Ebook Microeconomics - Principles, problems, and policies (20/E): Part 2

(BQ) Part 2 book Microeconomics - Principles, problems, and policies has contents: Wage determination, antitrust policy and regulation, the demand for resources, international trade, the balance of payments, exchange rates, and trade deficits,... and other contents.

www.downloadslide.net PART FIVE MICROECONOMICS OF RESOURCE MARKETS AND GOVERNMENT CHAPTER 14 The Demand for Resources CHAPTER 15 Wage Determination CHAPTER 16 Rent, Interest, and Profit CHAPTER 17 Natural Resource and Energy Economics CHAPTER 18 Public Finance: Expenditures and Taxes www.downloadslide.net CHAPTER 14 The Demand for Resources Learning Objectives LO14.1 Explain the significance of resource pricing LO14.2 Convey how the marginal revenue productivity of a resource relates to a firm’s demand for that resource LO14.3 List the factors that increase or decrease resource demand LO14.4 Discuss the determinants of elasticity of resource demand LO14.5 Determine how a competitive firm selects its optimal combination of resources LO14.6 Explain the marginal productivity theory of income distribution When you finish your education, you probably will look for a new job Employers have a demand for educated, productive workers like you To learn more about the demand for labor and other resources, we now turn from the pricing and production of goods 312 and services to the pricing and employment of resources Although firms come in various sizes and operate under different market conditions, each has a demand for productive resources Firms obtain needed resources from households—the direct or indirect owners of land, labor, capital, and entrepreneurial resources We shift our attention from the bottom loop of the circular flow model (p 43), where businesses supply products that households demand, to the top loop, where businesses demand resources that households supply This chapter looks at the demand for economic resources Although the discussion is couched in terms of labor, the principles developed also apply to land, capital, and entrepreneurial ability In Chapter 15 we will combine resource (labor) demand with labor supply to analyze wage rates In Chapter 16 we will use resource demand and resource supply to examine the prices of, and returns to, other productive resources Issues relating to the use of natural resources are the subject of Chapter 17 www.downloadslide.net CHAPTER 14 The Demand for Resources 313 Significance of Resource Pricing LO14.1 Explain the significance of resource pricing Studying resource pricing is important for several reasons: • Money-income determination Resource prices are a major factor in determining the income of households. The expenditures that firms make in acquiring economic resources flow as wage, rent, interest, and profit incomes to the households that supply those resources • Cost minimization To the firm, resource prices are costs And to obtain the greatest profit, the firm must produce the profit-maximizing output with the most efficient (least costly) combination of resources Resource prices play the main role in determining the quantities of land, labor, capital, and entrepreneurial ability that will be combined in producing each good or service (see Table 2.1, p 39) • Resource allocation Just as product prices allocate finished goods and services to consumers, resource prices allocate resources among industries and firms In a dynamic economy, where technology and product demand often change, the efficient allocation of resources over time calls for the continuing shift of resources from one use to another Resource pricing is a major factor in producing those shifts • Policy issues Many policy issues surround the resource market Examples: To what extent should government redistribute income through taxes and transfers? Should government anything to discourage “excess” pay to corporate executives? Should it increase the legal minimum wage? Is the provision of subsidies to farmers efficient? Should government encourage or restrict labor unions? The facts and debates relating to these policy questions are grounded on resource pricing Marginal Productivity Theory of Resource Demand LO14.2 Convey how the marginal revenue productivity of a resource relates to a firm’s demand for that resource In discussing resource demand, we will first assume that a  firm sells its output in a purely competitive product market and hires a certain resource in a purely competitive resource market This assumption keeps things simple and is consistent with the model of a competitive labor market that we will develop in Chapter 15 In a competitive product market, the firm is a “price taker” and can dispose of as little or as much output as it chooses at the market price The firm is selling such a negligible fraction of total output that its output decisions exert no influence on product price Similarly, the firm also is a “price taker” (or “wage taker”) in the competitive resource market It purchases such a negligible fraction of the total supply of the resource that its buying (or hiring) decisions not influence the resource price Resource Demand as a Derived Demand Resource demand is the starting point for any discussion of resource prices Resource demand is a schedule or a curve showing the amounts of a resource that buyers are willing and able to purchase at various prices over some period of time Crucially, resource demand is a derived demand, meaning that the demand for a resource is derived from the demand for the products that the resource helps to produce This is true because resources usually not directly satisfy customer wants but so indirectly through their use in producing goods and services Almost nobody wants to consume an acre of land, a John Deere tractor, or the labor services of a farmer, but millions of households want to consume the food and fiber products that these resources help produce Similarly, the demand for airplanes generates a demand for assemblers, and the demands for such services as income-tax preparation, haircuts, and child care create derived demands for accountants, barbers, and child care workers Marginal Revenue Product Because resource demand is derived from product demand, the strength of the demand for any resource will depend on: • The productivity of the resource in helping to create a good or service • The market value or price of the good or service it helps produce Other things equal, a resource that is highly productive in turning out a highly valued commodity will be in great demand On the other hand, a relatively unproductive resource that is capable of producing only a minimally valued commodity will be in little demand And no demand whatsoever will exist for a resource that is phenomenally efficient in producing something that no one wants to buy Productivity Table 14.1 shows the roles of resource productivity and product price in determining resource demand Here we assume that a firm adds a single variable resource, labor, to its fixed plant Columns and give the number of units of the resource applied to production and the resulting total product (output) Column provides the marginal product (MP), or additional output, resulting www.downloadslide.net 314 PART FIVE Microeconomics of Resource Markets and Government TABLE 14.1 The Demand for Labor: Pure Competition in the Sale of the Product (1) Units of Resource (2) Total Product (Output) (3) Marginal Product (MP) (4) Product Price $2 2 2 2 ] ] 13 ] 18 ] 22 ] 25 ] 27 ] 28 (5) Total Revenue, (2) (4) $ ] 14 ] 26 ] 36 ] 44 ] 50 ] 54 ] 56 (6) Marginal Revenue Product (MRP) $14 12 10 from using each additional unit of labor Columns through remind us that the law of diminishing returns applies here, causing the marginal product of labor to fall beyond some point For simplicity, we assume that these diminishing marginal returns—these declines in marginal product—begin with the first worker hired to total cost and what it adds to total revenue We have seen that MRP measures how much each successive unit of a resource adds to total revenue The amount that each additional unit of a resource adds to the firm’s total (resource) cost is called its marginal resource cost (MRC) In equation form, Product Price But the derived demand for a resource change in total (resource) cost Marginal resource cost unit change in resource quantity depends also on the price of the product it produces Column in Table 14.1 adds this price information Product price is constant, in this case at $2, because the product market is competitive The firm is a price taker and can sell units of output only at this market price Multiplying column by column provides the totalrevenue data of column These are the amounts of revenue the firm realizes from the various levels of resource usage From these total-revenue data we can compute marginal revenue product (MRP)—the change in total revenue resulting from the use of each additional unit of a resource (labor, in this case) In equation form, change in total revenue Marginal revenue product unit change in resource quantity The MRPs are listed in column in Table 14.1 Rule for Employing Resources: MRP MRC The MRP schedule, shown as columns and 6, is the firm’s demand schedule for labor To understand why, you must first know the rule that guides a profit-seeking firm in hiring any resource: To maximize profit, a firm should hire additional units of a specific resource as long as each successive unit adds more to the firm’s total revenue than it adds to the firm’s total cost Economists use special terms to designate what each additional unit of labor or other variable resource adds So we can restate our rule for hiring resources as follows: It will be profitable for a firm to hire additional units of a resource up to the point at which that resource’s MRP is equal to its MRC For example, as the rule applies to labor, if the number of workers a firm is currently hiring is such that the MRP of the last worker exceeds his or her MRC, the firm can profit by hiring more workers But if the number being hired is such that the MRC of the last worker exceeds his or her MRP, the firm is hiring workers who are not “paying their way” and it can increase its profit by discharging some workers You may have recognized that this MRP MRC rule is similar to the MR MC profit-maximizing rule employed throughout our discussion of price and output determination The rationale of the two rules is the same, but the point of reference is now inputs of a resource, not outputs of a product MRP as Resource Demand Schedule Let’s continue with our focus on labor, knowing that the analysis also applies to other resources In a purely competitive labor market, market supply and market demand establish the wage rate Because each firm hires such a small fraction of market supply, it cannot influence the market wage rate; it is a wage taker, not a wage maker This means that for each additional unit of labor hired, each firm’s total resource cost increases by exactly the www.downloadslide.net CHAPTER 14 The Demand for Resources 315 Note that we plot the points in Figure 14.1 halfway between succeeding numbers of resource units because MRP is associated with the addition of more unit Thus in Figure 14.1, for example, we plot the MRP of the second unit ($12) not at or but at 112 This “smoothing” enables us to sketch a continuously downsloping curve rather than one that moves downward in discrete steps (like a staircase) as each new unit of labor is hired FIGURE 14.1 The purely competitive seller’s demand for a resource The MRP curve is the resource demand curve; each of its points relates a particular resource price (5 MRP when profit is maximized) with a corresponding quantity of the resource demanded Under pure competition, product price is constant; therefore, the downward slope of the D MRP curve is due solely to the decline in the resource’s marginal product (law of diminishing marginal returns) P Resource price (wage rate) amount of the constant market wage rate More specifically, the MRC of labor exactly equals the market wage rate Thus, resource “price” (the market wage rate) and resource “cost” (marginal resource cost) are equal for a firm that hires a resource in a competitive labor market As a result, the MRP MRC rule tells us that, in pure competition, the firm will hire workers up to the point at which the market wage rate (its MRC) is equal to its MRP In terms of the data in columns and of Table 14.1, if the market wage rate is, say, $13.95, the firm will hire only one worker This is so because only the hiring of the first worker results in an increase in profits To see this, note that for the first worker MRP (5 $14) exceeds MRC (5 $13.95) Thus, hiring the first worker is profitable For each successive worker, however, MRC (5 $13.95) exceeds MRP (5 $12 or less), indicating that it will not be profitable to hire any of those workers If the wage rate is $11.95, by the same reasoning we discover that it will pay the firm to hire both the first and second workers Similarly, if the wage rate is $9.95, three workers will be hired If it is $7.95, four If it is $5.95, five And so forth So here is the key generalization: The MRP schedule constitutes the firm’s demand for labor because each point on this schedule (or curve) indicates the number of workers the firm would hire at each possible wage rate In Figure 14.1, we show the D MRP curve based on the data in Table 14.1.1 The competitive firm’s resource demand curve identifies an inverse relationship between the wage rate and the quantity of labor demanded, other things equal The curve slopes downward because of diminishing marginal returns $14 12 10 D = MRP Quantity of resource demanded 1 (2) Total Product (Output) ] ] 13 ] 18 ] 22 ] 25 ] 27 ] 28 Q Resource Demand under