The Nature and Method of Economics
- The Economic Perspective
- Scarcity and Choice · Rational Behavior · Marginalism: Benefits and Costs
- Why Study Economics?
- Economics for Citizenship · Professional and Personal Applications
- Economics Methodology
- Theoretical Economics · Policy Economics
- Macroeconomics and Microeconomics
- Macroeconomics · Microeconomics · Positive and Normative Economics
- Pitfalls to Objective Thinking
- Biases · Loaded Terminology · Definitions · Fallacy of Composition · Causation Fallacies
- A Look Ahead
- LAST WORD: Fast Food Lines: An Economic Perspective
- Appendix to Chapter 1: Graphs and Their Meaning · Construction of a Graph · Direct and Inverse Relationships · Dependent and Independent Variables · Other Things Equal · Slope of a Line · Vertical Intercept · Equation of a Linear Relationship · Slope of a Nonlinear Curve

The Economizing Problem
- The Foundation of Economics
- Unlimited Wants · Scarce Resources
- Economics: Employment and Efficiency
- Full Employment: Using Available Resources · Full Production: Using Resources Efficiently · Production Possibilities Table · Production Possibilities Curve · Law of Increasing Opportunity Cost · Allocative Efficiency Revisited
- Unemployment Growth and the Future
- Unemployment and Productive Inefficiency · A Growing Economy · A Qualification: International Trade · Examples and Applications
- Economic Systems
- The Market System · The Command System
- The Circular Flow Model
- LAST WORD: Women and Expanded Production Possibilities

Individual Markets: Demand and Supply
- Markets
- Demand
- Law of Demand · Demand Curve · Market Demand · Change in Demand · Changes in Quantity Demanded
- Supply
- Law of Supply · The Supply Curve · Determinants of Supply · Changes in Supply · Changes in Quantity Supplied
- Supply and Demand: Market Equilibrium
- Surpluses · Shortages · Equilibrium Price and Quantity · Rationing Function of Prices · Changes in Supply, Demand, and Equilibrium · A Reminder: "Other Things Equal" · Application: Pink Salmon
- LAST WORD: Ticket Scalping: A Bum Rap

The Market System
- Characteristics of the Market System
- Private Property · Freedom of Enterprise and Choice · Self-Interest · Competition · Markets and Prices · Reliance on Technology and Capital Goods · Specialization · Use of Money · Active, but Limited Government
- The Market System at Work
- What Will Be Produced? · How Will the goods and Services Be Produced? · Who Will Get the Goods and Services? · How will the System Accommodate Change
- Competition and the "Invisible Hand"
- LAST WORD: Shuffling the Deck: How the Market System Arranges the World’s Individual Resources

The U.S. Economy: Private and Public Sectors
- Households as Income Receivers
- The Functional Distribution of Income · The Personal Distribution of Income
- Households as Spenders
- Personal Taxes · Personal Saving · Personal Consumption Expenditure
- The Business Population
- Legal Forms of Business
- Advantages and Disadvantages · The Principal-Agent Problem
- The Public Sector: Government’s Role
- Providing the Legal Structure
- Maintaining Competition
- Redistributing Income
- Reallocating Resources
- Spillovers or Externalities · Public Goods and Services · Quasipublic Goods · The Reallocation Process
- Promoting Stability
- The Circular Flow Revisited
- Government Finance
- Government Purchases and Transfers
- Federal Finance
- Federal Expenditures · Federal Tax Revenues
- State and Local Finance
- State Finances · Local Finances · Fiscal Federalism
- LAST WORD: The Financing of Corporate Operations

The United States in the Global Economy
- International Linkages
- U.S. and World Trade
- Volume and Pattern · Rapid Trade Growth · Participants in International Trade
- Specialization and Comparative Advantage
- Basic Principle · Comparative Costs · Terms of Trade · Gains from Specialization and Trade
- The Foreign Exchange Market
- Government and Trade
- Trade Impediments and Subsidies · Why Government Trade Interventions? · Costs to Society
- Multilateral Trade Agreements and Free-Trade Zones
- Reciprocal Trade Agreements Act · General Agreements on Tariffs and Trade (GATT) · World Trade Organization (WTO) · The European Union (EU) · North American Free Trade Agreement (NAFTA)
- Increased Global Competition
- LAST WORD: Buy American: the Global Refrigerator

