSIBILITIES FRONTIER FOR
ROSIE'S BOSTON BAKERY 40
MAKING THE CONNECTION: TRADE-OFFS: HURRICANE KATRINA, TSUNAMI RELIEF,
AND CHARITABLE GIVING 41
INCREASING MARGINAL OPPORTUNITY COSTS 42
ECONOMIC GROWTH 43
COMPARATIVE ADVANTAGE AND TRADE 44
SPECIALIZATION AND GAINS FROM TRADE 44
ABSOLUTE ADVANTAGE VERSUS COMPARATIVE ADVANTAGE 46 COMPARATIVE ADVANTAGE
AND THE GAINS FROM TRADE 47 DON'T LET THIS HAPPEN TO YOU! DON'T CONFUSE
ABSOLUTE ADVANTAGE AND COMPARATIVE ADVANTAGE 48
SOLVED PROBLEM 2-2: COMPARATIVE ADVANTAGE AND THE GAINS FROM TRADE 48
THE MARKET SYSTEM 50
THE CIRCULAR FLOW OF INCOME 50
THE GAINS FROM FREE MARKETS 52
THE MARKET MECHANISM 52
MAKING THE CONNECTION: A STORY OF THE MARKET SYSTEM IN ACTION: HOW DO
YOU MAKE AN IPOD? 53
THE ROLE OF THE ENTREPRENEUR 53
THE LEGAL BASIS OF A SUCCESSFUL MARKET SYSTEM 54
MAKING THE CONNECTION: PROPERTY RIGHTS IN CYBERSPACE:
YOUTUBE AND MYSPACE 55
CONCLUSION 56
AN INSIDE LOOK: BMW MANAGERS CHANGE PRODUCTION STRATEGY 58
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 60
XXXIV
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CONTENTS XXXV
CHAPTER 3: WHERE PRICES COME FROM:
THE INTERACTION OF DEMAND AND SUPPLY 66
APPLE AND THE DEMAND FOR IPODS 66
THE DEMAND SIDE OF THE MARKET 68
DEMAND SCHEDULES AND DEMAND CURVES 68
THE LAW OF DEMAND 69
WHAT EXPLAINS THE LAW OF DEMAND? 69
HOLDING EVERYTHING ELSE CONSTANT: THE CETERIS PARIBUS CONDITION 70
VARIABLES THAT SHIFT MARKET DEMAND 70
MAKING THE CONNECTION: WHY SUPERMARKETS NEED TO UNDERSTAND SUBSTITUTES
AND COMPLEMENTS 71 MAKING THE CONNECTION: COMPANIES RESPOND TO A GROWING
HISPANIC POPULATION 72
A CHANGE IN DEMAND VERSUS A CHANGE IN QUANTITY DEMANDED 73
MAKING THE CONNECTION: APPLE FORECASTS THE DEMAND FOR IPHONES AND OTHER
CONSUMER ELECTRONICS 75 THE SUPPLY SIDE OF THE MARKET 75
SUPPLY SCHEDULES AND SUPPLY CURVES 76
THE LAW OF SUPPLY 76
VARIABLES THAT SHIFT SUPPLY 77
A CHANGE IN SUPPLY VERSUS A CHANGE IN QUANTITY SUPPLIED 79 MARKET
EQUILIBRIUM: PUTTING DEMAND AND SUPPLY TOGETHER 79
HOW MARKETS ELIMINATE SURPLUSES AND SHORTAGES 80 DEMAND AND SUPPLY BOTH
COUNT 81
SOLVED PROBLEM 3-3: DEMAND AND SUPPLY BOTH COUNT: A TALE OF TWO LETTERS
81
THE EFFECT OF DEMAND AND SUPPLY SHIFTS ON EQUILIBRIUM 83
THE EFFECT OF SHIFTS IN SUPPLY ON EQUILIBRIUM 83
MAKING THE CONNECTION: THE FALLING PRICE OF LCD TELEVISIONS 83
THE EFFECT OF SHIFTS IN DEMAND ON EQUILIBRIUM 84
THE EFFECT OF SHIFTS IN DEMAND AND SUPPLY OVER TIME 85 SOLVED PROBLEM
3-4: HIGH DEMAND AND LOW PRICES IN THE LOBSTER MARKET? 86
SHIFTS IN A CURVE VERSUS MOVEMENTS ALONG A CURVE 88 DON'T LET THIS
HAPPEN TO YOU! REMEMBER: A CHANGE IN A GOOD'S PRICE DOES NOT CAUSE THE
DEMAND OR SUPPLY CURVE TO SHIFT 88
CONCLUSION 89
AN INSIDE LOOK: HOW DOES THE IPHONE HELP APPLE AND AT&T? 90
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 92
CHAPTER 4: ECONOMIC EFFICIENCY,
GOVERNMENT PRICE SETTING, AND TAXES 98
SHOULD THE GOVERNMENT CONTROL APARTMENT RENTS? 98 CONSUMER SURPLUS AND
PRODUCER SURPLUS 100 CONSUMER SURPLUS ' 100
MAKING THE CONNECTION: THE CONSUMER SURPLUS FROM SATELLITE TELEVISION
102
PRODUCER SURPLUS 103
WHAT CONSUMER SURPLUS AND PRODUCER SURPLUS MEASURE 105 THE EFFICIENCY OF
COMPETITIVE MARKETS 105 MARGINAL BENEFIT EQUALS MARGINAL COST IN
COMPETITIVE EQUILIBRIUM 105
ECONOMIC SURPLUS 106
DEADWEIGHT LOSS 106
ECONOMIC SURPLUS AND ECONOMIC EFFICIENCY 107
GOVERNMENT INTERVENTION IN THE MARKET: PRICE FLOORS AND PRICE CEILINGS
107
PRICE FLOORS: GOVERNMENT POLICY IN AGRICULTURAL MARKETS 108 MAKING THE
CONNECTION: PRICE FLOORS IN LABOR MARKETS: THE DEBATE OVER MINIMUM WAGE
POLICY 109 PRICE CEILINGS: GOVERNMENT RENT CONTROL POLICY
IN HOUSING MARKETS 110
DON'T LET THIS HAPPEN TO YOU! DON'T CONFUSE "SCARCITY" IWITH A
"SHORTAGE" 111
BLACK MARKETS 112
SOLVED PROBLEM 4-3: WHAT'S THE ECONOMIC EFFECT OF A "BLACK MARKET" FOR
APARTMENTS? 112
MAKING THE CONNECTION: DOES HOLIDAY GIFT GIVING HAVE A DEADWEIGHT LOSS?
