Gross Investment Government Purchases Net Exports** Real GDP (in billions of chained 2009 dollars) Percentage Change from Previous Year in Real GDP Consumer Price Index Unemployment Rate Year GDP* Consumption 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1,076 1,168 1,282 1,429 1,549 1,689 1,878 2,086 2,357 2,632 648 701 769 851 932 1,033 1,150 1,277 1,426 1,590 170 197 228 267 275 257 323 397 478 540 254 269 288 306 343 383 406 436 477 526 Ϫ3 Ϫ1 16 Ϫ2 Ϫ23 Ϫ25 Ϫ23 4,718 4,873 5,129 5,418 5,390 5,380 5,669 5,931 6,260 6,459 0.2% 3.3 5.2 5.6 Ϫ0.5 Ϫ0.2 5.4 4.6 5.6 3.2 5.6% 3.3 3.4 8.7 12.3 6.9 4.9 6.7 9.0 13.3 4.9% 5.9 5.6 4.9 5.6 8.5 7.7 7.1 6.1 5.8 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 2,863 3,211 3,345 3,638 4,041 4,347 4,590 4,870 5,253 5,658 1,755 1,938 2,074 2,287 2,498 2,723 2,898 3,092 3,347 3,593 530 631 581 638 820 830 849 892 937 1,000 591 655 710 766 825 908 975 1,031 1,078 1,152 Ϫ13 Ϫ13 Ϫ20 Ϫ52 Ϫ103 Ϫ114 Ϫ132 Ϫ145 Ϫ109 Ϫ87 6,443 6,611 6,484 6,785 9,277 7,586 7,852 8,124 8,465 8,777 Ϫ0.2 2.6 Ϫ1.9 4.6 7.3 4.2 3.5 3.5 4.2 3.7 12.5 8.9 3.8 3.8 3.9 3.8 1.1 4.4 4.6 4.6 7.1 7.6 9.7 9.6 7.5 7.2 7.0 6.2 5.5 5.3 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 5,980 6,174 6,539 6,879 7,309 7,664 8,100 8,609 9,089 9,666 3,826 3,960 4,216 4,471 4,741 4,984 5,268 5,561 5,903 6,317 994 944 1,013 1,107 1,257 1,318 1,432 1,596 1,735 1,884 1,238 1,298 1,345 1,366 1,404 1,452 1,496 1,554 1,614 1,726 Ϫ78 Ϫ29 Ϫ35 Ϫ65 Ϫ93 Ϫ90 Ϫ96 Ϫ102 Ϫ163 Ϫ261 8,945 9,939 9,257 9,511 9,895 10,164 10,550 11,023 11,513 12,071 1.9 Ϫ0.1 3.6 2.7 4.0 2.7 3.8 4.5 4.4 4.8 6.1 3.1 2.9 2.7 2.7 2.5 3.3 1.7 1.6 2.7 5.6 6.8 7.5 6.9 6.1 5.6 5.4 4.9 4.5 4.2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 10,290 10,625 10,980 11,512 12,277 13,095 13,858 14,480 14,720 14,418 6,802 7,107 7,385 7,764 8,258 8,790 9,298 9,744 10,006 9,843 2,034 1,929 1,925 2,028 2,277 2,527 2,681 2,644 2,425 1,878 1,834 1,959 2,095 2,221 2,357 2,494 2,642 2,802 3,003 3,089 Ϫ380 Ϫ369 Ϫ425 Ϫ501 Ϫ615 Ϫ716 Ϫ762 Ϫ710 Ϫ713 Ϫ392 12,565 12,684 12,010 13,270 13,774 14,236 14,615 14,877 14,834 14,418 4.1 1.0 1.8 2.8 3.8 3.4 2.7 1.8 Ϫ0.3 Ϫ2.8 3.4 1.6 2.4 1.9 3.3 3.4 2.5 4.1 0.1 2.7 4.0 4.7 5.8 6.0 5.5 5.1 4.6 4.6 5.8 9.3 2010 2011 2012 14,958 15,534 16,245 10,202 10,712 11,150 2,101 2,232 2,475 3,174 3,159 3,167 Ϫ519 Ϫ569 Ϫ547 14,779 15,052 15,471 2.5 1.8 2.8 1.5 3.0 1.7 9.6 8.9 8.1 *Numbers may not add up because of rounding **From 1929 to 1937, 1942, 1954, and 1959 net exports were less than Ϯ $0.5 billion Source: www.bea.gov; consumption and investment (1929–1964) based on author’s estimates McGraw-Hill’s Connect Plus® Economics, a proven digital solution that will help you achieve your course goals of improving student readiness, enhancing student engagement, and increasing their comprehension of content, is now available with Slavin’s Microeconomics, Eleventh Edition! 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Union County College Cranford, New Jersey The New School University New York City MICROECONOMICS, ELEVENTH EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2014 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous editions © 2011, 2009, and 2008 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper DOW/DOW ISBN 978-0-07-764154-2 MHID 0-07-764154-X Senior Vice President, Products & Markets: Kurt L Strand Vice President, Content Production & Technology Services: Kimberly Meriwether David 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Microeconomics I Title HB172.S57 2014 338.5—dc23 2013031490 The Internet addresses listed in the text were accurate at the time of publication The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites www.mhhe.com About the Author Stephen L Slavin received his BA in economics from Brooklyn College and his MA and PhD in economics from New York University He has taught at New York Institute of Technology, Brooklyn College, St Francis College (Brooklyn), and in the MBA program at Fairleigh Dickinson University, at the New School University in New York City, and at Union County College in Cranford, New Jersey He has written eight other books: The Einstein Syndrome: Corporate Anti-Semitism in America Today (University Press of America); Jelly Bean Economics: Photo credit: Leontine Temsky Reaganomics in the Early 1980s (Philosophical Library); Economics: A Self-Teaching Guide, All the Math You’ll Ever Need, Math for Your First- and Second-Grader, Quick Business Math: A Self-Teaching Guide (all four published by John Wiley & Sons); Chances Are: The Only Statistics Book You’ll Ever Need (University Press of America); and Everyday Math in 20 Minutes a Day (LearningExpress) He is the coauthor of four other Wiley books, Practical Algebra, Quick Algebra Review, Precalculus, and Geometry In addition he is also the coauthor of Basic Mathematics, a text published by Pi r squared Publishers Dr Slavin’s articles have appeared in Studies in Family Planning, Economic Planning, Journal of BioSocial Science, Business and Society Review, Bankers Magazine, Education for Business, Public Management, Better Investing, Northwest Investment Review, U.S.A Today Magazine, Patterns in Prejudice, Culturefront, and Conservative Review In addition, he has written more than 500 newspaper commentaries on public policy, demographic economics, politics, urban economics, international trade, investments, and economics fluctuations ix Index Keynes, John Maynard, 9, 26, 479 Keynesian economics vs supply-side economics, 15 Khorsheed, Fereydoon, 472, 474 Khrushchev, Nikita, 63 Kilborn, Peter T., 455 Killy, Jean-Claude, 422 King, Martin Luther, Jr., 197, 388, 439, 451 King, Stephen, 381 Kinked demand curve definition, 302 fast-food chains, 303 Kleenex, 260 Klein, Joel, 325 Kleppach, Kenneth, 172 Kmart, 141 Knight, Frank, 422 Knights of Labor, 359–360 Knittel, Christopher, 153 Koch, Charles, 381, 437 Koch, David, 381, 437 Koran, 415 Kosher food, 141 Kozlowski, Dennis, 332 KPMG Peat Marwick, 327 Kraus, Clifford, 153n Kroc, Ray, 302 Krueger, Alan, 399 Kullman, Ellen J., 401 Kurtzman, Joel, 481 Kuwait, 12 l Labor classes of, 382 as economic resource, 26 Labor demand compensating pay differentials, 387–388 law of demand and, 386–387 nonhomogeneous jobs, 387–388 Laborers’ International Union, 365, 366 Labor force in early 21st century, 18 facing global competition, 438 high pay in U.S., 476 percent unionized in 2013, 364 unionized percent of, 400 union membership, 362 varying in size, 385–386 Labor-intensive production, 342 Labor legislation Landrum-Griffin Act, 362 National Labor Relations Act, 360 proposed Employee Free Choice Act, 375 Taft-Hartley Act, 360–362 Labor market, dual, 382–383 Labor supply backward-bending labor supply curve, 383–385 in dual labor market, 382–383 market supply, 385–386 noncompeting groups, 382 Labor supply curve backward-bending, 385 individual, 383–385 of monopsonist, 369 Labor unions averting strikes, 374 bill of rights, 362 card check law proposal, 375 collective bargaining, 360–372 collective bargaining agreements, 372–374 considered subversive, 359 craft vs industrial, 362–364 definition, 359 early years, 359–360 economic power, 367–368 earnings of nonunion workers, 368 principle of exclusion, 368 principle of inclusion, 368 election procedures, 362 formation of Change to Win coalition, 366–367 limits on takeovers of locals, 362 membership as percentage of labor force, 362 membership of largest, 365 membership peak, 364 national comparisons, 367 organizing since 1950s, 