PART 2: MICROECONOMICS OF PRODUCT MARKETS

Supply and Demand: Elasticities and Government Set Prices
- Price Elasticity of Demand
- The Price Elasticity Coefficient and Formula · Interpretation of E_d · Refinement: Midpoint Formula · Graphical Analysis · The Total-Revenue Test · Determinants of Price Elasticity of Demand · Applications of Price Elasticity of Demand
- Price Elasticity of Supply
- Price Elasticity of Supply: The Market Period
- Cross-Elasticity and Income of Demand
- Cross-Elasticity of Demand
- Government-Set Prices
- Price Ceilings and Shortages · Prices Floors and Surpluses
- LAST WORD: Luxury on $8 a Day

Consumer Behavior and Utility Maximization
- A Closer Look at the Law of Demand
- Income and Substitution Effects · Law of Diminishing Marginal Utility
- Theory of Consumer Behavior
- Consumer Choice and Budget Constraints · Utility-Maximizing Rule · Numerical Example · Algebraic Restatement
- Utility Maximization and the Demand Curve
- Deriving the Demand Schedule and Curve · Income and Substitution Effects Revisited
- Applications and Extensions
- The Compact Disc Takeover · The Diamond-Water Paradox · The Value of Time · Medical Care Purchases · Cash and Noncash Gifts
- LAST WORD: Criminal Behavior
- Appendix to Chapter 21: Indifference Curve Analysis · The Budget Line: What Is Attainable · Indifference Curves; What is Preferred · The Indifference Map · Equilibrium at Tangency · The Measurement of Utility · The Derivation of the Demand Curve

The Costs of Production
- Economic Costs
- Explicit and Implicit Costs · Normal Profit as a Cost · Economic Profit (or Pure Profit) · Short Run and Long Run
- Short-Run Production Relationships
- Law of Diminishing Returns
- Short-Run Production Costs
- Fixed, Variable, and Total Cost · Per-Unit, or Average, Costs · Marginal Cost · Shifts of the Cost Curves
- Long Run Production Costs
- Firm Size and Costs · The Long-Run Cost Curve · Economies and Diseconomies of Scale · Applications and Illustrations · Minimum Efficient Scale and Industry Structure
- LAST WORD: Irrelevancy of Sunk costs

Pure Competition
- Four Market Models
- Pure Competition: Characteristics
- Relevance of Pure Competition
- Demand as Seen by a Purely Competitive Seller
- Perfectly Elastic Demand · Average, Total, and Marginal Revenue · Graphic Portrayal
- Profit-Maximization in the Short Run
- Total Revenue – Total Cost Approach: Profit-Maximization Case · Marginal Revenue – Marginal-Cost Approach
- Marginal Cost and Short-Run Supply
- Generalized Depiction · Diminishing Returns, Production Costs, and Product Supply · Changes in Supply · Firm and Industry: Equilibrium Price
- Profit Maximization in the Long Run
- Assumptions · Goal of Our Analysis · Long-Run Equilibrium · Long-Run Supply for a Constant-Cost Industry · Long-Run Supply for an Increasing-Cost Industry · Long-Run Supply for a Decreasing-Cost Industry
- Pure Competition and Efficiency
- Productive Efficiency: P = Minimum ATC · Allocative Efficiency: P = MC
- LAST WORD: Pure Competition and Consumer Surplus

Pure Monopoly
- Pure Monopoly
- Examples of Monopoly
- Barriers to Entry
- Economies of Scale · Legal Barriers to Entry: Patents and Licenses · Ownership or Control of Essential Resources · Pricing and Other Strategic Barriers to Entry
- Monopoly Demand
- Marginal Revenue is Less Than Price · The Monopolist Is a Price Maker · The Monopolist Sets Prices in the Elastic Region of Demand
- Output and Price Determination
- Cost Data · MR = MC Rule · No Monopoly Supply Curve · Misconceptions Concerning Monopoly Pricing · Possibility of Losses by Monopolist
- Economic Effects of Monopoly
- Income Transfer · Cost Complications · Assessment and Policy Options
- Price Discrimination
- Conditions · Examples of Price Discrimination · Consequences of Price Discrimination
- Regulated Monopoly
- Socially Optimal Price: P = MC · Fair-Return Price: P = ATC · Dilemma of Regulation
- LAST WORD: De Beers’ Diamonds: Are Monopolies Forever?

