Front Matter

Front Matter Introduction

ABOUT THE AUTHORS

PREFACE: TO THE INSTRUCTOR

What's New in the Third Edition?

What's in the Chapters?

Alternative Paths through the Book

Media and Supplements

Acknowledgements

Chapter 1: The Big Ideas

Chapter Introduction

Big Idea One: Incentives Matter

Big Idea Two: Good Institutions Align Self-Interest with the Social Interest

Big Idea Three: Trade-offs Are Everywhere

Big Idea Four: Thinking on the Margin

Big Idea Five: The Power of Trade

Big Idea Six: The Importance of Wealth and Economic Growth

Big Idea Seven: Institutions Matter

Big Idea Eight: Economic Booms and Busts Cannot Be Avoided but Can Be Moderated

Big Idea Nine: Prices Rise When the Government Prints Too Much Money

Big Idea Ten: Central Banking Is a Hard Job

The Biggest Idea of All: Economics Is Fun

KEY CONCEPTS

CHAPTER REVIEW

Chapter 2: The Power of Trade and Comparative Advantage

Chapter Introduction

Trade and Preferences

Specialization, Productivity, and the Division of Knowledge

Comparative Advantage

Trade and Globalization

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 3: Supply and Demand

Chapter Introduction

The Demand Curve for Oil

Consumer Surplus

What Shifts the Demand Curve?

The Supply Curve for Oil

Producer Surplus

What Shifts the Supply Curve?

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 4: Equilibrium: How Supply and Demand Determine Prices

Chapter Introduction

Equilibrium and the Adjustment Process

A Free Market Maximizes Producer Plus Consumer Surplus (the Gains from Trade)

Does the Model Work? Evidence from the Laboratory

Shifting Demand and Supply Curves

Terminology: Demand Compared with Quantity Demanded and Supply Compared with Quantity Supplied

Understanding the Price of Oil

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 5: Elasticity and Its Applications

Chapter Introduction

The Elasticity of Demand

Applications of Demand Elasticity

The Elasticity of Supply

Applications of Supply Elasticity

Using Elasticities for Quick Predictions (Optional)

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

CHAPTER 5 APPENDIX 1 Other Types of Elasticities

The Cross-Price Elasticity of Demand

The Income Elasticity of Demand

CHAPTER 5 APPENDIX 2 Using Excel to Calculate Elasticities

Chapter 6: Taxes and Subsides

Chapter Introduction

Commodity Taxes

Who Ultimately Pays the Tax Does Not Depend on Who Writes the Check

Who Ultimately Pays the Tax Depends on the Relative Elasticities of Supply and Demand

A Commodity Tax Raises Revenue and Creates a Deadweight Loss (Reduces the Gains from Trade)

Subsidies

Takeaway

CHAPTER REVIEW

Chapter 7: The Price System: Signals, Speculation, and Prediction

Chapter Introduction

Markets Link the World

Markets Link to One Another

Solving the Great Economic Problem

A Price Is a Signal Wrapped Up in an Incentive

Speculation

Signal Watching

Prediction Markets

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 8: Price Ceilings and Floors

Chapter Introduction

Price Ceilings

Rent Controls (Optional Section)

Arguments for Price Ceilings

Universal Price Controls

Price Floors

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 9: International Trade

Chapter Introduction

Analyzing Trade with Supply and Demand

The Costs of Protectionism

Arguments Against International Trade

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 10: Externalities: When the Price Is Not Right

Chapter Introduction

External Costs, External Benefits, and Efficiency

Private Solutions to Externality Problems

Government Solutions to Externality Problems

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 11: Costs and Profit Maximization Under Competition

Chapter Introduction

What Price to Set?

What Quantity to Produce?

Profits and the Average Cost Curve

Entry, Exit, and Shutdown Decisions

Entry, Exit, and Industry Supply Curves

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

CHAPTER 11 APPENDIX Using Excel to Graph Cost Curves

Chapter 12: Competition and the Invisible Hand

Chapter Introduction

Invisible Hand Property 1: The Minimization of Total Industry Costs of Production

Invisible Hand Property 2: The Balance of Industries

Creative Destruction

The Invisible Hand Works with Competitive Markets

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 13: Monopoly

Chapter Introduction

Market Power

How a Firm Uses Market Power to Maximize Profit

The Costs of Monopoly: Deadweight Loss

The Costs of Monopoly: Corruption and Inefficiency

The Benefits of Monopoly: Incentives for Research and Development

Economies of Scale and the Regulation of Monopoly

Other Sources of Market Power

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 14: Price Discrimination and Pricing Strategy

Chapter Introduction

Price Discrimination

Price Discrimination Is Common

Is Price Discrimination Bad?