113
THE RESULTS OF GOVERNMENT PRICE CONTROLS: WINNERS, LOSERS, AND
INEFFICIENCY 114
POSITIVE AND NORMATIVE ANALYSIS OF PRICE CEILINGS AND PRICE FLOORS 114
THE ECONOMIC IMPACT OF TAXES 115
THE EFFECT OF TAXES ON ECONOMIC EFFICIENCY 115
TAX INCIDENCE: WHO ACTUALLY PAYS A TAX? 116
SOLVED PROBLEM 4-4: WHEN DO CONSUMERS PAY ALL OF A SALES TAX INCREASE?
117
MAKING THE CONNECTION: IS THE BURDEN OF THE SOCIAL SECURITY TAX REALLY
SHARED EQUALLY BETWEEN WORKERS AND FIRMS? 119
CONCLUSION 121
AN INSIDE LOOK AT POLICY: IS RENT CONTROL A LIFELINE OR STRANGLEHOLD?
122
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 124
CHAPTER 4 APPENDIX: QUANTITATIVE
DEMAND AND SUPPLY ANALYSIS 131 DEMAND AND SUPPLY EQUATIONS 131
CALCULATING CONSUMER SURPLUS AND PRODUCER SURPLUS 132
REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 134
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XXXVI C O N T E N TS
RART2:
CHAPTER 5: EXTERNALITIES, ENVIRONMENTAL POLICY, AND PUBLIC GOODS 136
ECONOMIC POLICY AND THE ENVIRONMENT 136 EXTERNALITIES AND ECONOMIC
EFFICIENCY 138 THE EFFECT OF EXTERNALITIES 138
EXTERNALITIES MAY RESULT IN MARKET FAILURE 140
WHAT CAUSES EXTERNALITIES? 140
PRIVATE SOLUTIONS TO EXTERNALITIES: THE COASE THEOREM 141
THE ECONOMICALLY EFFICIENT LEVEL OF POLLUTION REDUCTION 142 MAKING THE
CONNECTION: THE CLEAN AIR ACT: HOW A GOVERNMENT POLICY REDUCED INFANT
MORTALITY 142 THE BASIS FOR PRIVATE SOLUTIONS TO EXTERNALITIES 144
DON'T LET THIS HAPPEN TO YOU! REMEMBER THAT IT'S THE NET BENEFIT THAT
COUNTS V 144
MAKING THE CONNECTION: THE FABLE OF THE BEES 146 DO PROPERTY RIGHTS
MATTER? 146
THE PROBLEM OF TRANSACTIONS COSTS 147
THE COASE THEOREM 147
GOVERNMENT POLICIES TO DEAL WITH EXTERNALITIES 147 SOLVED PROBLEM 5-3:
USING A TAX TO DEAL WITH A NEGATIVE EXTERNALITY 148
COMMAND AND CONTROL VERSUS TRADABLE EMISSIONS ALLOWANCES 150
ARE TRADABLE EMISSIONS ALLOWANCES LICENSES TO POLLUTE? 150 MAKING THE
CONNECTION: CAN TRADABLE PERMITS REDUCE GLOBAL WARMING? 151
FOUR CATEGORIES OF GOODS 152
MAKING THE CONNECTION: SHOULD THE GOVERNMENT RUN THE HEALTH CARE SYSTEM?
153
THE DEMAND FOR A PUBLIC GOOD 155
THE OPTIMAL QUANTITY OF A PUBLIC GOOD 156
SOLVED PROBLEM 5-5: DETERMINING THE OPTIMAL LEVEL OF PUBLIC GOODS 158
COMMON RESOURCES 160
CONCLUSION 163
AN INSIDE LOOK AT POLICY: PROBLEMS WITH CARBON TRADING 164
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 166
CHAPTER 6: ELASTICITY:
THE RESPONSIVENESS OF DEMAND AND SUPPLY 172
DO PEOPLE CARE ABOUT THE PRICES OF BOOKS? 172 THE PRICE ELASTICITY OF
DEMAND AND ITS MEASUREMENT 174
MEASURING THE PRICE ELASTICITY OF DEMAND 174
ELASTIC DEMAND AND INELASTIC DEMAND 175
AN EXAMPLE OF COMPUTING PRICE ELASTICITIES 175
THE MIDPOINT FORMULA 176
SOLVED PROBLEM 6-1: CALCULATING THE PRICE ELASTICITY OF DEMAND 177
WHEN DEMAND CURVES INTERSECT, THE FLATTER CURVE IS MORE ELASTIC 178
POLAR CASES OF PERFECTLY ELASTIC AND PERFECTLY INELASTIC DEMAND 178
DON'T LET THIS HAPPEN TO YOU! DON'T CONFUSE INELASTIC WITH PERFECTLY
INELASTIC 180
THE DETERMINANTS OF THE PRICE ELASTICITY OF DEMAND 180
AVAILABILITY OF CLOSE SUBSTITUTES 180
PASSAGE OF TIME 181
LUXURIES VERSUS NECESSITIES 181
DEFINITION OF THE MARKET 181
MAKING THE CONNECTION: THE PRICE ELASTICITY OF DEMAND FOR BREAKFAST
CEREAL 181
SHARE OF A GOOD IN A CONSUMER'S BUDGET 182
IS THE DEMAND FOR BOOKS PERFECTLY INELASTIC? 182
THE RELATIONSHIP BETWEEN PRICE ELASTICITY OF DEMAND AND TOTAL REVENUE
182
ELASTICITY AND REVENUE WITH A LINEAR DEMAND CURVE 183 SOLVED PROBLEM
6-3: PRICE AND REVENUE DON'T ALWAYS MOVE IN THE SAME DIRECTION 184
ESTIMATING PRICE ELASTICITY OF DEMAND 185
MAKING THE CONNECTION: DETERMINING THE PRICE ELASTICITY OF DEMAND FOR
DVDS BY MARKET EXPERIMENT 185 OTHER DEMAND ELASTICITIES 186
CROSS-PRICE ELASTICITY OF DEMAND 186
INCOME ELASTICITY OF DEMAND 187
MAKING THE CONNECTION: PRICE ELASTICITY, CROSS-PRICE ELASTICITY, AND
INCOME ELASTICITY IN THE MARKET FOR ALCOHOLIC BEVERAGES 188
USING ELASTICITY TO ANALYZE THE DISAPPEARING FAMILY FARM 189
SOLVED PROBLEM 6-5: USING PRICE ELASTICITY TO ANALYZE POLICY TOWARD
ILLEGAL DRUGS 190
THE PRICE ELASTICITY OF SUPPLY AND ITS MEASUREMENT 191
MEASURING THE PRICE ELASTICITY OF SUPPLY 191
DETERMINANTS OF THE PRICE ELASTICITY OF SUPPLY 192 MAKING THE
CONNECTION: WHY ARE OIL PRICES SO UNSTABLE? 192
POLAR CASES OF PERFECTLY ELASTIC AND PERFECTLY INELASTIC SUPPLY * 193
USING PRICE ELASTICITY OF SUPPLY TO PREDICT CHANGES IN PRICE 194
CONCLUSION 196
AN INSIDE LOOK: BORDERS CHANGES ITS REWARDS PROGRAM 198 KEY TERMS,
SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 200
IMAGE 5
CONTENTS XXXVII
CHAPTER 7: FIRMS, THE STOCK MARKET,
AND CORPORATE GOVERNANCE 208 GOOGLE: FROM DORM ROOM TO WALL STREET 208
TYPES OF FIRMS 210
WHO IS LIABLE? LIMITED AND UNLIMITED LIABILITY 210
MAKING THE CONNECTION: WHAT'S IN A "NAME"?