364–366 percent of labor force in 2013, 364 versus power of large employers, 368–370 private sector membership 1973–2012, 366 states with highest membership, 363–364 states with lowest membership, 363 and Walmart, 266 Land abundance in early U.S., characteristics, 409–410 definition, 409 545 derivation of demand, 411 derivation of supply, 410 differences in, 410 as economic resource, 26 entitlement to rent, 413 marginal, 411 significance of location, 409, 410 Landrum-Griffin Act of 1959, 362 Langewiesche, William, 58 Last Angry Man, 285 Law of demand, 100 and college tuition, 101 downward slope of demand curve, 114 and labor demand, 386–387 and price-quantity combination, 103 Law of diminishing marginal utility definition, 164 and utility maximization, 165–166 water-diamond paradox, 167–168 Law of diminishing returns, 36 applications, 192–193 definition, 192 Law of increasing costs basic concepts, 36–37 definition, 36 Law of supply, 114 Lay, Kenneth, 331, 332 Laziness and poverty, 448 Leacock, Stephen, 142 Ledbetter, Lilly, 402 Legal barriers to entry government franchises, 257–258 licensing, 256 patents, 256–257 Legal system, 56 Lein, Laura, 454 Leland, Henry, Lemann, Nicholas, 445 Leno, Jay, 99, 381 Leonard, Devin, 61 Leonhardt, David, 59 Lerner, Abba, 183 Letterman, David, 381, 387, 390–391, 412 Leviticus, book of, 413 Levitt, Steven D., 237n Levitt, William J., 13 Levittown, 13 Levy, Steven, 138 LG Display, 334 Liberal economists, on minimum wage, 397–398 546 Index Liberals solutions to poverty, 452–453 view of poverty, 450–452 Licensing agreements with China and Japan, 486 as barrier to entry, 256 Life Magazine, 18 Liggett & Myers, 323 Lilly Ledbetter Fair Pay Act of 2009, 402–403 Lincoln, Abraham, 3, 322, 443 Litigation against Walmart, 267 Living wage definition, 399 economic effect, 399–400 number of workers covered by, 399 state and local laws, 399 Loanable funds supply, 88–89, 415 Loans consumer loans, 415–417 payday lending, 425–426 subprime lending, 425 tax refund anticipation, 425 Local cartels, 298 Local government, living wage laws, 399 Local markets, 101 impact of Walmart on, 267 Local monopolies, 248 Lockheed Martin, 401 Lockouts longshoremen’s union, 371 as management weapon, 370 NBA owners, 370 Lohr, Steve, 28 Long-distance phone market, 262 Long Island College Hospital, 225 Long run, 149–150 definition, 183 monopolistic competition in, 316 cost curves, 278–279 demand curve, 278–279 efficiency, 278 output, 278–279 zero economic profit, 278 perfect competition in, 231–232 same as short run for monopoly, 250–251, 255, 316 staying in vs going out of business, 198–200 Long-run average total cost curve, 202 Long-run supply curve, 218–219 finding, 221 Long-term unemployment, 443 Lorenz curve definition, 433 on income distribution, 432–434 of U.S income distribution 2011, 434 Losing Ground (Murray), 450 Losses calculating marginal analysis, 215–220 tabular method, 213–215 and going out of business, 198 incurred by shutting down, 196–198 by monopolistic competition in short run, 277 by monopoly, 253–254 perfect competition in short run, 228–231 total, 218–219 Loss minimization, 213–221 Lowe, Janet, 329n Lowe’s, 365 Low-wage argument for protectionism, 476 Low-wage countries, 476 Luce, Henry, 18, 20 Lugar, Richard, 16–17 Luxuries, 140 m Madonna, 381 Mafia compared to open collusion, 299 garbage-hauling control, 298 Major League Baseball, racism and Jackie Robinson, 30, 31 Mann, Brian, 446 Mannesmann, 333 Manufacturing assembly line, disappearance of entry-level jobs, 444 employment 1940–2010, 50 industry standards, 259 long run, 149–150 mass production, moved overseas, 466 outsourcing jobs, 395 in postwar Japan, pre-Civil War, Rust Belt, 488 short run, 149, 150 shrinking base, 481–482 Mao Tse-tung, 63, 67 Marathon Oil, 323 Margin, concept of, 181 Marginal analysis of minimum wage, 397 of profit or loss, 215–220 in total loss calculation, 218–219 Marginal cost, 248 definition, 180 for output, 216–222 for units of output, 180–182 Marginal cost curve and administered prices, 304 of colluding oligopolists, 299 in cutthroat competition, 303–304 graphing, 186–191 of monopolistic competition in long run, 278–279 of monopolistic competition in short run, 276–277 for monopoly, 248–255 most efficient or most profitable output, 223 natural monopoly, 262 for perfect competition in long run, 231–232 for perfect competition in short run, 227–231 profit maximization or loss minimization, 216–222 in total loss calculation, 218–219 Marginal land, 411 Marginal output, 36 definition, 191n negative, 192 Marginal physical product definition, 344 and productivity, 344 Marginal revenue, 181 definition, 212 for output, 216–222 Marginal revenue curve and administered prices, 304 of colluding oligopolists, 299 in cutthroat competition, 303–304 and demand, 212 demand curve and decline of, 249 of monopolistic competition in long run, 278–279 of monopolistic competition in short run, 276–277 for monopoly, 248–255 most efficient or most profitable output, 223 natural monopoly, 262 for perfect competition in long run, 231–232 Index for perfect competition in short run, 227–231 profit maximization or loss minimization, 216–222 in total loss calculation, 218–219 Marginal revenue product, 390 definition, 344 of imperfect competition, 347–348 of perfect competition, 344–347 Marginal revenue product schedule for capital, 414–415 demand for land, 411 deriving, 343–694 imperfect competition, 347–348 perfect competition, 344–346 and labor demand, 386–387 optimal mix for firms, 351–353 reasons for changes in resource demand, 349–351 Marginal utility and all-you-can-eat buffet, 173 calculating, 166 and consumer surplus, 171 definition, 164 and utility maximization, 165–167 water-diamond paradox, 167–168 Margulis, Jennifer, 167 Market(s) in cyberspace, 101 definition, 100 international, 101 local, 100–101 national, 101 operation of supply and demand in, 77 regional, 101 for silver dollars, 226 Market demand definition, 100 examples of, 101 Market demand schedule, 102 Market failure curbing environmental pollution, 58–59 definition, 56 externalities, 56–57 lack of public goods and services, 59–60 Market forces, interference with, 400 Market period, 148–149 Market power of Walmart, 266 Market price and equilibrium price, 78–79 quantity demanded and supplied, 116–117 Market share, top ten automakers, 296 Market structure duopoly, 305 imperfect competition vs perfect competition, 316–317 monopolistic competition, 275–276, 316 monopoly, 247–248, 316 oligopoly, 293–296, 316 perfect competition, 223–226, 315 Market supply, 109–110 of labor, 385–386 Marling, Karal Ann, 287 Marshall, Alfred, 100, 168–169 Marshall, John, 115n Marsh brothers’ harvesting machine, Martindell, Jackson, 63 Martore, Gracia C., 401 Marx, Karl, 2, 62, 63, 64 on exploitation of labor, 424 Mass consumption, Mass consumption society, Mass production, Matsushita Corporation, 259, 329 Mattel, 258 Mayer, Marissa, 401 Mayrovitz, Carol M., 401 Mays, Willie, 387, 390, 412 Mayweather, Floyd, Jr., 381 Mazda, 260 Mazzarella, Kathleen M., 401 MC; see Marginal cost MCA, 329 McCain, John, 19 McCormick, Cyrus, 4, McCoy, Sheri S., 401 McDonald’s, 52, 142, 280, 287, 303 McDonnell Douglas, 327 McGraw-Hill, 264, 306–307 McKinley, William, 469 McMillan, John, 68, 91, 301 MCϭMR rule, 216 Means of production, 25; see also Economic resources; Factors of production under capitalism, 64 in circular flow model, 54–55 under communism, 64–65 under fascism, 66 in Soviet Union, 62 