[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

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Review and PracticeSUMMARY1. A revenue curve shows the relationship between a firm’stotal output and its revenue. For a competitive firm, themarginal revenue it receives from selling an additionalunit of output is the price of that unit.2. A firm in a competitive market will choose the level ofoutput at which the market price—the marginal revenueit receives from producing an extra unit—equals themarginal cost.3. A firm will enter a market if the market price for a goodexceeds its minimum average costs, since it can makea profit by selling the good for more than it costs toproduce the good.4. If the market price is below minimum average costs anda firm has no sunk costs, the firm will exit the marketimmediately. If the market price is below minimum averagecosts and a firm has sunk costs, it will continue toproduce in the short run as long as the market priceexceeds its minimum average variable costs.5. For a firm contemplating entering a market, its supply iszero up to the point at which price equals minimumaverage costs. Above that price, the supply curve is thesame as the marginal cost curve.6. The market supply curve is constructed by adding upthe supply curves of all firms in an industry. As pricesrise, more firms are willing to produce, and each firm iswilling to produce more, so that the market supply curveis normally upward sloping.7. The economist’s and the accountant’s concepts ofprofits differ in how they treat opportunity costs andeconomic rents.KEY TERMSrevenue curvemarginal revenueeconomic rentREVIEW QUESTIONS1. In a competitive market, what rule determines the profitmaximizinglevel of output? What is the relationshipbetween a firm’s supply curve and its marginal cost curve?2. What determines firms’ decisions to enter a market? toexit a market? Explain the role of the average variablecost curve in determining whether firms will exit themarket.3. Why is the long-run supply curve more elastic than theshort-run supply curve?4. What is the relationship between the way accountantsuse the concept of profits and the way economists usethat term?PROBLEMS1. The market price for painting a house in Centerville is$10,000. The Total Cover-up House-Painting Companyhas fixed costs of $4,000 for ladders, brushes, and so on,and the company’s variable costs for house paintingfollow this pattern:Output(houses painted) 2 3 4 5 6 7 8 9 10Variable cost(in thousands of dollars) 26 32 36 42 50 60 72 86 102Calculate the company’s total costs, and graph the revenuecurve and the total cost curve. Do the curves havethe shape you expect? Over what range of production isthe company making profits?2. Calculate and graph the marginal cost, the averagecosts, and the average variable costs for the TotalCover-up House-Painting Company. Given the marketprice, at what level of output will this firm maximizeprofits? What profit (or loss) is it making at that level?At what price will the firm no longer make a profit?Assume its fixed costs are sunk; there is no marketfor used ladders, brushes, etc. At what price will thecompany shut down?3. Draw a U-shaped average cost curve. On your diagram,designate at what price levels you would expect entryand at what price levels you would expect exit if all thefixed costs are sunk. What if only half the fixed costs aresunk? Explain your reasoning.4. José is a skilled electrician at a local company, a job thatpays $50,000 per year, but he is considering quitting tostart his own business. He talks it over with an account-172 ∂ CHAPTER 7 THE COMPETITIVE FIRM
ant, who helps him to draw up the following chart withtheir best predictions about costs and revenues.Predicted annual costsPredicted annual revenuesBasic wage $20,000 $75,000Rent of space $12,000Rent ofequipment $18,000Utilities $ 2,000Miscellaneous $ 5,000The basic wage does seem a bit low, the accountantadmits, but she tells José to remember that asowner of the business, José will get to keep anyprofits as well. From an economist’s point of view,is the accountant’s list of costs complete? From aneconomist’s point of view, what are José’s expectedprofits?REVIEW AND PRACTICE ∂ 173
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∂ECONOMICSFOURTH EDITION
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∂ECONOMICSFOURTH EDITIONBW. W. NO
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ABOUT THE AUTHORSJoseph E. Stiglitz
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CONTENTS IN BRIEFPART 1 INTRODUCTIO
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CONTENTSPREFACEXXXVPART 1 INTRODUCT
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Sources of Shifts in Demand Curves
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Short-Run and Long-Run Cost Curves
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Conditions for the Pareto Efficienc
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THINKING LIKE AN ECONOMIST: Trade-O
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Search and Information Intermediari
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CHAPTER 19 INTERNATIONAL TRADE AND
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Government Deficits and Trade Defic
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Evaluating Government Deficits and
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PART 7MACROECONOMICFLUCTUATIONS 635
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An Expansionary Shift in the ADI Cu
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CHAPTER 35 POLICY IN THE OPEN ECONO
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CASE IN POINT: Fed Policy Statement
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PREFACEThe study of economics has a
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of the economist’s approach to im
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ture also allows an instructor who
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With SmartWork’s intuitive interf
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AcknowledgmentsThe book’s first t
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Alternative Course OutlineIn the Fo
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Plus any of the optional chapters c
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∂Part 1INTRODUCTION∂1
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Chapter 1MODERNECONOMICS∂The past
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the illegal online sharing of music
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2. In making choices, individuals r
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gal activity, and on the other side
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Internet ConnectionAUCTION SITESAn
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and products. It is hard to imagine
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The primary reliance on private dec
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Microeconomics andMacroeconomics:Th
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does not prove that the coin is not
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Review and PracticeSUMMARY1. Econom
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Chapter 2THINKING LIKE ANECONOMIST
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COMPETITIVE MARKETSTo complete the
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new insights into markets and situa
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INCENTIVES VERSUS EQUALITYWhile inc
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line up to buy at that price. (The
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she has more of both goods than at
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Diminishing returns is an important
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Thinking Like an EconomistTRADE-OFF
