McConnell Campbell R., Brue Stanley L., Barbiero Thomas P. Microeconomics. Ninth Edition
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socially optimal, 267
strategic barriers to entry, 249
substitute goods, 55
and supply, 58
unrelated goods, 55
principal-agent problem, 184–185,
397
principles
abstractions, 9
defined, 7
exclusion, 89
generalizations, 8
“other-things-equal” assumption,
8–9
terminology, 8
private goods, 89, 457
private property, 76
process innovation, 306, 315–316
producer surplus, 326–327
product demand
changes in, 359–360
elasticity, 364–365
unions, 386
product differentiation
barriers to entry, 278
brand names, 275
defined, 274
location, 275
packaging, 275
price, control over, 275–276
product attributes, 275
service, 275
sufficiency of, 278
tradeoff, 282
product improvements, 315
product innovation, 306, 313–315
product market, 43
product variety, 281–282
product warranties, 478
production
direct methods of, 79
efficient use of resources, 30
full, 30
least cost, 368
overproduction, 328
roundabout, 79
and standard of living, 4
substitution in, 60
underproduction, 328
production costs
average fixed costs, 194
average variable costs, 194–195
constant returns to scale, 203
diseconomies of scale, 203
economies of scale, 201–203
firm size and, 200
fixed costs, 192
long run, 200–207
short run, 192–196, 227–229
total cost, 192–194
variable costs, 192
production possibilities curve
allocative efficiency, 34–36
defined, 32
and discrimination, 41
economic growth, 38
economic rationale, 34
future possibilities, 39–40
graphical expression, 33
growing economy, 36
increases in resource supplies, 37
and international trade, 40
key graph, 33
law of increasing opportunity
cost, 32–34
opportunity cost, 41
present choices, 39–40
productive inefficiency, 36, 40–41
shape of, 34
shifts in, 41–42
technological advances, 38–39
tradeoffs, 41
unemployment, 36, 40–41
production possibilities table
assumptions, 30–31
choice, need for, 31–32
defined, 31
law of increasing opportunity
cost, 32–34
understanding of choices, 30
productive efficiency
defined, 30
monopolistic competition,
280–281
monopoly, 257
oligopoly, 298
pure competition, 237
pure monopoly, 257
technological advances, 322
productive inefficiency
graphical expression, 36
production possibilities curve,
40–41
and unemployment, 36, 40–41
productivity
abundant natural resources,
access to, 377
changes in, 360
and economic rent, 421
intangible factors, 378
labour quality, 378
marginal revenue, 393
plentiful capital, 377
real wages, 378
resource demand, 354–355
technological advances, 377
unions, 386
and wages, 377–378
products
attributes, 275
average, 188
durability, 136
marginal, 188
new, 314–315
price, 355
standardized, 215
total, 188
profit
calculations, 222
economic. See economic profit
monopolistic competition,
277–278
in monopoly, 256
normal, 185–186, 219, 430
and price discrimination, 264
sharing, 398
unit, 256
profit maximization
in long run, 231–237
long-run equilibrium, 232–234
loss-minimizing case, 224–225
marginal-revenue-marginal-cost
approach, 220–222
in monopoly, 253
MR=MC rule, 221
resource demand, 369
short run, 218–224
shutdown case, 225–226
total-revenue-total-cost approach,
218–219
profit-maximizing combination of
resources, 367
Progress and Poverty (George), 420
progressive tax, 494, 495
property
crimes, 169
rights, 76
taxes, 495, 502
proportion of income, 135
proportional tax, 494
protectionism, 116
protective tariffs, 114–115
public choice theory
defined, 484
inefficient “no” vote, 484
inefficient voting outcomes,
484–486
inefficient “yes” vote, 485
552 index
index 553
interest groups, 486
logrolling, 486
median-voter model, 487–489
price supports, 523–524
voting, paradox of, 486–487
public goods
cost-benefit analysis, 460–461
defined, 89
demand, 457–458
exclusion principal, 457
highway construction, 460–461
indivisibility, 457
MC=MB rule, 461
optimal quantity, 459
recycling, 470–473
solid-waste disposal, 470–473
spillover benefits, extremely
large, 466
supply, 458–459