LLOYD'S OF LONDON LEARNS ABOUT UNLIMITED LIABILITY THE HARD WAY 211
CORPORATIONS EARN THE MAJORITY OF REVENUE AND PROFITS 212 THE STRUCTURE
OF CORPORATIONS AND THE PRINCIPAL-AGENT PROBLEM 212
CORPORATE STRUCTURE AND CORPORATE GOVERNANCE 213 SOLVED PROBLEM 7-2:
DOES THE PRINCIPAL-AGENT PROBLEM APPLY TO THE RELATIONSHIP BETWEEN
MANAGERS AND WORKERS? ' 213
HOW FIRMS RAISE FUNDS 214
SOURCES OF EXTERNAL FUNDS 215
STOCK AND BOND MARKETS PROVIDE CAPITAL- AND INFORMATION 215
DON'T LET THIS H A P P EN TO YOU! WHEN GOOGLE SHARES CHANGE HANDS,
GOOGLE DOESN'T GET THE MONEY 216 MAKING THE CONNECTION: FOLLOWING
ABERCROMBIE & FIFCH'S STOCK PRICE IN THE FINANCIAL PAGES 217
USING FINANCIAL STATEMENTS TO EVALUATE A CORPORATION 219
MAKING THE CONNECTION: A BULL IN CHINA'S FINANCIAL
SHOP 219
THE INCOME STATEMENT . 220
THE BALANCE SHEET '. 221
CORPORATE GOVERNANCE POLICY 221
SOLVED PROBLEM 7-5: WHAT MAKES A GOOD BOARD OF DIRECTORS? 223
CONCLUSION 225
AN INSIDE LOOK: EXECUTIVE COMPENSATION AT GOOGLE 226 KEY TERMS, SUMMARY,
REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 228
CHAPTER 7 APPENDIX: TOOLS
TO ANALYZE FIRMS' FINANCIAL INFORMATION 233
USING PRESENT VALUE TO MAKE INVESTMENT DECISIONS 233
SOLVED PROBLEM 7 - 1: HOW TO RECEIVE YOUR CONTEST WINNINGS 235
USING PRESENT VALUE TO CALCULATE BOND PRICES 235
USING PRESENT VALUE TO CALCULATE STOCK PRICES 236
A SIMPLE FORMULA FOR CALCULATING STOCK PRICES 237
GOING DEEPER INTO FINANCIAL STATEMENTS 238 ANALYZING INCOME STATEMENTS
238
ANALYZING BALANCE SHEETS
KEY TERMS, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS
CHAPTER 8: COMPARATIVE
ADVANTAGE AND THE GAINS FROM INTERNATIONAL TRADE
239
240
242
IS USING TRADE POLICY TO HELP U.S. INDUSTRIES A GOOD IDEA? 242
THE UNITED STATES IN THE INTERNATIONAL ECONOMY 244
THE IMPORTANCE OF TRADE TO THE U.S. ECONOMY 244
U.S. INTERNATIONAL TRADE IN A WORLD CONTEXT 245
MAKING THE CONNECTION: HOW EXPANDING INTERNATIONAL TRADE HAS HELPED
BOEING 246
COMPARATIVE ADVANTAGE IN INTERNATIONAL TRADE 247 A BRIEF REVIEW OF
COMPARATIVE ADVANTAGE 247
COMPARATIVE ADVANTAGE IN INTERNATIONAL TRADE 247
HOW COUNTRIES GAIN FROM INTERNATIONAL TRADE 2 49 INCREASING CONSUMPTION
THROUGH TRADE 249
SOLVED PROBLEM 8-3: THE GAINS FROM TRADE 250
WHY DON'T WE SEE COMPLETE SPECIALIZATION? 252
DOES ANYONE LOSE AS A RESULT OF INTERNATIONAL TRADE? 252 DON'T LET THIS
HAPPEN TO YOU! REMEMBER THAT TRADE CREATES BOTH WINNERS AND LOSERS 252
WHERE DOES COMPARATIVE ADVANTAGE COME FROM? 253 MAKING THE CONNECTION:
WHY IS DALTON, GEORGIA, THE CARPET-MAKING CAPITAL OF THE WORLD? 253
COMPARATIVE ADVANTAGE OVER TIME: THE RISE AND FALL- AND RISE-OF THE U.S.