Median household income changes 1967–1999, 436 definition, 435 by race in 2011, 435 real, in U.S 1967–2011, 436 MediaOne Group, 333 547 Mediation, 374 Medicaid, 15 definition, 445 Medicare, 15 definition, 445 Mentally ill deinstitutionalized, 444 Mergers blocked by Federal Trade Commission, 325 blocked by Justice Department, 296, 327 conglomerate, 329 horizontal, 328 largest in U.S., 333 largest worldwide, 333 vertical, 218–329 Merrill Lynch, 402, 403 Metropolitan Opera, 256 Metropolitan Transit Authority of Boston, 263 Mexico, Big Mac index, 507 Meyer, R F., 25 Microsoft Corporation, 27, 31, 52, 56, 193, 256, 258, 259, 265, 316, 421, 482 antitrust case in European Union, 328 antitrust case in U.S., 326–327 Middle class African Americans, 450–452 income distribution, 432–436 safety net for, 457 Military families, poverty among, 446 Mill, John Stuart, 372, 388 Miller, George, 399 MINI Cooper, 153 Minimum wage, 84 debate among economists, 397–398 definition, 396 earners of, 399 establishment of, 396 rate 1938–2012, 396–397 set by states, 399 Mining employment 1940–2010, 50 Mitsubishi, 260 Mixed economy circular flow model, 54–55 competition, 52–53 definition, 50 equity and efficiency, 53–54 and government failures, 60–62 how to produce, 50 invisible hand in, 51–52 market failure, 56–60 548 Index Mixed economy—Cont versus other economic systems, 64–69 price mechanism, 52 role of capital, 62–63 role of government, 55–56 trust, 53 what to produce, 49–50 for whom to produce, 50–51 Mobil, 323, 328, 333 Mohammed, 91 Mondelez International, 401 Monetary policy with gold standard, 500 tight money, 10 Money, in circular flow model, 54–55 Money supply decline in 1930s, with gold standard, 499 Money wages definition, 392 versus real wages, 391–396 in U.S 1972–2012, 394 Monopolistic competition and advertising, 280–281 criticized as wasteful, 286–287 definition, 275, 316 in long run breaking even, 278–279 compared to perfect competition, 279 efficiency, 278 marginal cost curve, 278–279 marginal revenue curve, 278–279 output, 278–279 zero economic profit, 278–279 merits of product differentiation, 287 nature of competition in, 288 and overdifferentiation, 287 perfect information, 276 price discrimination, 282–286 product differentiation, 275, 279–280, 316 selling status, 288 in short run average total cost curve, 276–277 elastic demand curve, 276 loss by, 277 marginal revenue curve, 276–277 output, 276 profit or loss, 276–277 total profit, 276 typical, 281–282 Monopolists, entrepreneurs as, 424 Monopoly; see also Natural monopoly Alcoa ruled as, 326 attaining, 266 average total cost curve, 248–249 barriers to entry control over an essential resource, 256 economies of being established, 258–260 economies of platform, 258 economies of scale, 256 legal barriers, 256–258 required scale for innovation, 258 bilateral, 369 calculating profit or loss, 249–251, 254–255 and close substitutes, 247–238 definition, 247, 316 demand curve, 249 examples, 316 high-tech industries, 258 and imperfect competition, 248 justifications for, 260 local, 248 losing money, 253–254 making a profit, 249 marginal cost curve, 248–249 marginal revenue curve, 248–250 national, 248 price-output combination, 249–251 reasons for dislike of, 263 review of economic analysis, 251–253 in short run and long run, 250–251, 255 Monopoly game, 246 Monopoly power, limits to, 260 Monopsony, 368–370 and bilateral monopoly, 369 definition, 369 examples, 369 labor supply curve of, 369 in professional sports, 370 in Soviet Union, 369 Monotowns, 369 Morgan, J P., 321, 322 Morgan Stanley, 402 Morris, Betsy, 401 Morrison, Denise M., 401 Mortenson, Thomas G., 384 Mortgages, for war veterans, 13 Mosaic law, 415 Moses, 439 Most efficient output, 223 Most profitable output, 223 MRP; see Marginal revenue product Mulligan, Deanne M., 401 Multilith-Addressograph, 260 Multinational corporations, 334 and strikes, 371 and trade imbalance, 481 Muni, Paul, 285 Murdoch, Rupert, 258 Murphy, Eddie, 99 Murphy, Kevin, 138 Murray, Charles, 449, 450–452 Music download prices, 138 Mussolini, Benito, 66 Myers, Samuel L., Jr., 449 Mylan, 401 n Nacchio, Joseph, 332 NaitonsBank, 333 Namath, Joe, 256 Napoleonic Wars, 413, 513 Nash, Ogden, 438 Nash automobile, 147 National Basketball Association, 370 National Education Association, 365, 366 National Football League, 30, 256, 260, 370, 390, 424 National Labor Relations Act of 1935, 360 National Labor Relations Board, 360 union certification, 375 National markets, 101 National Mediation and Conciliation Service, 375 National monopolies, 248 National railroad network, 4–5 National security argument, 474–476 Natural disasters, 172 Natural monopoly benefits of, 265 case for, 261–262 definition, 260 economies of scale in, 260–262 examples, 261 preventing overcharging government ownership, 263 government regulation, 262–263 and Telecommunications Act of 1996, 262 theater snack stands, 262 Natural scarcities, 424 Nazi Germany, 66 Index NBC-TV, 258, 329, 390 Necessities vs luxuries, 140 Negative returns, 192 Nehru, Jawaharlal, 431 Netherlands current account percentage of GDP, 498 minimum wage, 400 Net investment income, 496–497 Netscape, 326 Net worth, 436 Neumark, David, 399 New customers, price discrimination for, 285, 286 New Deal, 9–10, 450 New economy, 17–18 New introductory offers, 285 New Jersey, rent control, 85 New Jersey Transit System, 263 Newsweek, 138, 447 New York, New Haven, and Hartford Railroad, 59 New York Central Railroad, 59 New York City, rent control, 85 New York City Welfare Department, 451 New York Daily News, 142 New Yorker, 508 New York Eye and Ear, 225 New York Giants, 390 New York Jets, 256 New York State Power Authority, 263 New York State Public Service Commission, 262 New York Times, 16–17, 28, 59, 172, 404 New York trash cartel, 298 Nickel and Dimed (Ehrenreich), 382–383 Nike, Inc., 295 Nippon Sheet Glass, 300 Nissan Motors, 260, 296, 365, 479 Nissan Versa, 153 Nixon, Richard M., 52, 441, 484 Noncompeting groups, 382 Nonexcludable public goods, 60 Nonhomogeneous jobs, 387–388 Nonrivalrous public goods, 60 Nooyi, Indra K., 401 Normal goods, 105 North American Free Trade Agreement, 487 Northern states, pre-Civil War, Norway Big Mac index, 507 socialism in, 67 Notre Dame University, 101 Novakovic, Phebe, 401 Nucor Steel Corporation, 368 o Obama, Barack, 19, 31, 62, 397, 445–446, 453, 487 Obama administration, 502 Occupational Outlook Handbook (Dept of Labor), 388 Occupations, middle level of, 383 Occupy Wall Street movement, 457 Office Depot, 325 Offshoring of American jobs, 488, 489 from international trade, 479 Of Plymouth Plantation (Bradford), 52 Oil embargo of 1973, 84, 296 Oil imports, 480–481 Oil prices elasticity of demand, 153 increases 2002–2008, 153 and OPEC, 297–298 Oil well drillers, 422 Olds, Henry, 6n Olds, Ramson E., Oldsmobile, Oligopoly in auto industry, 296 competitive spectrum cartels, 297–298 covert collusion, 300–301 cutthroat competition, 302–304 disagreements on degree of competition, 306 location of American industry, 306 open collusion, 299 price leadership, 301 definition, 293, 316 differentiated or identical products, 293 duopoly, 305 examples, 316 and game theory, 305 measures of degree concentration ratios, 294–295 Herfindahl-Hirschman index, 295–296 product type and competition, 293 profit and ATC curve, 294 Olis, James, 332 Olmstead, Jerry, 172 O’Neal, Shaquille, 99 549 O’Neal, Stanley, 403 One World Everybody Eats Cafe, 167 One World Spokane, 167 OPEC; see Organization of