Foundations of microeconomics 6th edition robin bade

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MyEconLab PROVIDES THE POWER OF PRACTICE Optimize your study time with MyEconLab, the online assessment and tutorial system When you take a sample test online, MyEconLab gives you targeted feedback and a personalized Study Plan to identify the topics you need to review Study Plan The Study Plan consists of practice problems taken directly from the end-ofchapter Study Plan Problems and Applications in the textbook Unlimited Practice As you work each exercise, instant feedback helps you understand and apply the concepts Many Study Plan exercises contain algorithmically generated values to ensure that you get as much practice as you need Learning Resources Study Plan problems link to learning resources that further reinforce concepts you need to master • Help Me Solve This learning aids help you break down a problem much the same way as an instructor would during office hours Help Me Solve This is available for select problems • Links to the eText promote reading of the text when you need to revisit a concept or explanation • Animated graphs, with audio narration, appeal to a variety of learning styles • A graphing tool enables you to build and manipulate graphs to better understand how concepts, numbers, and graphs connect MyEconLab Find out more at www.myeconlab.com FOUNDATIONS OF ECONOMICS delivers a complete, hands-on learning system designed around active learning A Learning-by-Doing Approach The Checklist that begins each chapter highlights the key topics covered and the chapter is divided into sections that directly correlate to the Checklist The Checkpoint that ends each section provides a full page of practice problems to encourage students to review the material while it is fresh in their minds Each chapter opens with a question about a central issue that sets the stage for the material Why did the price of coffee soar in 2010 and 2011? Demand and Supply CHAPTER CHECKLIST When you have completed your study of this chapter, you will be able to Distinguish between quantity demanded and demand, and explain what determines demand Distinguish between quantity supplied and supply, and explain what determines supply Explain how demand and supply determine price and quantity in a CHECKPOINT 4.1 Distinguish between quantity demanded and demand, and explain what determines demand market, and explain the effects of changes in demand and supply MyEconLab You can work these problems in Study Plan 4.1 and get instant feedback Practice Problems The following events occur one at a time in the market for cell phones: • The price of a cell phone falls • Everyone believes that the price of a cell phone will fall next month • The price of a call made from a cell phone falls • The price of a call made from a land-line phone increases • The introduction of camera phones makes cell phones more popular Explain the effect of each event on the demand for cell phones Use a graph to illustrate the effect of each event Does any event (or events) illustrate the law of demand? In the News Airlines, now flush, fear a downturn So far this year, airlines have been able to raise fares but still fill their planes Source: The New York Times, June 10, 2011 D thi li i l th t th l fd dd ’t k i th l FIGURE 4.3 A change in any influence on buying plans, other than a change in the price of the good itself, changes demand and shifts the demand curve ᕡ When demand decreases, the demand curve shifts leftward from D0 to D1 ᕢ When demand increases, the Confidence-Building Graphs use color to show the direction of shifts and detailed, numbered captions guide students step-by-step through the action 100% of the figures are animated in MyEconLab, with step-by-step audio narration MyEconLab Animation Changes in Demand demand curve shifts rightward from D0 to D2 Price (dollars per bottle) 2.50 Increase in demand 2.00 1.50 1.00 D2 Decrease in demand 0.50 D0 D1 10 12 14 Quantity (millions of bottles per day) Real Applications Eye On Boxes apply theory to important issues and problems that shape our global society and individual decisions Eye On boxes that build off the chapter opening question help students see the economics behind key issues facing our world EYE on the PRICE OF COFFEE Why Did the Price of Coffee Soar in 2010 and 2011? In January 2009, the price of coffee (the kind that you get at Starbucks and similar coffee shops called Arabica) was $1.25 a pound (point A in Figure 1) and by May 2011, it had risen to $3.00 a pound (point B).Why did the price of coffee soar? Figure 2, which shows the market for coffee, answers this question The demand curve D and the supply curve S09 determined the equilibrium price and quantity in 2009 at $1.25 a pound and 950 million pounds Heavy rain led to exceptionally low harvests in Colombia, Indonesia, Mexico, and Vietnam, which decreased the supply of coffee.The supply curve shifted leftward to S11.The price increased to $3.00 a pound.The quantity demanded and equilibrium quantity decreased to 800 million pounds Price of coffee (dollars per pound) Price (dollars per pound) 4.00 4.00 B 3.00 A S09 B 3.00 2.00 2.00 1.25 1.00 S11 A decrease in the supply of coffee From January 2009 to May 2011, the price of coffee increased by 140 percent raised the price of coffee and decreased the quantity of coffee demanded A 1.25 1.00 D Jan 09 Jun 09 Jan 10 Jun 10 Jan 11 Jun 11 600 800 900 1,000 1,100 1,200 Quantity (millions of pounds per year) Month/year Figure The price of coffee 700 Figure The market for coffee Economics in the News MyEconLab To keep you informed about the latest economic news, each day the authors upload two relevant news articles: a microeconomic topic and a macroeconomic topic Each article includes discussion questions, links to additional online resources, and references to related textbook chapters Instructor Assignable Problems and Applications Practice and Learning Aids in MyEconLab An end-of-chapter problem based on the chapter-opening issue gives students further practice All of the Checkpoint problems are in MyEconLab and available for selfassessment or instructor assignment Immediate feedback and problem specific learning aids give students support when they need it most If after heavy rain and low production, the weather improves and coffee growers enjoy bumper crops, how does • The demand for coffee change? • The supply of coffee change? • The price of coffee change? Illustrate your answer with a graphical analysis What is the effect on the equilibrium price and equilibrium quantity of orange juice if the price of apple juice decreases and the wage rate paid to orange grove workers increases? What is the effect on the equilibrium in the orange juice market if orange juice becomes more popular and a cheaper robot is used to pick oranges? Your instructor can assign these problems as homework, a quiz, or a test in MyEconLab This page