CONSUMER ELECTRONICS INDUSTRY 254 GOVERNMENT POLICIES THAT RESTRICT
INTERNATIONAL TRADE 255
TARIFFS 256
QUOTAS AND VOLUNTARY EXPORT RESTRAINTS 257
MEASURING THE ECONOMIC EFFECT OF THE SUGAR QUOTA 258 SOLVED PROBLEM 8-4:
MEASURING THE ECONOMIC EFFECT
OF A QUOTA 259
THE HIGH COST OF PRESERVING JOBS WITH TARIFFS AND QUOTAS 260 GAINS FROM
UNILATERAL ELIMINATION OF TARIFFS AND QUOTAS 261 OTHER BARRIERS TO TRADE
261
THE ARGUMENT OVER TRADE POLICIES AND GLOBALIZATION 262
WHY DO SOME PEOPLE OPPOSE THE WORLD TRADE ORGANIZATION? 262
MAKING THE CONNECTION: THE UNINTENDED CONSEQUENCES OF BANNING GOODS MADE
WITH CHILD LABOR 263
MAKING THE CONNECTION: HAS NAFTA HELPED OR HURT THE U.S.ECONOMY? 265
DUMPING 266
POSITIVE VERSUS NORMATIVE ANALYSIS (ONCE AGAIN) 2,66 CONCLUSION 267
AN INSIDE LOOK AT POLICY: THE UNITED STATES AND SOUTH KOREA REACH A
TRADE DEAL 268
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 270
IMAGE 6
XXXVIII CONTENTS
CHAPTER 8 APPENDIX:
MULTINATIONAL FIRMS 277
A BRIEF HISTORY OF MULTINATIONAL ENTERPRISES 277
STRATEGIC FACTORS IN MOVING FROM DOMESTIC TO FOREIGN MARKETS 278
MAKING THE CONNECTION: HAVE MULTINATIONAL CORPORATIONS REDUCED
EMPLOYMENT AND LOWERED WAGES IN THE UNITED STATES? 280
CHALLENGES TO U.S. FIRMS IN FOREIGN MARKETS 281
COMPETITIVE ADVANTAGES OF U.S. FIRMS 281
KEY TERMS, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 282
CHAPTER 9: CONSUMER CHOICE
AND BEHAVIORAL ECONOMICS 284 CAN JAY-Z GET YOU TO DRINK CHERRY COKE? 284
UTILITY AND CONSUMER DECISION MAKING 286 THE ECONOMIC MODEL OF CONSUMER
BEHAVIOR IN A NUTSHELL 286
UTILITY 286
THE PRINCIPLE OF DIMINISHING MARGINAL UTILITY 287
THE RULE OF EQUAL MARGINAL UTILITY PER DOLLAR SPENT 287 SOLVED PROBLEM 9
- 1: FINDING THE OPTIMAL LEVEL OF CONSUMPTION 291
WHAT IF THE RULE OF EQUAL MARGINAL UTILITY PER DOLLAR DOES NOT HOLD? 292
DON'T LET THIS H A P P EN TO YOU! EQUALIZE MARGINAL UTILITIES PER DOLLAR
* 293
THE INCOME EFFECT AND SUBSTITUTION EFFECT OF A PRICE CHANGE 294
WHERE DEMAND CURVES COME FROM 295
SOCIAL INFLUENCES ON DECISION MAKING 298 THE EFFECTS OF CELEBRITY
ENDORSEMENTS 298
MAKING THE CONNECTION: WHY DO FIRMS PAY TIGER WOODS TO ENDORSE THEIR
PRODUCTS? 298
NETWORK EXTERNALITIES 299
DOES FAIRNESS MATTER? 300
MAKING THE CONNECTION: PROFESSOR KRUEGER GOES TO THE SUPER BOWL 302
BEHAVIORAL ECONOMICS: DO PEOPLE MAKE THEIR CHOICES RATIONALLY? 303
IGNORING NONMONETARY OPPORTUNITY COSTS 303
BUSINESS IMPLICATIONS OF CONSUMERS IGNORING NONMONETARY OPPORTUNITY
COSTS 304
MAKING THE CONNECTION: WHY DO HILTON HOTELS
AND OTHER FIRMS HIDE THEIR PRICES? 304
FAILING TO IGNORE SUNK COSTS 305
BEING UNREALISTIC ABOUT FUTURE BEHAVIOR 306
MAKING THE CONNECTION: WHY DON'T STUDENTS STUDY MORE? 306
SOLVED PROBLEM 9-4: HOW DO YOU GET PEOPLE TO SAVE MORE OF THEIR INCOME?
CONCLUSION AN INSIDE LOOK: CAN MARIAH CAREY GET YOU TO BUY ELIZABETH
ARDEN PERFUME?
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS
CHAPTER 9 APPENDIX: USING
INDIFFERENCE CURVES AND BUDGET LINES TO UNDERSTAND CONSUMER BEHAVIOR
CONSUMER PREFERENCES
INDIFFERENCE CURVES THE SLOPE OF AN INDIFFERENCE CURVE CAN INDIFFERENCE
CURVES EVER CROSS?
THE BUDGET CONSTRAINT CHOOSING THE OPTIMAL CONSUMPTION OF PIZZA AND COKE
MAKING THE CONNECTION: DELL DETERMINES THE OPTIMAL
MIX OF PRODUCTS HOW A PRICE CHANGE AFFECTS OPTIMAL CONSUMPTION SOLVED
PROBLEM 9 A - 1: WHEN DOES A PRICE CHANGE MAKE A CONSUMER BETTER OFF?
DERIVING THE DEMAND CURVE THE INCOME EFFECT AND THE SUBSTITUTION EFFECT
OF A PRICE
CHANGE HOW A CHANGE IN INCOME AFFECTS OPTIMAL CONSUMPTION THE SLOPE OF
THE INDIFFERENCE CURVE, THE SLOPE OF THE BUDGET LINE, AND THE RULE OF
EQUAL
MARGINAL UTILITY PER DOLLAR SPENT THE RULE OF EQUAL MARGINAL UTILITY PER
DOLLAR SPENT REVISITED KEY TERMS, REVIEW QUESTIONS, PROBLEMS
AND APPLICATIONS
CHAPTER 10: TECHNOLOGY, ,
PRODUCTION, AND COSTS SONY USES A COST CURVE TO DETERMINE THE PRICE OF
RADIOS TECHNOLOGY: AN ECONOMIC DEFINITION
MAKING THE CONNECTION: IMPROVING INVENTORY CONTROL AT WAL-MART THE SHORT
RUN AND THE LONG RUN IN ECONOMICS THE DIFFERENCE BETWEEN FIXED COSTS AND
VARIABLE COSTS
MAKING THE CONNECTION: FIXED COSTS IN THE PUBLISHING INDUSTRY IMPLICIT
COSTS VERSUS EXPLICIT COSTS THE PRODUCTION FUNCTION A FIRST LOOK AT THE
RELATIONSHIP BETWEEN PRODUCTION
AND COST THE MARGINAL PRODUCT OF LABOR AND THE AVERAGE PRODUCT OF LABOR
THE LAW OF DIMINISHING RETURNS
307
309
310
312
317
317 317 318 319 319
320
321 322
323 324
325 326
327
328
330
332
332 334
334 335 335
336 336 337
338
339 339
IMAGE 7
CONTENTS XXXIX
GRAPHING PRODUCTION 340
MAKING THE CONNECTION: ADAM SMITH'S FAMOUS ACCOUNT OF THE DIVISION OF
LABOR IN A PIN FACTORY 340 THE RELATIONSHIP BETWEEN MARGINAL AND AVERAGE
PRODUCT 341 AN EXAMPLE OF MARGINAL AND AVERAGE VALUES: COLLEGE
GRADES 342
THE RELATIONSHIP BETWEEN SHORT-RUN PRODUCTION AND SHORT-RUN COST 342