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computers and textiles. The develop
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To understand sunk costs, let’s g
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Review and PracticeSUMMARY1. The ba
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Appendix: Reading GraphsWhether the
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Now look at point A, where the econ
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∂Part 2PERFECT MARKETS∂51
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Chapter 3DEMAND, SUPPLY,AND PRICE
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you might buy a few, and if the pri
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SHIFTS IN DEMAND CURVES1.25When the
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Case in PointGASOLINE PRICES AND TH
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In practice, both effects are often
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higher performance at that price. A
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Wrap-UpSUPPLY CURVEThe supply curve
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A change in the natural environment
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USING DEMAND AND SUPPLY CURVESThe c
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Internet ConnectionTHE DEMAND AND S
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the demand and supply curves. What
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Chapter 4USING DEMANDAND SUPPLY∂W
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ABPRICE ($)Demand fororange juice2.
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Table 4.1PRICE ELASTICITY OF DEMAND
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International PerspectiveCOMPARING
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the supply curve becomes close to v
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be reflected more in changes in qua
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to illustrate the market’s failur
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New York City leads, in the short r
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Case in PointRENT CONTROL IN NEW YO
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ment is concerned with low wages pa
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2. Imagine that the short-run price
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fall represents a larger percentage
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Chapter 5THE CONSUMPTIONDECISION∂
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As we learned in Chapter 2, a budge
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450ALL OTHER GOODS ($)300GG'FF'20 3
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The consumption of some goods actua
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Internet ConnectionWHAT WE CONSUMET
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tive or negative. Generally, though
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Normally, demand curves are downwar
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is 30, and that of the last pizza i
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CONSUMER SURPLUSIn Chapter 1, we le
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nomic model of consumer choice can
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Page 181 and 182: Chapter 6THE FIRM’S COSTS∂Imagi
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Page 205 and 206: Chapter 7THE COMPETITIVEFIRM∂Whet
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Page 209 and 210: Figure 7.3 develops the graphical a
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Page 225 and 226: CHAPTER 8LABOR MARKETS∂The previo
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Page 241 and 242: Chapter 9CAPITAL MARKETS∂At any g
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Page 259 and 260: Appendix A: IndifferenceCurves and
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Page 265 and 266: Chapter 10THE EFFICIENCY OFCOMPETIT
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Exchange Efficiency Exchange effici
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COMPETITIVE MARKETS ANDPARETO EFFIC
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more extensive government intervent
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households determine their saving,
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AUnskilled laborsupply (SU )BSkille
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today, but it will also depend on p
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Review and PracticeSUMMARY1. Genera
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∂Part 3IMPERFECT MARKETS∂237
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Chapter 11INTRODUCTION TOIMPERFECTM
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price. The basic competitive model
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is called monopoly. Your local elec
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How much the price must change as s
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Imperfect InformationThe model of p
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MARKETS FOR INFORMATIONInformation
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ness scandals in recent years have
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Thinking Like an EconomistINCENTIVE
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practical matter, this can be done
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Review and PracticeSUMMARY1. By and
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Chapter 12MONOPOLY,MONOPOLISTICCOMP
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In Chapter 7, we used a graph that
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of $9,000, it sells 2 units; and at
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United StatesJapanPRICE (p )p 1PRIC
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A natural monopoly occurs whenever
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Table 12.2DEGREE OF COMPETITION IN
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Equilibrium with MonopolisticCompet
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A firm that is part of an oligopoli
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and still be better off. However, t
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backward through time, this logic w
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Wrap-UpFORMS OF RESTRICTIVE PRACTIC
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Review and PracticeSUMMARY1. Both m
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9. Explain why frequent-flier progr
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Chapter 13GOVERNMENTPOLICIES TOWARD
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MANAGERIAL SLACKChapter 6 argued th
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e-InsightUSING THE INTERNET TO ENHA
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marginal cost and to make up the de
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let us first review why competition
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deregulation, government had retain
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demeanor.” (A 1974 amendment made
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demand for them would increase. And
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arguments brought by a small Virgin
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If we plug in the 34 percent share
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long-distance service between major
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Chapter 14STRATEGICBEHAVIOR∂Durin