Petroleum Exporting Countries Open collusion compared to Mafia, 299 compared to monopoly, 299 definition, 299 and perfect competition, 299 Open shop, 361 Opportunity cost in California spending, 29 in comparative advantage, 470–472 definition, 28 and factor suitability, 37 implicit costs as, 213 in production possibilities curve, 35 Oracle Corporation, 31, 391 Orbitz.com, 109, 225 Organization of Petroleum Exporting Countries control of price and supply, 297–298 daily output of member nations, 298 market power, 298 oil price increase in 19731, 15 oil price increase in 1980s, 12 oil price increase of 1973, 12 temptation to cheat, 297 O’Toole, John, 141 Output collapse in 1930s, in cutthroat competition, 303–304 expansion 1921–1929, fixed costs with rise in, 248 marginal analysis, 215–220 marginal cost for units of, 180–182 fixed costs, 181–182 total cost, 181–182 variable costs, 181–182 and marginal revenue, 212 of monopolistic competition in long run, 278–279 of monopolistic competition in short run, 276–277 of monopoly, 250–251 most efficient, 223 most profitable, 223 for perfect competition in short run, 227–231 in production function, 191–196 variable costs with rise in, 248 Output effect definition, 350 of washing machines, 353 Overdifferentiaton, 287 550 Index Overhead, 180 Owens-Illinois, 295 p P Lorillard, 323 Pace, Eric, 13 Packard, 147 Page, Larry, 437 Panasonic, 324 Panel Study of Income Dynamics, 456 Papworth, Jill, 400 Paramount Pictures, 329 Parker Brothers, 258 Parkinson, C Northcote, 195 Parkinson’s law, 195 Parsons, Robert, 403 Patents, as barrier to entry, 256–257 Pathmark, 141 Pattern-setting agreements, 372 Patterson, James T., 13 Pauley, William H., III, 332 Paul VI, Pope, 106 Payday lending definition, 426 interest rate, 426 number of locations, 426 role of banks, 425 use by military families, 426 and usury laws, 425 Pay differentials; see also Wage entries compensating, 387–388 definition, 388 Payscale.com, 388 Pay-what-you-want restaurant, 167 Pearson, 306–307 Peck, Gregory, 285 Péguy, Charles, 438 Pell Grants, 384 Penn State University, 258 Pennsylvania Railroad, 59 PepsiCo, 258, 401 Percentage change, for wages, 392–394 Perdue, Frank, Perfect competition break-even point in long run, 224 calculating profit or loss, 233–235 compared to monopolistic competition, 279 definition, 224, 315 demand curve derivation of, 226 in long run, 231–232 perfectly elastic, 226 in short fun, 227–231 examples, 225 grain farmers, 236 as ideal, 223–224 identical standardized products, 224–225 Internet effect, 236–237 large number of rims, 224 marginal revenue product, 344–347 versus monopoly in output and price, 250 no barriers to entry, 225 operating at peak efficiency, 236 perfect knowledge, 225 perfect mobility, 225 price taker, 224, 235–236 setting prices, 226–233 Perfect knowledge effect of Internet, 225 in monopolistic competition, 276 in perfect competition, 225 Perfectly elastic demand, 134–135 Perfectly elastic supply curve, 148 Perfectly inelastic demand, 135 Perfectly inelastic supply curve, 148 Perfect mobility, in perfect competition, 225 Perfect price discrimination, 286 Perkins, Frances, 31 Persian Gulf War, 12 Personal Responsibility and Work Opportunity Act of 1996 dire predictions about, 454 provisions, 453 subsidized child care, 454–455 success of, 454 work first policy, 454–455 Petofsky, Robert, 325 Pew Foundation Research Center, 436 Pfizer, Inc., 260, 333, 334, 421 Pharmaceutical industry corporate fraud, 334 declining average total cost, 194 patents, 257 Pharmacia, 333 Philip Morris, 52 Pikington, 300 Pin factory, 193–194 Piracy of U.S products by China, 484 Pitney-Bowes, 260 Pitts thresher, Pizza Hut, 287 Plants, 200–202 Plant size and average total cost curve, 201–202 choosing, 200–202 General Motors, 202 Kone’s ice cream parlor, 202 Procter & Gamble, 200–201 Plato, 264 Pollution Gulf oil spill of 2010, 57 means of curbing command-and-control regulations, 58–59 incentive-based regulations, 59 Poor, the characteristics, 442–443 in cities and suburbs, 443 consumer spending by, 440 discouraged workers, 443 education gap, 403–404 government jobs for, 452–453 income distribution, 432–436 military families, 446 and payday lending, 425–426 versus poor of other continents, 442 by race, 442 standard of living in U.S., 442 and subprime lending, 425 tax refunds for, 447 working poor, 443 Population effect on demand from changes in, 107–108 of U.S 1789–2006, Porsche, 295 Potager, Arlington, Texas, 167 Poverty, 26 absolute, 440 breeding poverty, 449 child, 443–445 conservative views of, 450–452 consumer spending as measure of, 440 definition, 439 eliminating, 455 and government failure, 60–61 homelessness, 444 from inadequate human capital, 449 liberal views of, 450–452 percent experiencing a year of by education, 456 by race, 456 possibility of falling into, 456–457 relative, 439–440 solutions to conservative views, 452–453 liberal views, 452–453 Welfare Reform Act, 453–455 Index theories of causes black male joblessness, 449 employment discrimination, 448–449 heritage of slavery, 448 inadequate human capital, 449–450 laziness, 448 poverty breeding poverty, 449 tracking rate of, 441–442 U.S standard, 440–441 Poverty line calculating, 440–441 definition, 440 and material possession, 442 Poverty rate definition, 441 by race, 442 tracking, 441–442 in U.S 1959–2011, 441 Powell, Colin, 403 Power plant pollution, 58 Preferences, changes in, 106 Present value decline with interest rate rise, 419 definition, 417 formula, 408 of future income, 417–420 Price(s); see also Equilibrium price administered, 304 changes in, of other resources, 350–351 changes with marginal revenue, 218 of complements, 106 and continued operation, 200 control of by OPEC, 297–298 and cross elasticity of demand, 146–147 determined by supply and demand, 115–117 expectation of changes, 106–107 and income elasticity of demand, 144–146 of monopolistic competition in long run, 278 in monopoly, 250–251 in perfect competition, 224 in pharmaceutical industry, 194 related to rent, 413–414 in relation to demand, 75–76 in relation to supply, 76–77 set by corporations, 52 set by industry supply and demand, 230 as signal, 52 of substitute resources, 342 of substitutes, 106 and supply, 107–108 tending toward equilibrium, 87, 116 and total revenue, 212 Price ceilings damage caused by, 83 definition, 83 effect on equilibrium price, 83–87 effect on equilibrium quantity, 83–87 on gasoline in 1973, 84 rent control, 85–86 shortages from, 84–86 usury laws, 85–86, 416 Price changes to change behavior, 131 expectations of, 106–107, 112–113 Price controls; see also Price ceilings; Price floors to stop inflation, 52 during World War II, 84 Price differentials, 288 Price discrimination at A&P markets, 283 airlines, 285 definition, 282–283 and groups of buyers, 283 for new customers, 285, 286 perfect, 286 physicians, 285 profits increased by, 283–285 prohibitions in Clayton Act, 324 restaurants, 283 store owners, 285 in vending machines, 285 Price elasticity of demand advertising’s effect, 141–143 availability of substitutes, 140 calculating, 132–133 cigarette prices and smoking, 138 and Cookie Monster, 140 definition, 132 determinants, summary of, 141 determinants of degree of, 139–141 effect of advertising, 141–143 formula, 132 inelastic demand, 133–134 for kosher food, 141 meaning of, 133–139 measuring, 132 music downloads, 138 necessities vs luxuries, 140 negative number, 132 number of product uses, 141 for oil, 153 551 over time, 