MARGINAL COST 343
WHY ARE THE MARGINAL AND AVERAGE COST CURVES U-SHAPED? 344
SOLVED PROBLEM 10-4: THE RELATIONSHIP BETWEEN MARGINAL COST AND AVERAGE
COST 345
GRAPHING COST CURVES 346
COSTS IN THE LONG RUN 346
ECONOMIES OF SCALE 347
LONG-RUN AVERAGE TOTAL COST CURVES FOR BOOKSTORES 348 SOLVED PROBLEM
10-6: USING LONG-RUN AVERAGE COST CURVES TO UNDERSTAND BUSINESS STRATEGY
349
MAKING THE CONNECTION: THE COLOSSAL RIVER ROUGE: DISECONOMIES OF SCALE
AT FORD MOTOR COMPANY 350 DON'T LET THIS HAPPEN TO YOU! DON'T CONFUSE
DIMINISHING RETURNS WITH DISECONOMIES OF SCALE 351 CONCLUSION 352
AN INSIDE LOOK: LOWER MANUFACTURING COSTS PUSH DOWN THE PRICE OF
FLAT-PANEL TVS 354
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 356
CHAPTER 10 APPENDIX: USING ISOQUANTS
AND ISOCOSTS TO UNDERSTAND PRODUCTION AND COST . 364
ISOQUANTS 364
AN ISOQUANT GRAPH 364
THE SLOPE OF AN ISOQUANT , 364
ISOCOST LINES 365
GRAPHING THE ISOCOST LINE 365
THE SLOPE AND POSITION OF THE ISOCOST LINE 365
CHOOSING THE COST-MINIMIZING COMBINATION OF CAPITAL AND LABOR 367
DIFFERENT INPUT PRICE RATIOS LEAD TO DIFFERENT INPUT CHOICES 367
MAKING THE CONNECTION: THE CHANGING INPUT MIX IN WALT DISNEY FILM
ANIMATION 368
ANOTHER LOOK AT COST MINIMIZATION 369
SOLVED PROBLEM 10A-1: DETERMINING THE OPTIMAL COMBINATION OF INPUTS 371
MAKING THE CONNECTION: DO NATIONAL FOOTBALL LEAGUE TEAMS BEHAVE
EFFICIENTLY? 372
THE EXPANSION PATH 372
KEY TERMS, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 373
MM
CHAPTER 11 : FIRMS IN PERFECTLY COMPETITIVE MARKETS . 376
PERFECT COMPETITION IN THE MARKET FOR ORGANIC APPLES 376
PERFECTLY COMPETITIVE MARKETS 379
A PERFECTLY COMPETITIVE FIRM CANNOT AFFECT THE MARKET PRICE 379
THE DEMAND CURVE FOR THE OUTPUT OF A PERFECTLY COMPETITIVE FIRM 380
DON'T LET THIS HAPPEN TO YOU! DON'T CONFUSE THE DEMAND CURVE FOR FARMER
PARKER'S WHEAT WITH THE MARKET DEMAND CURVE FOR WHEAT 380
HOW A FIRM MAXIMIZES PROFIT IN A PERFECTLY COMPETITIVE MARKET 381
REVENUE FOR A FIRM IN A PERFECTLY COMPETITIVE MARKET 382 DETERMINING THE
PROFIT-MAXIMIZING LEVEL OF OUTPUT 382 ILLUSTRATING PROFIT OR LOSS ON THE
COST CURVE GRAPH 385
SHOWING A PROFIT ON THE GRAPH 385
*SOLVED PROBLEM 11-3: DETERMINING PROFIT-MAXIMIZING PRICE AND QUANTITY
386
DON'T LET THIS HAPPEN TO YOU! REMEMBER THAT FIRMS MAXIMIZE TOTAL PROFIT,
NOT PROFIT PER UNIT 388
ILLUSTRATING WHEN A FIRM IS BREAKING EVEN OR OPERATING AT A LOSS 388
MAKING THE CONNECTION: LOSING MONEY IN THE MEDICAL SCREENING INDUSTRY
389
DECIDING WHETHER TO PRODUCE OR TO SHUT DOWN IN THE SHORT RUN 390
MAKING THE CONNECTION: WHEN TO CLOSE A LAUNDRY 390 THE SUPPLY CURVE OF A
FIRM IN THE SHORT RUN 391
THE MARKET SUPPLY CURVE IN A PERFECTLY COMPETITIVE INDUSTRY 392
"IF EVERYONE CAN DO IT, YOU CAN'T MAKE MONEY AT IT": THE ENTRY AND EXIT
OF FIRMS IN THE LONG RUN 393 ECONOMIC PROFIT AND THE ENTRY OR EXIT
DECISION 393 LONG-RUN EQUILIBRIUM IN A PERFECTLY COMPETITIVE MARKET *
395
THE LONG-RUN SUPPLY CURVE IN A PERFECTLY COMPETITIVE MARKET 397
INCREASING-COST AND DECREASING-COST INDUSTRIES 398 PERFECT COMPETITION
AND EFFICIENCY 398 MAKING THE CONNECTION: THE DECLINE OF APPLE
PRODUCTION IN NEW YORK STATE 398
PRODUCTIVE EFFICIENCY 399
SOLVED PROBLEM 11-6: HOW PRODUCTIVE EFFICIENCY BENEFITS CONSUMERS 399
ALLOCATIVE EFFICIENCY 401
CONCLUSION 401
AN INSIDE LOOK: WHY ARE ORGANIC FARMERS WORRIED ABOUT WAL-MART? 402
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 404
IMAGE 8
XL
CONTENTS
CHAPTER 12: MONOPOLISTIC
COMPETITION: THE COMPETITIVE MODEL IN A MORE REALISTIC SETTING 410
STARBUCKS: GROWTH THROUGH PRODUCT DIFFERENTIATION 410 DEMAND AND
MARGINAL REVENUE FOR A FIRM
IN A MONOPOLISTICALLY COMPETITIVE MARKET 412 THE DEMAND CURVE FOR A
MONOPOLISTICALLY COMPETITIVE FIRM 412
MARGINAL REVENUE FOR A FIRM WITH A DOWNWARD-SLOPING DEMAND CURVE 413
HOW A MONOPOLISTICALLY COMPETITIVE FIRM MAXIMIZES PROFITS IN THE SHORT
RUN 415
SOLVED PROBLEM 12-2: HOW NOT TO MAXIMIZE PROFITS AT A PUBLISHING COMPANY
416
WHAT HAPPENS TO PROFITS IN THE LONG RUN? 417 HOW DOES THE ENTRY OF NEW
FIRMS AFFECT THE PROFITS OF EXISTING FIRMS? 417
DON'T LET THIS HAPPEN TO YOU! DON'T CONFUSE ZERO ECONOMIC PROFIT WITH
ZERO ACCOUNTING PROFIT 418 MAKING THE CONNECTION: THE RISE AND FALL OF
APPLE'S MACINTOSH COMPUTER 419
SOLVED PROBLEM 12-3: THE SHORT RUN AND THE LONG RUN FOR THE MACINTOSH
420
IS ZERO ECONOMIC PROFIT INEVITABLE IN THE LONG RUN? 421 IS ZERO ECONOMIC
PROFIT INEVITABLE IN THE LONG RUN? 421 MAKING THE CONNECTION: STAYING
ONE STEP AHEAD OF THE COMPETITION: EUGENE SCHUELLER AND L'OREAL 422
COMPARING PERFECT COMPETITION AND MONOPOLISTIC COMPETITION 423
EXCESS CAPACITY UNDER MONOPOLISTIC COMPETITION 423 IS MONOPOLISTIC
COMPETITION INEFFICIENT? 424
HOW CONSUMERS BENEFIT FROM MONOPOLISTIC COMPETITION 424 MAKING THE
CONNECTION: ABERCROMBIE & FITCH: CAN THE PRODUCT BE TOO DIFFERENTIATED?