intentionally left blank Foundations of MICROECONOMICS Robin Bade Michael Parkin University of Western Ontario SIXTH EDITION Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Editor in Chief: Donna Battista Executive Acquisitions Editor: Adrienne D’Ambrosio Editorial Project Manager: Sarah Dumouchelle Editorial Assistant: Elissa Senra-Sargent Executive Marketing Manager: Lori DeShazo Senior Managing Editor: Nancy Fenton Production Project Manager: Nancy Freihofer Media Publisher: Denise Clinton Content Lead for MyEconLab: Noel Lotz Senior Media Producer: Melissa Honig Image Permission Manager: Rachel Youdelman Photo Researcher: Amy Dunleavy Art Director, Cover: Jonathan Boylan Cover Image: Angel_a/Dreamstime.com Copyeditor: Catherine Baum Technical Illustrator: Richard Parkin Project Management, Page Makeup, Design: Integra Printer/Binder: Courier/Kendallville Cover Printer: Courier/Kendallville Text Font: 10/12, Palatino-Roman Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text and on pages C-1–C-2 Copyright © 2013, 2011, 2009, 2007, 2004 by Pearson Education, Inc., publishing as Addison-Wesley All rights reserved Manufactured in the United States of America.This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax your request to 201-236-3290 Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks.Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps Library of Congress Cataloging-in-Publication Data Bade, Robin Foundations of Microeconomics/Robin Bade, Michael Parkin.—6th ed p cm Includes index ISBN-13: 978-0-13-283088-1 ISBN-10: 0-13-283088-4 Economics I Parkin, Michael, 1939– II Title HB171.5.B155 2013 330—dc23 2011045330 10 ISBN 10: 0-13-283088-4 ISBN 13: 978-0-13-283088-1 To Erin, Tessa, Jack, Abby, and Sophie This page intentionally left blank About the Authors Robin Bade was an undergraduate at the University of Queensland, Australia, where she earned degrees in mathematics and economics After a spell teaching high school math and physics, she enrolled in the Ph.D program at the Australian National University, from which she graduated in 1970 She has held faculty appointments at the University of Edinburgh in Scotland, at Bond University in Australia, and at the Universities of Manitoba, Toronto, and Western Ontario in Canada Her research on international capital flows appears in the International Economic Review and the Economic Record Robin first taught the principles of economics course in 1970 and has taught it (alongside intermediate macroeconomics and international trade and finance) most years since then She developed many of the ideas found in this text while conducting tutorials with her students at the University of Western Ontario Michael Parkin studied economics in England and began his university teaching career immediately after graduating with a B.A from the University of Leicester He learned the subject on the job at the University of Essex, England’s most exciting new university of the 1960s, and at the age of 30 became one of the youngest full professors He is a past president of the Canadian Economics Association and has served on the editorial boards of the American Economic Review and the Journal of Monetary Economics His research on macroeconomics, monetary economics, and international economics has resulted in more than 160 publications in journals and edited volumes, including the American Economic Review, the Journal of Political Economy, the Review of Economic Studies, the Journal of Monetary Economics, and the Journal of Money, Credit, and Banking He is author of the best-selling textbook, Economics (Addison-Wesley), now in its Ninth Edition Robin and Michael are a wife-and-husband team Their most notable joint research created the Bade-Parkin Index of central bank independence and spawned a vast amount of research on that topic They don’t claim credit for the independence of the new European Central Bank, but its constitution and the movement toward greater independence of central banks around the world were aided by their pioneering work Their joint textbooks include Macroeconomics (Prentice-Hall), Modern Macroeconomics (Pearson Education Canada), and Economics: Canada in the Global Environment, the Canadian adaptation of Parkin, Economics (Addison-Wesley) They are dedicated to the challenge of explaining economics ever more clearly to an ever-growing body of students Music, the theater, art, walking on the beach, and five fast-growing grandchildren provide their relaxation and fun ix I-6 INDEX Income (continued) expected future, 89 functional distribution of, 37 household, 512, 527 inequality, 510 labor, 198 land, 199, 201 maintenance programs, 522 market, 508 money, 508 personal distribution of, 37, 43 price elasticity of demand and, 119 prospects for, 499 rent, 37, 201 from taxes, 196–197 from wages, 37 Income distribution in global economy, 43–44 by governments, 522–523 Income elasticity of demand, 130–131 Income redistribution of consumers, 527 by governments, 522–523 income maintenance programs for, 522 income taxes for, 522 negative income tax and, 527 normative theories of, 525 positive theories of, 526 poverty and, 526 scale of, 523–524 subsidized services and, 523 Income taxes, 196–197 income redistribution through, 522 labor income and, 198 from land, 199, 201 negative, 527 origins of, 204 personal, 196–197 in United States, 204 Increasing marginal returns, 350 Indifference curve, 337–341 marginal rate of substitution in, 338 preference map of, 337–338 Individual demand, 87, 326–327 Individual supply, 94 Individual transferable quota (ITQ), 284, 285 Inefficiency with external costs, 246 of minimum wage, 178–179 of monopoly, 410 of rent ceiling, 171–172 Inelastic demand, 114 Inelastic supply, 124 Inequalities, 43–44, 510 See also Economic inequality Infant-industry argument, 231 Inferior goods, 89 Information age economy, 5–6, 36 Information revolution, Insurance asymmetric information in, 300 auto, 302–303 deductibles in, 302 health, 305–306 life, 299 no-claim bonus in, 302 in United States economy, 299 Insurance markets, 299–303 inefficient pooling equilibrium in, 301 screening in, 302 in United States, 299 Intel Corporation, 471 Interest, 37, 345 Interest payments, 50 International finance, 52–53 International outsourcing, International trade comparative advantage in, 214 consumer/producers in, 215, 235 with consumer/producer surplus, 225–226 exports in, 52, 214–215 in global economy, 54 import quotas and, 227–229 protection/restriction arguments of, 231–235 regulations in, 229 restrictions to, 223–229, 234–235 slump in, 54 of United States, 52–53, 214 Inverse relationships, 25 Invisible hand, 153, 154 iPhone, 41 ITQ See Individual transferable quota Jevons, William Stanley, 323, 332 Job, 484 Job choices, 499 Job-search activity, 176 Jolie, Angelina, 201 Katz, Jane, 511 Keynes, John Maynard, 499 Kimberly-Clark, 469 Kotlikoff, Laurence, 309 Krueger, Alan, 177 Labor, 35 See also Demand for labor division