141 perfectly elastic demand, 134–135 perfectly inelastic demand, 135 relative elasticity of demand, 136 selected goods and services, 140 straight-line demand curve, 138 and tax incidence, 150–152 and total revenue, 143–144 unit elasticity, 137 Price elasticity of supply definition, 147 over time long run, 149–150 market period, 148–149 short run, 149, 150 perfectly elastic supply curve, 148 perfectly inelastic supply curve, 148 and tax incidence, 150–152 Price fixing Archer Daniels Midland case, 300 BASF AG case, 300 definition, 300 by electrical firms, 300 in European Union, 300 Hoffman-La Roche case, 300 Schering-Plough case, 300 Supreme Court ruling, 300 Price floors agricultural commodities, 83 damage caused by, 83 definition, 83 effect on equilibrium price, 83–87 effect on equilibrium quantity, 83–87 living wage, 399–400 minimum wage, 84, 396–399, 400 Price gouging, 91, 172 Price leadership prime rate as, 301 in steel industry, 301 Price level effect on exchange rate, 502 and price gouging, 172 and utility maximization, 165–167 Priceline.com, 109, 225 Price mechanism, 52 and competition, 52–53 Price mechanism/system, 75 central planning as substitute for, 65 obstacles to, 416–417 rationing function of, 90 as signal, 79 and usury laws, 416 552 Index Price of other goods, 112 Price-quantity combination, 103 Price taker, 224 definition, 235 Pricing policy in cutthroat competition, 302–303 for duopoly, 305 for perfect competition, 226–233 Primary labor market definition, 382 education and earnings, 383 Prime rate, 425n as price leadership, 301 Principle of exclusion, 368 Principle of inclusion, 368 Prisons, California spending on, 29 Private costs, 56–57 Private goods, 59–60 Private property rights, 52 Private property vs public property, 60 Procter & Gamble, 200–201, 333, 421 Product differentiation, 316 bases of, 279–280 in book publishing, 280 buyer perception, 279 and customization, 280 definition, 279 fast-food outlets, 280 merits of, 287–288 in monopolistic competition, 275 Production, 49–50 capital-intensive, 342 continuous-flow methods, decline in Great Recession, 467–468 invisible hand theory, 51–52 labor-intensive, 342 marginal analysis, 215–220 price mechanism for, 52 role of capital, 62 and specialization, 471–472 in U.S in early 20th century, during World War II, 10–11 Production function decreasing marginal output, 192 definition, 191 diseconomies of scale, 194–196 economies of scale, 193–194 increasing returns, 191–192 law of diminishing returns, 191–192 negative returns, 192 Schumpeter on, 423 Production possibilities curve, 32–37 and comparative advantage, 471 definition, 33–35 and economic growth, 38–41 gains from specialization and trade, 473 graph, 33, 34 guns vs butter metaphor, 32–37 and law of increasing costs, 36–37 opportunity cost in, 35 and scarcity, 32 Production possibilities frontier, 30 and comparative advantage, 470–472 full employment vs underemployment, 31–32 during World War II, 39 Productive efficiency, 38, 222n Productivity and marginal physical product, 344 resource demand changes in, 349–350 increases in, 349–350 of substitute resources, 342 varying among workers, 388 wages tied to increases in, 372 Product line, Apple Inc., 27 Product placement, in stores, 259 Products customized, 280 identical, 315 identical in perfect competition, 224–225 Product uses, and price elasticity of demand, 141 Professional sports high wage rates, 390 as monopsony, 370 racism in, 30, 31 Profit calculating marginal analysis, 215–220 tabular method, 213–215 in circular flow model, 54 of corporations in 2012, 421 in cutthroat competition, 304 definition, 179 determination of, 420 economic profit, 422 formula, 213 as incentive, 420 increased by price discrimination, 283–285 minus explicit and implicit costs, 421 of monopolistic competition in long run, 278 of monopoly, 250–251 and national income, 421–422 in oligopoly, 294 for perfect competition in long run, 231–232 perfect competition in short run, 228–231 possible outcomes for duopoly, 305 during recessions, 422–423 size of, 420–422 theories of entrepreneurs as exploiters of labor, 424 entrepreneurs as innovators, 422–423 entrepreneurs as monopolists, 424 entrepreneurs as risk takers, 422 Profit and loss, 211–223 accounting profit, 213–214 calculated for monopoly, 254–255 calculated from graphs, 233–235 economic profit, 213–214 and efficiency, 222–223 marginal revenue, 212 profit maximization and loss minimization, 213–220 summary of, 220–221 total revenue, 212 Profiteering, 172 Profit maximization, 213–221, 420 MCϭMR rule, 216 Profit per unit, maximizing, 230 Progress and Poverty (George), 412 Property as theft, 413 Property income, 438–439 Property rights, 91 Proportional returns to scale, 195 Protectionism after end of gold standard, 500 arguments for employment argument, 476–477 infant industry argument, 476 low-wage argument, 476 national security argument, 474–476 Proudhon, Pierre-Joseph, 413 Public education system, as government failure, 61 Public goods definition, 59 indivisible, 60 nonexcludable, 60 nonrivalrous, 60 versus private goods, 59–60 Index Public sector unions definition, 366 largest, 366 political differences about, 365 Public works projects, Publishing college textbook market, 306–307 customization in, 280 sales representatives, 307 q Quality, effect of foreign competition, 265 Quantity demanded changes in, 103–104, 105 and market price, 116–117 as shortage, 79 Quantity discounts, 193, 195 Quantity supplied with lower prices, 77 and market price, 116–117 as surplus, 79 Quesnay, François, 25–26 Quinn, Theodore K., 195 Quintiles of income and collage attendance, 384 definition, 432 finding percentage of income share, 433 Lorenz curve, 432–434 percentages for each fifth, 434 of U.S households in 2011, 432 Quotas compared to tariffs, 477–479 definition, 477 on textile imports, 478 Quotesmith.com, 236 QWERTY keyboard, 259 Qwest Communications, 262, 332, 333 r R J Reynolds Company, 52, 369 Race median household income by, 435 one-year experience of poverty, 456 poverty rate by, 442 Race to the bottom, 396 Racism versus full production, 30–31 and Levittown, 13 in Major League Baseball, 30, 31 Ragtime (Doctorow), 280 Railroad construction, 4–5 Raines, Franklin, 403 Rajaratnam, Raj, 332 Rand, Barry, 403 Rationing definition, 90 function of price system, 90 Reagan, Ronald W., 15, 66, 329, 330, 455 Reagan administration, 328 Real interest rate, 417 Real wages decline 1973–1993, 394–395 definition, 391 and maintaining standard of living, 396 middle class problem, 396 versus money wages, 391–396 reasons for decline financial crisis of 2008, 395 globalization, 396 high health care costs, 395 low unionization rate, 395 outsourcing jobs, 395 in U.S 1972–2012, 394 Recessions in U.S 1945–2009, 12 in U.S in early 1980s, 15 Reed, Debra L., 401 Reed, Orville, 65 Regional markets, 101 Reingold, Jennifer, 225 Related goods and services, price changes, 105–106 Relatively inelastic demand curve, 139 Relative poverty, 439–440 eliminating, 455 Relevant market concept, 326 Remington Sewing Machine Company, 259 Remittances by immigrants, 497 Rent demand for land, 411 determination of, 410 and economic rent, 412–413 as guidance mechanism, 412–413 increased by gentrification, 444 and nature and uses of land, 409–410 in Proudhon’s view, 413 relation to price, 413–414 single-tax movement, 412–413 supply of land, 410 553 Rent control definition, 85 opposed by economists, 85 perverse effects of, 85 Replacement workers, 373 