425
HOW MARKETING DIFFERENTIATES PRODUCTS 425 BRAND MANAGEMENT 426
ADVERTISING 426
DEFENDING A BRAND NAME 426
WHAT MAKES A FIRM SUCCESSFUL? 427
MAKING THE CONNECTION: IS BEING THE FIRST FIRM IN THE MARKET A KEY TO
SUCCESS? 428
CONCLUSION 429
AN INSIDE LOOK: CAN DUNKIN' DONUTS REALLY COMPETE WITH STARBUCKS? 430
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 432
CHAPTER 13: OLIGOPOLY: FIRMS
IN LESS COMPETITIVE MARKETS 440 COMPETING WITH WAL-MART 440
OLIGOPOLY AND BARRIERS TO ENTRY 442
BARRIERS TO ENTRY 443
USING GAME THEORY TO ANALYZE OLIGOPOLY 445 A DUOPOLY GAME: PRICE
COMPETITION BETWEEN TWO FIRMS 445
MAKING THE CONNECTION: A BEAUTIFUL MIND:
GAME THEORY GOES TO THE MOVIES 447
DON'T LET THIS HAPPEN TO YOU! DON'T MISUNDERSTAND WHY EACH MANAGER ENDS
UP CHARGING A PRICE OF $400 447
FIRM BEHAVIOR AND THE PRISONERS' DILEMMA 448
SOLVED PROBLEM 13-2: IS ADVERTISING A PRISONERS' DILEMMA FOR COCA-COLA
AND PEPSI? 448
MAKING THE CONNECTION: IS THERE A DOMINANT STRATEGY FOR BIDDING ON EBAY?
449
CAN FIRMS ESCAPE THE PRISONERS' DILEMMA? 450
MAKING THE CONNECTION: AMERICAN AIRLINES AND NORTHWEST AIRLINES FAIL TO
COOPERATE ON A PRICE INCREASE 451
CARTELS: THE CASE OF OPEC 452
SEQUENTIAL GAMES AND BUSINESS STRATEGY 454 DETERRING ENTRY 454
SOLVED PROBLEM 13-3: IS DETERRING ENTRY ALWAYS A GOOD IDEA? 4*55
BARGAINING 456
THE FIVE COMPETITIVE FORCES MODEL 457
COMPETITION FROM EXISTING FIRMS 458
THE THREAT FROM POTENTIAL ENTRANTS 458
COMPETITION FROM SUBSTITUTE GOODS OR SERVICES 459 THE BARGAINING POWER
OF BUYERS 459
THE BARGAINING POWER OF SUPPLIERS 459
MAKING THE CONNECTION: IS SOUTHWEST'S BUSINESS STRATEGY MORE IMPORTANT
THAN THE STRUCTURE OF THE AIRLINE INDUSTRY? 459
CONCLUSION 461
AN INSIDE LOOK: CAN TARGET COMPETE WITH WAL-MART IN THE MARKET FOR
GENERIC DRUGS? 462
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 464
CHAPTER 14: MONOPOLY
AND ANTITRUST POLICY 472
TIME WARNER RULES MANHATTAN 472
IS ANY FIRM EVER REALLY A MONOPOLY? 474 MAKING THE CONNECTION: IS XBOX
360 A CLOSE SUBSTITUTE FOR PLAYSTATION 3? 474
WHERE DO MONOPOLIES COME FROM? 475
ENTRY BLOCKED BY GOVERNMENT ACTION 475
MAKING THE CONNECTION: THE END OF THE CHRISTMAS PLANT MONOPOLY 476
CONTROL OF A KEY RESOURCE 477
MAKING THE CONNECTION: ARE DIAMOND PROFITS FOREVER?