of, 13, 73, 350–351 in factors of production, 35 foreign, 233 high/low skilled, 516–517 income, 198 income taxes from, 198 skill differentials/wage rates of, 517 specialization of, 73 in United States, 35, 60, 492 Labor markets equilibrium of, 492–493 labor supply influences on, 490, 491–492 labor unions in, 494–495 with price floor, 183 school/training in, 492 wage rate in, 490, 492, 516–518 wages and, 492 Labor unions, 494 demand for labor increased by, 495 employment influenced by, 494–495 in labor markets, 494–495 wages and, 494 Land, 34 in factors of production, 34 income taxes from, 199, 201 market for, 498 as natural resources, 34, 484 Law of decreasing returns, 352 Law of demand, 85, 86, 103 Law of market forces, 99–100 Law of supply, 92, 103, 377 Legal barriers to entry, 401–402 Legal monopolies, 401 Lemons problem, 292–297 Lew, Jacob, 200 Life insurance, 299 Lighthouse, 268 INDEX Linear relationships, 24 Local governments, 48, 51 Long run, 348, 363–372 excess capacity and, 441 markup in, 441 output/price/profit in, 440 plant size and cost in, 363–365 variable plant and, 348 zero economic profit in, 382, 440 Long-run average cost curve, 364–365 Long-run costs, 363 Long-run equilibrium, 386 Lorenz curve, 509 disposable income and, 524 in United States, 509, 511 Lottery, 140 Macroeconomics, Majority rule, 139 Margin, 10 Marginal analysis, 376–377 Marginal benefits, 10–11, 142 demand curve and, 146 marginal costs equal to, 142–143, 152–153 of public good, 270–271 rational choices and, 11 Marginal cost curve, 358, 406 Marginal cost pricing rule, 420–421 Marginal costs, 10, 356 average cost and, 357 marginal benefits equal to, 142–143, 152–153 natural monopolies pricing and, 420–421 of public goods, 270 short-run cost and, 356 supply and, 149 zero, 423 Marginal external benefits, 254 Marginal external costs, 244 Marginal private benefits, 254 Marginal private costs, 244 Marginal product, 350 average product and, 352–353 curve, 486 in factor markets, 485–486 total product and, 350, 351 value of, 485–486, 493, 516 Marginal rate of substitution, 338–339 Marginal returns, 350–352 Marginal revenue, 373 curve, 404 demand and, 404 elasticity and, 405–406 in perfect competition, 373–374 price and, 404–405 total revenue and, 404–405 Marginal social benefits, 280 Marginal social benefits, 254 Marginal social costs, 244 Marginal tax rate, 197 Marginal utility, 322–327 diminishing, 322 per dollar, 324 theory, 322–327, 332 total utility and, 323, 325, 329 Marginal utility per dollar, 326 Market(s), 46 See also Factor markets; Labor markets for airplanes, 217, 460–462 alternatives to, 157 black, 169, 170 businesses entering, 387–388 businesses exiting, 388–389 capital, 497 for capital services, 484, 497 with circular flow, 46 competitive, 84, 153 demand in, 294–295 domestic, 181–182 efficient, 152–157 emerging, 39 with exports, 217 failure, 156–157 fairness of, 159 free, 182 goods, 46 housing, 168 insurance, 299–303 for land, 498 scarce resources and prices in, 138 structure, 435 supply and demand in, 294–295 types of, 372 in used cars, 296, 297 Marketable pollution permits, 250, 252 Market demand, 87 Market equilibrium, 99 demand/supply changes influencing, 101–102 fishing/overfishing and, 281 I-7 law of market forces and, 99–100 price influencing, 99–100 tax incidence and, 191–192 Market failure, 155 Market forces, law of, 99–100 Market income, 508 Marketing, 432–433, 445–446 Market supply, 94 curve, 381, 491 in short run, 381 Markup, 441, 447 Marriage tax penalty, 207–208 Maximum/minimum points, 26 Median voter theory, 526 Medicaid, 306, 309, 523 Medicare, 306, 309 Merger rules, 476–477 Metal prices, 500 MFA See Multifiber Arrangement Microeconomics, Microsoft, 36, 423, 425, 475–476 Midpoint method, 112–113 Minimum differentiation, principle of, 274 Minimum wage efficiency/inefficiency of, 178–179 employment and, 175–179 fairness of, 179 illegal hiring and, 176 job-search activity and, 176 law, 175–176 unemployment created by, 175 in United States, 177 Minimum wage law, 175 Money flows, 46–47 Money income, 508 Monopolies, 156, 372, 400 See also Natural monopolies barriers to entry causing, 400–401 buying/creating, 411 cartels and, 461 causes of, 400 close substitutes and, 400 competition and, 409–412 consumers facing, 425 deadweight loss and, 410–411, 425 efficiency/inefficiency of, 410 fairness of, 411 Gates and, 425 markets, 372 natural resources and, 401 oligopoly and, 372, 460–461 I-8 INDEX Monopolies (continued) output/price decisions of, 406, 409 price-discriminating, 402 price-setting strategies of, 402 profit-maximizing output/price of, 407 profits maximized by, 156 regulation of, 420–425 rent seeking creating, 411–412 single-price, 402, 404–407, 415 Monopolistic competition, 372 advertising in, 449 businesses involved in, 432 concentration measures in, 436 deadweight loss created in, 442 efficiency of, 442 entry/exit in, 433 four-firm concentration ratios and, 434 Herfindahl-Hirschman index and, 435, 436 identifying, 433 output/prices in, 432–433, 438 perfect competition and, 441 product differentiation in, 432, 442 quality price and marketing in, 432–433 United States economy and, 436 Moore, Gordon, Moral hazard, 301, 305–306 MP3 players, 191–193 Multifiber Arrangement (MFA), 233 Murphy, Kevin, 177 NAFTA See North American Free Trade Agreement Nash, John, 466 Nash equilibrium, 466, 468 National comparative advantage, 214 National debt, 50 National security, 231 Natural monopolies, 267, 400 average cost pricing of, 422 deadweight loss and, 420 efficient regulation of, 420–421 marginal cost pricing in, 420–421 price cap regulations and, 424–425 second-best regulation of, 421–425 Natural oligopoly, 456–457 Natural resources capital and, 497–501 in factor markets, 484 land as, 34, 484 monopolies and, 401 nonrenewable, 484, 501 population growth influencing, 501 renewable, 378–379 supply of, 499–500 Negative externalities, 242 Coase theorem and, 248 pollution as, 244–252 Negative income tax, 527 Negative relationships, 25 Nintendo, 126 No-claim bonus, 302 Nonexcludable, 266 Nonrenewable natural resources, 484, 499–501 Nonrivals, 266 Normal goods, 89 Normal profits, 345–346 Normative statements, 13 Normative theories of income redistribution, 525 North American Free Trade Agreement (NAFTA), 223 Nozick, Robert, 159, 525 Obama Affordable Care Act, 309 Oil prices, 500 Oligopoly, 372, 456 advertising and, 468–469 barriers to entry in, 456–458 cartel dilemma and, 456, 462 collusion and, 456 duopolists’ dilemma in, 467 efficiency of, 471 four-firm concentration ratios and, 458 game theory in, 465 Herfindahl-Hirschman index and, 458 identifying, 458 interdependence in, 456 monopoly outcome in, 372, 460–461 natural, 456–457 research games in, 468–469 in United States economy, 458 OPEC See Organization of the Petroleum Exporting Countries Opportunity costs, 9–10 budget line slope is, 319–320 of cell phones, 66 comparative advantage compared to, 74–76 PPF slope and, 