Imperfect Product Market Competition Resource demand (here, labor demand) is more complex when the firm is selling its product in an imperfectly competitive market, one in which the firm is a price maker That is because imperfect competitors (pure monopolists, oligopolists, and monopolistic competitors) face downsloping product demand curves As a result, whenever an imperfect competitor’s product demand curve is fixed in place, the only way to increase sales is by setting a lower price (and thereby moving down along the fixed demand curve) The productivity data in Table 14.1 are retained in columns to in Table 14.2 But here in Table 14.2 we show in column that product price must be lowered to sell the TABLE 14.2 The Demand for Labor: Imperfect Competition in the Sale of the Product (1) Units of Resource (3) Marginal Product (MP) (4) Product Price (5) Total Revenue, (2) (4) $2.80 2.60 2.40 2.20 2.00 1.85 1.75 1.65 $ ] 18.20 ] 31.20 ] 39.60 ] 44.00 ] 46.25 ] 47.25 ] 46.20 (6) Marginal Revenue Product (MRP) $ 18.20 13.00 8.40 4.40 2.25 1.00 21.05 www.downloadslide.net Microeconomics of Resource Markets and Government marginal product of each successive worker The MRP of the purely competitive seller of Table 14.1 falls for only one reason: Marginal product diminishes But the MRP of the imperfectly competitive seller of Table 14.2 falls for two reasons: Marginal product diminishes and product price falls as output increases We emphasize that the lower price accompanying each increase in output (total product) applies not only to the marginal product of each successive worker but also to all prior output units that otherwise could have been sold at a higher price Observe that the marginal product of the second worker is units of output These units can be sold for $2.40 each, or, as a group, for $14.40 But $14.40 is not the MRP of the second worker To sell these units, the firm must take a 20-cent price cut on the units produced by the first worker—units that otherwise could have been sold for $2.60 each Thus, the MRP of the second worker is only $13 [5 $14.40 (7 20 cents)], as shown Similarly, the third worker adds units to total product, and these units are worth $2.20 each, or $11 total But to sell these units, the firm must take a 20-cent price cut on the 13 units produced by the first two workers So the third worker’s MRP is only $8.40 [5 $11 (13 20 cents)] The numbers in column reflect such calculations In Figure 14.2 we graph the MRP data from Table 14.2 and label it “D MRP (imperfect competition).” The broken-line resource demand curve, in contrast, is that of the purely competitive seller represented in Figure 14.1 A comparison of the two curves demonstrates that, other things equal, the resource demand curve of an imperfectly competitive seller is less elastic than that of a purely competitive seller Consider the effects of an identical percentage decline in the wage rate (resource price) from $11 to $6 in Figure 14.2 Comparison of the two curves reveals that the imperfectly competitive seller (solid curve) does not expand the quantity of labor it employs by as large a percentage as does the purely competitive seller (broken curve) It is not surprising that the imperfectly competitive producer is less responsive to resource price cuts than the purely competitive producer When resource prices fall, MC per unit declines for both imperfectly competitive firms as well as purely competitive firms Because both types of firms maximize profits by producing where MR MC, the decline in MC will cause both types of firms to produce more But the effect will be muted for imperfectly competitive firms because their downsloping demand curves cause them to also face downsloping FIGURE 14.2 The imperfectly competitive seller’s demand curve for a resource An imperfectly competitive seller’s resource demand curve D (solid) slopes downward because both marginal product and product price fall as resource employment and output rise This downward slope is greater than that for a purely competitive seller (dashed resource demand curve) because the pure competitor can sell the added output at a constant price P $18 16 Resource price (wage rate) 316 PART FIVE 14 12 D = MRP (pure competition) 10 D = MRP (imperfect competition) –2 Q Quantity of resource demanded MR curves—so that for WORKED PROBLEMS each additional unit sold, MR declines By contrast, W14.1 MR is constant (and equal Resource to the market equilibrium demand price P) for competitive firms, so that they not have to worry about MR per unit falling as they produce more units As a result, competitive firms increase production by a larger amount than imperfectly competitive firms whenever resource prices fall Market Demand for a Resource The total, or market, demand curve for a specific resource shows the various total amounts of the resource that firms will purchase or hire at various resource prices, other things equal Recall that the total, or market, demand curve for a product is found by summing horizontally the demand curves of all individual buyers in the market The market demand curve for a particular resource is derived in  essentially the same way—by summing horizontally the individual demand or MRP curves for all firms hiring that resource www.downloadslide.net CHAPTER 14 The Demand for Resources 317 QUICK REVIEW 14.1 • To maximize profit, a firm will purchase or hire a re- source in an amount at which the resource’s marginal revenue product equals its marginal resource cost (MRP MRC) • Application of the MRP MRC rule to a firm’s MRP curve demonstrates that the MRP curve is the firm’s resource demand curve In a purely competitive resource market, resource price (the wage rate) equals MRC • The resource demand curve of a purely competitive seller is downsloping solely because the marginal product of the resource diminishes; the resource demand curve of an imperfectly competitive seller is downsloping because marginal product diminishes and product price falls as output is increased Determinants of Resource Demand LO14.3 List the factors that increase or decrease resource demand What will alter the demand for a resource—that is, shift the resource demand curve? The fact that resource demand is derived from product demand and depends on resource productivity suggests two “resource demand shifters.” Also, our analysis of how changes in the prices of other products can shift a product’s demand curve (Chapter 3) suggests another factor: changes in the prices of other resources Changes in Product Demand Other things equal, an increase in the demand for a product will increase the demand for a resource used in its production, whereas a decrease in product demand will decrease the demand for that resource Let’s see how this works The first thing to recall is that a change in the demand for a product will change its price In Table 14.1, let’s assume that an increase in product demand boosts product price from $2 to $3 You should calculate the new resource demand schedule (columns and 6) that would result and plot it in Figure 14.1 to verify that the new resource demand curve lies to the right of the old demand curve Similarly, a decline in the product demand (and price) will shift the resource demand curve to the left This effect—resource demand changing along with product demand—demonstrates that resource demand is derived from product demand Example: Assuming no offsetting change in supply, a decrease in the demand for new houses will drive down CONSIDER THIS Superstars In what economist Robert Frank calls “winner-take-all markets,” a few highly talented performers have huge earnings relative to the average performers in the market Because consumers and firms seek out “top” performers, small differences in talent or popularity get magnified into huge differences in pay In these markets, consumer spending gets channeled toward a few performers The media then “hypes” these individuals, which further increases the public’s awareness of their talents Many more consumers then buy the stars’ products Although it is not easy to stay on top, several superstars emerge The high earnings of superstars result from the high revenues they generate from their work Consider Beyoncé Knowles If she sold only a few thousand songs and attracted only a few hundred fans to each concert, the revenue she would produce—her marginal revenue product—would be quite modest So, too, would be her earnings But consumers have anointed Beyoncé as queen of the R&B and hip-hop portion of pop culture The demand for her music and concerts is extraordinarily high She sells millions of songs, not thousands, and draws thousands to her concerts, not hundreds Her extraordinarily high net earnings derive from her extraordinarily high MRP So it is for the other superstars in the “winner-take-all markets.” Influenced by the media, but coerced by no one, consumers direct their spending toward a select few The resulting strong demand for these stars’ services reflects their high MRP And because top talent (by definition) is very limited, superstars receive amazingly high earnings house prices Those lower prices will decrease the MRP of construction workers, and therefore the demand for construction workers will fall The resource demand curve such as in Figure 14.1 or Figure 14.2 will shift to the left Changes in Productivity Other things equal, an increase in the productivity of a resource will increase the demand for the resource and a  decrease in productivity will reduce the demand for the resource If we doubled the MP data of column in www.downloadslide.net 318 PART FIVE Microeconomics of Resource Markets and Government Table 14.1, the MRP data of column would also double, indicating a rightward shift of the resource demand curve The productivity of any resource may be altered over the long run in several ways: • Quantities of other resources The marginal productivity of any resource will vary with the quantities of the other resources used with it The greater the amount of capital and land resources used with, say, labor, the greater will be labor’s marginal productivity and, thus, labor demand • Technological advance Technological improvements that increase the quality of other resources, such as capital, have the same effect The better the quality of capital, the greater the productivity of labor used with it Dockworkers employed with a specific amount of real capital in the form of unloading cranes are more productive than dockworkers with the same amount of real capital embodied in older conveyor-belt systems • Quality of the variable resource Improvements in the quality of the variable resource, such as labor, will increase its marginal productivity and therefore its demand In effect, there will be a new demand curve for a different, more skilled, kind of labor All these considerations help explain why the average level of (real) wages is higher in industrially advanced nations (for example, the United States, Germany, Japan, and France) than in developing nations (for example, Nicaragua, Ethiopia, Angola, and Cambodia) Workers in industrially advanced nations are generally healthier, better educated, and better trained than are workers in developing countries Also, in most industries they work with a larger and more efficient stock of capital goods and more abundant natural resources This increases productivity and creates a strong demand for labor On the supply side of the market, labor is scarcer relative to capital in industrially advanced than in most developing nations A strong demand and a relatively scarce supply of labor result in high wage rates in the industrially advanced nations are substitutable A firm can produce some specific amount of output using a relatively small amount of labor and a relatively large amount of capital, or vice versa Now assume that the price of machinery (capital) falls The effect on the demand for labor will be the net result of two opposed effects: the substitution effect and the output effect • Substitution effect The decline in the price of machinery prompts the firm to substitute machinery for labor This allows the firm to produce its output at lower cost So at the fixed wage rate, smaller quantities of labor are now employed This substitution effect decreases the demand for labor More generally, the substitution effect indicates that a firm will purchase more of an input whose relative price has declined and, conversely, use less of an input whose relative price has increased • Output effect Because the price of machinery has fallen, the costs of producing various outputs must also decline With lower costs, the firm finds it profitable to produce and sell a greater output The greater output increases the demand for all resources, including labor So this output effect increases the demand for labor More generally, the output effect means that the firm will purchase more of one particular input when the price of the other input falls and less of that particular input when the price of the other input rises • Net effect The substitution and output effects are both present when the price of an input changes, but they work in opposite directions For a decline in the price of capital, the substitution effect decreases the demand for labor and the output effect increases it The net change in labor demand depends on the relative sizes of the two effects: If the substitution effect outweighs the output effect, a decrease in the price of capital decreases the demand for labor If the output effect exceeds the substitution effect, a decrease in the price of capital increases the demand for labor Changes in the Prices of Other Resources Complementary Resources Recall from Chapter Changes in the prices of other resources may change the demand for a specific resource For example, a change in the price of capital