Replica Books, 280 Republicans Civil War era, post-Civil War, 322 and public sector unions, 365 Republic Steel, 301, 368 Resources; see also Economic resources; Factors of production factors determining purchase of, 343 as means of production, 25 monopoly control of, 256 reasons for changes in demand change in demand for final product, 349 change in prices of other resources, 350–351 change in quantities of other resources, 351 productivity changes, 349–350 used in proportion, 191 Restraint of trade, 322 Ricardo, David, 413 Rice, Condalezza, 403 Rice University, 101 Rich, the American billionaires, 437 income distribution, 432–436 Rickey, Branch, 30 Rigas, John, 332 Rigas, Timothy, 332 Right-to-work laws, 361–362 Risk, Uncertainty, and Profit (Knight), 422 Risk takers, entrepreneurs as, 422 Rist, C., 26n Rite Aid, 195, 288, 325 Riveo, 325 Rivkin, Jeremy, 374 Roadrunner cable modems, 286 Roaring Twenties, Roberts, Julia, 99 Robert Wood Johnson Foundation, 453 Robinson, Jackie, 30, 31 Robinson, Tom, 142 Robocalls, 57 Rochester Electric Company, 262 Rockefeller, John D., 5, 7, 27, 321, 322, 328 Rodriguez, Alex, 99, 381 554 Index Rogers, David, 453 Rolling Stones, 328 Rolls-Royce, 295 Roman Empire, 513 Romney, Mitt, 19, 62, 455 Romney, Virginia, 401 Roosevelt, Franklin D., 9–10, 31, 42–43, 321, 450 Roosevelt, Theodore, 321, 323 Roosevelt administration, 325, 328 Rosenfeld, Irene B., 401 Ross, Steven J., 422 Royal Bank of Scotland, 333 Royal Dutch Petroleum, 333 Rube Goldberg contraption, Soviet Union as, 65 Rule of reason definition, 323 partial breakdown of Alcoa case, 325–326 DuPont case, 326 in U.S Steel case, 324 Russell, Robert R., Russia Big Mac index, 507 current account percentage of GDP, 498 Rust Belt, 488 Rutgers University, 258 s Saab, 295 SAC Capital Advisors, 332 Safety net for middle class, 457 Safeway, 193 Saffo, Paul, 27 Saint-Gobain, 300 Saint Louis Bread Company, 167 Sales representatives, 307 SAME Cafe, Denver, 167 Sam’s Club, 303 Sandoz, 325 Sanitation workers, 388 Santayana, George, Satisfaction maximization, 163 Savin, 260 SBC, 333 Scarcity, 26 contrived vs natural, 424 Schering-Plough, 300 Schlosstein, Steven, 264 Schorr, Daniel, 450n, 453 Schorr, Lisbeth, 450n, 453 Schumpeter, Joseph A., 423 Schwartz-Nobel, Loretta, 446 Screen Actors Guild, 329 Seaboard Finance, 416 Sears-Kmart, 484 Secondary boycotts, 362 Secondary labor market definition, 382 education and earnings, 383 Securities and Exchange Commission, Self-interest, 51 Semiskilled labor, 382 Seniority provisions, in collective bargaining, 372 Sepra Energy, 401 Service Employees International Union, 365, 366 Service sector employment 1940–2010, 50 lower paying jobs, 395 positive trade balance, 467 strikes in, 371 Sesame Street, 140 7-Eleven stores, 281 Sex discrimination lawsuit, 402 Sharp Corporation, 260, 324 Shaw, George Bernard, 29 Shelf space costs, 259 Sherman Antitrust Act definition, 322 and horizontal mergers, 328 key provisions, 323 passage in 1890, 322 rule of reason, 323–324 rule of reason interpretation, 325 Supreme Court interpretation, 323–324 trusts prosecuted under, 323 unreasonable restraint of trade, 325 Shiller, Robert J., 52 Shipbreaking, 57, 58 ShopRite, 141 Shortages, 78–79 below equilibrium price, 117 in college parking, 89–90 definition, 79 in former Soviet Union, 63 of gasoline in 1973, 91–92 leading to black markets, 85 from price ceilings, 84–86 Short run, 149, 150 definition, 183 monopolistic competition in average total cost curve, 276–277 demand curve, 276–277 marginal cost curve, 276–277 marginal revenue curve, 276–277 output, 276–277 total profit, 276 operating in, 197 perfect competition in, 227–231 same as long run for monopoly, 250–251, 255, 316 Short-run supply curve, 219 finding, 221 Showtime, 195 Shulman, Beth, 396 Shut-down decision, 219 and average total cost, 199 and average variable cost, 199 versus continued operations, 196–198 definition, 196 versus going out of business, 197 problems associated with, 196–197 in publishing, 198 and total revenue, 199 Shut-down point, 217 definition, 220 finding, 221 in total loss calculation, 218 Silicon Valley, 18 Silver dollars, market for, 226 Single-tax movement, 412–413 60 percent rule, 326 Skid row, 444 Skilled labor, 382 Skilling, Jeffrey, 331, 332 Skills specialized, 387 substitutable, 382 Slavery and Civil War, heritage of, 448 Smith, Adam, 26, 51, 56, 163, 193–194, 297 on international trade, 470 SmithKline Beecham, 333 Smoking, and cigarette prices, 138 Smoot-Hawley Tariff of 1930, 469 Snyder, Rick, 362 Socialism definition, 66 in Norway, 67 in Sweden, 66–67 Social Security creation of, definition, 445 Social Security Act of 1935, 445, 453 SOCONY-Mobil-Vacuum, 323 Sony Corporation, 259, 280, 329 Sopranos, The, 298 Index Sorensen, Colleen, 423 Sorensen, Jay, 422–423 South Africa, Big Mac index, 507 Southern states foreign automakers in, 365 pre-Civil War, target of AFL-CIO, 364 South Korea Big Mac index, 507 hourly wage and fringe benefits, 392 Soviet Union, 11 collapse of, 65 communism in, 64–65 distribution system, 50–51 means of production in, 62 monotowns, 369 what to produce, 49–50 Spain, minimum wage, 400 Spamming, 57 Specialization Adam Smith on, 470 basis for trade, 469 Specialized skills, 387 Sprint, 262, 326 Squibb, 142 Stagflation, 15 Stalin, Joseph, 63 Standard of living, 63 and decline in real wages, 396 of poor Americans, 442 Standard Oil Company, 27, 256, 328 antitrust case, 325 Standard Oil of New California, 323 Standard Oil of New Jersey, 323 Standard Oil of New York, 323 Standard Oil of Ohio, 323 Standard Oil Trust, 5, 322 breakup and results, 323 breakup of, 321 Standards, setting, 259 Stanley Steamer, 259–260 Staples, 325 Starbucks, 41, 288 States with highest union membership, 363–364 licensing requirements, 256 living wage laws, 399 with lowest union membership, 363–364 minimum wage laws, 399 outlawing payday lending, 425 and public sector unions, 365 right-to-work laws, 361–362 usury laws, 415–416 Status, selling, 288 Staying in business vs going out of business, 198–200 Steel industry, price leadership, 301 Steel tariffs of 2002, 487 Steinbeck, John, Stepanek, Marcia, 225 Sticky prices, 304 Stimulus package of 2009, 107 Stock market crash in 1929, rise 1921–1929, Straight-line demand curve, 138 Strikes ability to withstand, 370–371 averting by arbitration, 374 by mediation, 374 becoming less effective, 374 in China, 373 definition, 370 in divisions of conglomerates, 329 halted by court order, 361 in Japan, 373 national comparisons, 373 post-World War II, 360 and replacement workers, 373 in service sector, 371 steelworkers in 1959, 373 UAW-GM in 1970, 373 varying among industries, 371 work time lost 1945–2012, 373 Strumpf, Koleman S., 138 Studebaker, 147 Subprime lending, 425 Subsidies to agriculture, 16–17, 57 Subsidized child care, 455 Substitute factors of production output effect, 350 substitution effect, 350 Substitute goods, price of, 106 Substitute resources, prices of, 342 Substitutes limit to monopoly power, 260 and monopoly, 247–248 and price elasticity of demand, 140 Substitution effect definition, 350, 383 and wage rates, 383–384 of washing machines, 353 Suburbanization, 15 and automobile travel, 481 consequences of, 14 and highway program, 13 Levittown, 13 Suburbs, poverty in, 443 Suez, 333 555 Summers, Lawrence, 403 Sun Belt, Sunk cost, 180 Suppliers change in number of, 112 Walmart’s bargaining power, 266 Supply changes in, 111–113 contrasted with demand, 76–77 control of, by OPEC, 297–298 