67 ratios in, 67 search activity and, 170 Orange prices, 122 Organization of the Petroleum Exporting Countries (OPEC), 463 Origin (of graphs), 21 Output business prices of, 488 external costs and, 245 long run, 440 monopolies/price decisions of, 406, 409 in monopolistic competition, 432–433, 438 prices and, 406–407, 409 profit-maximizing, 407 Overproduction, 155, 274 Ownership barriers to entry, 401 Page, Larry, 520 Patent, 402 Payoff matrix, 466–470 Perfect competition, 372 consumers and, 393 demand/price/revenue in, 374 efficiency of, 392–393 fairness of, 393 marginal revenue and, 373–374 monopolistic competition and, 441 outcome of, 461 price taker in, 373 supply decisions in, 376–377 technological change in, 360 Perfectly elastic demand, 114, 193 Perfectly elastic supply, 124, 194 Perfectly inelastic demand, 114, 193 Perfectly inelastic supply, 124, 194 Perfect price discrimination, 416–417 Personal characteristics, 140, 520 Personal distribution of income, 37, 43 Personal economic policy, 14 Personal income taxes, 196–197 Physical capital, 43, 520 Pizza, 143–150 Plant size, 363–365 Policy debates, 473–475 INDEX Political process, 273 Political support, 172 Pollution air, 251 clean technologies and, 251 Coase theorem and, 248 deadweight loss caused by, 246 external costs of, 245–246 limits, 249 marketable permits for, 250, 252 as negative externalities, 244–252 tax on, 249–250 in United States, 251 Pooling equilibrium, 297, 300, 301 Population growth, 501 Positive externalities, 242–243 Positive relationships, 24 Positive statements, 13 Positive theories of income redistribution, 526 Post-industrial economy, 45 Poverty, 513 duration of, 514 entrepreneurial ability and, 520 global inequity and, 43–44 health care and, 306–307 income redistribution and, 526 in United States, 513–514 PPF See Production possibilities frontier Predatory pricing, 232, 475–476 Preferences, 89, 492 Price(s) budget line slope of, 319–320 businesses output, 488 ceiling, 64, 183 changes in, 318 factors of production and, 488 future, 96 gouging, 160 long run, 440 marginal revenue and, 404–405 market equilibrium influenced by, 99–100 Microsoft, 423 in monopolistic competition, 432–433, 438 output and, 406–407, 409 percent change in, 112 in perfect competition, 374 predatory, 232 predicting changes in, 100 regulations, 156 of resources, 96 support, 181–183 Price cap regulation, 424–425 Price ceiling, 168 Price-discriminating monopoly, 402 Price discrimination in airline industry, 415–418 buyers and, 414–415 consumer surplus and, 414–415 efficiency and, 418 profiting by, 415–416 Price elasticity of demand, 112 in agriculture, 122 applying, 122 calculating, 116–118 food spending and, 119 gasoline prices and, 121 in global economy, 119 goods and, 112–113, 131 income and, 119 influences on, 114–116 interpreting, 117 midpoint method in, 112–113 price change in, 112, 116 quantity demanded changes and, 113–114 ranges of, 115 total revenue and, 120–121 Price elasticity of supply, 124 calculating, 126–127 influences on, 124–126 range of, 125 Price floor, 174 in agriculture, 181 labor market with, 183 price ceiling and, 64 wage rates and, 174 Price-setting strategies, 402 Price support, 181 Price taker, 373 Principle of minimum differentiation, 274 Prisoners’ dilemma, 465 equilibrium in, 466–467 game theory and, 465–467 payoffs of, 466 rules of, 465 strategies of, 466 Private benefits, 254–255 Private costs, 244, 279 Private goods, 266 I-9 Private information, 292 Private property, 282–283 Private provision, 272 Procter & Gamble, 469 Producer surplus, 150 import quotas influencing, 227–229 imports/exports influencing, 220 international trade and, 225–226 rent ceilings and, 171–172 supply and, 150 tariffs influencing, 224–226 taxes and, 192 total surplus and, 153 Product curve, 360, 361 Product development, 444 Product differentiation, 432, 442, 445 Production See also Factors of production; Overproduction; Underproduction in advanced economies, 41 changes in, 34 complement in, 95 in developing economies, 41 efficient/inefficient, 62–63, 74–76, 141 factor prices of, 360–361, 488 in global economy, 40 public provisions and, 273 quotas, 283 substitute in, 95 technological change in, 389–392 in United States economy, 33 Production efficiency, 62 Production possibilities frontier (PPF), 60–61, 141 attainable/unattainable combinations in, 62 budget line similar to, 317 economic growth and, 71 efficient/inefficient production in, 62–63, 74–76, 141 opportunity costs and slope of, 67 tradeoffs/free lunches in, 63–64 Productivity, 73, 96 Profit-maximizing decisions, 374–377, 439 Profit-maximizing output, 407 Profits, 37 See also Economic profits businesses maximizing, 344 cost and, 344, 346 entrepreneurship seeking, 36 import quota bringing, 229 I-10 INDEX Profits (continued) long run, 440 maximizing, 423, 444 monopolies maximizing, 156, 407 normal, 345–346 price discrimination for, 415–416 shutdown decisions and, 377–378 taxes on, 199 zero economic, 382, 440 Progressive tax, 197, 207 Property rights, 247, 282–283 Proportional tax, 197 Protection, arguments for, 231–235 Public franchise, 401–402 Public goods, 156, 267, 268 common resources and, 156 efficient quantities of, 272 lighthouse as, 268 marginal benefit of, 270–271 marginal cost of, 270 Public health, 307 Public provisions, 256 with efficient outcome, 256, 273 efficient production and, 273 overproduction and, 274 private subsidy compared to, 257 Quality advertising signals of, 448–449 of education, 259 in monopolistic competition, 432–433 Quantity demanded, 85, 90, 113–114 Quantity supplied, 92, 97 Quotas See also Import quotas common resources and, 284 production, 283 Rate of return regulation, 424 Rational choices, 8–9, 11 Rational ignorance, 274–275 Rawls, John, 525 Reagan, Ronald, 52, 69 Real flows, 46–47 Regressive tax, 197 Regulations, 420 deadweight loss caused by, 157 earnings sharing, 425 efficient, 420–421 in international trade, 229 of monopoly, 420–425 of natural monopolies, 421–425 price, 156 price cap, 424–425 rate of return, 424 second-best, 421–425 Relationships inverse/negative, 25 linear, 24 maximum/minimum points in, 26 positive, 24 slope of, 27 variables in, 21, 28, 29 Relative price, 320 Relevant comparisons, 442 Renewable natural resources, 378–379 Renewable resources, 278–279 Rent, 37 Rent ceilings, 168, 169 black market and, 169, 170 consumer/producer surplus and, 171–172 deadweight loss and, 171 efficiency/inefficiency of, 171–172 fairness of, 172 political support for, 172 shortages created by, 169 Rent income, 37, 201 Rent seeking, 235, 411 deadweight loss and, 412 equilibrium, 412 monopolies created by, 411–412 Repeated games, 470 Resale price maintenance, 473 Resale price maintenance, 473–474 Research games, 468–469 Resource allocation command system and, 139 consumers and, 161 contests and, 139 efficiency in, 141–144 fairness of, 161 first-come first-served and, 139–140 force used in, 140–141 lotteries in, 140 