Tying and Bundling

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

CHAPTER 14 APPENDIX Solving Price Discrimination Problems with Excel (Advanced Section)

Chapter 15: Exchange Rates II: The Asset Approach in the Short Run

Chapter Introduction

Cartels

The Prisoner's Dilemma

Oligopolies

When Are Cartels and Oligopolies Most Successful?

Government Policy toward Cartels and Oligopolies

Business Strategy and Changing the Game

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

CHAPTER 15 APPENDIX Nash Equilibrium

CHAPTER 15 APPENDIX QUESTIONS

Chapter 16: Competing for Monopoly: The Economics of Network Goods

Chapter Introduction

Network Goods Are Usually Sold by Monopolies or Oligopolies

The "Best" Product May Not Always Win

Competition Is "For the Market" Instead of "In the Market"

Antitrust and Network Goods

Music Is a Network Good

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 17: Monopolistic Competition and Advertising

Chapter Introduction

Sources of Product Differentiation

The Monopolistic Competition Model

The Economics of Advertising

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 18: Labor Markets

Chapter Introduction

The Demand for Labor and the Marginal Product of Labor

Supply of Labor

Labor Market Issues

How Bad Is Labor Market Discrimination, or Can Lakisha Catch a Break?

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 19: Public Goods and the Tragedy of the Commons

Chapter Introduction

Four Types of Goods

Private Goods and Public Goods

Club Goods

Common Resources and the Tragedy of the Commons

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

CHAPTER 19 APPENDIX The Tragedy of the Commons: How Fast?

Chapter 20: Political Economy and Public Choice

Chapter Introduction

Voters and the Incentive to Be Ignorant

Special Interests and the Incentive to Be Informed

A Formula for Political Success: Diffuse Costs, Concentrate Benefits

Voter Myopia and Political Business Cycles

Two Cheers for Democracy

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 21: Economics, Ethics, and Public Policy

Chapter Introduction

The Case for Exporting Pollution and Importing Kidneys

Exploitation

Meddlesome Preferences

Fair and Equal Treatment

Cultural Goods and Paternalism

Poverty, Inequality, and the Distribution of Income

Who Counts? Immigration

Economic Ethics

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 22: Managing Incentives

Chapter Introduction

Lesson One: You Get What You Pay For

Lesson Two: Tie Pay to Performance to Reduce Risk

Lesson Three: Money Isn't Everything

Lesson Four: Nudges Can Work

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 23: Stock Markets and Personal Finance

Chapter Introduction

Passive vs. Active Investing

Why Is It Hard to Beat the Market?

How to Really Pick Stocks, Seriously

Other Benefits and Costs of Stock Markets

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 24: Asymmetric Information: Moral Hazard and Adverse Selection

Chapter Introduction

Moral Hazard

Adverse Selection

Signaling as a Response to Asymmetric Information

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 25: Consumer Choice

Chapter Introduction

How to Compare Apples and Oranges

The Demand Curve

The Budget Constraint

Preferences and Indifference Curves

Optimization and Consumer Choices

The Income and Substitution Effects

Applications of Income and Substitution Effects

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Appendix A Reading Graphs and Making Graphs

Chapter Introduction

Graphs Express Ideas

Data Graphs

Graphing Three Variables

Cause and Effect

Appendix A Questions

Appendix B Solutions to Check Yourself Questions

Chapter Introduction

Check Yourself Solutions for Chapter 2 through Chapter 4

Check Yourself Solutions for Chapter 5 through Chapter 8

Check Yourself Solutions for Chapter 9 through Chapter 12

Check Yourself Solutions for Chapter 13 through Chapter 16

Check Yourself Solutions for Chapter 17 through Chapter 20

Check Yourself Solutions for Chapter 22 through Chapter 25