Monopolistic Competition and Oligopoly
- Monopolistic Competition
- Relatively Large Number of Sellers · Differentiated Products · Easy Entry and Exit · Advertising · Monopolistically Competitive Industries
- Price and Output in Monopolistic Competition
- The Firm’s Demand Curve · The Short Run: Profit or Loss · The Long Run: Only a Normal Profit · Monopolistic Competition and Efficiency · Neither Productive nor Allocative Efficiency · Excess Capacity
- Product Variety
- Benefits of Product Variety · Further Complexity
- Oligopoly
- A Few Large Producers · Homogenous or Differentiated Products · Control Over Price, but Mutual Interdependence · Entry Barriers · Mergers · Measures of Industry Concentration
- Oligopoly Behavior: A Game Theory Overview
- Mutual Interdependence Revisited · Collusive Tendencies · Incentive to Cheat
- Three Oligopoly Models
- Kinked-Demand Theory: Noncollusive Oligopoly
- Price Leadership Model
- Oligopoly and Advertising
- Positive Effects of Advertising · Potential Negative Effects of Advertising
- Oligopoly and Efficiency
- Productive and Allocative Efficiency · Qualifications
- LAST WORD: Oligopoly in the Beer Industry

Technology, R & D, and Efficiency
- Technological Advance: Invention, Innovation, and Diffusion
- Invention · Innovation · Diffusion · R & D Expenditures · Modern View of Technological Advance
- Role of Entrepreneurs and Other Innovators
- Forming Start-Ups · Innovation within Existing Firms · Anticipating the Future · Exploiting University and Government Scientific Research
- A Firm’s Optimal Amount of R & D
- Interest-Rate Cost of Funds · Expected Rate of Return · Optimal R & D Expenditures
- Increased Profit via Innovation
- Increased Revenue via Product Innovation · Reduced Cost via Process Innovation
- Imitation and R & D Incentives
- Benefits of Being First
- Role of Market Structure
- Market Structure and Technological Advance · Inverted-U Theory · Market Structure and Technological Advance: The Evidence
- Technological Advance and Efficiency
- Productive Efficiency · Allocative Efficiency · Creative Destruction
- LAST WORD: On the Path to the Personal Computer and the Internet

PART 3: MICROECONOMICS OF RESOURCE MARKETS

The Demand for Resources
- Significance of Resource Pricing
- Marginal Productivity Theory of Resource Demand
- Resource Demand as a Derived Demand · Marginal Revenue Product (MRP) · Rule for Employing Resources: MRP = MRC · MRP as Resource Demand Schedule · Resource Demand Under Imperfect Product Market Competition · Market Demand for a Resource
- Changes in Product Demand
- Changes in Productivity · Changes in the Prices of Other Resources · Occupational Employment Trends
- Elasticity of Resource Demand
- Optimal Combination of resources
- The Least Cost Rule · The Profit-Maximizing Rule · Numerical Illustration
- LAST WORD: Input Substitution: The Case of ATMs

Wage Determination
- Labor, Wages, and Earnings
- General Level of Wages
- Role of Productivity · Real Wages and Productivity · Secular Growth of Real Wages
- A Purely Competitive Labor Market
- Market Demand for Labor · Market Supply for Labor · Labor Market Equilibrium
- Monopsony Model
- Upward-Sloping Labor Supply to Firm · MRC Higher than the Wage Rate · Equilibrium Wage and Employment · Examples of Monopsony Power
- Three Union Models
- Demand-Enhancement Model · Exclusive or Craft Union Model · Inclusive or Industrial Union Model · Wage Increases and Unemployment
- Bilateral Monopoly Model
- Indeterminate Outcome of Bilateral Monopoly · Desirability of Bilateral Monopoly
- The Minimum Wage Controversy
- Case against the Minimum Wage · Case for the Minimum Wage · Evidence and Conclusions
- Wage Differentials
- Marginal Revenue Productivity · Noncompeting Groups · Compensating Differences · Market Imperfections
- Pay for Performance
- The Principal-Agent Problem Revisited · Addenda: Negative Side Effects of Pay for Performance
- LAST WORD: On African-Style Hairbraiders and Stodgy Economists

