MICROECONOMICS THEORY AND APPLICATIONS FOURTH EDITIONPDF电子书下载

PART ONE Introduction to Microeconomics 1

CHAPTER 1 Introduction 3

1.1 Wants and Scarcity 4

Can Human Wants Ever Be Fully Satisfied？ 4

Scarcity：The Pervasive Economic Problem 4

Example 1-1 More Health Care Means Less of Other Goods and Services 5

1.2 Functions of an Economic System 6

1.3 Microeconomic Theory and the Price System 7

The Circular Flow of Economic Activity 7

Determination and Function of Prices 8

Example 1-2 Drought in Kansas Sends Wheat Prices Soaring 10

What Role for the Government？ 10

Example 1-3 Economic Inefficiencies Cause Collapse of Communist Regimes 11

1.4 The Margin：The Key Unifying Concept in Microeconomics 12

The Crucial Importance of the Concept of the Margin 12

Example 1-4 Marginal Analysis in TV Advertising 13

Some Clarifications on the Use of the Margin 15

1.5 Specialization，Exchange，and the International Framework of Microeconomics 16

Specialization and Exchange 16

The International Framework of Microeconomics 16

Example 1-5 Even the IBM PC and the Boeing777Are Not All American！ 17

1.6 Models，Methodology，and Value Judgments 18

Models and Methodology 18

Positive and Normative Analysis 19

At The Frontier Do Economists Ever Agree on Anything？ 20

Summary 22

Key Terms 22

Review Questions 23

Problems 23

Internet Site Addresses 24

CHAPTER 2 Basic Demand and Supply Analysis 25

2.1 Market Analysis 25

2.2 Market Demand 26

Demand Schedule and Demand Curve 26

Changes in Demand 28

2.3 Market Supply 29

Supply Schedule and Supply Curve 29

Changes in Supply 30

2.4 When Is a Market in Equilibrium？ 31

2.5 Adjustment to Changes in Demand and Supply：Comparative Static Analysis 33

Adjustment to Changes in Demand 34

Adjustment to Changes in Supply 34

Example 2-1 Changes in Demand and Supply and Coffee Prices 35

2.6 Domestic Demand and Supply，Imports，and Prices 37

Example 2-2 The Large U.S.Automotive Trade Deficit Keeps U.S.Auto Prices Down 38

2.7 Interfering with versus Working through the Market 39

Example 2-3 Rent Control Harms the Housing Market 40

Example 2-4 The Economics of U.S.Farm Support Programs 42

Example 2-5 Working through the Market with an Excise Tax 44

Example 2-6 Fighting the Drug War by Reducing Demand and Supply 46

At The Frontier Nonclearing Markets Theory 47

Summary 48

Key Terms 49

Review Questions 50

Problems 50

Appendix The Algebra of Demand，Supply，and Equilibrium 51

Market Equilibrium Algebraically 52

Shifts in Demand and Supply，and Equilibrium 53

The Effect of an Excise Tax 53

Internet Site Addresses 54

PART TWO Theory of Consumer Behavior and Demand 55

CHAPTER 3 Consumer Preferences and Choice 57

3.1 Utility Analysis 58

Total and Marginal Utility 58

Cardinal or Ordinal Utility？ 60

Example 3-1 Does Money Buy Happiness？ 61

3.2 Consumer’s Tastes：Indifference Curves 62

Indifference Curves—What Do They Show？ 62

Characteristics of Indifference Curves 64

The Marginal Rate of Substitution 65

Some Special Types of Indifference Curves 66

Example 3-2 How Ford Decided on the Characteristics of Its Taurus 68

3.3 International Convergence of Tastes 69

Example 3-3 Gillette Introduces the Sensor and Mach3 Razors—Two Truly Global Products 69