THE DE BEERS DIAMOND MONOPOLY 477
NETWORK EXTERNALITIES 478
NATURAL MONOPOLY 479
SOLVED PROBLEM 14-2: IS THE "PROXY BUSINESS" A NATURAL MONOPOLY? 480
HOW DOES A MONOPOLY CHOOSE PRICE AND OUTPUT? 481 MARGINAL REVENUE ONCE
AGAIN 481
PROFIT MAXIMIZATION FOR A MONOPOLIST 483
IMAGE 9
CONTENTS
XLI
SOLVED PROBLEM 14-3: FINDING PROFIT-MAXIMIZING PRICE AND OUTPUT FOR A
MONOPOLIST 484
DOES MONOPOLY REDUCE ECONOMIC EFFICIENCY? 485 COMPARING MONOPOLY AND
PERFECT COMPETITION 485
DON'T LET THIS H A P P EN TO YOU! DON'T ASSUME THAT CHARGING A HIGHER
PRICE IS ALWAYS MORE PROFITABLE FOR A MONOPOLIST 485
MEASURING THE EFFICIENCY LOSSES FROM MONOPOLY 486 HOW LARGE ARE THE
EFFICIENCY LOSSES DUE TO MONOPOLY? 487 MARKET POWER AND TECHNOLOGICAL
CHANGE 488
GOVERNMENT POLICY TOWARD MONOPOLY 488 ANTITRUST LAWS AND ANTITRUST
ENFORCEMENT 488
MERGERS: THE TRADE-OFF BETWEEN MARKET POWER AND EFFICIENCY 489
THE DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION MERGER GUIDELINES
491
MAKING THE CONNECTION: SHOULD THE GOVERNMENT PREVENT BANKS FROM BECOMING
TOO BIG? 493
REGULATING NATURAL MONOPOLIES 494
CONCLUSION 495
AN INSIDE LOOK AT POLICY: AS BARRIERS FALL, WILL CABLE TV COMPETITION
RISE? 496
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 498
CHAPTER 15: PRICING STRATEGY 506
GETTING INTO WALT DISNEY WORLD: ONE PRICE DOES NOT FIT ALL 506
PRICING STRATEGY, THE LAW OF ONE PRICE, AND ARBITRAGE 508
ARBITRAGE 508
SOLVED PROBLEM 15-1: IS ARBITRAGE JUST A RIP-OFF? 509 WHY DON'T ALL
FIRMS CHARGE THE SAME PRICE? 509
PRICE DISCRIMINATION: CHARGING DIFFERENT PRICES FOR THE SAME PRODUCT 510
DON'T LET THIS H A P P EN TO YOU! DON'T CONFUSE PRICE DISCRIMINATION
WITH OTHER TYPES OF DISCRIMINATION 510 THE REQUIREMENTS FOR SUCCESSFUL
PRICE DISCRIMINATION 511 SOLVED PROBLEM 15-2: HOW DELL COMPUTER USES
PRICE
DISCRIMINATION TO INCREASE PROFITS 512
AIRLINES: THE KINGS OF PRICE DISCRIMINATION 513
MAKING THE CONNECTION: HOW COLLEGES USE YIELD MANAGEMENT 515
PERFECT PRICE DISCRIMINATION 515
PRICE DISCRIMINATION ACROSS TIME 517
CAN PRICE DISCRIMINATION BE ILLEGAL? 517
MAKING THE CONNECTION: PRICE DISCRIMINATION WITH A TWIST AT NETFLIX 518
OTHER PRICING STRATEGIES 519
ODD PRICING: WHY IS THE PRICE $2.99 INSTEAD OF $3.00? 519 WHY DO FIRMS
USE COST-PIUS PRICING? 520
MAKING THE CONNECTION: COST-PIUS PRICING IN THE PUBLISHING INDUSTRY 520
PRICING WITH TWO-PART TARIFFS 522
CONCLUSION 525
AN INSIDE LOOK: COLLEGE TUITION: ONE PRICE DOES NOT FIT ALL 526
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 528
CHAPTER 16: THE MARKETS FOR LABOR
AN OTHER FACTORS OF PRODUCTION 534 WHY ARE THE CHICAGO CUBS PAYING
ALFONSO SORIANO $18 MILLION PER YEAR? 534
THE DEMAND FOR LABOR 536
THE MARGINAL REVENUE PRODUCT OF LABOR , 536
SOLVED PROBLEM 16-1: HIRING DECISIONS BY A FIRM THAT IS A PRICE MAKER *
538
THE MARKET DEMAND CURVE FOR LABOR 539
FACTORS THAT SHIFT THE MARKET DEMAND CURVE FOR LABOR 539
THE SUPPLY OF LABOR 540
THE MARKET SUPPLY CURVE OF LABOR 541
FACTORS THAT SHIFT THE MARKET SUPPLY CURVE OF LABOR 542 EQUILIBRIUM IN
THE LABOR MARKET 543
THE EFFECT ON EQUILIBRIUM WAGES OF A SHIFT IN LABOR DEMAND 543
MAKING THE CONNECTION: WILL YOUR FUTURE INCOME DEPEND ON WHICH COURSES
YOU TAKE IN COLLEGE? 544 THE EFFECT ON EQUILIBRIUM WAGES OF A SHIFT IN
LABOR SUPPLY 545
MAKING THE CONNECTION: IMMIGRATION AND WAGES, THEN AND NOW 546
EXPLAINING DIFFERENCES IN WAGES 548
DON'T LET THIS H A P P EN TO YOU! REMEMBER THAT PRICES AND WAGES ARE
DETERMINED AT THE MARGIN 549
MAKING THE CONNECTION: TECHNOLOGY AND THE EARNINGS OF "SUPERSTARS" 549
COMPENSATING DIFFERENTIALS 550
DISCRIMINATION 551
SOLVED PROBLEM 16-4: IS "COMPARABLE WORTH" LEGISLATION THE ANSWER TO
CLOSING THE GAP BETWEEN MEN'S AND WOMEN'S PAY? 553
LABOR UNIONS 556
PERSONNEL ECONOMICS 557
SHOULD WORKERS' PAY DEPEND ON HOW MUCH THEY WORK OR ON HOW MUCH THEY
PRODUCE? 557
MAKING THE CONNECTION: RAISING PAY, PRODUCTIVITY, AND PROFITS AT
SAFELITE AUTOGLASS 558
OTHER CONSIDERATIONS IN SETTING COMPENSATION SYSTEMS 559
THE MARKETS FOR CAPITAL AND NATURAL RESOURCES 560 THE MARKET FOR CAPITAL
560
THE MARKET FOR NATURAL RESOURCES 561
MONOPSONY 562
THE MARGINAL PRODUCTIVITY THEORY OF INCOME DISTRIBUTION 562
IMAGE 10
XLII
CONTENTS
CONCLUSION 563
AN INSIDE LOOK: ARE RACE CAR DRIVERS ATHLETS? WE DON'T KNOW, BUT THE
PIT-CREW MEMBERS ARE 564 KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS
AND APPLICATIONS 566
CHAPTER 17: THE ECONOMICS
OF INFORMATION 574
WHY DOES STATE FARM CHARGE YOUNG MEN SO MUCH MORE THAN YOUNG WOMEN FOR
AUTO INSURANCE? 574 ASYMMETRIC INFORMATION 576
ADVERSE SELECTION AND THE MARKET FOR "LEMONS" 576 REDUCING ADVERSE
SELECTION IN THE CAR MARKET: WARRANTIES AND REPUTATIONS 577
ASYMMETRIC INFORMATION IN THE MARKET FOR INSURANCE 577
REDUCING ADVERSE SELECTION IN THE INSURANCE MARKET 577 MAKING THE
CONNECTION: DOES ADVERSE SELECTION EXPLAIN WHY SOME PEOPLE DO NOT HAVE
HEALTH INSURANCE? 578
MORAL HAZARD 580
DON'T LET THIS HAPPEN TO YOU! DON'T CONFUSE ADVERSE SELECTION WITH MORAL
HAZARD 580
ADVERSE SELECTION AND MORAL HAZARD IN FINANCIAL MARKETS 581
REDUCING ADVERSE SELECTION AND MORAL HAZARD IN FINANCIAL MARKETS 581
MAKING THE CONNECTION: USING GOVERNMENT POLICY TO REDUCE MORAL HAZARD IN
INVESTMENTS 582
ADVERSE SELECTION AND MORAL HAZARD IN LABOR MARKETS 583
SOLVED PROBLEM 17-3: CHANGING WORKERS' COMPENSATION TO REDUCE ADVERSE
SELECTION AND MORAL HAZARD 584
THE WINNER'S CURSE: WHEN IS IT BAD TO WIN AN AUCTION? 585
MAKING THE CONNECTION: IS THERE A WINNER'S CURSE IN THE MARRIAGE MARKET?