public interest in theory of
regulation, 340–341
public ownership, 340
public sector, and circular flow
model, 91–92
pure competition
allocative efficiency, 237, 239,
257–258
average revenue, 216
average total costs, 237
break-even point, 219
characteristics, 214–215
constant-cost industry, 234–235
consumer surplus, 241
decreasing-cost industry, 236–237
defined, 214
and demand, 216–217
diminishing returns, 227–229
dynamic adjustments, 240
and efficiency, 237–240
efficient allocation, 240
free entry and exit, 215
graphical portrayal, 217
increasing-cost industry, 235–236
individual firms, demand
schedule of, 216
large numbers, 214
long-run supply curve, 234–235
loss-minimizing case, 224–225
marginal costs, 226–231
marginal revenue, 217
marginal-revenue-marginal-cost
approach, 220–222
MR=MC rule, 221
occurrence of, 214–215
overallocation, 239
perfectly elastic demand, 216
P=MC rule, 228
price-taker, 215
product supply, 227–229
production costs, 227–229
productive efficiency, 237
profit-maximization in short run,
218–224
relevance of, 216
short-run profit-maximization,
key graphs, 223
short-run supply, 226–231
short-run supply curve, 227
shutdown case, 225–226
standardized product, 215
supply curve shifts, 229
technological advances, 319
total revenue, 217
total-revenue-total-cost approach,
218–219
underallocation, 239
pure monopoly
see also monopoly
blocked entry, 246
characteristics, 246
defined, 214, 246
economic effects, 257–262
efficiency outcome, 257–259
examples of, 246
key graph, 254
output outcome, 257–259
price-maker, 246
price outcome, 257–259
productive efficiency, 257
single seller, 246
substitutes, lack of close, 246
supply curve, lack of, 255–256
technological advances, 320
pure rate of interest, 426
purely competitive labour market,
379–382
Q
quasi-public goods, 89–90
quotas, and imports, 115
R
randomness, 121
rate regulation, 266
rational behavior, 160
rational self-interest, 5
rationing function of prices, 63–64
rationing problem, 146
rationing system, 149–150
real capital, 28
real interest rate, 427
real wages, 376, 378–379
recessions, 142, 294
reciprocal trade agreements, 117
recycling, 470–473
regressive tax, 494, 495
regulated monopoly, 266–268
regulatory agencies, 336
relative poverty, 447
relative scarcity, 29
relatively elastic product, 127
relatively inelastic product, 129
remittances, 410–411
rent. See economic rent
rent controls, 147–148
rent-seeking behaviour, 261, 490
rental income, 29
research and development
see also innovation; technological
advances
affordable, 312
bank loans for, 310
barrier to entry, 248
bonds as funding, 310
expected rate of return, 311, 312
expenditures, 306
fast-second strategy, 317
financing, 310
government scientific research,
309
imitation, problem of, 316–318
incentives, 316–318
and interest, 427
interest-rate cost-of-funds curve,
310
in monopoly, 261–262
in oligopoly, 299
optimal amount of, for firms,
309–313
optimal amount of R&D, 312–313
optimal industry structure,
321–322
patents, 317
personal savings as funding, 310
retained earnings as funding,
310
spending decision, complexity of,
310
time lags, 317–318
trade secrets, 317
university scientific research, 309
venture capital as funding, 310
resource demand
complementary resources,
361–362
derived demand, 353–354
determinants of, 359–363
elasticity, 363–365
elasticity of product demand,
364–365
and imperfect product market
competition, 356–359
labour demand, changes in, 363
least cost production, 368
marginal product, decline in, 364
marginal revenue product,
354–355
MRP=MRC rule, 356
output effect, 361
prices of other resources, changes
in, 360–361
product demand, changes in,
359–360
productivity, 354–355, 360
profit maximization, 369
quantities of other resources, 360
resource cost to total cost, ratio of,
365
schedule, 356
substitute resources, 361
substitution, ease of, 364
substitution effect, 361
technological advances, 360
variable resource, quality of, 360
resources
allocation, 353
complementary, 361–362
cost, 365
demand for. See resource demand