3.4 The Consumer’s Income and Price Constraints：The Budget Line 70

Definition of the Budget Line 70

Changes in Income and Prices and the Budget Line 72

Example 3-4 Time as a Constraint 74

3.5 Consumer’s Choice 74

Utility Maximization 75

Example 3-5 Utility Maximization and Government Warnings on Junk Food 76

Corner Solutions 78

Example 3-6 Water Rationing in the West 79

Marginal Utility Approach to Utility Maximization 80

At The Frontier The Theory of Revealed Preference 82

Summary 84

Key Terms 85

Review Questions 85

Problems 86

Internet Site Addresses 87

CHAPTER 4 Consumer Behavior and Individual Demand 88

4.1 Changes in Income and the Engel Curve 89

Income-Consumption Curve and Engel Curve 89

Example 4-1 Engel’s Law After a Century 91

Normal and Inferior Goods 92

Example 4-2 Many People Are Blowing Their Pension Money Long Before Retirement 94

4.2 Changes in Price and the Individual Demand Curve 95

Example 4-3 Higher Alcohol Prices Would Sharply Reduce Youth Alcohol Use and Traffic Deaths 97

4.3 Substitution and Income Effects 98

How Are the Substitution and Income Effects Separated？ 98

Example 4-4 The Substitution and Income Effects of a Gasoline Tax 101

Substitution and Income Effects for Inferior Goods 102

4.4 Substitution Between Domestic and Foreign Goods 104

Example 4-5 What Is an “American” Car？ 105

4.5 Some Applications of Indifference Curve Analysis 106

Is a Cash Subsidy Better Than Food Stamps？ 106

Consumer Surplus Measures Unpaid Benefits 108

Benefits from Exchange 110

At The Frontier The Characteristics Approach to Consumer Theory 112

Summary 115

Key Terms 116

Review Questions 116

Problems 117

Appendix Index Numbers and Changes in Consumer Welfare 118

Expenditure，Laspeyres，and Paasche Indices 118

How Are Changes in Consumer Welfare Measured？ 119

Example 4-6 The Consumer Price Index，Inflation，and Changes in the Standard of Living 121

Example 4-7 Comparing the Standard of Living in Different Countries 122

Internet Site Addresses 124

CHAPTER 5 Market Demand and Elasticities 125

5.1 The Market Demand for a Commodity 125

Example 5-1 The Demand for Big Macs 127

5.2 Price Elasticity of Market Demand 129

Measuring the Price Elasticity of Demand 129

Price Elasticity Graphically 131

Price Elasticity and Total Expenditures 132

What Determines Price Elasticity？ 133

Example 5-2 The Price Elasticity for Clothing Increases with Time 135

5.3 Income Elasticity of Demand 136

Example 5-3 Transatlantic Air Travel Is a Luxury，Flour Is an Inferior Good 138

5.4 Cross Elasticity of Demand 139

Example 5-4 Margarine and Butter Are Substitutes，Cereals and Fresh Fish Are Complements 140

5.5 Price and Income Elasticities of Imports and Exports 141

Example 5-5 Price and Income Elasticities for Imports and Exports in the Real World 142

5.6 Marginal Revenue and Elasticity 143

Demand，Total Revenue，and Marginal Revenue 143

Geometry of Marginal Revenue Determination 144

Marginal Revenue，Price，and Elasticity 146

Example 5-6 The U.S.Consumer Demand for Alcoholic Beverages 148

At The Frontier The Marketing Revolution with Micromarketing 149

Summary 151

Key Terms 152

Review Questions 152

Problems 153

Appendix Empirical Estimation of Demand by Regression Analysis 155

Example 5-7 Estimating and Forecasting the U.S.Demand for Electricity 157

Internet Site Addresses 159

CHAPTER 6 Choice Under Uncertainty 160

6.1 Risk and Uncertainty in Demand Choices 160

Example 6-1 The Risk Faced by Coca-Cola in Changing Its Secret Formula 161

6.2 Measuring Risk 162

Probability Distributions 162

The Standard Deviation 164

Example 6-2 Risk and Crime Deterrence 166

6.3 Utility Theory and Risk Aversion 167

Different Preferences Toward Risk 167

Maximizing Expected Utility 168

Example 6-3 America’s Gambling Craze 170

6.4 Insurance and Gambling 171

Why Do Some Individuals Buy Insurance？ 171

Why Do Some Individuals Gamble？ 173

Example 6-4 Gambling and Insuring by the Same Individual—A Seeming Contradiction 174