definition, 76, 107 individual, 109–110 inelastic in short time periods, 147 of land, 410 of loanable funds, 415 lowered by tariffs, 479 market, 109–110 and price, 107–108 Supply and demand, 107 in agriculture, changes over time, 99 determinant of interest rates, 414–415 determinant of price, 115–117 equilibrium point, 115 industry, 230 shifts in, 79–83 simultaneous shifts, 120 and wage rates, 400 Supply and demand analysis college parking, 89–90 for foreign exchange, 501–505 house sales, 119–121 interest rate determination, 88–89 price of fish, 106 of prices, 77 rationing function of price system, 90 rent, 411–412 rent control, 85 U.S dollar relative to yen, 506 usury laws, 85–86 wage rates, 388–390 Supply and demand equilibrium, 78 Supply curve, 75 effect of shifts in, 79–83 graph, 78 graphing, 114–115 long-run, 218–219, 221 perfectly elastic, 148 perfectly inelastic, 148 shifts in, 79–83 short-run, 219, 221 Supply of labor; see Labor supply Supply-side economics, 15 Supra Telecom, 262 556 Index Surowiecki, James, 508 Surpluses, 78–79 above equilibrium price, 116 definition, 79 from price floors, 83 Surplus value, 424 Sweden percent of labor force unionized, 367 socialism in, 66–67 Sweeney, John, 359 Swift, Gustavus F., Switzerland, Big Mac index, 507 Syrus, Publilius, 164 t Taco Bell, 287 Taft, William Howard, 321 Taft-Hartley Act of 1948, 371 fewer strikes since, 373 and merger of AFL-CIO, 363 provisions, 360–362 Talk America, 262 Target Stores, 52, 193, 266, 365, 484 Tariff of Abominations of 1828, 468 Tariffs on Chinese tires, 486–487 compared to quotas, 477–479 definition, 477 high in 19th century, 322 high in U.S 1816–1930, 468–469 lower after 1947, 469 Smoot-Hawley Tariff of 1930, 469 on steel in 2002, 487 supply lowered by, 479 Tariff of Abominations of 1828, 468 Underwood Tariff of 1913, 468 in U.S history 1820–2012, 469 Tastes, changes in, 106 Taxation capital gains and dividends, 436 changes in supply from changes in, 112 cigarette taxes, 138 Earned Income Tax Credit, 446–447 single-tax movement, 412–413 Tax cheats, 418–420 Tax code, as government failure, 60 Tax credit, 107 Tax cuts, in Reagan era, 15 Tax incidence definition, 150 determination of tax burden, 151–153 effect on supply, 151 and perfectly inelastic demand, 152 and perfectly inelastic supply, 152 Tax Policy Center, 438–439 Tax-refund anticipation loans, 425 Tax refunds, 447 Teamsters Union; see International Brotherhood of Teamsters Technological advances cause of change in supply, 111 from patents, 257 in U.S in 20th century, Technology agricultural, U.S losing lead in, 482 Technology transfer, 486 Tele-Communications, 333 Telecommunications Act of 1996, 262 Telephone industry, deregulation, 262, 330 Television networks, 258 Temporary Assistance to Needy Families, 454 Tennessee Valley Authority, 263 Terminator films, 484 Terrorist attack of 2001, 12 Textile import quotas, 478 Thomson, 307 Tiffany’s, 288 Tight money, 10 Time elasticity over, 148–150 inelastic supply in short periods of, 147 and price elasticity of demand, 141 Time and Again (Finney), 280 Time Inc., 329 Time Warner, 328, 329, 333 Time Warner Home Box Office, 195 TJX Companies, Inc., 401 T-Mobile, 296, 327 To Kill a Mockingbird, 285 Toll roads and bridges, 59 Toshiba, 334 Total cost, 180 definition, 179 and output, 181, 182 Total loss calculating, 218–219 graph, 233 Total profit in cutthroat competition, 304 graph, 233 maximizing, 230 by monopolistic competition in short run, 276 of monopoly, 250 of natural monopoly, 262 Total revenue from continued operations, 197 definition, 143, 179, 212 and elastic demand, 143–144 and inelastic demand, 144 and shut-down decision, 197–198 and staying in business, 199 varying with elasticity, 145 Total utility calculating, 166 and consumer surplus, 171 definition, 165 Toyota City, 369 Toyota Corolla, 153 Toyota Motor Corporation, 260, 280, 295, 296, 334, 365, 369, 479 Toys “R” Us, 484 Trade deficit with China, 502 of China in Asia, 485 decline in Great Recession, 468 with gold exchange standard, 500 with gold standard, 499 increase in 1990s, 467 means of reducing, 487–488 of U.S 2001–2012, 508 of U.S in 2012, 481 of U.S with China and Japan, 483–486, 485–486 and value of dollar, 507–508 Trade surplus of U.S until 1970s, 466 Trade-weighted index, U.S dollar, 503 Transcontinental railroad, Transfer payments, 53–54; see also Government transfer payments income from, 439 and utility, 168 Transit Act of 2005, 69 Travelers Group, 333 Travelocity.com, 109 Treaster, Joseph B., 172n Trinsic, 262 Trucking industry deregulation, 330 Truly Disadvantaged (Wilson), 451 Truman, Harry, 62, 321 Truman administration, 325, 328 Trumka, Richard, 474 Trust, 53 Trustbusters, 321 Trusts, 322 Tucker, Sophie, 432 Index TV Guide, 258 Two-income families, 396 Tyagi, Amelia Warren, 396 Tyco International, 332 Tying contracts, 324 Typewriter keyboard, 259 Tyson, Laura D’Andrea, 510 u UBS, 402 Uchitelle, Louis, 41n Underemployment, 32, 41 Underemployment rate, 32n Underwood Tariff of 1913, 468 Unemployment among college graduates, 41 from Great Recession, 443 Unemployment insurance, Unemployment rate and full employment, 29, 32 in Great Depression, low in World War II, 39 in U.S in 1982, 16 Unequal pay for equal work, 400–401 Union certification, 375 Unionization lower rate of, 395 national comparisons, 367 Union shop, 361 ban on, 360, 362 United Auto Workers, 365, 371, 373 United Auto Workers and Aerospace Workers, 368 United Farm Workers, 366, 367 United Food and Commercial Workers, 364, 365, 366 United Kingdom Big Mac index, 507 current account percentage of GDP, 498 hourly wage and fringe benefits, 392 minimum wage, 400 percent of labor force unionized, 367 United Mine Workers, 363 United States agricultural subsidies, 487 Big Mac index, 507 codependent relationship with China and Japan, 511–512 creditor nation after World War I, 509 debtor nation, 509–512 distribution of wealth, 436–437 as fading economic superpower, 513 government units in, 55–56 leading drug importer, 511 minimum wage, 400 nation of consumption junkies, 480 as only superpower, 512–513 percent of labor force unionized, 367 poverty rate 1959–2011, 441 poverty rate by race, 442 U.S Bureau of the Census, 440–441 U.S Chamber of Commerce, 375, 484 U.S Conference of Mayors, 444 United States Congress earmarks, 69 re-election motive, 69 United States dollar massive recycling of, 511 official currency in several countries, 510 in relation to other currencies, 482–483 as reserve currency, 500 trade deficit and decline of, 507–508 used overseas, 510 weighted-average exchange value, 502, 503 and yuan, 502 United States dollar trade-weighted index, 503 United States economy balance of payments 2012, 496–497 balance of trade 1970–2012, 467 balance of trade in 2012, 468 CEO compensation, 264 circular flow model, 54–55 circumstances in 2013, current account percentage of GDP, 498 decline in real wage, 394–396 decline of chemical industry, 482 depression in early 1920, dominated by few companies, 321 in early 21st century, 18–19 employment sector 1940–2010, 50 entrepreneurial climate, 28 foreign automakers in, 260 gains from trade, 475 government role in, 55–56 growth 1870–2010, 11 hourly wage and fringe benefits, 392 impact of railroads, innovation in, 28 international investment status, 510 international trade before 1975, 466 557 international trade since 1975, 466–467 Japanese automakers in, 296 labor force in early 21st century, 18 losing technology edge, 482 net investment