majority rule and, 139 methods of, 138–141 personal characteristics in, 140 Resources, 96 See also Common resources; Natural resources; Nonrenewable natural resources; Scarce resources Revenues See also Marginal revenue; Total revenue economic profits and concepts of, 373–374 of federal government, 50 of local/state governments, 51 in perfect competition, 374 from tariffs, 225 Rivals, 266 Robinson-Patman Act of 1936, 473–474 Rodriguez, Alex, 15 Running shoes, 448 Saban, Nick, 493 Sala-i-Martin, Xavier, 44 Scarce resources, 138 Scarcity, Scatter diagrams, 22–23 Scientific method, 12 Screening, 302–303 Search activity, 170 Self-interest, 4–5 Seller’s decisions, 294 Selling costs consumers encountering, 448 demand and, 447 total costs and, 446 Separating equilibrium, 297 Service goods, 69 Services See Goods and services 7-Eleven, 365 Shepperson, John, 160 Sherman Act, 473–474 Shortage, 169 Short run, 348 economic loss in, 384, 439 economic profit in, 382–383 equilibrium/bad times, 384 equilibrium/good times, 383 equilibrium/normal times, 382 market supply in, 381 Short-run costs average cost and, 357–358 curve, 360 marginal cost and, 356 in total costs, 355–356 Short-run production, 349–353 Short-run supply curve, 378–379 Shutdown decisions, of businesses, 377–378 Shutdown point, 377 INDEX Signal, 448 Signaling, 296 Simon, Julian, 501 Single-price monopoly, 402, 404–407, 415 Slope, 27 calculating, 27 PPF, 67 prices and budget line, 319–320 of relationships, 27 Smith, Adam, 13, 73, 153, 329 Smoot-Hawley Act, 223 Smoothie bars, 74–76, 355–358 Social benefits, 254–255 Social costs, 279–280 Social interest, 4–5 Social interest theory, 420 Social science, 12, 13 Social Security programs, 6, 48, 522 Social Security tax, 200, 202, 203 Soda mergers, 477 Song downloads, 330–331 Specialization of capital, 363 of labor, 73 productivity gains from, 73 trade gains from, 76–77 Spence, Michael, 309 SSI See Supplemental Security Income program Stability, 234 Standard of living, 511 State governments, 48, 51 Stiglitz, Joseph, 309 Strategies, 466 Subsidies, 156, 181, 229, 232, 257 deadweight loss and, 229 export, 229 farmers receiving, 181–182 from governments, 181–182, 422 private, 257 Subsidized services, 523 Substitute in production, 95–96 Substitutes, 88, 114 Supplemental Security Income program (SSI), 523 Supply, 92 See also Change in supply; Market supply; Price elasticity of supply change in, 95–97, 102, 104 decisions, 376–377 demand and, 102–103 elastic/inelastic, 124, 194 individual, 94 law of, 92, 103, 377 marginal costs and, 149 market equilibrium and, 102 in markets, 294–295 of natural resources, 499–500 producer surplus and, 150 of used cars, 294–295 in your life, 103 Supply curve, 93, 103 Supply schedule, 93 Sustainable use, 278–279 TANF See Temporary Assistance for Needy Families Tariffs, 223 deadweight loss and, 226 governmental revenue from, 225 producer surplus influenced by, 224–226 in United States, 223 Taxable income, 196 Taxes, 156 on capital income, 199, 200 Congress and, 200 deadweight loss caused by, 191–192 efficiency of, 191–192 employment and, 198 federal government receiving, 50 income from, 196–197 land income and, 199, 201 local/state governments receiving, 51 on pollution, 249–250 producer surplus and, 192 on profits, 199 progressive, 197, 207 in United States, 196 Tax Foundation, 204 Tax Freedom Day, 204 Tax incidence, 190 elasticity of demand and, 193 elasticity of supply and, 194 market equilibrium and, 191–192 Technology clean, 251 demand for labor influenced by, 488 perfect competition and, 360 I-11 production changes of, 389–392 short-run cost curve and, 360 Temporary Assistance for Needy Families (TANF), 523, 526 Time-series graphs, 22–23 Total costs, 355 average, 357, 365 average curve of, 358, 359, 382, 406 curve, 356 selling costs and, 446 short-run costs in, 355–356 total revenue/economic profit and, 375 Total fixed costs, 355 Total product, 349–351 Total revenue, 120 marginal revenue and, 404–405 orange prices and, 122 price elasticity of demand and, 120–121 total cost/economic profit and, 375 Total revenue test, 121 Total surplus, 153 Total utility, 322 marginal utility and, 323, 325, 329 maximizing, 324–326 Total variable costs, 355 Trade gains, 76–77 Tradeoffs, 8, 63–64, 69 Tragedy of the commons, 278, 283 Training, 492 Transaction costs, 157, 248 Trends, 22 T-shirts, 216, 224–226 Tying arrangements, 475 Underproduction, 155, 255 Unemployment, 12, 175 Unemployment compensation, 523 United States air pollution in, 251 antitrust laws in, 475–476 average incomes and, 44 economy of, 45 education influencing income in, 512 employment in, 34 goods and services deficits of, I-12 INDEX United States (continued) goods and services produced in, 33 health care in, 306 high-speed rail networks in, 276 imports/exports of, 33, 215, 216, 217 income taxes in, 204 insurance markets in, 299 international trade of, 52–53, 214 ITQs working in, 285 labor in, 35, 60, 492 Lorenz curves in, 509, 511 minimum wage in, 177 post-industrial economy of, 45 poverty in, 513–514 tariffs in, 223 taxes in, 196 used car market in, 296 wealth distribution in, 508, 509 welfare challenge in, 526 Unit elastic demand, 114 Unit elastic supply, 124 Unrelated variables, 26 Used cars, 292–295 deadweight loss in, 296–297 dealers’ warranties in, 296–297 demand in, 292–293 efficiency of market for, 297 market, 296, 297 supply in, 294–295 United States market for, 296 Utilitarianism, 525 Utility, 322 See also Marginal utility; Total utility birth of, 323 diminishing marginal, 322 marginal, 322–323 total, 322 Utility-maximizing rule, 324 Value consumer surplus and, 329 of marginal product, 493, 516 paradox of, 329–330 Value of marginal product, 485–486 Variable plant, 348 Variables, 21, 26, 28, 29 Vertical equity, 207 Voluntary export restraints, 229 von Neumann, John, 465 Vouchers, 258, 259, 309 Wage gap, 495 Wage rate job choices and, 499 in labor market, 490, 492, 516–518 labor skill differentials and, 517 price floor and, 174 Wages, 37 career choices and, 45 explicit cost of, 345 income from, 37 labor union and, 494–495 minimum, 177 Wal-Mart, 36, 365 Walton, Sam, 36 Water, 318, 324–327, 341 Waxman, Henry, 252 Wealth distribution, 508, 509 Wealth of Nations (Smith), 13, 153 Welch, Finis, 177 Welfare benefits, 48 Welfare programs, 523, 526 Wind power, 68 World Trade Organization (WTO), 223 Zero economic profit, 382, 440 Zero marginal costs, 423 Zuckerberg, Mark, 36, 520 Photo Credits Chapter 1: p 1: Yuri Arcurs/Shutterstock; p 2: Frank Modell/The New Yorker Collection/Cartoon Bank; p top: Owen Franken/Alamy; p bottom: Andia/Alamy; p 4: Photodisc/Getty Images; p top: Imaginechina/AP Images; p bottom: Christian Prandl/Alamy; p top: Digital Vision/Getty Images; p.6 bottom: Manuel Balce Ceneta/AP Images; p left: Jeff Greenberg/Alamy; p right: David R Frazier Photolibrary, Inc./Alamy; p 11 left: Yun Arcurs/Shutterstock; p 11 right: Ron Buskirk/Alamy; p 13 bottom: Classic Image/Alamy; p 