6.5 Risk Aversion and Indifference Curves 175

Example 6-5 Spreading Risks in the Choice of a Portfolio 177

6.6 Reducing Risk and Uncertainty 178

Gathering More Information 178

Diversification 179

Insurance 179

Example 6-6 Some Disasters as Nondiversifiable Risks 180

At The Frontier Foreign Exchange Risks and Hedging 181

Summary 182

Key Terms 183

Review Questions 183

Problems 184

Internet Site Addresses 186

PART THREE Production，Costs，and Competitive Markets 187

CHAPTER 7 Production Theory 189

7.1 Relating Outputs to Inputs 190

Organization of Production 190

Classification of Inputs 191

7.2 Production with One Variable Input 192

Total，Average，and Marginal Product 192

The Geometry of Average and Marginal Product Curves 195

The Law of Diminishing Returns 196

Example 7-1 Economics—The Dismal Science Because of Diminishing Returns 197

7.3 Production with Two Variable Inputs 198

What Do Isoquants Show？ 198

Derivation of Total Product Curves from the Isoquant Map 199

7.4 The Shape of Isoquants 201

Characteristics of Isoquants 201

Economic Region of Production 203

Fixed-Proportions Production Functions 205

Example 7-2 Trading Traveling Time for Gasoline Consumption on the Nation’s Highways 206

7.5 Constant，Increasing，and Decreasing Returns to Scale 207

Example 7-3 General Motors Decides Smaller Is Better 210

7.6 Technological Progress and International Competitiveness 211

Meaning and Importance of Innovations 211

Example 7-4 How Do Firms Get New Technology？ 212

Innovations and the International Competitiveness of U.S.Firms 213

Example 7-5 How Xerox Lost and Regained，but Is Now Struggling to Remain Internationally Competitive 214

Example 7-6 Score Card on American Industry 215

At The Frontier The New Computer-Aided Production Revolution and the International Competitiveness of U.S.Firms 216

Summary 218

Key Terms 218

Review Questions 219

Problems 219

Appendix The Cobb-Douglas Production Function 221

The Formula 221

Illustration 221

Empirical Estimation 223

Example 7-7 Output Elasticity of Labor and Capital and Returns to Scale in U.S.and Canadian Manufacturing 224

Internet Site Addresses 226

CHAPTER 8 Costs of Production 227

8.1 The Nature of Production Costs 227

Example 8-1 The Cost of Attending College 228

8.2 Cost in the Short Run 229

Total Costs 230

Per-Unit Costs 230

Geometry of Per-Unit Cost Curves 232

Example 8-2 Per-Unit Cost Curves in Corn Production 235

8.3 Cost in the Long Run 236

Isocost Lines 236

Least-Cost Input Combination 238

Cost Minimization in the Long Run and in the Short Run 239

Example 8-3 The Least-Cost Combination of Gasoline and Driving Time 240

8.4 Expansion Path and Long-Run Cost Curves 241

Expansion Path and the Long-Run Total Cost Curve 242

Derivation of the Long-Run Average and Marginal Cost Curves 242

The Relationship between Short- and Long-Run Average Cost Curves 245

Example 8-4 Long-Run Average Cost Curve in Electricity Generation 246

8.5 Shape of the Long-Run Average Cost Curve 247

Example 8-5 The Shape of the Long-Run Average Cost Curves in Various Industries 248

Example 8-6 The Minimum Efficient Scale in Various U.S.Food Industries 249

8.6 Multiproduct Firms and Dynamic Changes in Costs 250

Economies of Scope 250

The Learning Curve 251

Example 8-7 The Learning Curve for the Lockheed L-1011 Aircraft and for Semiconductors 253