may change the demand for labor The direction of the change in labor demand will depend on whether labor and capital are substitutes or complements in production that certain products, such as computers and software, are complementary goods; they “go together” and are jointly demanded Resources may also be complementary; an increase in the quantity of one of them used in the production process requires an increase in the amount used of the other as well, and vice versa Suppose a small design firm does computer-assisted design (CAD) with relatively expensive personal computers as its basic piece of capital equipment Each computer requires exactly one design engineer to Substitute Resources Suppose the technology in a certain production process is such that labor and capital www.downloadslide.net CHAPTER 14 The Demand for Resources 319 TABLE 14.3 The Effect of an Increase in the Price of Capital on the Demand for Labor, DL (2) Increase in the Price of Capital (1) Relationship of Inputs (a) Substitution Effect (b) Output Effect (c) Combined Effect Substitutes in production Labor substituted for capital Complements in production No substitution of labor for capital Production costs up, output down, and less of both capital and labor used Production costs up, output down, and less of both capital and labor used DL increases if the substitution effect exceeds the output effect; DL decreases if the output effect exceeds the substitution effect DL decreases (because only the output effect applies) operate it; the machine is not automated—it will not run itself—and a second engineer would have nothing to Now assume that a technological advance in the production of these computers substantially reduces their price There can be no substitution effect because labor and capital must be used in fixed proportions, one person for one machine Capital cannot be substituted for labor But there is an output effect Other things equal, the reduction in the price of capital goods means lower production costs Producing a larger output will therefore be profitable In doing so, the firm will use both more capital and more labor When labor and capital are complementary, a decline in the price of capital increases the demand for labor through the output effect We have cast our analysis of substitute resources and complementary resources mainly in terms of a decline in the price of capital Table 14.3 summarizes the effects of an increase in the price of capital on the demand for labor Please study it carefully Now that we have discussed the full list of the determinants of labor demand, let’s again review their effects Stated in terms of the labor resource, the demand for labor will increase (the labor demand curve will shift rightward) when: • The demand for (and therefore the price of ) the product produced by that labor increases • The productivity (MP) of labor increases • The price of a substitute input decreases, provided the output effect exceeds the substitution effect • The price of a substitute input increases, provided the substitution effect exceeds the output effect • The price of a complementary input decreases Be sure that you can “reverse” these effects to explain a decrease in labor demand Table 14.4 provides several illustrations of the determinants of labor demand, listed by the categories of determinants we have discussed You will benefit by giving them a close look Occupational Employment Trends Changes in labor demand have considerable significance since they affect wage rates and employment in specific occupations Increases in labor demand for certain occupational groups result in increases in their employment; decreases in labor demand result in decreases in their employment For illustration, let’s first look at occupations for which labor demand is growing and then examine occupations for which it is declining (Wage rates are the subject of the next chapter.) TABLE 14.4 Determinants of Labor Demand: Factors That Shift the Labor Demand Curve Determinant Examples Change in product demand Gambling increases in popularity, increasing the demand for workers at casinos Consumers decrease their demand for leather coats, decreasing the demand for tanners The federal government increases spending on homeland security, increasing the demand for security personnel An increase in the skill levels of physicians increases the demand for their services Computer-assisted graphic design increases the productivity of, and demand for, graphic artists An increase in the price of electricity increases the cost of producing aluminum and reduces the demand for aluminum workers The price of security equipment used by businesses to protect against illegal entry falls, decreasing the demand for night guards The price of cell phone equipment decreases, reducing the cost of cell phone service; this in turn increases the demand for cell phone assemblers Health-insurance premiums rise, and firms substitute part-time workers who are not covered by insurance for full-time workers who are Change in productivity Change in the price of another resource www.downloadslide.net 320 PART FIVE Microeconomics of Resource Markets and Government TABLE 14.5 The 10 Fastest-Growing U.S Occupations in Percentage Terms, 2010–2020 TABLE 14.6 The 10 Most Rapidly Declining U.S Occupations in Percentage Terms, 2010–2020 Employment, Thousands of Jobs Employment, Thousands of Jobs Occupation 2010 2020 Percentage Increase* Personal care aides Home health aides Biomedical engineers Masonry helpers Carpentry helpers Veterinary technologists and technicians Iron and rebar workers Physical therapist assistants Piping and plumbing helpers Meeting, convention, and event planners 861 1,018 16 29 47 1,468 1,724 25 47 72 70.5 69.4 61.7 60.1 55.7 80 19 122 28 52.0 48.6 67 98 45.7 58 84 45.4 72 103 43.7 *Percentages and employment numbers may not reconcile due to rounding Source: Bureau of Labor Statistics, “Employment Projections,” www.bls.gov The Fastest-Growing Occupations Table 14.5 lists the 10 fastest-growing U.S occupations for 2010 to 2020, as measured by percentage changes and projected by the Bureau of Labor Statistics It is no coincidence that the service occupations dominate the list In general, the demand for service workers in the United States is rapidly outpacing the demand for manufacturing, construction, and mining workers Of the 10 fastest-growing occupations in percentage terms, three—personal care aides (people who provide home health for the elderly and disabled), home health aides (people who provide short-term medical care after discharge from hospitals), and physical therapist assistants— are related to health care The rising demands for these types of labor are derived from the growing demand for health services, caused by several factors The aging of the U.S population has brought with it more medical problems, the rising standard of income has led to greater expenditures on health care, and the continued presence of private and public insurance has allowed people to buy more health care than most could afford individually The Most Rapidly Declining Occupations In contrast, Table 14.6 lists the 10 U.S occupations with the greatest projected job loss (in percentage terms) between 2010 and 2020 Several of the occupations owe their declines mainly to “labor-saving” technological change For example, automated or computerized equipment has greatly reduced the need for postal employees, sewing machine operators, and pattern makers Occupation Shoe machine operators Postal service mail sorters Postal service clerks Fabric/apparel pattern makers Postmasters/mail superintendents Sewing machine operators Switchboard operators Textile cutting machine operators Textile knitting/weaving machine operators Semiconductor processors 2010 2020 Percentage Decrease* 53.4 142 66 73 34 48.5 48.2 35.6 25 18 27.8 163 143 121 110 25.8 23.3 15 12 21.8 23 18 18.2 21 17 17.9 *Percentages and employment numbers may not reconcile due to rounding Source: Bureau of Labor Statistics, “Employment Projections,” www.bls.gov Five of the occupations in the declining employment list are related to textiles and apparel The U.S demand for these goods is increasingly being filled through imports Those jobs are therefore rapidly disappearing in the United States As we indicated, the “top-10” lists shown in Tables 14.5 and 14.6 are based on percentage changes In terms of absolute job growth and loss, the greatest projected employment growth between 2010 and 2020 is for home health aides (706,000 jobs) and personal care aides (607,000 jobs) The greatest projected absolute decline in employment is for postal service mail sorters (271,000 jobs) Elasticity of Resource Demand LO14.4 Discuss the determinants of elasticity of resource demand The employment changes we have just discussed have resulted from shifts in the locations of resource demand curves Such changes in demand must be distinguished from changes in the quantity of a resource demanded caused by a change in the price of the specific resource under consideration Such a change is caused not by a shift of the demand curve but, rather, by a movement from one point to another on a fixed resource demand curve Example: In Figure 14.1 we note that an increase in the wage rate from $5 to $7 will reduce the quantity of labor demanded from to units This is a change in the quantity of labor demanded as distinct from a change in the demand for labor www.downloadslide.net IND6 Index Equilibrium position—Cont indifference map, 169–170 for monopsony model, 337 for purely competitive labor market, 333–335 Equilibrium price, 62–65 Equilibrium price level, 62–64 in marginal-revenue-marginal-cost approach to profit maximization, 233–235, 240–242 world price, 544–545 Equilibrium quantity, 62–64 Equilibrium world price, 544–545 Essay on the Principle of Population, An (Malthus), 381 Ethanol, market for, 388, 456 Ethics, health care costs and, 496, 497–498 Ethnicity See African Americans; Asians; Hispanics; Whites European Central Bank, 118 European Economic Community See European Union (EU) European Union (EU), 552 monopolies and, 433 U.S trade with, 459 Eurozone, 551–552 Excess capacity, 285 Exchange controls, 572 Exchange rate(s), 570 appreciation, 567 changes in supply and demand, 75–76 depreciation, 567 exchange-rate risk, 576–577 fixed, 566, 571–573 flexible, 565–571 managed float, 573–574 Excise taxes, 142, 410, 420, 421 Excludability, 91 Exclusive unionism, 338–339 Executive pay, 348, 472 Exit mechanism, 357 Expectations See Consumer expectations; Producer expectations Expenditures approach to GDP See also Aggregate expenditures (AE) model government purchases, 407, 408 personal consumption expenditures, 383–385 Explicit costs, 197, 371 Exports of China, 575 equilibrium world price and, 542, 544–545 supply and demand analysis of, 542–543 Export subsidies, 546 Export supply curve, 542 Canada, 542–543 U.S., 542–543 Externalities, 96–100 efficiency loss of tax, 419 market-based approach to, 102–103 market for externality rights, 102–103 methods of dealing with, 100 negative, 96–103, 419 optimal amount of externality reduction, 100–103 positive, 97–98, 496 Extraction costs, 391–392 Exxon, 433 Facebook, 11, 265, 273, 299 Factors of production, 12 Fair Labor Standards Act of 1938, 341 Fairness, 187–190 allocative efficiency versus, 363 dictator game, 188–189 experimental evidence for, 187–190 field evidence for, 187 ultimatum game, 189–190 Fair-return price, 271–272 “Fair-trade” products, 187 Fallacy of composition, 18–19, 550 Farm commodities, 447 See also Agriculture economics of farm policy, 453–457 farm-household income, 453 price elasticity of demand and, 142 price floors on wheat, 69–70 prices of, 70 Fascitelli, Michael D., 348 Fast food, cost-benefit perspective and, Favoritism, exchange controls and, 572 Featherbedding, 355–356 Federal Communications Commission (FCC), 257, 436 Federal Emergency Management Agency (FEMA), 123 Federal Energy Regulatory Commission (FERC), 436, 438–439 Federal government, 407–410 See also Public debt and entries beginning with “U.S” and “United States” antitrust laws, 429–430, 432–435 employment in, 412–413 federal expenditures, 409 fiscal impact of immigration and, 524 health care costs and, 494–495 health-care legislation, 490, 491–494, 501, 502–503, 505–507 revenues, 407–410 Federal Insurance Contributions Act (FICA), 415–416 Federal Reserve System See also Monetary policy interest and allocation of capital, 369 loanable funds theory of interest and, 367 politicization of fiscal and monetary policy, 118 Survey of Consumer Finances, 484 Federal Trade Commission (FTC), 430 Federal Trade Commission Act of 1914, 430 FedEx, 214 Fee-for-service health care, 497–498 Fertility rate, 381, 382 Financial crisis of 2007 See Great Recession of 2007–2009 Financial economics, present value and, 368 Financial institutions See Financial services industry and specific types of financial institutions Financial services industry See also Bank(s); Insurance international financial transactions, 561 loanable funds theory of interest and, 367 First Data Corporation, 255 First-mover advantages, 306–307 Fiscal policy, 118 misdirection of stabilization policy, 118 politicization of, 118 Fisheries, 396–400 Fisher, Irving, 369, 369n Fishery collapse, 396–397 Fixed costs (FC), 202–204 average, 205, 208–209 short-run production, 202–204 Fixed-exchange-rate systems, 566, 571–573 domestic macroeconomic adjustments and, 572–573 trade policies, 572 use of official reserves, 571–572 Fixed proportions, 319 Fixed resources, 12 Fixed technology, 12 Flexible-exchange-rate systems, 565–571 balance of payments and, 568–570 current managed floating exchange rate system, 573–574 determinants of, 567–568, 569 disadvantages of, 570–571 Floating-exchange-rate systems See Flexibleexchange-rate