MICROECONOMICS PRINCIPLES OF Annotated Instructor’s Edition - Not for Sale A division of Quant Systems, Inc. 546 Long Point Road Mount Pleasant, SC 29464 &RS\ULJKWkE\+DZNHV/HDUQLQJɈɈ4XDQW6\VWHPVΖQF$OOULJKWVUHVHUYHG 1RSDUWRIWKLVSXEOLFDWLRQPD\EHUHSURGXFHGVWRUHGLQDUHWULHYDOV\VWHPRUWUDQVPLWWHGLQDQ\IRUPRUE\DQ\PHDQV HOHFWURQLFPHFKDQLFDOSKRWRFRS\LQJUHFRUGLQJRURWKHUZLVHZLWKRXWWKHSULRUZULWWHQFRQVHQWRIWKHSXEOLVKHU 3ULQWHGLQWKH8QLWHG6WDWHVRI$PHULFD Ʉ ɄɄɄɄɄɄɄɄɄ LCCN: Ʉ AIE LCCN: Ʉ 2019914729 Ζ6%1Ʉ 978-1-64277-236-4 $Ζ(Ζ6%1Ʉ 978-1-64277-235-7 Product Manager & Lead Editor: Kelsey Gamel New Course Development Manager: Laura Brown Editors: Caitlin Coleman, Caitlin Edahl, Kelsey Gamel Assistant Editors: Wright Bailey, Steven Steinbacher Creative Services Manager: Joshua A. Walker Content Operations Manager: Robert Alexander Contributing Designers: Trudy Gove, Patrick Thompson Cover Design: Trudy GoveTable of Contents Preface Principles of Microeconomics Content Highlights ..............................................................................x Tips for Success .......................................................................................................................................xii Chapter 0: Math Review 0.1 Addition and Subtraction ............................................................................................................4 0.2 Multiplication and Division .........................................................................................................12 0.3 Order of Operations ....................................................................................................................17 0.4 Algebraic Expressions .................................................................................................................20 0.5 Basics of Percent ..........................................................................................................................28 0.6 Linear Equations ..........................................................................................................................39 0.7 Graphing.........................................................................................................................................49 0.8 Calculating Area ............................................................................................................................76 Chapter 0 Exercises...................................................................................................................79 Chapter 1: Welcome to Economics! 1.1 What Is Economics, and Why Is It Important? .....................................................................102 1.2 (FRQRPLF7KHRULHVb0RGHOVDQG6\VWHPV ...........................................................................109 Chapter 1 Project ......................................................................................................................119 Chapter 1 Review ......................................................................................................................122 Chapter 1 Exercises .................................................................................................................124 Chapter 2: Choice in a World of Scarcity 2.1 How Individuals Make Choices Based on Their Budget Constraint ..............................128 2.2 The Production Possibilities Frontier and Social Choices ................................................137 2.3 Confronting Objections to the Economic Approach .........................................................145 Chapter 2 Project ......................................................................................................................150 Chapter 2 Review .....................................................................................................................153 Chapter 2 Exercises .................................................................................................................155Chapter 3: Demand and Supply 3.1 Demand, Supply, and Equilibrium in Markets for Goods and Services ........................161 3.2 Shifts in Demand and Supply for Goods and Services .....................................................167 3.3 Changes in Equilibrium Price and Quantity: The Four-Step Process ............................180 3.4 Price Ceilings and Price Floors ................................................................................................189 3.5 'HPDQG6XSSO\DQG(ɝFLHQF\ .............................................................................................193 Chapter 3 Project ......................................................................................................................200 Chapter 3 Review .....................................................................................................................203 Chapter 3 Exercises .................................................................................................................206 Chapter 4: Labor and Financial Markets 4.1 Demand and Supply at Work in Labor Markets .................................................................217 4.2 Demand and Supply in Financial Markets ...........................................................................227 4.3 7KH0DUNHW6\VWHPDVDQ(ɝFLHQW0HFKDQLVPIRUΖQIRUPDWLRQ ....................................236 Chapter 4 Project ......................................................................................................................241 Chapter 4 Review .....................................................................................................................246 Chapter 4 Exercises .................................................................................................................247 Chapter 5: Elasticity 5.1 Price Elasticity of Demand and Price Elasticity of Supply .................................................255 5.2 Polar Cases of Elasticity and Constant Elasticity ................................................................261 5.3 Elasticity and Pricing ..................................................................................................................265 5.4 Elasticity in Areas Other Than Price .......................................................................................274 Chapter 5 Project ......................................................................................................................281 Chapter 5 Review .....................................................................................................................284 Chapter 5 Exercises .................................................................................................................286 Chapter 6: Consumer Choices 6.1 Consumption Choices ...............................................................................................................294 6.2 +RZ&KDQJHVLQΖQFRPHDQG3ULFHV$HFW&RQVXPSWLRQ&KRLFHV ...............................302 6.3 Behavioral Economics: An Alternative Framework for Consumer Choice ...................308 Chapter 6 Project ......................................................................................................................313 Chapter 6 Review .....................................................................................................................315 Chapter 6 Exercises .................................................................................................................316Chapter 7: Production, Costs, and Industry Structure 7.1 ([SOLFLWDQGΖPSOLFLW&RVWVDQG$FFRXQWLQJDQG(FRQRPLF3URȴW ..................................323 7.2 Production in the Short Run ...................................................................................................326 7.3 Costs in the Short Run ..............................................................................................................331 7.4 Production in the Long Run ....................................................................................................341 7.5 Costs in the Long Run ...............................................................................................................342 Chapter 7 Project ......................................................................................................................352 Chapter 7 Review .....................................................................................................................354 Chapter 7 Exercises .................................................................................................................356 Chapter 8: Perfect Competition 8.1 Perfect Competition and Why It Matters .............................................................................364 8.2 How Perfectly Competitive Firms Make Output Decisions ..............................................366 8.3 Entry and Exit Decisions in the Long Run ............................................................................380 8.4 (ɝFLHQF\LQ3HUIHFWO\&RPSHWLWLYH0DUNHWV .........................................................................385 Chapter 8 Project ......................................................................................................................388 Chapter 8 Review .....................................................................................................................390 Chapter 8 Exercises .................................................................................................................392 Chapter 9: Monopoly 9.1 How Monopolies Form: Barriers to Entry ............................................................................401 9.2 +RZD3URȴW0D[LPL]LQJ0RQRSRO\&KRRVHVb2XWSXWDQG3ULFH ....................................408 Chapter 9 Project ......................................................................................................................421 Chapter 9 Review .....................................................................................................................423 Chapter 9 Exercises .................................................................................................................424 Chapter 10: Monopolistic Competition and Oligopoly 10.1 Monopolistic Competition .......................................................................................................430 10.2 Oligopoly ......................................................................................................................................440 Chapter 10 Project ....................................................................................................................449 Chapter 10 Review ...................................................................................................................451 Chapter 10 Exercises ...............................................................................................................452Chapter 11: Monopoly and Antitrust Policy 11.1 Corporate Mergers ....................................................................................................................459 11.2 5HJXODWLQJb$QWLFRPSHWLWLYH%HKDYLRU ....................................................................................466 11.3 Regulating Natural Monopolies ..............................................................................................470 11.4 The Great Deregulation Experiment .....................................................................................475 Chapter 11 Project ....................................................................................................................480 Chapter 11 Review ....................................................................................................................482 Chapter 11 Exercises ...............................................................................................................484 Chapter 12: Environmental Protection and Negative Externalities 12.1 The Economics of Pollution .....................................................................................................490 12.2 Policies to Reduce Pollution ....................................................................................................496 12.3 7KH%HQHȴWVDQG&RVWVRI86(QYLURQPHQWDO/DZV .........................................................503 12.4 ΖQWHUQDWLRQDOb(QYLURQPHQWDOΖVVXHV .......................................................................................507 12.5 7KH7UDGHREHWZHHQ(FRQRPLF2XWSXWDQG(QYLURQPHQWDO3URWHFWLRQ ...................508 Chapter 12 Project ....................................................................................................................512 Chapter 12 Review ...................................................................................................................514 Chapter 12 Exercises ...............................................................................................................516 Chapter 13: Positive Externalities and Public Goods 13.1 :K\WKH3ULYDWH6HFWRU8QGHULQYHVWVΖQΖQQRYDWLRQ ..........................................................527 13.2 How Governments Can Encourage Innovation ..................................................................534 13.3 Public Goods ...............................................................................................................................538 Chapter 13 Project ....................................................................................................................545 Chapter 13 Review....................................................................................................................547 Chapter 13 Exercises ...............................................................................................................548 Chapter 14: Labor Markets