Rent, Interest, and Profit
- Economic Rent
- Perfectly Inelastic Supply · Changes in Demand · Land Rent: A Surplus Payment · Application: A Single Tax on Land · Productivity Differences and Rent Differences · Alternative Uses of Land
- Interest
- Loanable Funds Theory of Interest
- Extending the Model
- Range of Interest Rates · Pure Rate of Interest · Role of the Interest Rate · Application: Usury Laws
- Economics Profit
- Role of the Entrepreneur · Sources of Economic Profit · Risk and Profit · Innovation and Profit · Functions of Profit
- Income Shares
- LAST WORD: Determining the Price of Credit

PART 4: MICROECONOMICS OF GOVERNMENT

Government and Market Failure
- Public Goods
- Demand for Public Goods · Supply of Public Goods · Optimal Quantity of a Public Good · Cost-Benefit Analysis
- Externalities Revisited
- Spillover Costs · Spillover Benefits · Individual Bargaining: Coase Theorem · Liability Rules and Lawsuits · Government Intervention · A Market-Based Approach to Spillover Costs · Society’s Optimal Amount of Externality Reduction · Solid-Waste Disposal and Recycling · Global Warming
- Information Failures
- Inadequate Information Involving Sellers · Inadequate Information Involving Buyers · Qualifications
- LAST WORD: Lojack: A Case of Positive Externalities

Public Choice Theory and the Economics of Taxation
- Revealing Preferences through Majority Voting
- Inefficient Voting Outcomes · Paradox of Voting · Median-Voter Model
- Government Failure
- Special Interests and Rent Seeking · Clear Benefits, Hidden Costs · Limited and Bundled Choice · Bureaucracy and Inefficiency · Imperfect Institutions
- Apportioning the Tax Burden
- Benefits Received versus Ability to Pay · Progressive, Proportional, and Regressive Taxes
- Tax Incidence and Efficiency Loss
- Elasticity and Tax Incidence · Efficiency of a Tax Loss · Probable Incidence of U.S. Taxes · The U.S. Tax Structure
- The Issue of Freedom
- The Conservative Position · The Liberal Position
- LAST WORD: "Government Failure" in the News

PART 5: MICROECONOMICS ISSUES AND POLICIES

Antitrust Policy and Regulation
- The Antitrust Laws
- Historical Background · Sherman Act of 1890 · Clayton Act of 1914 · Federal Trade Commission Act of 1914 · Celler-Kefauver Act of 1950
- Antitrust Policy: Issues and Impacts
- Issues of Interpretation · Issues of Enforcement: Tradeoffs among Goals · Effectiveness of Antitrust Laws
- Industrial Regulation
- Natural Monopoly · Problems with Industrial Regulation · Legal Cartel Theory
- Deregulation
- Controversy · Outcomes of Deregulation
- Social Regulation
- Distinguishing Features · The Optimal Level of Social Regulation · In Support of Social Regulation · Criticisms of Social Regulations · Two Reminders
- LAST WORD: The Microsoft Antitrust Case

Agriculture: Economics and Policy
- Economics of Agriculture
- Short-Run Problem: Price and Income Instability
- Economics of Farm Policy
- Rationale for Farm Subsidies · Background: The Parity Concept · Economics of Price Supports · Reduction of Surpluses
- Criticism, Politics, and Reform
- Criticisms · The Politics of Farm Policy · Recent Reform: Freedom to Farm
- LAST WORD: The Sugar Program: A Sweet Deal

Income Inequality and Poverty
- Facts about Income Inequality
- Distribution of Personal Income by Income Category · Distribution of Personal Income by Quintiles (Fifths) · The Lorenz Curve
- Income Mobility: The Time Dimension
- Effect of Government Redistribution
- Causes of Income Inequality
- Ability · Education and Training · Discrimination · Preferences and Risks · Unequal Distribution of Wealth · Market Power · Luck, Connections, and Misfortune
- Trends in Income Inequality
- Causes of Growing Inequality
- Equality versus Efficiency
- The Case for Equality: Maximizing Total Utility · The Case for Inequality: Incentives and Efficiency · The Equality-Efficiency Tradeoff
- The Economics of Poverty
- Definition of Poverty · Incidence of Poverty · Poverty Trends · The "Invisible" Poor
- The Income-Maintenance System
- Social Insurance Programs · Public Assistance Programs
- Welfare: Goals and Conflicts
- Common Features · Conflicts among Goals
- Welfare Reform
- Temporary Assistance to Needy Families (TANF) · Assessment of TANF
- LAST WORD: Some Facts on U.S. Wealth and Its Distribution