systems Food, Conservation, and Energy Act of 2008, 459–461 Food for Peace, 456 Food products, 447 Food-stamp program, 479 Ford Motor, 44, 297, 356 Foreign exchange market See Exchange rate(s) Foreign exchange rates See Exchange rate(s) Forest management, 395–396 Four-firm concentration ratio, 280–281 Fracking, 388 Framing effects, 180, 182 France, population decline in, 382 Frank, Robert, 181, 317 Fraud, insurance, 524 Freedom, in market systems, 41 Freedom of choice, 34 Freedom of enterprise, 34 Freedom to Farm Act of 1996, 459 Free entry and exit, pure competition and, 222, 240–242 Freeman, Richard, 522n Free products and services, Free-rider problem, 91–92, 93 www.downloadslide.net Index IND7 Free trade, case for, 541–542 Free-trade zones, 551–555 Fringe benefits, 335 Fujitsu, 325 Full employment immigration and, 521–522 in production possibilities model, 12 Future and Its Enemies, The (Postrel), 47 Futures markets, commodities, 451 Future value, 368 G8 nations, 573 Gains from trade, 539–540, 541 Game theory, 289–291, 304–307 collusion and, 279, 290, 293–295 credible threats, 305 empty threats, 305 first-mover advantages, 306–307 incentives to cheat, 290 mutual interdependence and, 289–290 oligopoly and, 289–290 one-time game, 304–305 preemption of entry, 306–307 prisoner’s dilemma, 289 reciprocity strategies, 305–306 repeated games, 305–306 Gasohol, 456 Gasoline market, 108 changes in supply and demand, 77 price ceilings in, 67–68 price changes, 214 Gates, Bill, 9, 374 Gateway, 441 Gaze heuristic, 177 GDP See Gross domestic product (GDP) Gender See Women General Agreement on Tariffs and Trade (GATT), 551–552 General Electric, 257, 298 Generalizations nature of, utility-maximizing rule, 157–158 General Mills, 296 General Motors (GM), 297, 356 Gentlemen’s agreements, 295 Geographic immobility, wage differentials and, 345 Geographic specialization, 36 George, Henry, 363–364 Germany capital-intensive goods, 534 exports of, 575 Gifts, marginal utility and, 162 Gini ratio, 467, 473 Global Corruption Barometer, 122 Globalization See also Global perspective; International trade demand for labor, 331 Global perspective See also Globalization; International trade agricultural labor force, 452 agricultural subsidies, 453 average income in selected nations, bribery in, 122 carbon-dioxide emissions, 102–103 competition from foreign multinational corporations, 267 consenting to donate organs, 184 deforestation, 395 emigrant remittances, 521 exports of goods and services as percentage of GDP, 534 fertility rates, 381, 382 foreign multinational corporations, 267 health care spending, 493 immigrants as percent of labor force, 516 income inequality, 470 Index of Economic Freedom, 34 OPEC nations, daily oil production, 294 shares of world exports, 533 short-term nominal interest rates, 370 tax burden, 408 taxes on general consumption, 421 top brand names, 298 U.S trade balances, 563 wages of production workers, 331 world’s fisheries, 397 Gold, price elasticity of supply and, 145–146 Gold standard, 573 Goldstein, Daniel, 184n Goods for the future, 17–19 Goods for the present, 17–19 Google, 44, 214, 250, 255, 272–273, 298, 299, 518 Gould, Elise, 484n Government See also Public debt; Public sector and entries beginning with “U.S.” and “United States” apportioning tax burden, 413–416 in circular flow model, 406–408, 407 cross elasticity of demand and, 148 failure of See Government failure federal See Federal government fiscal impact of immigration and, 522, 524 information failures and, 108–110, 496 intervention by See Government intervention loanable funds theory of interest and, 366–368 local See Local government in market systems, 37 prices set by, 67–70 problem of directing and managing, 113–115 public sector role of, 422–423 purchases of See Government purchases (G) redistribution role of, 422–423, 468–469 regulation by See Government regulation right to coerce, 113 role in economy, 37, 101–102, 113–115 state See State government Government failure, 115–123 bureaucratic inefficiency, 119–120 chronic budget deficits, 117–118 corruption, 121–122 cost-benefit analysis of vote seeking, 117 imperfect institutions, 122–123 inefficient regulation and intervention, 120–121 limited and bundled choice problem, 118–119 misdirection of stabilization policy, 118 pork-barrel politics and, 116, 123 principal-agent problem, 115, 346 public choice theory, 118–119 rent-seeking behavior, 116–117 special-interest effect, 115–116 unfunded liabilities, 117 unintended consequences, 119 Government intervention, 98–100 direct controls, 98 inefficient regulation and intervention, 120–121 subsidies See Subsidies taxes See Taxes and taxation trade barriers See Trade barriers Government purchases (G), 407, 408 Government regulation See also Industrial regulation antitrust policy and, 429–430 competition as regulatory mechanism, 35 price ceilings on gasoline, 67–68 price floors on wheat, 69–70 prices in regulated monopoly, 270–273 rent controls, 68–69 wage differentials and, 345 Government transfer payments See Transfer payments Graphical expression, 24–27 circular flow diagram, 43–45 construction of graph, 24 demand curve, 54 demand for agricultural products, 451–452 demand schedule, 54–55 dependent variables, 25 direct relationships, 24–25 equation of linear relationship, 27 graph, defined, 24 independent variables, 25 indifference curves, 166–171 inverse relationships, 25 law of diminishing marginal utility, 154 law of diminishing returns, 201–202, 203 of marginal cost (MC), 207 of marginal revenue (MR), 223 nature of, other-things-equal assumption, 25–26 of price ceilings, 67 of price discrimination, 269–270 of price factors, 70 slope of a line, 25 slope of a nonlinear curve, 27 www.downloadslide.net IND8 Index Graphical expression—Cont subsidies for health care, 499–500 supply curve, 60–61 vertical intercept, 26 Great Britain, central bank, 118 Great Depression, 15–16, 19, 550 Great Recession of 2007–2009 family wealth and distribution, 484 fiscal policy during and after, 476–477 production decline in, 16 Grieco, Paul L E., 542n Grievance procedures, 355 Grogger, Jeffrey, 522n Gross domestic product (GDP) equilibrium See Equilibrium GDP health care spending in, 493 Growth See Economic growth; Population growth Guesstimating, 177–178 Guiding function of prices, 40 H1-B provisions, 514 Häagen-Dazs, 58, 182 Hammergren, John, 348 Hand, Learned, 431 Hanson, Gordon H., 522n Hardin, Garret, 400 Health care, 490–509 See also Physicians access to, 491–492, 494, 495–496 black market for human organs, 68–69 costs of, 491–503 demand factors, 496–498 global perspective, 493 health care industry, 491–494 insurance for, 491–493, 496, 498–501, 502–503 legislation for, 490, 491–494, 501, 502–503, 505–507 limits of malpractice awards, 504 managed care, 504 Medicaid, 477, 479, 493, 494–495, 498, 506 medical care and marginal utility, 162 Medicare See Medicare organ transplants, 68–69, 184, 502 poverty and, 479, 493, 494–495, 498, 506 in Singapore, 507, 508–509 supply factors, 501–503 Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009, 502 Health maintenance organizations (HMOs), 504 Health savings accounts (HSAs), 503 Hedging, 451 Hedonism, 181 Heinz, 447 Herfindahl Index, 281, 288–289, 434 Hershey’s, 181–182 Heuristics, 177–178 Highly skilled workers, demand for, 471–472, 514–515, 518 Hindsight bias, 179 Hispanics See also Immigration discrimination against, 480 poverty among, 475–476 unionization rate, 353 Hitachi, 435 Holmes, Oliver Wendell, 413 Home Depot, 307 Homogeneous oligopoly, 286 Honda, 356 Honeywell, 348 Horizontal axis, 24 Horizontal mergers, 433 Hours of work economic growth and, 286 labor unions and, 354 Households, 44 in circular flow model, 44 decisions of, 35 loanable funds theory of interest and, 366–368 Howard, Ron, 304n Hufbauer, Gary C., 542n Hughes, 434 Human capital, 344, 516 See also Education and training immigration decision and, 515–517 nature of, 345 Human capital investment, 515 Hunt, 447 Hurricane Katrina, 123 Hynix Semiconductor, 435 Hypotheses, IBM, 257, 298, 373, 431, 441 Identity theft, immigration and, 524 Illegal drugs decriminalization of, 142–143 immigration and, 524 Illegal immigrants, 514 debate concerning, 523–526 decision to migrate, 515–517 employment effects of, 523–524 origins of, 515 slowdown in, 525 ILWU, 355 IMF (International Monetary Fund), 574 Immediate market period, 144 Immigration, 513–527 decision to migrate, 515–517 economic effects of, 517–522 economic immigrants, 513, 515–517 full employment and, 521–522 illegal, 514–515, 523–526 income inequality over time and, 472 legal, 514–518, 523–526 number of immigrants to the U.S., 514–515 optimal, 526 specialty occupations of immigrants, 514–515, 518 Immobility, 345 Imperfect competition, 222, 315–316 Implicit costs, 197, 371 Import(s) equilibrium world price, 543, 544–545 supply and demand analysis of, 543 Import competition, 288 Import demand curve, 543 Canada, 543–544 U.S., 542 Import quotas, 460, 546, 548 See also Quotas Impulse buying, 176 Incentive functions, 362–363 Incentive pay plans, 346–347 Incentives to cheat, 290 income inequality and, 474–475 in market systems, 41 as problem in command systems, 42–43 Inclusive unionism, 339–340 Inco, 257 Income See also Income distribution change in demand and, 57–58, 59 consumer budget line and, 11, 167 exchange rates and, 567 farm-household, 451, 453 as flow, 469–470 global perspective on, health care costs and, 496–497 limited, of individuals, proportion of, and price elasticity of demand, 141 Income changes on budget line, 11, 167 immigration and, 518 Income determination, resource pricing and, 313 Income distribution See also Poverty; Transfer payments consumption versus, 472 cost to society and individuals, 485 entitlement programs in, 477–479, 522 government role in, 422–423, 468–469 immigration decision and, 515–516 income inequality and, 465–486 income redistribution, 419, 422–423 income shares in the U.S., 376, 519–520 marginal productivity theory of, 324–326 over time, 471–473 by quintiles (fifths), 466 taxation in, 419, 422–423, 468–469 in the U.S., 376, 471–473, 477–479, 484, 519–520 Income effect, 55, 159 Income elasticity of demand, 148–149 Income inequality, 465–486, 466 causes of, 469–470 distribution by income category, 466 distribution by quintiles (fifths), 466 efficiency versus, 473–475 Gini ratio, 467, 473 www.downloadslide.net Index IND9 government redistribution and, 419, 422–423, 468–469 Lorenz curve, 466–467, 473 marginal productivity theory of income distribution and, 324–326, 325–326 mobility and, 467–468, 515–522 See also Immigration time and, 467–468, 471–473 Income-maintenance system, 477–479 Income mobility, 467–468 See also Immigration Income shares immigration and, 519–520 in the U.S., 376, 519–520 Income tax corporate, 410, 415, 420, 421 personal, 409–410, 415, 419, 421 Income transfer, in pure monopoly, 265 Increasing-cost industry, 243–244 Independent action, monopolistic competition and, 279 Independent goods, 58, 147 Independent unions, 353 Independent variable, 25 Index of Economic Freedom, 34 India, immigration to U.S from, 515 Indiana, health care in, 507, 509 Indifference curves, 166–171, 167 consumer budget line, 166–167 convex to origin, 168 derivation of demand curve, 170–171 downsloping, 168 equilibrium at tangency, 169 equivalency at equilibrium, 169–170 indifference map in, 168–170 preferences and, 167–168 Indifference maps, 168–170 Individual demand, 91 Individuals’ economizing problem budget line and, 9–11 limited income and, unlimited wants and, Individual supply, 60 Individual transferable quotas (ITQs), 398–400 Industrial regulation, 428, 435–438 See also Government regulation legal cartel theory, 437 natural monopoly, 436 problems with, 436–437 regulatory commissions, 436 social regulation versus, 438–439 Industrial Revolution, 214–215, 381 Industrial unions, 339–340 Industries decreasing-cost, 244 long-run supply curve for constant-cost, 242–243 with monopolistic competition, 280–281 with oligopoly, 287–289, 299 Industry concentration Herfindahl Index and, 281, 288–289, 434 in monopolistic competition, 280–281 in oligopoly, 288–289 Inelastic demand, 136–137, 138–139 for agricultural products, 447, 451–452 elastic demand versus, 137 Inelastic supply, 361 Infant industry argument for trade protection, 549 Inferior goods, 58, 148 Inferior options, utility-maximizing rule, 157 Infineon, 435 Infinite slopes, 26 Inflation, exchange rates and, 567–568 Inflexible (“sticky”) prices, 293 Information failures, 108–110 asymmetric information, 108–110, 496 inadequate buyer information about sellers, 108–109 inadequate seller information about buyers, 109–110 information aggregation problem of government, 115 qualification, 110 Information technology economies of scale, 265–266 productivity acceleration and, 519 start-up firms in, 518 Ingram Book group, 434 Innovation See also Technology economic (pure) profit and, 371 industrial regulation and, 437 intellectual property and, 257 technological advance and, 250–251 Inpayments, 562, 563 Input substitution, 325 Insurable risks, 372 Insurance adverse selection problem, 109–110 business risk and, 46 crop revenue, 451 health care, 491–493, 496, 498–501, 502–503 information failure and, 496 insurable/uninsurable risks, 372 moral hazard problem, 109, 498–499 social, 477, 478 unemployment, 477, 478 Insurance exchanges, 506 Insurance fraud, immigration and, 524 Intel, 214, 257, 298, 415, 518 Intellectual property, as barrier to entry, 257 Interest, 364–368 See also Interest rate(s) allocation of capital, 369 characteristics of, 364–365 compound, 368 loanable funds theory of, 366–368 nature of, 364 time-value of money and, 368–369 Interest groups See Special interests Interest income, 364–365 Interest rate(s) See also Interest exchange rates and, 568 loanable funds