economic profit, and allocation of,
432
essential, ownership or control of,
249
flows, 100
least-cost rule, 366
marginal productivity, 360
market, 43
market demand for, 359
money not, 422
natural, 377
optimal combination, 365–369
overallocation, 520
payments, 29
price, changes in, 360–361
pricing, 353
profit-maximizing combination of
resources, 367
rule for employment of, 355–356
substitute, 361
variable, quality of, 360
Restrictive Trade Practices
Commission, 338
retained earnings, 310
revenue
average, 216
marginal, 217, 250–251
schedule, 216
to supplier, 58
supply, 58
tax, 498
total, 132, 186, 217
reverse discrimination, 408
Ricardo, David, 108
risk
bearer, 29
global warming, 473
income inequality, 441–442
insurable, 430
and interest, 425
uninsurable, 430–431
roundabout production, 79
royalties, 397
Russia
market-oriented system in, 43
market reforms, 105–106
S
sales taxes, 137, 495, 501–502
scalping, 69
scarcity
defined, 4
relative, 29
resources, 28
Schumpeter, Joseph, 323–324
scientific method
defined, 6
theories, 6–7
self-interest
in market system, 77–78
rational, 5
selfishness, vs. rational self-interest,
5
sellers, number of, 60
service
flows, 100
and product differentiation, 275
short run
defined, 140, 187
law of diminishing returns,
227–229
monopolistic competition, 276
price elasticity of supply, 140
product supply, 227–229
production costs, 192–196,
227–229
production relationships, 188–190
profit-maximization, 218–224
supply, 226–231
short-run adjustments, 187
short-run farm problem
defined, 510
demand fluctuations, 511–513
income instability, 510–513
inelastic demand, 510
output fluctuations, 510–511
price and, 510–513
short-run supply curve, 227
shortages
defined, 62
human organs, 150–151
price ceilings, 145–149
simultaneous consumption, 259
Singapore, 104
single seller, 246
single-tax movement, 421, 505–506
single tax on land, 420–421
slope
infinite, 22
and marginal analysis, 21–22
and measurement units, 21
negative, 21
nonlinear curve, 23
positive, 21
of straight line, 21
zero, 22
Smith, Adam, 86, 108, 167
social regulation
and competition, 346
criticisms of, 346
defined, 344
features of, 344
free lunch, 346
innovation, impact on, 346
less government, issue of, 346–347
optimal level of, 344–345
product prices, increases in, 346
support for, 345
socialism, 42–43
socially optimal price, 267
sole proprietorship, 181, 182
solid-waste disposal, 470–473
Sony, 107
South Korea
new participant in international
trade, 104
production possibilities curve, 40
Soviet Union, 43
special-interest effect, 489–490, 492
specialization
and comparative advantage,
108–111
defined, 79–80
differences in ability, 80
gains from, 110–111
gains from trade, 110–111
geographic, 80
554 index
human, 80
and international trade, 108–111
key concept, 3
learning by doing, 80
and market system, 79–80
and resource allocation, 111
time savings, 80
spillover benefits
auto antitheft device, 479–480
consumers, subsidizing, 88
correcting for, 88–89
defined, 88
education, 88
goods via government, 89
immunization, 88
and resource allocation, 462
and subsidies, 465–466
supply, subsidizing, 89
spillover costs
correcting for, 88
cost curves, shifts in, 470
defined, 87
direct controls, 464
and equilibrium quantity, 469–470
externality rights, market for, 467
and legislation, 88
market-based approach, 466–474
market operation, 467–468
optimal amount of externality
reduction, 468–470
pollution, 87
and resource allocation, 462
specific taxes, 464–465
and taxes, 88
tragedy of the commons, 466–467
standard of living, as key concept, 4
start-ups, 308
static economy, 430
statistical discrimination, 403–404
stock market crashes, and graphs,
20
stock options, 398
stocks, 183
strategic barriers to entry, 249
subsidies
to buyers, 465
exports and, 115
farm, 516–517
government provision, 466
misguided, 522–523
to producers, 465
and spillover benefits, 465–466
and supply, 60
substitutability, 135
substitute goods, 55, 141
substitute resources, 361
substitutes, lack of close, 246
substitution