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Figure 14.1, which reproduces a dia
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Consider the case of politicians A
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International PerspectiveBEGGAR-THY
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Internet ConnectionTHE ZERO-SUM GAM
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REPUTATIONSDeveloping good reputati
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If you have a deposit in a commerci
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competes peacefully. Assume Microso
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to actually carry out the threat wh
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Review and PracticeSUMMARY1. In per
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summer her parents decide whether o
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Chapter 15IMPERFECTINFORMATION INTH
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quantity demanded will actually fal
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The Incentive ProblemProviding ince
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REPUTATION SOLUTIONSReputation play
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Case in PointBUYING HEALTH INSURANC
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Thinking Like an EconomistINCENTIVE
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Internet ConnectionJOB SEARCHThe In
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stores’ buyers seek out literally
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remains the same, so the second sou
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Review and PracticeSUMMARY1. The ba
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Chapter 16IMPERFECTIONS INTHE LABOR
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unions had claimed that when they n
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ECONOMIC EFFECTSThe source of union
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When a union goes on strike, the fi
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firm long enough to make his traini
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machines have one advantage over hu
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These “wages of trust” may expl
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by the firm: the company can try to
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Review and PracticeSUMMARY1. The pr
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∂Part 4ISSUES INPUBLIC POLICY∂3
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Chapter 17THE PUBLIC SECTOR∂Throu
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Why Does the GovernmentIntervene in
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The lifetime prospects for children
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e-InsightTHE NEW ECONOMY AND INEQUA
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Wrap-UpCRITERIA FOR EVALUATING A TA
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The income tax is only one of sever
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1997, the program commonly known as
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SOCIAL INSURANCEThe United States h
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Government FailuresDecisions about
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BUDGETING AND SPENDING PROCEDURESTh
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campaign contributions affect the b
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that point, additional sources of r
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Health care is different from most
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Review and PracticeSUMMARY1. Govern
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Chapter 18ENVIRONMENTALECONOMICS∂
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Consider what happens if, in the pr
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matters? Some economists, led by th
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in such developments. The end of lo
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the socially optimal level of produ
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by 2 units and plant B by 4 units.
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operation causes. Thus, the price h
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Review and PracticeSUMMARY1. Govern
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Chapter 19INTERNATIONALTRADE AND TR
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relative to the size of the populat
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Internet ConnectionDAVID RICARDOThe
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e-InsightTHE UNITED STATES’ COMPA
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has a comparative advantage in fine
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But trade among individuals and tra
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restrict the importation of goods.
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OTHER NONTARIFF BARRIERSVERs and qu
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they can raise prices. In such a ca
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BEGGAR-THY-NEIGHBOR POLICIESConcern
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Thinking Like an EconomistDISTRIBUT
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parent: everyone can see that it is
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Environmental and human rights issu
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Internet ConnectionTHE WORLD TRADE
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9. How is it possible that while th
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Chapter 20TECHNOLOGICALCHANGE∂For
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e-InsightTHE NEW ECONOMY AND INNOVA
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uncertain about whether it will be
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Soon after Henry Ford’s Model T h
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Because expenditures on R & D are f
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SCHUMPETERIAN COMPETITIONAlthough c
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even the existence of certain mater
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increasing awareness of the importa
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Review and PracticeSUMMARY1. Ideas
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∂Part 5INTRODUCTIONTO MACROECONOM
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Chapter 21MACROECONOMICSAND THEECON
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302520PERCENT1510501900 1910 1920 1
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Today, a slight rise in the unemplo
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GOVERNMENT DEFICITS AND TRADE DEFIC
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significant periods of deflation si
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Review and PracticeSUMMARY1. The th
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Chapter 22MEASURINGOUTPUT ANDUNEMPL
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Table 22.1CALCULATING GDPPrices and
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MEASURING GDP: THE VALUE OF OUTPUTT
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Wrap-UpGDP equals consumption plus
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spending represents income for thos
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International PerspectiveWHAT GETS
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Measuring Nonmarket Goods Nonmarket
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ment represents economic hardship.