15 top: Yuri Arcurs/Shutterstock; p 15 bottom: Brian Kersey/UPI/Newscom Chapter 2: p 31: Ryan Anson/AFP/Getty Images/Newscom; p 33a: Digital Vision/Getty Images; p 33b: Monkey Business Images/Shutterstock; p 33c: Photodisc/Getty Images; p 33d: Digital Vision/Getty Images; p 36 top left: EyeWire/Getty Images; p 36 bottom left: PhotoDisc/Getty Images; p 36 top right: Jean Schweitzer/Shutterstock; p 36 bottom right: Digital Vision/Getty Images; p 41 top: Ryan Anson/AFP/Getty Images/Newscom; p.41 bottom: Ace Stock Limited/Alamy; p 43 top: Panorama Media (Beijing), Ltd./Alamy; p 43 bottom: Keren Su/China Span/Alamy Chapter 3: p 59: Trekandshoot/Alamy; p 68: Trekandshoot/Alamy; p 72: Steve Vidler/SuperStock; p 73a: From Encyclopédie, ou Dictionnaire raisonné des sciences, des arts et des métiers, par une société de gens de lettres (Encyclopedia, or A Systematic Dictionary of the Sciences, Arts and Crafts), ed Denis Diderot (1751) Volume IV, Plate III, “Epinglier” (“Pin Factory”) The Pierpont Morgan Library/Art Resource, New York; p 73b: Jim West/Alamy; p 73c: Irin-k/Shutterstock; p 74 top: Sara Piaseczynski/Pearson Education, Inc.; p 74 bottom: Jack Hollingsworth/Corbis Chapter 4: p 83: Mario Tama/Getty Images; p 84a: Jeff Greenberg/ Alamy; p 84b: Howard Grey/Digital Vision/Getty Images; p 84c: Pearson Education, Inc.; p 103 top: Mario Tama/Getty Images Chapter 5: p 111: Bertys30/Dreamstime; p 121: Bertys30/Dreamstime; p 122a: Wayne Eastep/Getty Images; p 122b: Johan Ordonez/AFP/Getty Images; p 122c: U.S Coast Guard/Newscom; p 126: Scott David Patterson/Shutterstock Chapter 6: p 137: Mark Boster/Los Angeles Times/Newscom; p 138: Onoky/Photononstop/Alamy; p 139a: Jordan Tan/Shutterstock; p 139b: Frontpage/Shutterstock; p 139c: Neil Tingle/Alamy; p 139d: Anya Ponti/Shutterstock; p 140a: Iofoto/Shutterstock; p 140b: PCN Photography/Alamy; p 140c: Sandra Cunningham/Shutterstock; p 140d: Natalia Bratslavsky/ Shutterstock; p 154 top: Mike Twohy/The New Yorker Collection/Cartoon Bank; p 154 bottom: Goldenangel/ Shutterstock; p 160: Mark Boster/Los Angeles Times/Newscom Chapter 7: p 167: Jim LoScalzo/Newscom; p 172: Stephen B Goodwin/Shutterstock; p 177: Stephen Coburn/Shutterstock; p 179: Jim LoScalzo/Newscom Chapter 8: p 189: J Scott Applewhite/AP Images; p 190: Cindy Yamanaka/The Orange County Register/Newscom; p 200 top: J Scott Applewhite/AP Images; p 200 bottom: Cindy Yamanaka/The Orange County Register/Newscom; p 207: Carlush/Shutterstock Chapter 9: p 213: Iain Masterton/Alamy; p 215 top: John Froschauer/AP Images; p 215 bottom: Anna Sheveleva/ Shutterstock; p 219 icon: Iain Masterton/Alamy; p top left: Chris O’Meara/AP Images; p 219 top right: Index Stock Imagery/ Newscom; p 219 bottom left: Sokolovsky/Shutterstock; p 219 bottom right: Lucian Coman/Shutterstock Chapter 10: p 241: Armin Rose/Shutterstock; p 242 left: Corbis; p 242 right: Mark J Barrett/Alamy; p 243 left: PhotoAlto/Alamy; p 243 right: Oksana Perkins/Shutterstock; p 249: Vishnevskiy Vasily/Shutterstock; p 252: Armin Rose/Shutterstock; p 259: Courtesy of Caroline Hoxby Chapter 11: p 265: Peter & Georgina Bowater Stock Connection Worldwide/Newscom; p 268: Richard Semik/Shutterstock; p 269 top left: Corbis; p 269 top right: Mike Moore/FEMA/Newscom; p 269 bottom left: Jose Luis Pelaez, Inc./Photolibrary New York; p 269 bottom right: Mike Brake/ Shutterstock; p 276: Peter & Georgina Bowater Stock Connection Worldwide/Newscom; p 278: High Pasture (ca 1845), George Shalders Oil on canvas Haynes Fine Art Gallery, Broadway, Worcester, England Fine Art Photographic Library, London/Art Resource, New York; p 279: Jeff Rotman/Alamy C-1 C-2 PHOTO CREDITS Chapter 12: p 291: Ilene MacDonald/Alamy; p 292: Michael Kleinfeld/UPI/Newscom; p 293: Spencer Grant/PhotoEdit, Inc.; p 296 top: Ilene MacDonald/ Alamy; p 296 bottom: Igor Dimovski/iStockphoto; p 309: Courtesy of Boston University Chapter 13: p 315: Stocksearch/Alamy; p 318: Magicinfoto/Shutterstock; p 323 left: World History Archive/Alamy; p 323 right: Hulton Archive/Getty Images; p 326: Ace Stock Limited/Alamy; p 330: Stocksearch/Alamy; p 340: Jose Luis Pelaez, Inc./Getty Images Chapter 14: p 343: Jeff Greenberg/Alamy; p 363: Arteki//Shutterstock; p 365: Jeff Greenberg/Alamy Chapter 15: p 371: Jim West/Alamy; p 373 top: Oriently/Shutterstock; p 373 bottom: Novembergale/ Dreamstime; p 387: David Askham/ Alamy; p 388: Geraint Lewis/Alamy; p 390: Jim West/Alamy Chapter 16: p 399: Jeffrey Blackler/Alamy; p 400: Zulufoto/Shutterstock; p 414: Michael Ledray/Shutterstock; p 418 left: William Hamilton; p 418 right: Courtesy of Travelosity; p 423: Jeffrey Blackler/Alamy; p 425: Scott Gries/Getty Images Chapter 17: p 431: John Powell/Bubbles Photolibrary/ Alamy; p 432: Losevsky Pavel/Shutterstock; p 444: SHNS photo courtesy EA Sports/Newscom; p 445: John Powell/Bubbles Photolibrary/Alamy Chapter 18: p 455 left: Yoshikazu Tsuno/AFP/Getty Images/Newscom; p 455 right: Maurice Tsai/Bloomberg News/Getty Images; p 459: Beth Anderson/Pearson Education, Inc.; p 460: Alastair Miller/Bloomberg News/Getty Images; p 463: Ronald Zak/AP Images; p 471 left: Yoshikazu Tsuno/AFP/Getty Images/Newscom; p 471 right: Maurice Tsai/Bloomberg News/ Getty Images Chapter 19: p 483: Derick Hingle/Icon SMI/Newscom; p 490 top: Beth Anderson/Pearson Education, Inc.; p 490 bottom: Forestpath/Shutterstock; p 493: Derick Hingle/Icon SMI/Newscom Chapter 20: p 507: David Crausby/Alamy; p 512: David Crausby/Alamy The Pearson Series in Economics Abel/Bernanke/Croushore Macroeconomics* Fort Sports Economics Leeds/von Allmen The Economics of Sports Bade/Parkin Foundations of Economics* Froyen Macroeconomics Leeds/von Allmen/Schiming Economics* Fusfeld The Age of the Economist Lipsey/Ragan/Storer Economics* Gerber International Economics* Gordon Macroeconomics* Lynn Economic Development: Theory and Practice for a Divided World Greene Econometric Analysis Miller Economics Today* Berck/Helfand The Economics of the Environment Bierman/Fernandez Game Theory with Economic Applications 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O’Sullivan/Sheffrin/Perez Economics: Principles, Applications and Tools* Parkin Economics* Perloff Microeconomics* Microeconomics: Theory and Applications with Calculus* Perman/Common/ McGilvray/Ma Natural Resources and Environmental Economics Riddell/Shackelford/Stamos/ Schneider Economics: A Tool for Critically Understanding Society Ritter/Silber/Udell Principles of Money, Banking & Financial Markets* Roberts The Choice: A Fable of Free Trade and Protection Rohlf Introduction to Economic Reasoning Ruffin/Gregory Principles of Economics Sargent Rational Expectations and Inflation Sawyer/Sprinkle International Economics Scherer Industry Structure, Strategy, and Public Policy Schiller The Economics of Poverty and Discrimination Sherman Market Regulation Silberberg Principles of Microeconomics Stock/Watson Introduction to Econometrics Introduction to Econometrics, Brief Edition