income, 496–497 “new economy” of 1990s, 17–18 in 19th century agricultural development, 2–4 conflicts leading to Civil War, industrial capitalists, 5–6 national railroad network, 4–5 number of business firms, 179 place in history, 19–20 role of entrepreneurs, 27 Rust Belt, 488 shrinking manufacturing base, 481–482 study in contrasts, trade deficit 2001–2012, 508 trade deficit with China, 502 trade deficit with China and Japan China trade, 484–485 Japan’s trading practices, 484 from 1995 to 2012, 483 in 20th century age of Reagan, 15–16 early automobile industry, Eisenhower years, 14 Great Depression, 7–10 Kennedy-Johnson years, 14–15 mass consumption society, new economy of 1990s, 17–18 post-World War II recessions, 12 Roaring Twenties, stagflation decade, 15 state of agriculture, 16–17 suburbanization, 13–14 technological progress, World War II and peacetime prosperity, 10–14 winning or losing from globalization, 478 world’s largest, 1–2 United States Football League, 370 U.S General Accounting Office, 138 U.S International Trade Commission, 487 United States Patent and Trademark Office, 484 U.S Postal Service, 263 U.S Steel, 27, 301, 323, 368 antitrust case, 324, 325 United States Supreme Court, 256n breakdown of rule of reason, 325–326 558 Index United States Supreme Court—Cont landmark antitrust cases, 326–327 membership change in 1930s and 40s, 325 rule of reason, 323–324 ruling in Walmart case, 402 ruling on gender pay discrimination, 402 ruling on price-fixing conspiracy, 300 unreasonable restraint of trade, 324 United Steel Workers, 365, 368, 372 UNITE HERE, 366, 367 Unit elasticity, 137 Unit elasticity of demand, 140 Universal public education, University of Richmond, 101 Unreasonable restraint of trade, 324 Unskilled labor, 382 Ursinus College, 101 U.S Shoe Machinery Company, 256–257 U.S West, 333 USA Today, 383 Useem, Jerry, 415 U-shaped average total cost curve, 196 U-shaped cost curves, 190–191 Usury, 86, 415 Usury laws, 85–86 harmful to borrowers, 416 opposed by economists, 415–416 and payday lending, 425 as price ceiling, 416 Utility definition, 164 limitations of applications, 168 marginal utility, 165 maximizing, 165–167 measuring, 163 and pay-what-you-want restaurant, 167 total utility, 165 Utility-based power production, 5–6 Utility maximization and all-you-can-eat buffet, 173 with free goods and services, 167 marginal utility and price level, 165–167 v Vanderbilt, William, 322 Variable costs definition, 180 examples, 180 in long run, 183 and output, 181, 182 with rise in output, 248 in short run, 183 and shut-down decision, 197–198 Vending machines, price discrimination in, 285 Verizon Communications, 262, 326, 327 Vertical mergers definition, 328 examples, 329 general lack of success, 329 Veterans Administration, 13, 444 Viagra, 260 Vicaom, 329 Victoria’s Secret, 286 Vietnam War, 15 Vodafone AirTouch, 333 Volkswagen, 295, 296 Voluntary quotas, 478 Vonage, 326 w W W Norton, 264 Wage differentials contributing factors, 448–449 from employment discrimination, 400–403 Wage rates and backward-bending labor supply curve, 385 compensating differentials, 387–388 and economic rent, 390–391 income effect, 384–385 living wage, 399–400 minimum wage, 396–399 national comparisons, 392 pattern-setting agreements, 372 reasons for differences skill variations, 387 society’s dirty work, 388 and substitution effect, 383–384 supply and demand analysis, 388–390 unequal pay for equal work, 400–401 union and nonunion, 368 winner-take-all markets, 391 of workers compared to millionaires, 381 Wages effects of discrimination on African Americans, 403 on Hispanic Americans, 403 on women, 400–403 increases leading to automation, 342 real vs money, 391–396 tied to productivity increases, 372 variable cost, 180 at Walmart, 266–267 Wagner Act; see National Labor Relations Act of 1935 Waksal, Saul, 332 Walgreens, 288, 365 Walmart, 27, 52, 141, 193, 259, 265, 366, 369, 382–383, 421, 437, 484, 488 bargaining power over suppliers, 266 conflicting views about, 266 cost structure, 266–267 employment discrimination lawsuit, 402 impact on local markets, 267 and labor unions, 364 litigation against, 267 response to Hurricane Katrina, 61, 267 and smaller retailers, 267 wages, 266–267 working conditions, 267 Walt Disney Company, 329 Walton, Alice, 381, 437 Walton, Christy, 437 Walton, Jim, 381 Walton, Jim C., 437 Walton, S Robson, 381, 437 Walton, Sam, 26, 27, 437 Wants, limitless, 26 Warner Brothers, 329 Warner Communications, 329 Warner-Lambert, 333 War on Poverty, 60–61, 441 Warren, Elizabeth, 396 Washing machines, 353 Washington, George, Washington Post Company, 401 Water-diamond paradox, 167–168 Wealth contrasted with income, 436 distribution in U.S., 437–437 statistics on, 457 Wealth of Nations (Smith), 193, 297 Weaver, Warren, 31 Weddings, as economic decision, 203 Index Weighted-average exchange value of U.S dollars, 502, 503 Welfare culture, 447 Welfare mothers, 447, 448 Welfare queens, 455 Welfare Reform Act of 1996, 60–61, 448; see also Personal Responsibility and Work Opportunity Act of 1996 Wells, H G., 142 Wells Fargo, 421, 425 Wendy’s, 224, 287 Western Electric, 326 Westinghouse, 300 What to produce, 49–50 Wheeler-Lea Amendment to Federal Trade Commission Act, 325 White Americans child poverty in 2011, 444 median household income, 435 White Castle, 224 Whitman, Meg, 401 Whitney, Eli, Wiggin, Addison, 513 Wildcatters, 422 Wilderotter, Mary Agnes (Maggie), 401 Williams, Ron, 403 Wilson, William Julius, 449n, 450–452 Wilson, Woodrow, 324 Winegarden, C R., 449n Winfrey, Oprah, 99, 381 Winner-take-all markets, 391 Within Our Reach (Schorr & Schorr), 453 Woertz, Patricia A., 401 Women CEOs, 400–401 effects of discrimination on wages, 400–403 sex discrimination lawsuit, 402 unequal pay, 401 Women’s liberation movement, 400 effect of washing machines, 353 Workers American vs low-paid foreigners, 396 earning minimum wage, 399 lack of bargaining power with corporations, 360 skill variations, 387 Working poor, 443 Work-leisure decision, substitution effect and, 383–384 Works Progress Administration, 9, 453 Workweek, until late 1930s, 359 WorldCom, 331, 332 World Football League, 370 World Trade Court, 487 World Trade Organization, 469, 487 World War I gold standard after, 499–500 U.S trade during, 466 World War II effect on Japan’s economy, end of Great Depression, 10–14 outbreak in Europe, 10 price controls, 84 559 production possibilities frontier during, 39 U.S entry into, 10 U.S trade during, 466 World Wide Web, 27–28 Wozniak, Steve, 27 Wright brothers, 6, 422 Wyeth, 333 x Xerox Corporation, 247, 260, 265, 332, 401, 424 y Yahoo!, 18, 27, 236, 401 Yen, 505–506 Young, Don, 69 Yuan, 502, 505–506 z Zappa, Frank, 65 Zero economic profit, 213 monopolistic competition, 316 of monopolistic competition in long run, 278 in perfect competition, 315 Zhao Ziyang, 68 Zillow.com, 121 Zoellick, Robert, 486, 487 Zubulake, Laura, 402 ... Brian Lynch, Lake Land College, Illinois Alyson Ma, University of San Diego Y Lal Mahajan, Monmouth University Mark H Maier, Glendale Community College (California) Kelly Manley, Gainesville State... Fullerton Lewis Metcalf, Lake Land College, Illinois Arthur Meyer, Lincoln Land Community College John E Michaels, University of Phoenix Green Miller, Morehead State University David Mitchell,... White, Glendale Community College (California) J Christopher Wreh, North Central Texas College Elaine Gale Wrong, Montclair State College Linda M Zehr, Chandler–Gilbert Community College Sandy