theory of interest, 366–368 nominal, 370 as percentage, 364 price of credit and, 370–371, 374–375 pure rate of interest, 365 range of, 365 real, 370 role of, 369–371 time-value of money and, 368–369 usury laws, 370–371 Interest-rate risk, 365, 368 Interindustry competition, 287 Interlocking directorates, 430 International asset transactions, 561 International balance of payments See Balance of payments (BOP) International gold standard, 573 International Monetary Fund (IMF), 574 International Nickel Company of Canada, 257 International trade, 532–556 See also Global perspective in aggregate expenditures (AE) model, 543–544 agriculture in, 449, 452, 453, 455, 458–459 balance of payments, 561–565 case for protection, 548–551 comparative advantage in, 535–542 economic basis for trade, 534–542 equilibrium GDP and, 543–544 exports See entries beginning with “Export” fixed exchange rates, 566, 571–573 flexible exchange rates, 565–571, 573–574 imports See entries beginning with “Import” income inequality over time and, 472 international financial transactions, 561 key facts, 533 legislation, 550 multilateral trade agreements and free-trade zones, 551–555 nature of, 561 oligopoly in, 288 production possibilities model and, 19–20 supply and demand analysis of exports and imports, 542–545 trade barriers, 545–555 trade deficits, 533, 563, 574–578 trade surpluses, 533, 563 underground economy, 68–69, 572 U.S economy and, 449, 458–459, 533, 535–538 World Trade Organization (WTO) in, 459, 552 International value of the dollar, 449 Internet Apple products and, 373 daily newspaper on, 215–216 digital free riding, 93 economic growth and, 214 Microsoft antitrust case, 257, 440–441 www.downloadslide.net IND10 Index Internet—Cont monopoly power, 272–273 oligopolies, 299 start-up firms, 214 Interstate Commerce Commission (ICC), 120, 437 InterTrust, 441 Inverse relationships, 25 Investment, 12, 121 Investment goods See Capital; Capital goods “Invisible hand”, 41–43, 114, 247, 363 iPads, 159–160 iPhone, 249 iPods, 250, 373 Italy, population decline in, 382 Iyers, Alan, 186 James, LeBron, 11 Japan central bank, 118 exports of, 575 JBS, 447 Job information, lack of, and wage differentials, 345 Job protection, labor unions and, 354–355 Jobs, Steve, 373 John Deere, 313 Johnson, Eric, 184n JPMorgan Chase, 297 Kahneman, Daniel, 181 Karlan, Dean, 186 Katz, Lawrence, 522n Kellogg’s, 296 Kentucky Fried Chicken (KFC), 433 Kinder Morgan, 348 Kinder, Richard G., 348 Kinked-demand curve, 292–293 Knowles, Beyoncé, 317 Korean Air, 435 Kraft, 182 Krispy Kreme Donuts, 307 Krueger, Dirk, 472n Labor, 11 See also Labor market; Wage determination cheap foreign labor argument for trade protection, 550–551 demand curve See Labor demand curve market demand for, 333 quality of, 332 as resource, 11 specialization of See Specialization supply curve See Labor supply curve as term, 331 unions See Labor unions Labor demand curve changes in labor demand, 319 declining occupations, 320 fastest-growing occupations, 319–320 in monopsony model, 337 in purely competitive labor market, 333–335 wage differentials and, 343 Labor-intensive goods, 534 Labor market See also Labor; Labor demand curve; Labor supply curve agricultural, 452 demand for highly skilled workers, 471–472, 514–515, 518 health care costs and, 494 immigration and, 513–527 offshoring of jobs, 494, 553–555 specialization of, 212, 553–555 Labor market equilibrium, 334–335 Labor supply curve in monopsony model, 337 in purely competitive labor market, 333–335 wage differentials and, 343 Labor unions, 338–340, 353–358 antitrust policy and, 429 bilateral monopoly model, 340–341 collective bargaining and, 354–355 decline of unionism, 354, 472 demand-enhancement model, 338 economic effects of, 355–357 exclusive/craft union model, 338–339 inclusive/industrial union model, 339–340 income inequality and, 472 membership in, 353 offsetting factors, 357 wage determination, 338–340, 353–358 wage differentials and, 345 wage increases and unemployment, 340 Laissez-faire antitrust perspective, 432 Laissez-faire capitalism, 32 Land, 11 leasing agricultural, 451 ownership of, 363 quality of, 363 as resource, 11 single tax on, 363–364 Land-intensive goods, 534 Land rent alternative uses of land, 363 rent-seeking behavior and, 116–117 single-tax movement, 363–364 Landrum-Griffin Act of 1959, 355 Language skills, in decision to migrate, 517 Large crop yields, price elasticity of demand and, 142 Latinos See Hispanics Lauren, Ralph, 348 Law of demand, 55 Law of diminishing marginal utility, 55, 153–155 demand and, 153–155 marginal utility, 153–155 total utility, 153–155 utility, defined, 153 vending machines and, 155 Law of diminishing returns, 200–202 application of, 200–202 graphical expression of, 201–202, 203 rationale for, 200–201 tabular example of, 201 Law of increasing opportunity costs, 14 Law of supply, 59–60 Learning by doing, 36 Leasing land, 451 Least-cost combination of resources, 322–322 Least-cost production, 39 Legal cartel theory of regulation, 437 Legal immigrants, 514–515, 523–526 decision to migrate, 515–517 family reunification and, 514–515 origins of, 515 quotas for, 514–515, 526 specialty occupations and, 514–515, 518 Legal issues forms of business See Corporations; Partnerships; Sole proprietorships legalization of drugs, price elasticity of demand and, 142–143 Lenovo, 267, 415 Lettuce, market for, 75 LG, 435 Licenses as barrier to entry, 257 occupational licensing, 108–109, 339, 437 Lifestyle factors, health care costs and, 497 Limited and bundled choice, 118–119 Limited income, of individuals, Limit pricing, in oligopoly, 296, 298 Linear relationship, equation of, 27 Linux, 255 List, John, 183 Living standards, 381–382 Loaded terminology, in economic reasoning, 18 Loan(s) See also Credit; Debt demand for loanable funds, 366 predatory lenders, 375 size of, and interest rates, 365 Loanable funds theory of interest, 366–368 demand for loanable funds, 367 extending the model, 367–368 supply of loanable funds, 366 Loan guarantees, 121 Local government employment in, 412–413 finances in U.S., 411–412, 421–422 fiscal impact of immigration and, 524 Localized markets, 287 Location, product differentiation through, 280 Lockouts, 355 Logrolling, 129, 458 Long run, 145, 199 decline of agriculture in, 450–453 economies and diseconomies of scale and, 211–213 www.downloadslide.net Index IND11 price and output in monopolistic competition, 283–284 price elasticity of supply and, 145 production costs in, 209–213 profit maximization in pure competition, 240 pure competition in, 239–251 real wages in, 333 variable plant in, 199 Long-run competitive equilibrium, 242 Long-run supply curve, 242–244 for constant-cost industry, 242–243 for decreasing-cost industry, 244 for increasing-cost industry, 243–244 L’Oréal, 286, 297 Lorenz curve, 466–467, 473 Loss aversion, 181 Loss-minimization, 227–229 Lotteries, income and payouts of, 410–411, 412 Luck, income inequality and, 470 Luxuries necessities versus, 9, 141 price elasticity of demand and, 141 Macpherson, David A., 513n Macroeconomics, See also Economic growth; Inflation; Unemployment domestic macroeconomic adjustments, 572–573 fixed-exchange rate systems and, 572–573 microeconomics versus, Magnet countries, 516 Majority voting, 127–129 implications of, 128 inefficient outcomes of, 127–129 median-voter model, 130–131 paradox of, 129–131 Major League Baseball immigration and, 518 monopsony power of, 337 price discrimination and, 269 as pure monopolies, 255 Make-work rules, 355–356 Malthus, Thomas, 381, 383 Managed care, 504 Managed floating exchange rates, 573–574 criticisms of, 574 support for, 573–574 Management labor unions and, 354 managerial specialization, 212 Managerial prerogatives, 354 Marginal analysis, 6–7 See also Cost-benefit analysis; Marginal utility; MB MC rule; MR MC rule; P MC rule comparing benefits and costs, 6–7 in competitive markets, 65 economics of war and, 15 fast-food lines and, optimal allocation and, 14–15, 65, 88–89 for public goods, 92, 94–95 in pure monopoly, 260–263, 269–270, 271 slopes and, 26 Marginal benefit (MB), 6–7 See also Costbenefit analysis; MB MC rule Marginal cost (MC), 206–208 See also P MC rule average total cost (ATC) and, 208 average variable cost (AVC) and, 208 calculating, 206 graphical expression of, 207 law of supply and, 59–60 marginal decisions and, 206–207 marginal product and, 207–208, 322 marginal-revenue-marginal-cost approach to profit maximization, 226–230 in pure monopoly, 264–265 short-run supply and, 230–235 Marginal-cost-marginal-benefit rule, 95 Marginal product (MP), 200, 313–314 law of diminishing returns and, 200, 201–202, 203 marginal cost and, 207–208, 322 Marginal productivity theory of income distribution, 324–326 Marginal productivity theory of resource demand, 313–316 Marginal rate of substitution (MRS), 168 Marginal resource cost (MRC), 314, 336–337 See also MRP MRC rule Marginal revenue (MR), 223–224 graphical expression of, 223 marginal-revenue-marginal-cost approach to profit maximization, 226–230 in pure monopoly, 258–259, 264–265 Marginal-revenue-marginal-cost approach, 226–230 Marginal revenue product (MRP), 313–315, 314 See also MRP MRC rule labor demand, 356–357 market demand for a resource, 316 productivity and, 313–314 product price and, 314 as resource demand schedule, 314–315 resource demand under imperfect product market competition, 315–316 Marginal revenue productivity, 343 Marginal tax rate, 409–410 Marginal utility, 153 algebraic generalizations, 157–158 applications and extensions, 159–162 demand and, 153–155, 158–159 income effects, 159 law of diminishing marginal utility, 55, 153–155 numerical examples, 156–157 substitution effects, 159 total utility and, 153–155 utility-maximizing rule, 156–159 Marginal utility per dollar, 156 Market(s), 35 See also Demand; Market systems; Supply in market systems See Market systems nature of, 54 role of, 54 Market demand, 56 for labor, 333 for private goods, 91 in pure monopoly, 257–259 for a resource, 316 Market economy, 40 Market equilibrium, 62–65 changes in demand and, 65–67, 75–78 changes in supply and, 65–67, 75–78 complex cases, 65–67 efficient allocation, 64–65 equilibrium price, 62–64, 233–235, 240–242, 543, 544–545 equilibrium quantity, 62–64 labor market, 334–335 rationing function of prices, 64 Market failures, 83–104 in competitive markets, 84–90 externalities and, 96–103 free-rider problem, 91–92 government involvement and, 37, 101–102, 113 information failure, 108–110, 496 nature of efficiently functioning markets, 85–90 public goods and, 91–96 Market for externality rights, 102–103 advantages of, 102–103 operation of market, 102–103 Market imperfections imperfect competition, 222 marginal productivity theory of income distribution and, 326 resource demand and, 315–316 wage differentials and, 345–346 Marketing loan program, 460–461 Market power See also Monopoly; Oligopoly elasticity and, 146–147 income inequality and, 470 relevant market and, 431–432 Market segregation, 268 Market shares, monopolistic competition and, 279 Market structure, 220–222, 221 See also Monopolistic competition; Oligopoly; Pure competition; Pure monopoly Market supply, 60, 333 Market systems, 33–47 bureaucratic inefficiency versus, 119–120 business risk in, 45–46 change in, 40 characteristics of, 33–37 circular flow model and, 43–45 competition in, 34–35, 38–39, 64–65 demise of command systems and, 41–43 efficiency in, 38–39, 41, 190 www.downloadslide.net IND12 Index Market systems—Cont fundamental questions of, 37–40 imperfect institutions in, 122–123 “invisible hand” and, 41–43, 114, 247, 363 money in, 36–37 monopolistic competition See Monopolistic competition oligopoly See Oligopoly overview of, 221–222 progress in, 40 pure competition See Pure competition pure monopoly See Pure monopoly in the United States, 33 virtues of, 41 Marriott, 110 Martinez, Tracy, 287 Maturity, interest rates and, 365 Maximum willingness to pay, 85–86, 88 MB MC rule See also Cost-benefit analysis; Marginal analysis comparing MB and MC, 94–95 in competitive markets, 65 economics of war, 15 for government efficiency, 114 health care costs and, 495 optimal allocation and, 14–15, 65, 88–89 for optimal immigration, 526 for optimal level of social regulation, 439 for optimal reduction of an externality, 101 for public goods, 92, 94–95 McConnell, Campbell R., 513n McDonald’s, 38, 286, 298 McDonnell Douglas, 433, 434 McKesson, 348 Means tests, 479 Measurement units, slopes and, 26 Median family wealth, 484 Median-voter model, 130–131 Medicaid, 477, 479, 493, 494–495, 498, 506 Medical care See Health care Medicare, 478, 494–495 cost containment through, 504 described, 492–493 health care, 477, 492–493, 498, 506, 507 payroll taxes, 410, 415–416, 419–420, 421 as social insurance, 477, 478 unfunded liabilities, 117 Medium of exchange, 36–37 Mental accounting, 183 Mergers See also Antitrust policy cross elasticity of demand and, 148 guidelines for, 434 in oligopoly, 287 types of, 433–434 Mexico cheap foreign labor argument for trade protection, 550–551 comparative advantage, 536–541 exports of, 575 immigration to U.S from, 515, 517–521, 525 land-intensive goods, 534 North American Free Trade Agreement (NAFTA), 525, 553 opportunity-cost ratio, 537 MFGlobal, 361 Michelin, 267 Microeconomics, of government See Public choice theory; Public goods; Taxes and taxation macroeconomics versus, Micron, 435 Microporous, 434 Microsoft case, 257, 267, 431, 433, 440–441 Microsoft Corporation, 47, 214, 248, 255, 257, 265, 267, 298, 299, 373, 374, 431, 433, 440–441 Middle East, oil cartel, 294, 533 Midpoint formula, 135 Military self-sufficiency argument for trade protection, 548 Minimum efficient scale (MES), 213, 265–266 Minimum wage, 341–342 case against, 341 case for, 341–342 evidence and conclusions, 342 unemployment and, 341–342 