Studenmund Using Econometrics: A Practical Guide Tietenberg/Lewis Environmental and Natural Resource Economics Environmental Economics and Policy Todaro/Smith Economic Development Waldman Microeconomics Waldman/Jensen Industrial Organization: Theory and Practice Phelps Health Economics Weil Economic Growth Pindyck/Rubinfeld Microeconomics* Williamson Macroeconomics * denotes MyEconLab titles Log onto www.myeconlab.com to learn more This page intentionally left blank Microeconomic Data These microeconomic data series show some of the trends in what, how, and for whom goods and services are produced — the central questions of microeconomics You will find these data in a spreadsheet that you can download from your MyEconLab Web site 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 2.8 2.5 2.6 2.5 2.3 2.1 2.2 2.1 2.1 2.3 3.2 1.2 4.4 14.7 10.5 4.1 1.1 4.5 14.7 10.4 4.1 1.1 4.5 15.3 10.3 4.0 1.0 4.5 15.4 10.3 3.9 1.0 4.5 14.8 10.0 3.9 1.0 4.5 14.8 10.0 3.9 0.9 4.6 14.4 9.7 3.9 1.0 4.6 12.7 9.4 4.0 1.0 4.7 12.4 9.1 4.0 1.0 4.7 12.7 8.9 4.0 1.0 4.8 13.0 8.7 3.9 6.6 8.9 3.5 6.6 9.1 3.5 6.5 9.0 3.5 6.5 8.8 3.4 6.5 8.9 3.3 6.5 9.1 3.2 6.5 9.1 3.2 6.6 9.2 3.2 6.5 9.2 3.2 6.6 9.1 3.3 6.6 9.0 3.3 11.9 11.8 11.7 11.4 11.6 11.6 11.7 11.9 12.1 12.0 11.7 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 40.5 38.5 38.7 38.5 37.9 37.7 37.6 37.0 36.8 36.9 36.9 8.8 8.2 7.5 6.7 6.1 5.8 5.4 5.3 5.1 5.0 4.9 1.1 4.9 1.1 5.0 1.1 5.0 1.0 4.9 1.0 4.7 0.9 4.7 0.9 4.9 0.9 4.9 0.9 5.0 0.9 5.1 0.9 5.2 25.1 60.0 25.0 60.8 25.2 61.2 25.8 61.6 25.5 62.7 25.2 63.3 24.9 63.9 23.8 65.1 22.8 66.1 22.7 66.3 23.0 66.1 2.46 2.53 2.63 2.73 2.85 3.02 3.22 3.40 3.63 3.90 4.14 12.76 12.92 13.19 13.31 13.49 13.71 13.93 13.97 14.21 14.63 14.71 715 3,707 4.3 3.2 834 4,259 4.4 2.8 911 4,569 4.5 2.7 874 4,261 5.1 2.3 879 4,160 5.5 2.5 906 4,113 6.2 1.9 877 3,792 7.0 2.1 753 3,095 8.0 2.8 885 3,462 7.4 2.4 951 3,566 7.2 2.9 924 3,284 7.4 1.9 165 170 184 207 222 256 288 292 309 354 397 169 178 189 215 243 268 286 313 340 371 401 –4 –8 –5 –8 –21 –12 –21 –31 –17 –4 254 257 261 264 267 290 278 283 303 322 341 WHAT WE PRODUCE Percentage of gross domestic product Agriculture, forestry, fishing, and hunting Mining Construction Durable goods Nondurable goods Utilities Wholesale trade Retail trade Transportation and warehousing 10 Finance, insurance, real estate, rental, and leasing 11 Professional and business services 12 Information 13 Educational services, health care, and social assistance 14 Arts, entertainment, recreation, accommodation, and food services 15 Other services, except government HOW WE PRODUCE 16 Average weekly hours Employment (percentage of total) 17 Agriculture 18 Mining 19 Construction 20 Manufacturing 21 Services FOR WHOM WE PRODUCE 22 Wage rate (dollars per hour) 23 Real wage rate (2005 dollars per hour) 24 Stock price index (Dow Jones) 25 Real stock price index (2005 dollars) 26 Interest rate Aaa (percent per year) 27 Real interest rate (percent per year) GOVERNMENT IN THE ECONOMY 28 Government revenue (billions of dollars) 29 Government expenditure (billions of dollars) 30 Government surplus(+)/deficit(–) (billions of dollars) 31 Government debt (billions of dollars) 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 2.8 2.7 2.3 2.0 2.1 2.2 1.8 2.0 1.8 1.3 1.6 1.5 1.4 1.4 1.5 4.7 12.3 8.8 3.8 4.3 11.5 8.8 4.1 1.4 1.6 1.5 1.7 2.4 2.9 2.5 1.9 1.8 1.5 1.0 4.4 12.1 8.9 4.1 4.4 12.5 8.8 4.1 4.6 12.7 8.6 4.1 4.7 12.3 8.6 3.8 4.4 11.3 8.5 4.0 3.9 11.0 8.5 4.1 3.7 10.0 8.2 4.5 3.7 9.8 7.8 4.4 3.9 10.3 7.4 4.3 4.1 9.8 7.2 4.2 4.4 9.5 6.6 4.1 6.9 8.7 3.3 6.9 8.9 3.0 6.6 9.0 3.2 6.5 9.0 3.2 6.6 8.9 3.2 6.6 8.6 3.2 6.5 8.3 3.1 6.4 8.2 2.9 6.3 8.3 2.7 6.1 8.5 2.7 6.3 8.6 2.8 6.2 8.7 2.7 6.1 8.7 2.7 11.8 12.0 11.7 11.8 11.9 11.8 12.3 12.5 13.1 13.4 13.4 13.6 14.0 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 36.5 36.0 36.1 35.9 35.7 35.6 35.2 35.2 34.7 34.9 35.1 34.9 34.7 4.8 0.9 5.0 4.7 1.0 4.5 4.5 1.0 4.4 4.2 1.0 4.6 4.1 1.0 4.8 3.8 1.1 4.9 3.8 1.1 4.7 3.7 1.2 4.5 3.6 1.3 4.3 3.5 1.1 4.3 3.2 1.0 4.6 2.8 1.0 4.8 2.6 0.8 4.8 22.5 66.9 20.9 68.9 21.1 69.0 21.1 69.1 20.9 69.2 20.8 69.5 19.9 70.4 19.7 70.9 18.7 72.2 18.2 72.9 18.4 72.8 17.8 73.7 17.2 74.5 4.43 4.73 5.06 5.44 5.88 6.34 6.85 7.44 7.87 8.20 8.49 8.74 8.93 14.43 14.08 14.24 14.40 14.54 14.48 14.33 14.23 14.19 14.22 14.19 14.18 14.18 759 2,474 8.6 –0.5 802 2,389 8.8 –0.6 975 2,745 8.4 2.7 895 2,368 8.0 1.6 820 2,028 8.7 1.7 844 1,928 9.6 1.3 891 1,865 11.9 2.8 933 1,785 14.2 4.8 884 1,595 13.8 7.7 1,190 2,065 12.0 8.1 1,178 1,970 12.7 9.0 1,328 2,155 11.4 8.3 1,793 2,846 9.0 6.8 438 449 513 577 653 737 807 927 949 1,009 1,122 1,224 1,300 454 535 576 623 685 763 883 1,001 1,111 1,210 1,312 1,439 1,539 –16 – 87 – 62 – 46 –32 –27 –76 –74 –161 –202 –190 –216 –239 344 395 477 549 607 640 712 789 925 1,137 1,307 1,507 1,741 Microeconomic Data These microeconomic data series show some of the trends in what, how, and for whom goods and services are produced — the central questions of microeconomics You will find these data in a spreadsheet that you can download from your MyEconLab Web site 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 WHAT WE PRODUCE Percentage of gross domestic product Agriculture, forestry, fishing, and hunting Mining Construction 1.7 1.6 1.7 1.7 1.5 1.6 1.4 1.5 1.3 1.5 1.3 1.5 4.6 10.2 6.9 2.6 1.4 4.6 10.2 7.0 2.4 1.4 4.5 9.9 7.0 2.5 1.5 4.3 9.4 7.0 2.5 1.3 3.8 9.0 6.9 2.5 1.1 3.7 8.9 6.8 2.5 1.1 3.7 8.9 6.7 2.5 1.0 3.9 9.2 6.7 2.5 1.0 1.1 1.1 3.9 4.0 4.1 9.2 9.0 9.1 6.8 6.4 6.3 2.5 2.3 2.2 6.0 7.4 6.2 7.2 6.2 7.1 6.0 6.9 6.0 6.8 6.0 6.8 6.0 6.9 6.3 7.0 6.2 6.3 6.3 7.0 7.0 6.9 Transportation and warehousing 3.2 3.2 3.0 2.9 3.0 2.9 3.0 3.1 3.1 3.0 3.1 10 Finance, insurance, real estate, rental, and leasing 11 Professional and business services 17.7 17.8 17.8 18.0 18.4 18.6 18.6 18.4 18.7 18.8 19.2 8.7 3.9 9.1 3.8 9.4 3.8 9.8 3.9 9.7 3.9 9.9 4.0 9.9 4.1 9.9 4.2 10.0 10.4 10.8 4.2 4.3 4.2 6.0 6.1 6.3 6.7 7.1 7.3 7.3 7.2 7.2 7.1 6.9 3.2 3.3 3.3 3.4 3.4 3.4 3.4 3.3 3.4 3.4 3.5 2.4 2.4 2.4 2.5 2.4 2.4 2.5 2.4 2.4 2.4 2.4 34.8 34.6 34.5 34.3 34.1 34.2 34.3 34.5 34.3 34.3 34.5 2.6 0.7 4.9 2.5 0.7 4.8 2.4 0.7 4.8 2.3 0.7 4.7 2.3 0.7 4.3 2.3 0.6 4.1 2.1 0.6 4.2 2.2 0.6 4.4 2.2 2.0 1.9 0.5 0.5 0.5 4.4 4.5 4.6 16.8 75.0 16.6 75.4 16.3 75.9 15.8 76.5 15.4 77.3 15.1 77.9 14.8 78.3 14.6 78.3 14.4 14.1 13.9 78.5 78.8 79.0 Durable goods Nondurable goods Utilities Wholesale trade Retail trade 12 Information 13 Educational services, health care, and social assistance 14 Arts, entertainment, recreation, accommodation, and food services 15 Other services, except government HOW WE PRODUCE 16 Average weekly hours Employment (percentage of total) 17 Agriculture 18 Mining 19 Construction 20 Manufacturing 21 Services FOR WHOM WE PRODUCE 22 Wage rate (dollars per hour) 23 Real wage rate (2005 dollars per hour) 24 Stock price index (Dow Jones) 25 Real stock price index (2005 dollars) 26 Interest rate Aaa (percent per year) 27 Real