At The Frontier Minimizing Costs Internationally—The New Economies of Scale 254

Summary 256

Key Terms 257

Review Questions 257

Problems 258

Appendix Extensions and Uses of Production and Cost Analysis 259

Derivation of the Total Variable Cost Curve from the Total Product Curve 259

Input Substitution in Production to Minimize Costs 261

Example 8-8 The Elasticity of Substitution in Japanese Manufacturing Industries 262

Input Prices and the Firm’s Cost Curves 262

Internet Site Addresses 263

CHAPTER 9 Price and Output Under Perfect Competition 264

9.1 Market Structure：Perfect Competition 265

Example 9-1 Competition in the New York Stock Market 266

9.2 Price Determination in the Market Period 267

9.3 Short-Run Equilibrium of the Firm 268

Total Approach：Maximizing the Positive Difference between Total Revenue and Total Costs 269

Marginal Approach：Equating Marginal Revenue and Marginal Cost 269

Profit Maximization or Loss Minimization？ 273

9.4 Short-Run Supply Curve and Equilibrium 274

Short-Run Supply Curve of the Firm and Industry 274

Example 9-2 The Supply Curve of Petroleum from Tar Sands 276

Example 9-3 The Short-Run World Supply Curve of Copper 278

Short-Run Equilibrium of the Industry and Firm 280

9.5 Long-Run Equilibrium of the Firm and Industry 281

Long-Run Equilibrium of the Firm 281

Long-Run Equilibrium of the Industry and Firm 282

Efficiency Implications of Perfect Competition 283

Example 9-4 Long-Run Adjustment in the U.S.Cotton Textile Industry 284

9.6 Constant，Increasing，and Decreasing Cost Industries 285

Constant Cost Industries 285

Increasing Cost Industries 286

Decreasing Cost Industries 287

9.7 International Competition in the Domestic Economy 288

9.8 Analysis of Competitive Markets 290

Producer Surplus 290

Consumers’ and Producers’ Surplus，and the Efficiency of Perfect Competition 292

Welfare Effects of an Excise Tax 293

Effects of an Import Tariff 295

At The Frontier Auctioning Airwaves 297

Summary 299

Key Terms 300

Review Questions 300

Problems 301

Appendix The Foreign Exchange Market and the Dollar Exchange Rate 302

Example 9-5 Foreign Exchange Quotations 304

Example 9-6 Depreciation of the U.S.Dollar and Profitability of U.S.Firms 305

Internet Site Addresses 306

Imperfectly Competitive Markets 307

CHAPTER 10 Price and Output Under Pure Monopoly 309

10.1 Pure Monopoly—The Opposite Extreme from Perfect Competition 309

Definition and Sources of Monopoly 310

Example 10-1 Barriers to Entry and Monopoly by Alcoa 311

The Monopolist Faces the Market Demand Curve for the Commodity 312

Example 10-2 De Beers Abandons It Diamond Monopoly 314

10.2 Short-Run Equilibrium Price and Output 315

Total Approach：Maximizing the Positive Difference between Total Revenue and Total Costs 316

Marginal Approach：Equating Marginal Revenue and Marginal Cost 318

Profit Maximization or Loss Minimization？ 320

Short-Run Marginal Cost and Supply 322

10.3 Long-Run Equilibrium Price and Output 323

Profit Maximization in the Long Run 323

Example 10-3 Monopoly Profits in the New York City Taxi Industry 324

Comparison with Perfect Competition：The Social Cost of Monopoly 325

Example 10-4 Estimates of the Social Cost of Monopoly in the United States 327

10.4 Profit Maximization by the Multiplant Monopolist 328

Short-Run Equilibrium 328

Long-Run Equilibrium 329

10.5 Price Discrimination—A Monopolist’s Method of Increasing Profits 330

Charging Different Prices for Different Quantities 330

Example 10-5 First-Degree Price Discrimination in Undergraduate Financial Aid at American Colleges 332