Minus sign, in price elasticity of demand, 136 Misfortune, income inequality and, 470 Mishel, Lawrence, 484n Mobility See also Immigration immobility versus, 345 income inequality and, 467–468, 515–522 Mobil Oil, 433 Mobil Travel Guide, 110 Monetary policy, 118 See also Federal Reserve System misdirection of stabilization policy, 118 politicization of, 118 Money, 36–37 See also Currency; Interest in market systems, 36–37 as medium of exchange, 36–37 resource pricing and, 313 time-value of money and, 368–369 value of, 364 Money capital, 12 Money supply See Bank(s); Monetary policy Monopolistic competition, 221, 279–285 characteristics of, 221, 279–280 efficiency and, 284–285 entry and exit, 280, 283 industries with, 280–281 price and output in, 281–284 product differentiation in, 279–280, 285 product variety and, 285 Monopoly See also Antitrust policy; Pure monopoly antitrust policy and, 429, 430–435 AT&T case, 433, 437–348 effectiveness of antitrust laws, 432–435 industrial regulation in perpetuating, 436–437 Microsoft case, 257, 267, 431, 433, 440–441 monopoly behavior versus monopoly structure, 431 natural, 213, 256–257, 268, 429, 436 near-monopolies, 255, 429 regulated monopolies, 270–273 Monopoly demand, 257–259 marginal revenue in, 258–259, 264–265 monopolist as price maker, 255, 259 output and price determination, 260–263 total-revenue test for price, 259 Monopoly power, 268, 272–273 Monopsony, 335–337, 336 equilibrium wage and employment, 337 examples of, 337 MRC higher than wage rate, 336–337 upsloping labor supply to firm, 336 Moral hazard problem, 109, 498–499 Moving costs, of immigrants, 516 MP3 players, 250, 373 MR MC rule, 226 See also Marginal cost (MC); Marginal revenue (MR) antitrust policy and, 429 in the long run, 239 marginal cost and short-run supply, 230–235 in pure monopoly, 261–262, 264–267, 269–270, 271 resource demand and, 323 in the short run, 226–230 still there motel and, 232 MRP MRC rule, 314–315 See also Marginal resource cost (MRC); Marginal revenue product (MRP) in employing resources, 314 for monopsony model, 336–337 for purely competitive labor market, 333–335 Multilateral trade agreements, 551–555 Multinational corporations, 267 Murphy, Kevin, 495 Mutual interdependence, 286 complications of, 291 in game theory, 289–290 noncollusive oligopoly and, 291–293 in oligopoly, 286 Myopia, 184–185 Nash equilibrium, 304–305 Nash, John F., 304n National, 447 National Basketball Association (NBA), monopsony power of, 337 National defense See also Terrorist attacks of September 11, 2001 economics of war, 15 immigration and, 524–526 imperfect institutions and, 122–123 military self-sufficiency argument for trade protection and, 548 National Education Association (NEA), 339 National Football League (NFL), monopsony power of, 337 www.downloadslide.net Index IND13 National health insurance (NHI), 491 National income accounting See Gross domestic product (GDP) National Labor Relations Act (NLRA), 355 National Labor Relations Board (NLRB), 355 National Safety Council, 439 Native American Arts and Crafts, 287 Natural gas, 388 Natural monopoly, 213, 256–257, 268, 429, 436 Natural resources, 380–401 economics of, 389–394 nonrenewable, 389–390, 391–394 optimal resource management, 390 renewable, 389–390, 394–400 resource supplies, 381–385 role in wage determination, 332 NCR, 325 Near-monopolies, 255, 429 Necessities luxuries versus, 9, 141 price elasticity of demand and, 141 Negative externalities, 96–97 correcting for, 96–97, 98–100 government intervention, 98–100 market-based approach to, 102–103 optimal amount of externality reduction, 100–103 of taxation, 99, 419 Negative self-selection, 522 Negative slope, 26 Negative-sum game, 304 Neoclassical economics, 173–176 behavioral economics versus, 174–176 fairness and self-interest, 187–190 Nestlé, 267 Net benefits, 389 Net costs of import quotas, 548 of tariffs, 548 Net effect, 318 Netflix, 250 Net investment income, 563 Netscape Navigator, 257, 440–441 Net taxes, 406–407 Net transfers, 562–564 Network effects, 265–266, 273 Newspapers, 215–216 New York Stock Exchange, as market, 54 New York Times, 215 90-10 ratio, 471 Nippon Cargo, 435 NLRB (National Labor Relations Board), 355 Nokia, 267 Nominal interest rates, 370 Nominal wage, 331 Noncash transfers, 468–469 Noncollusive oligopoly, 291–293 Noncompeting groups, 343–344 Nonexcludability, 91 Nonexhaustive expenditures, 407 Nonprice competition, 280 in monopolistic competition, 280 in pure monopoly, 255 Nonrenewable natural resources, 389–390 conflict diamonds, 393–394 incomplete property rights and excessive present use, 393 present use versus future use of, 391–393 Nonrivalry, 91, 265 Nontariff barriers (NTB), 546 Nordhaus, William, 495 Normal goods, 58, 148 Normal profit, 197–198, 373 accounting profit versus, 197–198 break-even point and, 226 in monopolistic competition, 283 in profit rations entrepreneurship, 373 technological advance and, 248–251 Normative economics, North American Free Trade Agreement (NAFTA), 525, 553 North Korea, command system in, 33, 42 Novell, 441 Number of buyers, change in demand and, 57, 59 Number of sellers change in supply and, 61–62 monopolistic competition and, 279 as obstacle to collusion, 295 in oligopoly, 295 Obama, Barack, 490, 505 Occupation(s) See also Education and training demand for highly skilled workers, 471–472, 514–515, 518 employment trends, 319–320 occupational licensing, 108–109, 339, 437 specialty occupations of immigrants, 514–515, 518 Occupational licensing, 108–109, 339, 437 Occupational Safety and Health Administration (OSHA), 438–439 Occupational segregation, 346, 482–483 crowding model, 482–483 economics of, 482–483 eliminating, 483 OECD (Organisation for Economic Cooperation and Development), 422 Office Depot, 434 Official reserves, 565, 571–572 Offshoring, 494, 553–555 Oil industry cartels in, 294, 533 supply of cheap energy, 388–389 Oligopoly, 221, 286–299, 429 advertising and, 296–298 cartels and, 293–295 characteristics of, 221, 286–290, 289–290 efficiency and, 298 game theory and, 289–290 industries with, 287–289, 299 Internet, 299 kinked-demand theory and, 291–293 mergers and, 287 noncollusive, 291–293 price leadership model, 295–296 Olympics, preset ticket prices, 79–80 One-time game, 304–305 OPEC (Organization of Petroleum Exporting Countries), 294, 533 Open economy, 535 Open shop, 354 Opportunity cost(s), See also Economic costs budget line, 10 choice and, 11 economic (pure) profit and, 198–199 explicit, 197 implicit, 197 law of increasing, 14 long run, 199 in marginal-revenue-marginal-cost approach to profit, 240–242 normal profit as cost, 198 short run, 199 in theory of consumer behavior, 160–162 Opportunity-cost ratio, 537 Oprah Winfrey Show (TV program), 11 Optimal allocation, in marginal analysis, 14–15, 65, 88–89 Optimal immigration, 526 Optimal level of social regulation, 439–441 Optimal reduction of an externality, 100–103, 101 Organisation for Economic Cooperation and Development (OECD), 422 Organization of Petroleum Exporting Countries (OPEC), 294, 533 Organ transplants, 68–69, 184, 502 Other-things-equal assumption (ceteris paribus), 7, 25–26 Ottaviano, Gianmarco, 522n Outpayments, 562, 563 Output See also Total output in cartels, 293–294 coordination problem in command systems, 41–42 impact of immigration on, 518–519 in market systems, 39 in monopolistic competition, 281–284 in oligopoly, 290–296 in pure monopoly, 260–263 short-run fluctuations in agricultural, 447–448, 451 Output effect, 318 Outsourcing health care costs and, 494 offshoring, 494, 553–555 Overconfidence bias, 179 Overt collusion, 294 www.downloadslide.net IND14 Index Ownership of resources as barrier to entry, 257 conflict of interest, 346 land, 363 private property, 33–34, 47, 363 public, 436 restricting business risk to owners, 46 P ATC See also Average total cost (ATC); Price(s) dilemma of regulation and, 272–273 as fair-return price, 271–272 in monopolistic competition, 284 in oligopoly, 298 P MC rule See also Marginal cost (MC); Price(s) allocative efficiency in pure competition, 246–247 antitrust policy and, 429 dilemma of regulation and, 272–273 monopolistic competition and, 284 in oligopoly, 298 as socially optimal price, 271 Packaging product differentiation through, 280 size reductions, 181–182 Panasonic, 267, 294–295 Paradox of voting, 129–131 Parity concept, 454 criticisms of, 457 purchasing power parity, 568 Parity ratio, 454 Partnerships, 44 Part-time workers, health care costs and, 494 Patents as barrier to entry, 257, 267 creative destruction and, 248–249 Patient Protection and Affordable Care Act (PPACA), 490, 491, 501, 503 alternatives, 507 implementation problems, 506 major provisions, 505–507 objections, 507 Pay for performance, 346–347 free-rider problem and, 91–92, 93 negative side effects of, 347 principal-agent problem, 346 Payoff matrix, 289 Payroll taxes, 410, 415–416, 419–420, 421 PepsiCo, 148, 433 Percentages interest rates as, 364 in price elasticity of demand, 135–136 Perfectly elastic demand, 136, 222 Perfectly elastic supply, 243 Perfectly inelastic demand, 136 Perfectly inelastic supply, 361 Peri, Giovanni, 522n Permanent legal residents (green card recipients), 514 Perri, Fabrizio, 472n Per se violations, 434 Personal consumption expenditures (C), 383–385 Personal income tax, 409–410, 415, 419, 421 Personal mandate, 505–506 Petrobras, 267 Pfizer, 257 Philippines, immigration to U.S from, 515 Physicians See also Health care demand for health care and, 497–498 limits to malpractice awards, 504 supply of health care and, 501 Physician’s Health Plan of Michigan, 434 Picasso, Pablo, 345 Piece rates, 346, 347 Pixar Animation Studios, 373 Pizza Hut, 433 Planning fallacy, 179–180 Plant capacity in long run, 199 in short run, 199 Policy issues See also Antitrust policy; Fiscal policy; Government; Monetary policy farm policy, 453–459 pure monopoly and, 267–268 resource pricing and, 313 Political action committees (PACs), 458 Political corruption, 121–122 Political issues in farm policy, 458–459 minimum wage, 341–342 special interests, 128–129, 458 Pollution, air, 98, 102–103, 389 Polypore, 434 Population Bomb, The (Ehrlich), 383 Population growth birthrates and, 381–382 resource consumption per person, 383–385 single tax on land and, 363–364 trends in, 381–382 Pork-barrel politics, 116, 123 Positive economics, Positive externalities, 97–98, 496 Positive relationships See Direct relationships Positive slope, 26 Positive-sum game, 304 Post, 296 Post hoc, ergo propter hoc fallacy, 19 Postrel, Virginia, 47 Potential competition, 267, 437 Poverty, 475–479 entitlement programs and, 477–479, 522 health care and, 479, 493, 494–495, 498, 506 health-insurance coverage and, 506 incidence of, 475–476 income inequality and, 465–486 measurement of, 477 nature of, 475 trends in, 476–477, 484 Poverty rate, 475–477 Prante, Gerald, 422–423, 422n Precommitments, 185–186 automatic payroll deductions, 185–186 betting against yourself, 186 early withdrawal penalties, 186 salary smoothing, 186 weight-loss competitions, 186 Predatory lenders, 375 Preemption of entry, 306–307 Preexisting conditions, health insurance coverage for, 505 Preferences consumer, 155 income inequality and, 469–470 indifference curve, 167–168 limited and bundled choice, 118–119 paradox of voting and, 129 Preferred provider organizations (PPOs), 504 Present value, 368, 390–391 calculating, 390 compound interest, 368 in natural resource economics, 390–391 Preset prices, 78–80 Price(s) See also Equilibrium price level; Inflation; MR MC rule; Price elasticity of demand; Price elasticity of supply agricultural, 459, 461 in cartels, 293–294 ceilings on, 67–69 change in demand and, 56–58, 59, 65–67, 75–78 change in prices of other resources, 318–319 change in supply and, 60–62, 61, 65–67, 75–78 consumer choice and, 156 control over, 280 efficiency and, 89–90 equilibrium price level, 62–64, 233–235, 240–242, 543 floors on, 69–70 government-set, 67–70 immigration and, 524 inflexible, 293 inverse relationship with quantity, 55 law of demand and, 55 in marginal-revenue-marginal-cost approach to profit maximization, 233–235 marginal revenue product (MRP), 314 marginal revenue versus, 258–259 in market systems, 35, 39 in monopolistic competition, 281–284 in oligopoly, 286, 291 preset, 78–80 product differentiation through, 280 in pure monopoly, 255, 257, 258–260, 262–263, 268–270 rationing function of, 64 in regulated monopoly, 270–273 of related goods, 58, 59 relative, 55 resource, 60–61, 62, 313 www.downloadslide.net Index IND15 scalping and, 64, 79 short-run fluctuations in agricultural, 447–448, 451 sticky, 293 in supply and demand analysis of exports and imports, 542–545 Price ceilings, 67–69, 370 black markets and, 68–69 graphical analysis, 67 rationing and, 64, 67–68 Price changes on budget line, 167 health care costs and, 496–497 in oligopoly, 291 Price discrimination, 268–270, 430, 434 conditions for, 268 examples of, 268–269 graphical analysis, 269–270 Price effects, of illegal immigration, 524 Price-elasticity coefficient, 135–137 Price elasticity of demand, 135–143 applications of, 142–143 determinants of, 141–143 formula for, 135–137 for health care, 496–498 interpretation of elasticity, 136–137 total-revenue curve and, 140–141 total-revenue test, 137–141, 259 Price elasticity of supply, 143–146 applications of, 145–146 immediate market period, 144 long run, 145 pricing power, 146–147 short run, 144–145 Price-fixing, 187, 434, 435 Price floors, 69–70 additional consequences of, 70 effect of, 69–70 graphical analysis, 70 on wheat, 69–70 Price leadership, 295–296 Price makers, 222, 255, 259, 286, 315 Price supports, 454 criticisms of, 457–458 economics of agricultural, 454–455, 460–461 Price takers, 222, 224, 234 pure competition and, 255 resource markets and, 313 Price wars, 187, 293, 296 Pricing power as barrier