interest rate (percent per year) 28 29 30 31 GOVERNMENT IN THE ECONOMY Government revenue (billions of dollars) Government expenditure (billions of dollars) Government surplus(+)/deficit(–) (billions of dollars) Government debt (billions of dollars) 9.14 9.44 9.80 10.20 10.52 10.77 11.05 11.34 11.65 12.04 12.51 14.10 14.08 14.08 14.12 14.06 14.06 14.11 14.19 14.28 14.48 14.78 2,276 3,511 9.4 2,061 3,074 9.7 2,509 3,606 9.3 2,679 3,707 9.3 2,929 3,915 8.8 3,284 4,288 8.1 3,522 4,499 7.2 3,794 4,746 8.0 4,494 5,743 7,441 5,507 6,906 8,793 7.6 7.4 7.3 6.5 6.3 5.5 5.5 5.2 5.8 5.0 5.9 5.5 5.5 5.5 1,414 1,514 1,640 1,725 1,775 1,861 1,966 2,112 2,236 2,404 2,584 1,622 1,700 1,821 1,977 2,077 2,234 2,304 2,374 2,480 2,583 2,658 –208 –187 –182 –252 –301 –373 –338 –262 –245 –180 –74 1,890 2,052 2,191 2,412 2,689 3,000 3,248 3,433 3,604 3,734 3,772 2008 2009 1.0 1.1 0.9 1.1 1.8 2.2 1.7 1.9 4.9 4.7 4.3 3.8 3.4 6.9 6.9 6.7 6.5 6.1 6.6 5.6 5.5 5.4 5.4 5.0 5.1 5.2 1.7 1.8 1.6 1.8 1.8 1.8 1.9 1.9 5.8 5.7 5.8 5.7 5.7 5.8 5.7 5.5 5.5 6.8 6.9 6.9 6.7 6.6 6.5 6.3 5.8 5.8 5.9 3.0 2.9 2.8 2.9 2.9 2.9 3.0 2.9 2.9 2.8 2.8 19.6 20.1 20.9 20.9 20.8 20.3 20.6 20.7 20.6 20.7 21.5 21.1 10.5 10.8 11.2 11.4 11.3 11.3 11.3 11.6 11.7 12.1 12.3 12.0 12.1 4.4 4.7 4.2 4.4 4.7 4.6 4.8 4.7 4.4 4.5 4.5 4.5 4.6 6.8 6.8 6.8 7.1 7.4 7.6 7.6 7.5 7.6 7.7 8.0 8.6 8.7 3.7 3.8 3.8 3.8 3.9 3.8 3.8 3.8 3.8 3.9 3.7 3.6 3.6 2.9 2.8 2.9 2.5 2.7 2.6 2.6 2.8 2.6 2.3 2.6 2.6 2.2 34.5 34.4 34.3 34.0 33.9 33.7 33.7 33.7 33.9 33.8 33.6 33.1 33.4 1.8 1.7 1.6 1.6 1.6 1.6 1.5 1.5 1.4 1.3 1.3 1.3 1.3 0.5 0.5 0.4 0.5 0.4 0.4 0.4 0.5 0.5 0.5 0.6 0.5 0.5 4.8 5.0 5.1 5.1 5.1 5.1 5.2 5.4 5.6 5.5 5.2 4.5 4.2 13.7 13.2 12.9 12.3 11.5 11.0 10.7 10.5 10.3 10.0 9.7 8.9 8.8 79.2 79.7 80.0 80.6 81.4 81.9 82.1 82.2 82.3 82.7 83.3 84.7 85.2 13.01 13.49 14.02 14.54 14.97 15.37 15.69 16.13 16.76 17.43 18.08 18.62 19.04 15.53 16.21 1998 1999 2000 2001 1.1 1.0 1.0 1.0 0.9 0.9 1.1 1.2 4.4 4.6 4.7 8.9 8.6 6.2 2003 2004 2005 2006 2007 0.9 1.0 1.0 1.2 1.2 1.0 0.9 1.3 1.5 1.7 4.8 4.6 4.6 4.7 4.8 8.4 7.4 7.2 6.9 6.9 6.0 5.8 5.7 5.5 5.5 1.9 1.8 1.7 1.7 1.7 6.3 6.2 6.2 6.0 7.1 7.0 6.9 3.1 3.1 19.3 15.20 2002 2010 15.80 16.03 16.24 16.33 16.13 16.24 16.41 16.65 16.97 17.15 8,626 10,465 10,735 10,189 9,226 8,994 10,317 10,548 11,409 13,170 11,253 8,876 10,663 10,078 12,050 12,099 11,231 10,007 9,554 10,660 10,548 11,052 12,398 10,363 8,089 9,607 6.5 7.0 7.6 7.1 6.5 5.7 5.6 5.2 5.6 5.6 5.6 5.3 4.9 5.4 5.6 5.5 4.8 4.9 3.6 2.8 1.9 2.4 2.7 3.4 4.3 3.8 2,762 2,939 3,168 3,156 3,001 3,071 3,296 3,692 4,028 4,229 4,086 3,729 3,983 2,735 2,875 3,022 3,221 3,423 3,625 3,827 4,110 4,320 4,637 5,023 5,351 5,539 27 64 147 –65 –422 –553 –531 –418 –292 –408 –937 –1,622 –1,556 3,721 3,632 3,410 3,320 3,540 3,913 4,296 4,592 4,829 5,035 5,803 7,545 9,019 ~StormRG~ [...]... seventeen-day grace period of temporary access One Place for students to access all their MyLab Courses Students and instructors can register, create, and access all of their courses, regardless of discipline, from one convenient online location: www.pearsonmylab.com SUPPORT MATERIALS FOR INSTRUCTORS AND STUDENTS Foundations of Microeconomics is accompanied by the most comprehensive set of teaching and learning... understand the economic principles that can help them navigate these forces and guide their decisions Foundations of Microeconomics is our attempt to satisfy this want The response to our earlier editions from hundreds of colleagues across the United States and throughout the world tells us that most of you agree with our view that to achieve its goals, the principles course must do four things well... fully illustrated explanation of the mutual gains from trade arising from comparative advantage and a new Eye On box on the power of specialization and trade through the classic story of the production of the pencil Major Content Changes in Micro Chapters What do you do when the price of gasoline rises? Should price gouging be illegal? Can the President repeal the laws of supply and demand? Does Congress... changes The first of these is a reorganization of the chapters that deal with externalties, public goods, and common resources In the fifth edition, we covered public goods and positive externalities on one chapter and negative externalities and common resources in another In the sixth edition, we have reverted to our earlier organization of this material Chapter 10 explains all types of externalities... Story We developed the style of our diagrams with extensive feedback from faculty focus group participants and student reviewers All of our figures make consistent use of color to show the direction of shifts and contain detailed, numbered captions designed to direct students’ attention step-by-step through the action xxv xxvi PREFACE Because beginning students of economics are often apprehensive about... Learning Outcomes All end -of- chapter and Test Item File questions are tagged in two ways: to AACSB standards and to discipline-specific Learning Outcomes These two separate tagging systems allow professors to build assessments around desired departmental and course outcomes and track results in MyEconLab’s gradebook We are the authors of the MyEconLab content for Foundations of Microeconomics and have... Elasticities of Demand and Supply 111 Efficiency and Fairness of Markets 137 CHAPTER CHECKLIST CHAPTER CHECKLIST 111 The Price Elasticity of Demand 112 Percentage Change in Price, 112 Percentage Change in Quantity Demanded, 113 Elastic and Inelastic Demand, 114 Influences on the Price Elasticity of Demand, 114 Computing the Price Elasticity of Demand, 116 Interpreting the Price Elasticity of Demand Number,... that we’ve written, we’ve not seen reviewing of the quality that we enjoyed on this revision It has been a pleasure (if at times a challenge) to respond constructively to their many excellent suggestions Robin Bade Michael Parkin London, Ontario, Canada robin@ econ100.com michael.parkin@uwo.ca xxxi This page intentionally left blank PREFACE xxxiii FOUNDATIONS OF ECONOMICS: FLEXIBILITY CHART Micro Flexibility... Price: A Market’s Automatic Regulator, 99 Predicting Price Changes: Three Questions, 100 Effects of Changes in Demand, 101 Effects of Changes in Supply, 102 Changes in Both Demand and Supply, 104 106 107 CHAPTER CHECKPOINT 108 ■ EYE on the PRICE OF COFFEE ■ EYE on the U.S ECONOMY Guns Versus Butter, 92 The Law of Supply, 92 Supply Schedule and Supply Curve, 92 Individual Supply and Market Supply, 94 Changes... provision of a public good The analysis of common resources treats the tragedy of the commons as a type of externality problem The second major change in the micro chapters is an entirely new Chapter 12 “Markets with Private Information.” This chapter explains the lemons problem and its solutions and the problems that arise from asymmetric information in insurance and health-care markets A section of this
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