in consumption, 55
effect, 51–52, 156, 165–166, 361
marginal rate of, 175
in production, 60
sunk costs, 208–209
supply
change in, 59–60, 61
change in, and equilibrium, 65
change in quantity supplied, 61
decrease, and demand decrease,
66–67
decrease, and demand increase,
65
decrease in, 59
defined, 57
and derived demand, 83
determinants of, 58–59
economic resources, prices of,
59–60
increase, and demand decrease,
65
increase, and demand increase,
66
increase in, 59
and interest, 424
labour, 381
law of, 58
loanable funds, 423
and long-run farm problem,
513–514
marginal costs in short-run,
226–231
other goods, prices of, 60
pink salmon example, 67–68
price elasticity of. See price
elasticity of supply
price expectations, 60
and prices, 58
public goods, 458–459
recyclables, incentive for, 472–473
revenue, 58
schedule, 57
sellers, number of, 60
shifters, 59
short run, 226–231
and subsidies, 60
subsidize, 89
and taxes, 60
and technological advances, 60
supply curve
defined, 58
long-run, 234–235
in monopoly, 255–256
in pure monopoly, 255–256
shifts in, and pure competition,
229
short-run, 227
upsloping, 140
surgeons, licensing of, 475–476
surplus
consumer, 325–326
consumer, and pure competition,
241
defined, 62
land rent, 419–420
and offers to purchase, 518–519
and price floors, 148–149
producer, 326–327
reduction of, and agriculture, 521
trade, 103
symphony orchestras, 412
T
tacit understandings, 293
Taiwan, 104
tariffs
defined, 104
general decline in, 104
protective, 114–115
taste-for-discrimination model,
400–401
tastes, 54
tax incidence
corporate income tax, 500–501
defined, 496
division of burden, 496–497
efficiency loss of a tax, 498–500
elasticity, 143–145, 497–498
excise taxes, 501–502
personal income tax, 500
probable, in Canada, 500–502
property taxes, 502
sales taxes, 501–502
tax reforms, 502–503
tax revenues, 498
taxation
ability-to-pay principle, 493–494
apportionment of burden,
493–495
benefits-received principle, 493
corporate income tax, 495
and demand, 143–144
division of burden, 143–144
efficiency loss of a tax, 498–500
and elasticity, 143–145
Goods and Services Tax, 502
personal income tax, 495
progressive tax, 494, 495
property taxes, 495
proportional tax, 494
index
555
reforms, 502–503
regressive tax, 494, 495
sales taxes, 495
single-tax movement, 421,
505–506
and spillover costs, 88, 464–465
and supply, 60
technological advances
see also research and development
allocative efficiency, 322–323
and anti-combines legislation,
339–340
communications, 104
creative destruction, 323–324
defined, 305
diffusion, 306
efficiency, 322–324
flows, 100
future, anticipation of, 308–309
innovation, 305–306
innovators, 308
Internet, 329–330
invention, 305
inverted-U theory, 321–322
long-run farm problem, 513–514
market structure and, 319–322
in market system, 79, 85
modern view of, 306–307
monopolistic competition,
319–320
and monopoly, 261–262
oligopoly, 299, 320
patents, 305
personal computers, 329–330
process innovation, 306
product innovation, 306
and production possibilities
curve, 38–39
productive efficiency, 322
productivity, 377
pure competition, 319
pure monopoly, 320
research and development
expenditures, 306
resource demand, 360
and supply, 60
transportation, 103–104
very long run, 305
terminology, 8
terminology, loaded, 13
terms of trade, 109–110
theoretical economics, 7
theories
abstractions, 9
defined, 6–7
inverted-U theory, 321–322
kinked-demand theory. See
kinked-demand theory
legal cartel theory of regulation,
342
loanable funds theory of interest,
422–423
marginal productivity theory of
income distribution, 369–370
public choice. See public choice
theory
ticket scalping, 69
time
and income inequality, 440
input substitution process, 364
lags, 317–318
and price elasticity, 135–136, 138
value of, and consumer choice,
167–168
Toronto Stock Exchange, 50
total cost, 192–194, 365
total product, 188
total revenue, 132, 186, 217
total-revenue test
defined, 132
elastic demand, 132–133
inelastic demand, 133
monopoly, 252–253
and price elasticity, 133–134