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1412FranceUNEMPLOYMENT RATE (%)1086
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Wrap-UpFORMS OF UNEMPLOYMENTSeasona
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Flows and StocksGDP is a measure of
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produces two products, lectures and
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Chapter 23THE COST OFLIVING ANDINFL
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a variety of transactions, inflatio
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JANUARY 1918 = 10010 1310 1210 1110
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To see how a price index like the C
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The second major problem is “qual
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purchase foreign goods, so their pr
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Review and PracticeSUMMARY1. The in
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∂Part 6FULL-EMPLOYMENTMACROECONOM
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Chapter 24THE FULL-EMPLOYMENTMODEL
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In macroeconomics, we stress aggreg
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duction and hire more workers. Seco
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REAL WAGE (w/P )ALabor supply curve
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capital markets to ensure that the
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to firms and in return receive paym
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est rate (perhaps rising slightly w
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REAL INTEREST RATE (r )ASavingcurve
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USING THE GENERAL EQUILIBRIUM MODEL
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Review and PracticeSUMMARY1. Macroe
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Chapter 25GOVERNMENTFINANCE AT FULL
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Adding the GovernmentIntroducing go
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From this perspective, the first eq
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revenues match expenditures. In 199
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International PerspectiveDEFICITS I
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investment increases the capital st
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400AThe Federal Deficit300200BILLIO
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collected fell; Congress passed a l
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Review and PracticeSUMMARY1. When t
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Chapter 26THE OPENECONOMY AT FULLEM
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domestic economy is borrowing more
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The discussion so far has also assu
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to be a simple matter: the buyer pa
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2520DomesticinvestmentPERCENTAGE OF
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50,000Exports40,00030,000MILLIONS O
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curve for dollars represents the do
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Trade deficits mean the country is
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Review and PracticeSUMMARY1. In an
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Chapter 27GROWTH ANDPRODUCTIVITY∂
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3.53.03.122.66PERCENT2.52.01.52.202
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The growth rate of output is the su
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production function: the relationsh
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telecommunications industry, other
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its marginal cost is therefore zero
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residual (i.e., TFP). The decrease
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because the United States has been
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2. Explain why a rapid influx of wo
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Chapter 28MONEY, THE PRICELEVEL, AN
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2015RATE OF INFLATION IN CPI (%)105
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Since we are interested in the dema
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807060INFLATION RATE (%)50403020100
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important of these are banks, but t
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pay their workers. How could the lo
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Money as a Store of Value People wi
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Table 28.2GLOSSARY OF FINANCIAL TER
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Table 28.3AMERICABANK BALANCE SHEET
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e-InsightELECTRONIC CASHA TV ad sho
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Table 28.5SUPERBANK BALANCE SHEETAs
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The Federal Reserve was created by
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the banking system as a whole remai
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If (for good reasons or bad) many d
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Review and PracticeSUMMARY1. In the
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∂Part 7MACROECONOMICFLUCTUATIONS
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Chapter 29INTRODUCTION TOMACROECONO
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A11,0001960-1961recession1969-1970r
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broken only by two brief recessions
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Thinking Like an EconomistEMPLOYMEN
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L 1 - L 0 , is the level of cyclica
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Thinking Like an EconomistINFORMATI
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market. Once this has happened, the
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assuming that the firm’s output i
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labor markets. Conversely, wages wi
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Fundamentals of Fluctuations 4INFLA
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Review and PracticeSUMMARY1. Econom
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Chapter 30AGGREGATEEXPENDITURES AND
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THE NATIONAL INCOME-OUTPUT IDENTITY
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the final increase in equilibrium o
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ical questions. First, why does the
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8,0007,000REAL CONSUMPTION(BILLIONS
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lion. If any of the components of E
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2018INVESTMENT (AS % OF GDP)1614121
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without waiting; otherwise, they ma
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The effect of exports and imports o
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became less expensive, imports rose
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Calculating Equilibrium OutputAt th
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Wrap-UpAGGREGATE EXPENDITURES AND O
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Review and PracticeSUMMARY1. Income
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Chapter 31AGGREGATEDEMAND ANDINFLAT
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When we discuss interest rates and
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Because equilibrium GDP is determin
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Fiscal Policy A change in governmen
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Wrap-UpFACTORS THAT SHIFT THE AGGRE
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But the story does not end there. A
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offsetting amount. But the contract
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Thinking Like an EconomistTOUGH TRA
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bank could cut interest rates at ea