and Income 14.1 The Theory of Labor Markets ..................................................................................................554 14.2 Wages and Employment in an Imperfectly Competitive Labor Market ........................562 14.3 Market Power on the Supply Side of Labor Markets ........................................................567 14.4 Employment Discrimination ....................................................................................................577 14.5 Immigration .................................................................................................................................584 Chapter 14 Project ....................................................................................................................589 Chapter 14 Review ...................................................................................................................591 Chapter 14 Exercises ...............................................................................................................593Chapter 15: Poverty and Economic Inequality 15.1 Drawing the Poverty Line .........................................................................................................600 15.2 The Poverty Trap ........................................................................................................................603 15.3 The Safety Net .............................................................................................................................607 15.4 Income Inequality: Measurement and Causes ...................................................................614 15.5 Government Policies to Reduce Income Inequality ..........................................................621 Chapter 15 Project ....................................................................................................................628 Chapter 15 Review ....................................................................................................................630 Chapter 15 Exercises ...............................................................................................................632 Chapter 16: Information, Risk, and Insurance 16.1 7KH3UREOHPRIbΖPSHUIHFWΖQIRUPDWLRQDQG$V\PPHWULFΖQIRUPDWLRQ ..........................640 16.2 Insurance and Imperfect Information ...................................................................................649 Chapter 16 Project ....................................................................................................................660 Chapter 16 Review ...................................................................................................................662 Chapter 16 Exercises ...............................................................................................................664 Chapter 17: Financial Markets 17.1 +RZ%XVLQHVVHVb5DLVH)LQDQFLDO&DSLWDO ...............................................................................669 17.2 +RZ+RXVHKROGVb6XSSO\)LQDQFLDO&DSLWDO ...........................................................................676 17.3 How to Accumulate Personal Wealth ....................................................................................689 Chapter 17 Project ....................................................................................................................694 Chapter 17 Review....................................................................................................................696 Chapter 17 Exercises ...............................................................................................................698 Chapter 18: Public Economy 18.1 Voter Participation and Costs of Elections ..........................................................................705 18.2 Special Interest Politics .............................................................................................................708 18.3 Flaws in the Democratic System of Government ...............................................................712 Chapter 18 Project ....................................................................................................................718 Chapter 18 Review ....................................................................................................................720 Chapter 18 Exercises ...............................................................................................................721Chapter 19: International Trade 19.1 $EVROXWHDQGb&RPSDUDWLYH$GYDQWDJH .................................................................................727 19.2 What Happens When a Country Has an Absolute Advantage in All Goods ................734 19.3 Intra-industry Trade between Similar Economies..............................................................740 19.4 7KH%HQHȴWVRI5HGXFLQJ%DUULHUVWRΖQWHUQDWLRQDO7UDGH ...............................................745 Chapter 19 Project ....................................................................................................................749 Chapter 19 Review ...................................................................................................................751 Chapter 19 Exercises ...............................................................................................................752 Chapter 20: Globalization and Protectionism 20.1 Protectionism: An Indirect Subsidy from Consumers to Producers .............................760 20.2 ΖQWHUQDWLRQDO7UDGHDQGΖWV(HFWVRQ-REV:DJHVDQG:RUNLQJ&RQGLWLRQV ............769 20.3 Arguments in Support of Restricting Imports .....................................................................774 20.4 Trade Policy .................................................................................................................................783 Chapter 20 Project ...................................................................................................................790 Chapter 20 Review ...................................................................................................................792 Chapter 20 Exercises ..............................................................................................................794 Answer Key ...................................................................................................................................800 Glossary ...........................................................................................................................................829 References .....................................................................................................................................839 Photo Credits ...............................................................................................................................844 Index 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