Labor Market Issues: Unionism, Discrimination, AND Immigration
- Unionism in America
- Business Unionism · Union Membership · The Decline of Unionism
- Collective Bargaining
- The Bargaining Process
- Economic Effects of Unions
- The Union Wage Advantage · Efficiency and Productivity
- Labor Market Discrimination
- Types of Discrimination · Costs of Discrimination
- Economic Analysis of Discrimination
- Taste-for-Discrimination Model · Statistical Discrimination · Occupational Segregation: The Crowding Model
- Antidiscrimination Policies and Issues
- The Affirmative Action Controversy · Recent Developments
- Immigration
- Number of Immigrants · Economics of Immigration · Complications and Modifications · Immigration: Two Views
- LAST WORD: Orchestrating Impartiality

The Economics of Health Care
- The Health Care Industry
- Twin Problems: Costs and Access
- High and Rising Health Care costs
- Health Care Spending · Quality of Health Care: Are We Healthier? · Economic Implications of Rising Costs · The Basic Problem
- Limited Access
- Why the Rapid Rise in Costs?
- Peculiarities of the Health Care Market · The Increasing Demand for Health Care · Role of Health Insurance · Supply Factors in Rising Health Care Prices · Relative Importance
- Reform of the Health Care System
- Cost Containment: Altering Incentives · Deductibles and Incentives · Medicare and DRG · Recent Laws and Proposals
- LAST WORD: A Market for Human Organs?

PART 6: INTERNATIONAL ECONOMICS AND THE WORLD ECONOMY

International Trade
- Some Key Facts
- The Economic Basis for Trade
- Comparative Advantage: Graphical Analysis
- Two Isolated Nations · Specializing Based on Comparative Advantage · Terms of Trade · Gains from Trade · Trade with Increasing Costs · The Case for Free Trade
- Supply and Demand Analysis of Exports and Imports
- Supply and Demand in the United States · Supply and Demand in Canada · Equilibrium World Price, Exports, and Imports
- Trade Barriers
- Economic Impact of Tariffs · Economic Impact of Quotas · Net Costs of Tariffs and Quotas
- The Case for Protection: A Critical Review
- Military Self-Sufficiency Argument · Diversification for Stability Argument · Infant-Industry Argument · Protection against Dumping Argument · Cheap Foreign Labor Argument · A Summing up
- The World Trade Organization
- LAST WORD: Petition of the Candlemakers, 1845

Exchange Rates, The Balance of Payments, and Trade Deficits
- Financing International Trade
- U.S. Export Transaction · U.S. Import Transaction
- The Balance of Payments
- Current Account · Capital Account · Official Reserves Account · Payments Deficits and Surpluses
- Flexible Exchange Rates
- Depreciation and Appreciation · Determinants of Exchange Rates · Flexible Rates and The Balance Of Payments · Disadvantages Of Flexible Exchange Rates
- Fixed Exchange Rates
- Use Of Reserves · Trade Policies · Exchange Controls and Rationing · Domestic Macroeconomic Adjustments
- International Exchange Rate Systems
- The Gold Standard: Fixed Exchange Rates · The Bretton Woods System · The Current System: The Managed Float
- Recent U.S. Trade Deficits
- Causes of the Trade Deficit · Implications of U.S. Trade Deficits
- LAST WORD: Speculation in Currency Markets

Bonus Web Chapter Transition Economies: Russia and China
- Ideology and Institutions
- State Ownership and Central Planning
- Planning Goals and Techniques
- Problems with Central Planning
- The Coordination Problem · The Incentive Problem
- The Collapse of the Soviet Economy
- Declining Growth · Poor Product Quality · Lack of Consumer Goods · Large Military Burden · Agricultural Drag
- The Russian Transition to a Market System
- Privatization · Price Reform · Promotion of Competition · Making the Ruble Fully Convertible · Price Level Stabilization · Other Major Problems · Future Prospects
- Market Reforms In China
- Agricultural and Rural Reform · Reform of Urban Industries · Special Economic Zones · Development of Supporting Institutions · Transformation of the SOEs
- Outcomes and Prospects
- Positive Outcomes of Reform · Problems
- LAST WORD: "Police Smash Smirnov’s Doors"