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Case in PointTHE 1990SNow that we h
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to sustained increases in productiv
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Review and PracticeSUMMARY1. Aggreg
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Chapter 32THE FEDERALRESERVE ANDINT
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987INTEREST RATES (%)65432TargetFed
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The position of the demand curve fo
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equilibrium funds rate rises. If th
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tity of money increases. When the m
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Chapter 33THE ROLE OFMACROECONOMICP
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THE NEW TRADE-OFF:OUTPUT STABILITY-
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AggregatedemandinflationcurvesPoten
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ADI 1E 1Aggregatedemand-inflationcu
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765Actual deficitPOTENTIAL GDP (%)4
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Conducting Monetary Policy The FOMC
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The Committee perceives the upside
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stimulate aggregate expenditures, e
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Case in PointTHE INTEREST RATE CUT
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economy and lead to a resurgence of
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The Inflation Target The position o
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This discussion returns us to the t
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Wrap-UpDIFFERENCES BETWEEN MONETARY
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3. Assume that the economy is curre
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∂Part 8THE GLOBAL ECONOMY∂755
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Chapter 34THEINTERNATIONALFINANCIAL
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The foreign exchange market in Yere
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that wants to use the euros to buy
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States than moving it to Europe or
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Expectations about changes in the e
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expressed in terms of the value of
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One of the attractions of the Europ
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As speculators withdrew capital, th
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Under a currency board, the exchang
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Review and PracticeSUMMARY1. In a f
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Chapter 35POLICY IN THEOPEN ECONOMY
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While this discussion has focused o
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rises and its appreciation reduces
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Internet ConnectionFOREIGN EXCHANGE
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exports are a large fraction of tot
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Central Bank had increased the inte
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3. Suppose a fall in net exports du
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Chapter 36DEVELOPMENTAND TRANSITION
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$5,500$5,000$4,50019912002$4,000$3,
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LIFE IN A LESS-DEVELOPED COUNTRYJus
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Some of this inequality is simply d
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changes served to level the playing
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policies, together with macroeconom
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Trade Giving less-developed economi
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eroded significantly in 2001 as a r
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calculations of this kind allowed i
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with ethnic strife or conflicts wit
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the value of existing savings. Mafi
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6. What are some of the roles that
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∂Part 9FURTHER TOPICS INMACROECON
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Chapter 37INFLATION ANDUNEMPLOYMENT
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curve. A. W. Phillips was a New Zea
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1614INFLATION RATE (%)1210861960-19
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on the rate of inflation. The posit
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An important implication of this co
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Internet ConnectionWINNERS OF THE N
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the oil embargo imposed by the Orga
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expected inflation rate equal to π
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unemployment rate is 5 percent (i.e
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Chapter 38CONTROVERSIES INMACROECON
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ing a large tax cut through Congres
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rather than raising taxes to financ
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ity.” The Humphrey-Hawkins Act se
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Page 897 and 898:
THE INTERVENTIONIST PERSPECTIVEThe
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ceed in keeping the unemployment ra
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they argue that if the Fed is held
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These actions were taken in light o
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International PerspectiveCENTRAL BA
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rate−1 percent expected inflation
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but doing so leads to bigger swings
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between fluctuations in unemploymen
Page 913 and 914:
Page 915 and 916:
Chapter 39A STUDENT’S GUIDETO INV
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Internet ConnectionCALCULATING INTE
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regarding the prospects of the econ
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Table 39.1ALTERNATIVE INVESTMENTS A
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A crowd protests rate hikes by the
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12,000ADow Jones Industrial Average
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Investing in housing, particularly
Page 929 and 930:
Thinking Like an EconomistTHE DISTR
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subsides. Thus, if a person knows t
Page 933 and 934:
can expect to earn only a normal le
Page 935 and 936:
Strategies for Intelligent Investin
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Review and PracticeSUMMARY1. Invest
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Page 941 and 942:
capital goods: the machines and bui
Page 943 and 944:
Federal Open Market Committee(FOMC)
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M1, M2, M3: measures of the money s
Page 947 and 948:
price system: the economic system i
Page 949 and 950:
substitution effect: the reduced co
Page 951 and 952:
Page 953 and 954:
Page 955 and 956:
banks:assets of, 621-22, 625balance
Page 957 and 958:
currency (continued)inflation and,
Page 959 and 960:
exchange rates (continued)appreciat
Page 961 and 962:
horizontal restrictions, oligopolie
Page 963 and 964:
investment, investments, 672-76, 69
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monetary policy (continued)trade-of
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price takers, 27, 131, 218price war
Page 969 and 970:
Social Security (continued)as pay-a
Page 971:
unions (continued)strikes by, 355su
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[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

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