Charging Different Prices for Different Markets 333

Example 10-6 Price Discrimination by Con Edison 335

10.6 International Price Discrimination and Dumping 336

Example 10-7 Kodak Antidumping Victory Over Fuji—But Kodak Still Faces Competitive Problems 337

10.7 Two-Part Tariffs，Tying，and Bundling 338

Two-Part Tariffs 338

Tying and Bundling 340

Example 10-8 Bundling in the Leasing of Movies 341

10.8 Analysis of Monopoly Markets 342

Per-Unit Tax：Perfect Competition and Monopoly Compared 342

Price Discrimination and the Existence of the Industry 343

Do Monopolists Suppress Inventions？ 343

At The Frontier Windows 95—A Software Near Monopoly—Lands Microsoft in the Courts 346

Summary 348

Key Terms 349

Review Questions 349

Problems 349

Internet Site Addresses 351

CHAPTER 11 Price and Output Under Monopolistic Competition and Oligopoly 353

11.1 Monopolistic Competition：Many Sellers of a Differentiated Product 354

11.2 Monopolistic Competition：Short-Run and Long-Run Analysis 355

Price and Output Decisions Under Monopolistic Competition 355

Product Variation and Selling Expenses 357

Example 11-1 Advertisers Are Taking on Competitors by Name...and Are Being Sued 358