unit elasticity, 133
total utility, 157
trade
deficit, 103
flows, 100
gains from, 110–111
key concept, 3
patterns, 101, 103
secrets, 317
surplus, 103
terms of, 109–110
trade agreements
General Agreement on Tariffs and
Trade (GATT), 117–118
most-favoured-nation clauses,
117
North American Free Trade
Agreement (NAFTA),
119–120
reciprocal, 117
World Trade Organization (WTO),
118
trade barriers
costs, 116
export subsidies, 115
import quotas, 115
misunderstanding of gains from
trade, 115
non-tariff barriers, 115
political considerations, 116
protective tariffs, 114–115
purpose of, 115–116
trade bloc
defined, 118
EU, 118–119
trademarks, 317
tradeoffs
anti-combines enforcement,
339–340
defined, 10
equality-efficiency trade-off,
446–447
and government-set prices,
149–150
key concept, 3
and opportunity costs, 41
product differentiation, 282
tragedy of the commons, 466–467
transition costs of global warming,
474
transportation technology, 103–104
Turner, Ted, 78
U
underallocation, 239
underproduction, 328
unemployment
effect of unions, 389–390
vs. full employment, 411
graphical expression, 36
production possibilities curve,
40–41
and productive inefficiency, 36
Unilever, 104
uninsurable risk, 430–431
unions
bilateral monopoly, 390–391
craft union model, 387–388
decline in, and income inequality,
444
demand-enhancement model,
385–387
elasticity, effect on, 389–390
exclusive unionism, 387–388
growth, effect on, 389
inclusive unionism, 388–389
industrial union model, 388–389
input prices, increases, 386–387
productivity, increase, 386
products demand, increase, 386
unemployment effect, 389–390
556 index
wage differentials, 396
wages, 389–390
unit elasticity, 128, 133
United States
recession in, 107
as trading partner, 103
university scientific research, 309
unlimited wants, 27–28
unrelated goods, 55
unsuccessful new products, 315
Uruguay Round, 117–118
usury laws, 428–429
utility
defined, 27, 157
marginal. See marginal utility
maximization, and demand
curve, 164–166
measurement of, 177
utility-maximizing rule, 160–161
V
variable costs, 192
venture capital, 310
Verson stamping machine, 206
vertical axis, 18
vertical intercept, 22
vertical merger, 336
very long run, 305
visible minority-white wage ratio,
402–403
visible-minority workers,
402–403
voting
consumer dollar votes, 83
hypothetical example, 487
inefficient outcomes, 484–486
median-voter model, 487–489
paradox, 486–487
preferences, 486–487
“with their feet,” 489
W
wage differentials
and ability, 394–395
compensating differences, 395
defined, 393
discrimination, 396
education, 395
geographic immobility, 396
government restraints, 396
investment in human capital, 395
job information, lack of, 396
marginal revenue productivity,
393
market imperfections, 395
noncompeting groups, 393–394
training, 395
unions and, 396
wage discrimination, 399
wages
above-equilibrium, 398
defined, 29
efficiency, 398
equilibrium, in monopsony, 384
general level, 376–379
and immigration, 408–409
male, slower growth of, 46
minimum, 391–392
in monopsony, 383–384
nominal, 376
pay for performance, 397–399
productivity, 378
real, 376, 378–379
secular growth, 379
unions, 389–390
visible minority-white wage ratio,
402–403
women and, 45
wants
biological roots, 27
coincidence of, 81
conventions and customs, 27
unlimited, 27–28
water, marginal utility of, 167
wealth, unequal distribution of,
442
Wealth of Nations (Smith), 86
welfare
benefit-reduction rate, 450
common features, 450–451
conflict among goals, 451
Western Europe, and international
trade, 104
willingness to purchase, 156
women
antidiscrimination policies, 407
changing preferences and
attitudes, 45
declining birthrates, 45
divorce rates, 46
expanded job access, 45
expanded production
possibilities, 45–46
male wages, slower growth of,
46
rising wage rates, 45
workplace safety, and asymmetric
information, 477–478
World Trade Organization (WTO),
118
X
X-inefficiency, 260–261
Y
yen-dollar market, 112
Yugoslavia, and production
possibilities curve, 42
Z
zero slope, 22
index
557