to entry, 255, 257 elasticity and, 146–147 in pure monopoly, 255, 257, 258–260, 262–263 Primary markets, 79 Principal-agent problem, 115, 346 Principle of comparative advantage, 537–538 See also Comparative advantage Prisoner’s dilemma, 289 Private bargaining, 98 Private goods, 91–92, 128 Private property, 33 land ownership, 363 in market systems, 33–34, 47 Private sector, 113–114, 119–123 Procter & Gamble, 182, 297 Producer expectations, change in supply and, 61, 62 Producer surplus, 86–88, 247, 454 Product attributes, in monopolistic competition, 279 Product demand changes in, 317 elasticity of, 321 Product development See Research and development (R&D) Product differentiation, 279–280 in monopolistic competition, 279–280 in oligopoly, 286 Production costs, 196–217 applications and illustrations, 213–216 economic, 198–199 least-cost, 39 long-run, 209–213 in market systems, 38–39 short-run, 200–209, 232–235 Production, exchange rates and, 568 Production possibilities curve, 13–14 Production possibilities model, 12–20 assumptions of, 12 economic growth and, 16–19 economics of war and, 15 future and, 17–19 international trade and, 19–20 law of increasing opportunity costs, 14 optimal allocation and, 14–15 production possibilities curve, 13–14 production possibilities table, 12–13 Production possibilities table, 12–13 Productive efficiency, 64, 88, 246, 263–264, 284–285, 298 Productivity See also Economies of scale changes in, 317–318 general level of wages and, 331–332 health care prices and, 501–502 labor unions and, 355–357 marginal revenue product (MRP) and, 313–314 real wages and, 332–333 rent differences and, 362 resource demand derived from, 317 role of, 332 Productivity growth, 501–502 Product markets, 44, 313 changes in product demand, 317 in circular flow model, 44 resource demand derived from, 317 Product variety benefits of, 285 in monopolistic competition, 285 Professional organizations craft union model for, 338–339 occupational licensing, 108–109, 339 Professional sports teams consumer expectations for, 58 Major League Baseball, 255, 269, 337, 355–356, 518 monopsony power of, 337 price discrimination and, 269 as pure monopolies, 255, 269 Profit accounting profit, 198 discrimination and, 481 economic (pure), 198–199, 371–375 in market system, 45 in monopolistic competition, 283 normal profit See Normal profit in pure monopoly, 263 resource allocation and, 373–375 sources of, 372–373 start-up firms and, 518 Profit maximization in long run, 240 marginal-revenue-marginal-cost approach, 226–230 in monopolistic competition, 283–284 for nonrenewable natural resources, 391–393 numerical illustration, 323–324 profit-maximizing combination of resources, 323 in pure competition, 224–235, 240 in pure monopoly, 260–263 in short run, 224–235 total-revenue-total-cost approach, 224–226 Profit-maximizing combination of resources, 323 Profit-sharing plans, 347 Progress and Poverty (George), 363 Progress, in market systems, 40 Progressive taxes, 409–410, 414, 421 Property rights excessive present use of natural resources and, 393 fisheries management and, 396–400 forest management and, 394–396 in market systems, 33–34 Property taxes, 411–412, 420, 421–422 Proportional taxes, 414 Proprietary income, 406 Prospect theory, 180–184, 181 anchoring and credit card bills, 182–183 endowment effect and market transactions, 183 framing effects and advertising, 182 losses and shrinking packages, 181–182 mental accounting and overpriced warranties, 183 status quo bias, 183–184 Protection-against-dumping argument for trade protection, 549 Protectionism, proponents of, 554 www.downloadslide.net IND16 Index Protective tariffs, 545–546 Public assistance programs, 477, 478–479, 522 Public choice theory, 127–131 farm policy and, 458 government failure and, 118–119 majority voting in, 127–129 Public debt, government purchases and, 408 Public finance, 405–424 apportioning tax burden, 413–416 employment, 412–413 federal, 409–410, 412–413 global perspective, 408, 415, 421 government and circular flow, 406, 407 government finance, 406–408 local, 411–413, 421–422 nature of, 406 state, 410–411, 412–413, 421–422 tax incidence, 416–423 Public goods, 91–106, 102 characteristics of, 91–92 cost-benefit analysis for, 94–95 demand for, 92–93 externalities and, 96–100 free-rider problem and, 91–92, 93 information failures, 108–110 marginal analysis, 92, 94–95 optimal quantity of, 92 preferences through majority voting, 128 private goods versus, 91–92 Public interest theory of regulation, 436 Public ownership, of natural monopoly, 436 Public regulation, of natural monopoly, 436 Public sector See also Government circular flow model and, 406, 407 income redistribution and, 419, 422–423, 468–469, 477–479 quasi-public goods and, 95–96 resource reallocation and, 95–96 Public utilities deregulation of, 437–438 as natural monopoly, 436 price discrimination in, 268 as regulated monopolies, 270–273 Purchasing-power-parity theory, 568 Pure capitalism, 32 Pure competition, 221, 222–235 antitrust law and, 429–430 characteristics of, 221, 222 demand in, 222–224 efficiency and, 244–247 free entry and exit in, 222, 240–242 “invisible hand” and, 41, 114, 247, 363 in long run, 239–251 loss-minimizing case, 227–229 marginal cost and short-run supply, 230–235 price takers in, 222, 255 profit maximization in long run, 240 profit maximization in short run, 224–235 profit-maximizing case, 227 purely competitive labor market, 333–335 resource demand and, 315–316 in short run, 226–235 shutdown case, 229–230, 234–235 Purely competitive labor market, 333–335 Pure monopoly, 221, 254–274, 255 barriers to entry, 255–257 characteristics of, 221, 255–257 economic effects of, 263–268 examples of, 255 marginal analysis, 260–263, 264–265, 269–270 monopoly demand, 257–259 objectives of study of, 255 output and price determination, 260–263 price discrimination, 268–270 pricing power in, 255, 257, 258–260, 262–263 regulated monopoly, 270–273 Pure profit See Economic (pure) profit Pure rate of interest, 365 Purposeful behavior, 5–6 Putin, Vladimir, 382 Qualification, information failures, 110 Quality of health care, 493–494 of labor, role in wage determination, 332 of land, 363 of resources, productivity changes and, 318 Quantity change in productivity and, 318 change in quantity demanded, 58–59, 65–67 change in quantity supplied, 62, 65–67 equilibrium, 62–64 inverse relationship with price, 55 Quasi-public goods, 95–96 Quotas in fisheries management, 398–400 immigration, 514–515, 526 import, 460, 546, 547–548 individual transferable quotas (ITQs), 398–400 for legal immigrants, 514–515, 526 Race See African Americans; Asians; Hispanics; Whites Railroads deregulation of, 121 price discrimination, 269 regulatory capture, 120 Ralph Lauren, 348 Rate regulation, 270–273 Rational, 174 Rational behavior, 155 Rational self-interest, purposeful behavior and, 5–6 Rationing prices and, 64, 67–68 usury laws and, 370–371 R&D See Research and development (R&D) Real capital See Capital Real estate, exchange rates and, 568 Real GDP See Gross domestic product (GDP) Real interest rates, 370 RealNetworks, 441 Real wages, 331 long-run trend of, 333 productivity and, 332–333 Recession See also Great Recession of 2007–2009 as obstacle to collusion, 295 Reciprocity strategies, 305–306 Recognition heuristic, 177–178 Recycling, 422–423 Redistribution of income, 419, 422–423 Regressive taxes, 414, 421–422 Regulation See Government regulation Regulatory agency, 120 Regulatory capture, 120–121 deregulation as alternative, 120–121 railroad industry, 120 Relative interest rates, exchange rates and, 568 Relative price, 55 Remedies, for monopoly, 433 Remittances, 520–521 Renewable natural resources, 389–390, 394–400 fisheries management, 396–400 forest management, 394–396 Rent economic, 361–364 land, 116–117, 361–364 Rental income, 363–364 Rent controls, 68–69 Rent-seeking behavior, 116–117, 266, 458 Repeated games, 305–306 Replacement rate, 381 Representative democracy, median-voter problem, 130–131 Resale, lack of, in pure monopoly, 268 Research and development (R&D) as barrier to entry, 257, 266–267 interest and, 370 oligopoly and, 297, 298 patents and, 248–249 Residual claimants, 371–372 Resource allocation See also Resource markets demand in See Resource demand global, 461 marginal productivity theory of income distribution and, 324–326 profit and, 373–375 resource pricing and, 313 supply of energy in See Energy economics Resource demand, 312–327 consumption per person, 383–385 determinants of, 317–320 elasticity of, 320–321 marginal productivity theory of income distribution, 324–326 marginal productivity theory of resource demand, 313–316 www.downloadslide.net Index IND17 optimal combination of resources, 322–324 resource pricing in, 313 Resource markets, 44 See also Interest; Natural resources; Profit; Rent; Resource demand; Supply of resources; Wage determination in circular flow model, 44–45 immigration and, 521 MRP MRC rule and, 314 public sector role in reallocation, 96 resource demand as derived demand, 313 resource prices and, 60–61, 62, 313 Restraints of trade, 429–430 Retirement savings, 188–189 Revenue tariffs, 545 Ricardo, David, 535 Right-to-work laws, 354 Risk See also Insurance; Uncertainty of agricultural operations, 451, 453 business, 45–46 economic (pure) profit and, 372 exchange-rate, 576–577 government role in reducing private-sector risks, 113 income inequality and, 469–470 interest-rate, 365, 368 in market system, 45–46 of pure monopoly, 263 restricting to owners, 46 shielding employees and suppliers from, 45–46 types of, 372 Rivalry, 91 Royal Dutch/Shell, 267 Royalties, 346 Rule of reason, 431, 433, 434 Russia command system in, 33, 42 immigration to U.S from, 517 population decline in, 382 U.S trade with, 449 Saffer, Henry, 143n Salary smoothing, 186 Sales taxes, 410, 415, 420, 421 Salmon, market for, 76–77 Samsung, 267, 298, 435 Scale constant returns to, 213 diseconomies of, 212–213 economies of, 211–216 minimum efficient, 213, 265–266 Scalping, 64, 79 Scarce resources, 11 Scarcity, economic perspective and, economic resources and, 11 marginal analysis and, Schumpeter, Joseph, 250n Scientific method, Secondary markets, 79 Self-control problems, 185–186 Self-interest, 34, 41 Self-selection, 518 immigration and, 518, 522 negative, 522 Self-serving bias, 179 Self-sufficiency output mix, 537 Seniority, labor unions and, 354–355 September 11, 2001 terrorist attacks, 15 Sequential game, 306–307 Services private See Private goods product differentiation through, 280 public See Public goods Service Workers, 353 Shadow heuristic, 178 Sharp, 435 Sherman Act of 1890, 429–430, 433, 440 Shierholz, Heidi, 484n Shirking, 212–213 Shortage, 64 Short run, 144, 199 agricultural price and income instability in, 447–449, 451 fixed plant in, 199 law of diminishing returns and, 200–202 price and output in monopolistic competition, 283 price elasticity of supply and, 144 production costs in, 200–209, 232–235 production relationships in, 200–202 profit maximization in pure competition, 224–235 pure competition in, 226–235 Short-run supply curve, 232–235 Shutdown case, 229–230, 234–235 Simultaneous consumption, 265 Simultaneous game, 304 Singapore, health care in, 507, 508–509 Single seller, in pure monopoly, 255 Single-tax movement, 363–364 Size of firm long-run production costs and, 209 in oligopoly, 286 Skill transferability, 518 Slope of a nonlinear curve, 27 Slope of a straight line, 26 infinite, 26 marginal analysis and, 26 measurement units and, 26 negative, 26 positive, 26 zero, 26 Small business See Entrepreneurs; Start-up firms Smith, Adam, 41, 114, 160, 187, 363, 535, 535n Smoot-Hawley Tariff Act of 1930, 550 Snyder’s of Hanover, 434 Social insurance programs, 477, 478 Socialism See Command systems Socially optimal price, 271, 272–273 Social regulation, 428, 438–442 characteristics of, 438–439 criticisms of, 440–441 industrial regulation versus, 438–439 nature of, 438 optimal level of, 439–441 regulatory commissions, 438–439 support for, 439–440 Social Security, 478 adverse selection problem, 110 financing, 410, 415–416 payroll taxes, 419–420, 421 as social insurance, 477, 478 unfunded liabilities, 117 Society, economizing problem of, 11–12 Sole proprietorships, 44 Solyndra, 121, 388 Sotheby’s, 435 South Korea immigration to U.S from, 517 international trade, 534 market system in, 42 Soviet Union, former See also Russia command system in, 33, 42–43 Spears, Brittany, 465 Special-interest effect, 115–116 Special interests farm policy and, 458 logrolling and, 129, 458 nature of, 128 rent seeking and, 116–117 special-interest effect, 115–116 Specialization, 35–36 comparative advantage and, 537–538 division of labor and, 36 gains from, 553–555 geographic, 36 international trade, 535 labor, 212, 553–555 managerial, 212 in market systems, 35–36 occupations of immigrants and, 514–515, 518 offshoring and, 553–555 Specific excise tax, 420 Speculation in currency markets, 576–577 in determination of exchange rates, 568 Sports See Professional sports teams Sprint, 434 SSI See Supplemental Security Income (SSI) Stability, flexible exchange rates and, 571 Standardization, in pure competition, 222 Standard Oil, 267 Standard Oil case, 431 Staples, 434 Starbucks, 214, 250, 307 Start-up firms See also Entrepreneurs entrepreneurial ability and, 12 immigrants as founders of, 518 information technology, 518 www.downloadslide.net IND18 Index Start-up firms—Cont life expectancy, 250 successful, 214–215 technological advance and, 248–251 State government employment in, 412–413 finances in U.S., 410–411, 421–422 fiscal impact of immigration and, 524 health care costs and, 494–495 lotteries, 410–411, 412 State of Working America, The, 484 State taxes, 410–411, 421–422 Statistical discrimination, 481–482 Status quo, 180–181 Status quo bias, 183–184 Steering