How Useful Is the Theory of Monopolistic Competition？ 359

11.3 Oligopoly：Interdependence Among the Few Producers in the Industry 361

Example 11-2 Industrial Concentration in the United States 362

11.4 The Cournot and the Kinked-Demand Curve Models 363

The Cournot Model：Interdependence Not Recognized 363

The Kinked-Demand Curve Model：Interdependence Recognized 366

11.5 Collusion：Cartels and Price Leadership Models 367

A Centralized Cartel Operates as a Monopolist 368

Example 11-3 The Organization of Petroleum Exporting Countries （OPEC） Cartel 369

Market-Sharing Cartel 371

Example 11-4 The Market-Sharing Ivy Cartel 372

Price Leadership 373

11.6 Long-Run Adjustments and Efficiency Implications of Oligopoly 376

Long-Run Adjustments in Oligopoly 376

Nonprice Competition among Oligopolists 377

Welfare Effects of Oligopoly 377

Example 11-5 Firm Size and Profitability 378

11.7 Other Oligopolistic Pricing Practices 379

Limit Pricing as a Barrier to Entry 379

Cost-Plus Pricing：A Common Short-Cut Pricing Practice 381

At The Frontier The Art of Devising Air Fares 382

11.8 The March of Global Oligopolists 386

Example 11-6 Rising Competition in Global Banking 388

Example 11-7 Globalization of the Pharmaceutical Industry 389

Summary 390

Key Terms 392

Review Questions 392

Problems 393

Appendix The Cournot and Stackelberg Models 394

The Cournot Model—An Extended Treatment 394

The Stackelberg Model 396

Internet Site Addresses 398

CHAPTER 12 Game Theory and Oligopolistic Behavior 399

12.1 Game Theory：Definition，Objectives，and Usefulness 399

Example 12-1 Military Strategy and Strategic Business Decisions 401

12.2 Dominant Strategy and Nash Equilibrium 401

Dominant Strategy 402

Nash Equilibrium 403

Example 12-2 Dell Computers and Nash Equilibrium 404

12.3 The Prisoners’ Dilemma，Price and Nonprice Competition，and Cartel Cheating 405

The Prisoners’ Dilemma：Definition and Importance 405

Price and Nonprice Competition，Cartel Cheating，and the Prisoners’ Dilemma 406

Example 12-3 The Airlines’ Fare War and the Prisoners’ Dilemma 408

12.4 Repeated Games and Tit-For-Tat Strategy 409

12.5 Strategic Moves 410

Threats，Commitments，and Credibility 410

Entry Deterrence 411

Example 12-4 Wal-Mart’s Preemptive Expansion Marketing Strategy 412

12.6 Strategic Moves and International Competitiveness 413

Example 12-5 Companies’ Strategic Mistakes and Failures 415

At The Frontier The Virtual Corporation 416

Summary 417

Key Terms 418

Review Questions 418

Problems 419

Internet Site Addresses 420

CHAPTER 13 Market Structure，Efficiency，and Regulation 421

13.1 Market Structure and Efficiency 421

13.2 Measuring Monopoly Power 423

The Lerner Index as a Measure of Monopoly Power 423

Concentration and Monopoly Power：The Herfindahl Index 424

Contestable Markets：Effective Competition Even with Few Firms 426

At The Frontier Functioning of Markets and Experimental Economics 427

13.3 Social Costs and Dynamic Benefits of Monopoly Power 429

13.4 Controlling Monopoly Power：Antitrust Policy 431

Example 13-1 Antitrust Policy in Action—The Breakup of AT＆T and the Creation of Competition in the Long-Distance Telephone Service 433

Example 13-2 Regulation and the Price of International Telephone Calls in Europe 433

13.5 Public-Utility Regulation 434

Public Utilities as Natural Monopolies 434

Difficulties in Public-Utility Regulation 436

Example 13-3 Regulated Electricity Rates for Con Edison—A Thing of the Past 437

13.6 The Deregulation Movement 438

Example 13-4 Deregulation of the Airline Industry：An Assessment 439

Example 13-5 Deregulation and the New Merger Boom 440

13.7 Regulating International Competition：Voluntary Export Restraints 442

Example 13-6 Voluntary Export Restraints on Japanese Automobiles to the United States 442

13.8 Some Applications of Market Structure，Efficiency，and Regulation 443

Regulating Monopoly Price 443

Regulation and Peak-Load Pricing 445

Regulation and Transfer Pricing 447

Summary 449

Key Terms 450

Review Questions 450

Problems 450

Internet Site Addresses 451

PART FIVE Pricing and Employment of Inputs 453

CHAPTER 14 Input Price and Employment Under Perfect Competition 455

14.1 Profit Maximization and Optimal Input Employment 456

14.2 The Demand Curve of a Firm for an Input 457

The Demand Curve of a Firm for One Variable Input 457

The Demand Curve of a Firm for One of Several Variable Inputs 459

14.3 The Market Demand Curve for an Input and Its Elasticity 461

The Market Demand Curve for an Input 461

Example 14-1 The Increase in the Demand for Temporary Workers 463

Determinants of the Price Elasticity of Demand for an Input 464

Example 14-2 Price Elasticity of Demand for Inputs in Manufacturing Industries 465

14.4 The Supply Curve of an Input 466

The Supply of Labor by an Individual 466

Substitution and Income Effects of a Wage Increase 468

Example 14-3 Labor Force Participation Rates 469

The Market Supply Curve for an Input 470

Example 14-4 Backward-Bending Supply Curve of Physicians’ Services and Other Labor 471

14.5 Pricing and Employment of an Input 472

Example 14-5 Labor Productivity and Total Compensation in the United States and Abroad 473

14.6 Input Price Equalization Among Industries，Regions，and Countries 474

Input Price Equalization Among Industries and Regions of a Country 475

Input Price Equalization Among Countries 476

Example 14-6 Convergence in Hourly Compensation in the Leading Industrial Countries 478