586
WHEN DOES THE WINNER'S CURSE APPLY? 586
SOLVED PROBLEM 17-4: AUCTIONS, AVAILABLE INFORMATION, AND THE WINNER'S
CURSE 587
PACIFIC TEIESIS USES THE WINNER'S CURSE TO ITS OWN ADVANTAGE 587
MAKING THE CONNECTION: WANT TO MAKE SOME MONEY?
TRY AUCTIONING A JAR OF COINS 588
CONCLUSION 589
AN INSIDE LOOK AT POLICY: SHOULD BAD CREDIT INCREASE YOUR CAR INSURANCE
RATE? 590
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 592
CHAPTER 18: PUBLIC CHOICE, TAXES,
AND THE DISTRIBUTION OF INCOME 598 SHOULD THE GOVERNMENT USE THE TAX
SYSTEM TO REDUCE INEQUALITY? 598
PUBLIC CHOICE 6 00
HOW DO WE KNOW THE PUBLIC INTEREST? MODELS OF VOTING 600 GOVERNMENT
FAILURE? 602
IS GOVERNMENT REGULATION NECESSARY? 604
THE TAX SYSTEM 604
AN OVERVIEW OF THE U.S. TAX SYSTEM 605
PROGRESSIVE AND REGRESSIVE TAXES 606
MAKING THE CONNECTION: WHICH GROUPS PAY THE MOST IN FEDERAL TAXES? 607
MARGINAL AND AVERAGE INCOME TAX RATES 608
THE CORPORATE INCOME TAX 608
INTERNATIONAL COMPARISON OF CORPORATE INCOME TAXES 609 EVALUATING TAXES
609
MAKING THE CONNECTION: SHOULD THE UNITED STATES SHIFT FROM AN INCOME TAX
TO A CONSUMPTION TAX? 611 TAX INCIDENCE REVISITED: THE EFFECT OF PRICE
ELASTICITY 612
DON'T LET THIS HAPPEN TO YOU! REMEMBER NOT TO CONFUSE WHO PAYS THE TAX
WITH WHO BEARS THE BURDEN OF THE TAX 613
MAKING THE CONNECTION: DO CORPORATIONS REALLY BEAR THE BURDEN OF THE
FEDERAL CORPORATE INCOME TAX? 614 SOLVED PROBLEM 18-3: THE EFFECT OF
PRICE ELASTICITY ON THE EXCESS BURDEN OF A TAX 614
INCOME DISTRIBUTION AND POVERTY 615
MEASURING THE INCOME DISTRIBUTION AND POVERTY 616 EXPLAINING INCOME
INEQUALITY 617
SHOWING THE INCOME DISTRIBUTION WITH A LORENZ CURVE 618 PROBLEMS IN
MEASURING POVERTY AND THE DISTRIBUTION OF INCOME 619
SOLVED PROBLEM 18-4: ARE MANY INDIVIDUALS STUCK IN POVERTY? 621
INCOME DISTRIBUTION AND POVERTY AROUND THE WORLD 621
CONCLUSION 623
AN INSIDE LOOK AT POLICY: BALANCING FLEXIBLE MARKETS AND A GOVERNMENT
SAFETY NET 624
KEY TERMS, SUMMARY, REVIEW QUESTIONS, PROBLEMS AND APPLICATIONS 626
GLOSSARY G-L
COMPANY INDEX 1-1
SUBJECT INDEX 1-3
CREDITS C-1 |
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| illustrated | Illustrated |
| index_date | 2024-07-02T22:54:10Z |
| indexdate | 2024-07-09T21:26:36Z |
| institution | BVB |
| isbn | 0135036267 9780135036266 |
| language | English |
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| publishDate | 2008 |
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| spelling | Hubbard, R. Glenn 1958- Verfasser (DE-588)124552064 aut Microeconomics R. Glenn Hubbard ; Anthony Patrick O'Brien 2. ed., Pearson internat. ed. Upper Saddle River, NJ Pearson Prentice Hall 2008 XLVIII, 628, [24] S. Ill., graph. Darst. txt rdacontent n rdamedia nc rdacarrier Microeconomics Mikroökonomie (DE-588)4039225-9 gnd rswk-swf (DE-588)4123623-3 Lehrbuch gnd-content Mikroökonomie (DE-588)4039225-9 s DE-604 O'Brien, Anthony Patrick Verfasser (DE-588)170606597 aut GBV Datenaustausch application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=016977376&sequence=000001&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Hubbard, R. Glenn 1958- O'Brien, Anthony Patrick Microeconomics Microeconomics Mikroökonomie (DE-588)4039225-9 gnd |
| subject_GND | (DE-588)4039225-9 (DE-588)4123623-3 |
| title | Microeconomics |
| title_auth | Microeconomics |
| title_exact_search | Microeconomics |
| title_exact_search_txtP | Microeconomics |
| title_full | Microeconomics R. Glenn Hubbard ; Anthony Patrick O'Brien |
| title_fullStr | Microeconomics R. Glenn Hubbard ; Anthony Patrick O'Brien |
| title_full_unstemmed | Microeconomics R. Glenn Hubbard ; Anthony Patrick O'Brien |
| title_short | Microeconomics |
| title_sort | microeconomics |
| topic | Microeconomics Mikroökonomie (DE-588)4039225-9 gnd |
| topic_facet | Microeconomics Mikroökonomie Lehrbuch |
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