heuristic, 177 StickK.com, 186 Sticky prices See Inflexible (“sticky”) prices Stock(s) corporate stockholders, 373–375 exchange rates and, 568 Stock exchanges, 54 Stock market, crash of 1929, 19 Stock options, 347, 348 Strategic behavior, 286 Street entertainers, 92 Strikes, 355, 356 Structuralists, 431 Subsidies agricultural, 453–454, 456 change in supply and, 61, 62 for consumers, 99–100 in correcting for positive externalities, 99–100 criticisms of, 457–458 export, 546 as government intervention, 100 government provision, 100 for suppliers, 100, 453–454 tax subsidies for health care, 499 Substitute goods, 58, 147 ATMs, 325 change in demand and, 58 change in supply and, 61, 62 ease of resource substitutability, 321 lack of, in pure monopoly, 255 marginal rate of substitution (MRS), 168 prices of, 58 substitutability and price elasticity of demand, 141 Substitute resources, 318–319, 521 Substitution effect, 55, 159, 318 Sugar Program, 460–461 Sunk cost fallacy, 206 Sun Microsystems, 440–441, 518 Sunstein, Cass, 188n Supermarket behavior, neoclassical versus behavior economics explanations, 176 Superstars, 317, 465, 472 Supplemental Nutrition Assistance Program (SNAP), 477, 479 Supplemental Security Income (SSI), 477, 479, 493, 522 Supply, 59–62 See also Market supply change in demand and, 75–78 change in quantity supplied, 62, 65–67 change in supply, 60–62, 65–67, 75–78, 232–233, 367 determinants of, 60, 62 inelastic, 361 law of supply, 59–60 of loanable funds, 366 market supply, 60 price elasticity of, 143–146 resource See Supply of resources restricting agricultural, 456 short-run, 230–235 supply curve, 60–62 Supply curve, 60–62 labor, 333–335, 343 lack of, in pure monopoly, 262 reaction to demand shifts, 78 upsloping versus vertical, 78 Supply factors, health care, 501–503 Supply of resources, 381–400 energy economics, 383–385 environmental quality and, 398–399 increase in, 16 natural resource economics, 389–394 population growth and, 381–382 renewable resources, 394–400 resource consumption per person, 383–385 Supply schedule, 60 Supply shifters, 60 Supply-side market failures, 84 Surplus, 63 balance-of-payments, 565 producer, 454 reduction of agricultural, 456–457 Surplus payment, land rent as, 362–363 Sushi, market for, 77–78 Switzerland, as magnet country for immigration, 516 Symantec (Norton), 214 Systematic errors, 174 TAC (total allowable catch), 398 Taco Bell, 155, 433 Taft-Hartley Act of 1947, 355 TANF (Temporary Assistance for Needy Families), 109, 477, 478–479, 493 Target, 296 Tariffs, 545–547 direct effects, 547 economic impact of, 546–547 indirect effects, 547 net costs of, 548 Taste-for-discrimination model, 480–481 Tastes change in demand and, 57, 59 in determination of exchange rates, 567 in market systems, 40 Taxable income, 409 Tax credit, 421, 477, 479 Taxes and taxation apportioning tax burden, 413–416 changes in supply and, 61, 62 corporate, 410, 415, 420, 421 earned-income tax credit (EITC), 477, 479 efficiency loss of tax, 418 elasticity of tax incidence, 416–418 excise, 142, 410, 420, 421 federal tax revenues, 409–410, 418 as government intervention, 99 health-insurance coverage and, 507 incidence of U.S taxes, 419–423 income distribution and, 419, 422–423, 468–469 interest rates and, 365 marginal tax rate, 409–410 negative externalities and, 99, 419 payroll, 410, 415–416, 419–420, 421 personal, 409–410, 415, 419, 421 progressive, 409–410, 414, 421 property, 411–412, 420, 421–422 proportional, 414 regressive, 414, 421–422 sales taxes, 410, 415, 420, 421 single tax on land, 363–364 specific taxes, 99, 419–420, 421 state taxes, 410–411, 421–422 Tax Freedom Day (U.S.), 407 tax structure in U.S., 420–423 value-added, 415 Tax Freedom Day (U.S.), 407 Tax incidence, 416–418 division of burden, 416–417 elasticity and, 416–418 in the U.S., 419–423 Tax subsidy, 499 Teamsters Union, 353 Technology See also Innovation advances in, 16–17, 40, 248–251, 266–267, 298, 318, 332, 450–451, 502–503 agricultural supply increases and, 450–451 changes in supply and, 61, 62 competition and, 248–251 economic growth and, 16–17 health care prices and, 502–503 impact of 3-D printers, 214–215 industrial regulation in perpetuating monopoly, 436–437 in market systems, 35, 40 oligopoly and, 298 in production possibilities model, 12 productivity changes and, 318 pure monopoly and, 266–267 role in wage determination, 332 Temporary Assistance for Needy Families (TANF), 109, 477, 478–479, 493 Temporary legal residents, 514 Temporary workers, health care costs and, 494 Tennessee Valley Authority (TVA), 436 www.downloadslide.net Index IND19 Terms of trade, 538 comparative advantage and, 538–539 flexible exchange rates and, 571 Terrorist attacks of September 11, 2001, 15 Thaler, Richard, 174, 183, 188n Theory of Moral Sentiments, The (Smith), 187 Third-party payments, health care, 496, 503 3-D printers, 214–215 Ticket scalping, 64, 79 Time ease of resource substitutability, 321 income distribution over, 471–473 income inequality and, 471–473 income mobility and, 467–468 marginal utility and, 160–162 price elasticity of demand and, 141 price elasticity of supply and, 144–145 specialization and, 36 in theory of consumer behavior, 160–162 Time inconsistency, 185–186 Time-value of money, 368–369 compound interest, 368 future value, 368 present value, 368, 390–391 Time Warner Communications, 434, 437 Tobacco subsidies, 457 Topel, Robert, 495 Topographical maps, indifference maps and, 170 Total allowable catch (TAC), 398 Total cost (TC), 204 average total cost (ATC), 206 graphical expression of, 227, 228 in market systems, 37–38 ratio of resource cost to, 321 short-run production, 204–205 Total demand See Demand curve; Demand schedule; Market demand Total fertility rate, 381 Total output See also Gross domestic product (GDP); Output interest and, 369 Total product (TP), 200 Total revenue (TR), 137, 223 graphical expression of, 223, 227, 228 in market systems, 37–38 price elasticity and, 140–141 total-revenue test for price elasticity, 137–141, 259 Total-revenue test, 137–141 Total-revenue-total-cost approach, 224–226 Total supply See Market supply; Supply curve; Supply schedule Total utility, 153 income equality in maximizing, 473–474 marginal utility and, 153–155 Toyota, 267, 298, 356 Trade Adjustment Assistance Act of 2002, 553 Trade barriers, 545–555 net costs of, 548 trade barrier wars, 550 types of, 545–548 See also Import quotas; Tariffs Trade deficits, 533, 563 causes of, 575–576 implications of, 576–578 increased current consumption, 576 increased U.S indebtedness, 576–578 of the U.S., 574–578 Trademarks, 280 Trade-offs, 10 Trade surplus, 533, 563 Trade unions See Labor unions Trading possibilities line, 539–540 Tragedy of the commons, 400 Training See Education and training Transfer payments, 407 See also Income distribution income transfer in pure monopoly, 265 noncash transfers, 468–469 Treble damages, 430 Tropicana, 182 Trucking, deregulation of, 121 Trump, Donald, Trusts, 429, 431 Truth in Lending Act of 1968, 375 Tying contracts, 430, 434 Tyson, 447 Ultimatum game, 189–190 Unattainable combinations, 10 Uncertainty See also Risk flexible exchange rates and, 570–571 Underground economy See also Taxes and taxation exchange controls and, 572 in human organs, 68–69 price ceilings and, 68 Unemployment, 15–20 immigration and, 521–522 income inequality and, 470 minimum wage and, 341–342 in production possibilities model, 15–16 union wage increases and, 340 Unemployment compensation, 477, 478 Unfunded liabilities, 117 Uninsurable risks, 372 Unintended consequences, 119 Unionization rate, 353 Unions See Labor unions Union shop, 354 United Autoworkers, 353 United Kingdom Bank of England, 118 national health insurance, 500–501 U.S Census Bureau, 467, 515 U.S Department of Agriculture (USDA), 450, 456 U.S Department of Commerce, 461, 562 U.S Department of Defense, 123 U.S Department of Energy (DOE), 121 United States economy See also Federal government agriculture in, 447, 450–461 balance of payments, 561–565 capital-intensive goods, 534 circular flow model and, 406, 407 comparative advantage, 536–541 covert collusion in, 294–295 economics of war and, 15 energy economics in, 386–389 Environmental Performance Index (EPI), 398–399 executive pay in, 472 export supply, 542–543 fastest-growing occupations, 320 federal finances in, 409–410 fisheries management in, 396–400 forest management in, 394–396 gasoline market in, 67–68, 77, 108 general level of wages in, 331–332 Great Depression and, 15–16, 19, 550 Great Recession of 2007–2009 See Great Recession of 2007–2009 health care in, 415–416, 490–509 immigration and, 513–527 impact of taxes and transfer payments in, 468–469 import demand, 543 imports of, 449 income distribution in, 376, 471–473, 477–479, 484, 519–520 income shares in, 376, 519–520 international trade and, 449, 458–459, 533, 535–538 See also International trade labor unions in, 338–340, 353–358 local finances in, 412–413 as magnet for immigration, 516, 519–520 market system in, 33 minimum wage, 341–342 monopsony in, 337 multilateral trade agreements, 551–555 North American Free Trade Agreement (NAFTA), 525, 553 offshoring of jobs and, 553–555 opportunity-cost ratio, 537 poverty measures in, 475–477 rapidly-declining populations, 320 specialization and, 553–555 state finances in, 410–411, 412–413, 421–422 supply and demand analysis for international trade, 542–545 taxes in, 419–423 terrorist attacks of September 11, 2001, 15 trade adjustment assistance, 553 trade deficits, 574–578 trash generation, 385 water use in, 384 wealth distribution in, 470, 484 U.S Environmental Protection Agency (EPA), 439, 442 www.downloadslide.net IND20 Index U.S Federal Communications Commission (FCC), 257, 436 U.S Federal Trade Commission (FTC), 430, 434 U.S Food and Drug Administration (FDA), 120, 439, 442 U.S Justice Department, 430, 440–441 U.S Postal Service, 250, 267, 436 U.S Securities and Exchange Commission (SEC), 120 U.S Steel case, 431 U.S Supreme Court, 431–432 United Steelworkers, 353 Unit elasticity, 136 Unlimited wants, Unrelated goods, 58 Upsloping supply curve, 78 Uruguay Round, 551 User cost, 391–393 Usury laws, 370–371 Utility, 5, 153 marginal utility See Marginal utility purposeful behavior and, 5–6 total utility, 153–155, 473–474 Utility maximization, 152–163 law of diminishing marginal utility, 153–155 theory of consumer behavior, 155–162 Utility-maximizing rule, 156–159 algebraic generalization, 157–158 demand curve and, 158–159 numerical example, 156–157 Utz Quality Foods, 434 Vale Canada Limited, 257 Value-added tax (VAT), 415 Value judgment, Variable costs (VC), 204 average (AVC), 205–206 short-run production, 204 Variables dependent, 25 independent, 25 Variety benefits of, 286 in monopolistic competition, 285 VAT (value-added tax), 415 Verizon, 297 Verson stamping machine, 215 Vertical axis, 24 Vertical intercept, 26 Vertical mergers, 433, 434 Vertical supply curve, 78 Very large numbers, 222 Voice mechanism, 357 Voluntary export restriction (VER), 546 Vornado Realty, 348 Voting See Majority voting Wage(s) See also Wage determination changes in productivity, 318 efficiency, 347 fringe benefits, 335 general level of, 331–332 labor unions and, 354 long-run trend of, 333 minimum, 341–342 real, 332–333 unemployment and union wage increases, 340 Wage determination, 330–349 average wage of selected occupations, 342 bilateral monopoly model of, 340–341 CEO pay, 472 education and, 344, 471–472 general level of wages, 331–332 global perspective on wages of production workers, 331 immigration and, 518–519, 524 labor unions and, 338–340, 353–358 minimum-wage controversy in, 341–342 monopsony model of, 335–337 pay for performance, 91–92, 346–347 prejudice and market African-AmericanWhite wage ratio, 481 productivity and, 332–333 in purely competitive labor market, 333–335 wage differentials, 342–346 Wage differentials, 342–346 compensating, 523–524 marginal revenue productivity, 343 market imperfections, 345–346 noncompeting groups, 343–344 Wage effects, of illegal immigration, 524 Wage growth, health care costs and, 494 Wage rates, 331 impact of immigration on, 518–519, 524 labor unions and, 340, 345–346, 354 Wagner Act of 1935, 355 Walgreen, 307 Walmart, 44, 250, 296, 307, 361 Walt Disney Company, 297, 434 Wannamaker, John, 176 War See also National defense economics of, 15 price wars, 187, 293, 296 Warranties, overpriced, mental accounting and, 183 Water, use of, 384 Wealth of Nations, The (Smith), 41, 187 Wealth, unequal distribution of, 470, 484 Weight-loss competitions, 186 Wendy’s, 110 Western Union, 255 Wham-O, 255 Wheat, price floors on, 69–70 Wheeler-Lea Act of 1938, 430 Whirlpool, 294–295 Whites African-American-White wage ratio, 481 poverty among, 475–476 unionization rate, 353 Whole Foods Markets, 509 Winfrey, Oprah, 11, 465 Winner-take-all markets, 317 Women crowding model and, 482–483 poverty among, 476 unions and, 353 Work rules, 355–356 WorldCom, 434 World Health Organization (WHO), 508 World price, 542, 544–545 World Trade Organization (WTO), 459, 552 Xerox, 257 X-inefficiency, 265, 266, 436 Yahoo!, 299, 518 Yale University, Environmental Performance Index (EPI), 398–399 Yum! Brands, 433 Zero slopes, 26 Zero-sum game, 304 Zuckerberg, Mark, 11 ... Semiconductor processors 20 10 20 20 Percentage Decrease* 53.4 1 42 66 73 34 48.5 48 .2 35.6 25 18 27 .8 163 143 121 110 25 .8 23 .3 15 12 21.8 23 18 18 .2 21 17 17.9 *Percentages and employment numbers... ] 18 .20 ] 31 .20 ] 39.60 ] 44.00 ] 46 .25 ] 47 .25 ] 46 .20 (6) Marginal Revenue Product (MRP) $ 18 .20 13.00 8.40 4.40 2. 25 1.00 21 .05 www.downloadslide.net Microeconomics of Resource Markets and. .. Demand for Labor: Pure Competition in the Sale of the Product (1) Units of Resource (2) Total Product (Output) (3) Marginal Product (MP) (4) Product Price $2 2 2 2 ] ] 13 ] 18 ] 22 ] 25 ] 27 ] 28