14.7 Economic Rent：An Unnecessary Payment to Bring Forth the Supply of an Input 478

14.8 Analysis of Labor Markets Under Perfect Competition 480

Substitution and Income Effects of a Wage Rate Change 480

Overtime Pay and the Supply of Labor Services 482

Wage Differentials 483

Effect of Minimum Wages 484

At The Frontier Do Minimum Wages Really Reduce Employment？ 486

Summary 487

Key Terms 489

Review Questions 489

Problems 489

Internet Site Addresses 490

CHAPTER 15 Input Price and Employment Under Imperfect Competition 491

15.1 Profit Maximization and Optimal Input Employment 491

15.2 The Demand Curve of a Firm for an Input 492

The Demand Curve of a Firm for One Variable Input 492

The Demand Curve of a Firm for One of Several Variable Inputs 494

15.3 The Market Demand Curve，and Input Price and Employment 495

Example 15-1 The Dynamics of the Engineers’ Shortage 496

15.4 Monopsony：A Single Firm Hiring an Input 498

Example 15-2 Occupational Licensing，Mobility，and Imperfect Labor Markets 500

15.5 Monopsony Pricing and Employment of One Variable Input 501

Example 15-3 Monopsonistic Exploitation in Major League Baseball 503

15.6 Monopsony Pricing and Employment of Several Variable Inputs 505

Example 15-4 Imperfect Competition in Labor Markets and the Pay of Top Executives 506

15.7 International Migration and the Brain Drain 507

Example 15-5 British and Russian Brain Drain Is U.S.Brain Gain 508

Example 15-6 The Debate Over U.S.Immigration Policy 509

15.8 Analysis of Imperfect Input Markets 510

Regulation of Monopsony 510

Bilateral Monopoly：A Monopsonistic Buyer Facing a Monopolistic Seller 511

Effect of Labor Unions on Wages 513

Economics of Discrimination in Employment 515

At The Frontier Discrimination，and Gender and Wage Differentials 517

Summary 518

Key Terms 519

Review Questions 520

Problems 520

Internet Site Addresses 521

CHAPTER 16 Financial Microeconomics：Interest，Investment，and the Cost of Capital 522

16.1 Lending-Borrowing Equilibrium 523

Lending 523

Borrowing 525

The Market Rate of Interest with Borrowing and Lending 527

Example 16-1 Personal Savings in the United States 529

16.2 Saving-Investment Equilibrium 530

Saving-Investment Equilibrium without Borrowing and Lending 530

Saving-Investment Equilibrium with Borrowing and Lending 532

The Market Rate of Interest with Saving and Investment，Borrowing and Lending 534

Example 16-2 Personal and Business Savings，and Gross and Net Private Domestic Investment in the United States 535

16.3 Investment Decisions 536

Net Present Value Rule for Investment Decisions：The Two-Period Case 536

Net Present Value Rule for Investment Decisions：The Multiperiod Case 537

Example 16-3 Fields of Education and Higher Lifetime Earnings in the United States 540

16.4 Determinants of the Market Rates of Interest 541

Example 16-4 Nominal and Real Interest Rates in the United States：1981-2001 542

Example 16-5 Investment Risks and Returns in the United States 543

16.5 The Cost of Capital 544

Cost of Debt 544

Cost of Equity Capital：The Risk-Free Rate Plus Premium 545

Cost of Equity Capital：The Dividend Valuation Model 546

Cost of Equity Capital：The Capital Asset Pricing Model （CAPM） 546

Weighted Cost of Capital 547

At The Frontier Derivatives：Useful but Dangerous 548

16.6 Effects of Foreign Investments on the Receiving Nation 550

Example 16-6 Fluctuations in the Flow of Foreign Direct Investments to the United States 552

16.7 Some Applications of Financial Microeconomics 553

Investment in Human Capital 554

Investment in Human Capital and Hours of Work 555

Pricing of Exhaustible Resources 556

Management of Nonexhaustible Resources 558

Summary 560

Key Terms 561

Review Questions 561

Problems 562

Internet Site Addresses 563

PART SIX General Equilibrium，Efficiency，and Public Goods 565

CHAPTER 17 General Equilibrium and Welfare Economics 567

17.1 Partial Versus General Equilibrium Analysis 567

Example 17-1 Effect of a Reduction in Demand for Domestically Produced Automobiles in the United States 569

17.2 General Equilibrium of Exchange and Production 571

General Equilibrium of Exchange 571

General Equilibrium of Production 573

Derivation of the Production-Possibilities Frontier 575

17.3 General Equilibrium of Production and Exchange and Pareto Optimality 577

General Equilibrium of Production and Exchange Simultaneously 577

Marginal Conditions for Economic Efficiency and Pareto Optimality 580

17.4 Perfect Competition，Economic Efficiency，and Equity 581

Perfect Competition and Economic Efficiency 582

Efficiency and Equity 583

Example 17-2 Watering Down Efficiency in the Pricing of Water 584

17.5 General Equilibrium of Production and Exchange with International Trade 585

Example 17-3 The Basis and the Gains from International Trade 586

17.6 Welfare Economics and Utility-Possibilities Frontiers 587

The Meaning of Welfare Economics 587

Example 17-4 “The Painful Prescription：Rationing Hospital Care” 588

Utility-Possibilities Frontier 589

Grand Utility-Possibilities Frontier 590

Example 17-5 From Welfare to Work—The Success of Welfare Reform in the United States 592

17.7 Social Policy Criteria 593

Measuring Changes in Social Welfare 593

Arrow’s Impossibility Theorem 595

At The Frontier The Hot Issue of Income Inequality in the United States 596

17.8 Trade Protection and Economic Welfare 598

Example 17-6 Welfare Effects of Removing U.S.Trade Restrictions 599

Summary 600

Key Terms 601

Review Questions 602

Problems 602

Internet Site Addresses 603

CHAPTER 18 Externalities，Public Goods，and the Role of Government 605

18.1 Externalities 605

Externalities Defined 605

Externalities and Market Failure 606

Example 18-1 The Case for Government Support for Basic Research 608

18.2 Externalities and Property Rights 609

Example 18-2 Commercial Fishing：Fewer Boats but Exclusive Rights？ 610

18.3 Public Goods 611

Nature of Public Goods 611

Example 18-3 The Economics of a Lighthouse and Other Public Goods 613

Provision of Public Goods 614

At The Frontier Efficiency Versus Equity in the U.S.Tax System 615

18.4 Benefit-Cost Analysis 616

Example 18-4 Benefit-Cost Analysis and the SST 618

18.5 The Theory of Public Choice 619

Meaning and Importance of Public-Choice Theory 619

The Public-Choice Process 620

Policy Implications of Public-Choice Theory 622

18.6 Strategic Trade Policy 623

Example 18-5 Strategic Trade and Industrial Policies in the United States 624

18.7 Government Control and Regulation of Environmental Pollution 625

Environmental Pollution 625

Optimal Pollution Control 626

Direct Regulation and Effluent Fees for Optimal Pollution Control 627

Example 18-6 The Market for Dumping Rights 628

Summary 629

Key Terms 630

Review Questions 631

Problems 631

Internet Site Addresses 632

CHAPTER 19 The Economics of Information 634

19.1 The Economics of Search 634

Search Costs 634

Searching for the Lowest Price 635

Search and Advertising 637

Example 19-1 No-Haggling Value Pricing in Car Buying 638

At The Frontier The Internet and the Information Revolution 639

19.2 Asymmetric Information：The Market for Lemons and Adverse Selection 640

Asymmetric Information and the Market for Lemons 641

The Insurance Market and Adverse Selection 641

19.3 Market Signaling 642

19.4 The Problem of Moral Hazard 644

Example 19-2 Increased Disability Payments Reduce Labor-Force Participation 645

Example 19-3 Medicare and Medicaid and Moral Hazard 646

19.5 The Principal-Agent Problem 647

Example 19-4 Do Golden Parachutes Reward Failure？ 648

19.6 The Efficiency Wage Theory 649

Example 19-5 The Efficiency Wage at Ford 651

Summary 652

Key Terms 653

Review Questions 653

Problems 653

Internet Site Addresses 654

Appendix A Mathematical Appendix 657

Appendix B Answers to Selected Problems 668

Appendix C Glossary 699

Name Index 717

Subject Index 719