Microeconomics, Fifth Edition
By N Gregory Mankiw and Mark P Taylor
Contents:
About the authors vii
Preface viii
Acknowledgements xi
PART 1
Introduction to Economics 1
1 What is economics? 1
The economy and economic systems 1
How people make decisions 3
How people interact 6
How the economy as a whole works 9
2 Thinking like an economist 15
Introduction 15
Economic methodology 15
Schools of thought 25
The economist as policy advisor 26
Why economists disagree 27
PART 2
The Theory of Competitive Markets 33
3 The market forces of supply and demand 33
The assumptions of the competitive market model 33
Demand 35
Shifts versus movements along the demand
curve 37
Supply 40
Supply and demand together 44
Prices as signals 47
Analyzing changes in equilibrium 48
Elasticity 53
The price elasticity of demand 53
Other demand elasticities 60
Price elasticity of supply 62
Applications of supply and demand
elasticity 67
4 Background to demand: Consumer choices 74
The standard economic model 74
The budget constraint: What the consumer can afford 76
Preferences: What the consumer wants 80
Optimization: What the consumer chooses 86
Conclusion: Do people really behave this way? 98
Behavioural approaches to consumer behaviour 98
5 Background to supply: Firms in competitive markets 105
The costs of production 105
Production and costs 106
The various measures of cost 109
Costs in the short run and in the long run 115
Summary 116
Returns to scale 117
What is a competitive market? 123
Profit maximization and the competitive firm’s supply curve 125
The supply curve in a competitive market 132
Conclusion: Behind the supply curve 137
6 Consumers, producers and the efficiency
of markets 141
Consumer surplus 141
Producer surplus 146
Market efficiency 150
PART 3
Interventions in Markets 159
7 Supply, demand and government policies 159
Controls on prices 159
Taxes 163
Subsidies 170
The tax system 171
The deadweight loss of taxation 172
Administrative burden 178
The design of the tax system 179
Taxes and equity 181
8 Public goods, common resources and
merit goods 189
The different kinds of goods 189
Public goods 190
Common resources 194
Merit goods 197
Conclusion 199
9 Market failure and externalities 204
Market failure 204
Externalities 204
Externalities and market inefficiency 206
Private solutions to externalities 210
Public policies towards externalities 213
Public/private policies towards externalities 216
Government failure 220
Conclusion 225
PART 4
Firm Behaviour and Market
Structures 231
10 Firms’ production decisions 231
Isoquants and isocosts 231
The least-cost input combination 236
Conclusion 238
11 Market structures I: monopoly 242
Imperfect competition 242
Why monopolies arise 243
How monopolies make production
and pricing decisions 247
The welfare cost of monopoly 252
Price discrimination 254
Public policy towards monopolies 258
Conclusion: the prevalence of monopoly 261
12 Market structures II: monopolistic competition 267
Competition with differentiated products 268
Advertising and branding 272
Conclusion 276
13 Market structures III: oligopoly 280
Characteristics of oligopoly 280
Game theory and the economics of cooperation 284
Entry barriers in oligopoly 296
Public policy towards oligopolies 297
Conclusion 299
14 Market structures IV: Contestable markets 304
The nature of contestable markets 304
The limitations of contestability 308
Summary 310
PART 5
Factor Markets 315
15 The economics of factor markets 315
The marginal product theory of
distribution 315
The demand for labour 315
The supply of labour 319
Equilibrium in the labour market 323
Other theories of the labour market 325
Marxist labour theory 325
Feminist economics and the labour market 326
Monopsony 327
Wage differentials 329
The economics of discrimination 334
The other factors of production: Land and
capital 337
Economic rent 340
Conclusion 341
PART 6
Inequality 347
16 Income inequality and poverty 347
The measurement of inequality 348
The political philosophy of redistributing
income 355
Policies to reduce poverty 359
Conclusion 362
PART 7
Trade 367
17 Interdependence and the gains from
trade 367
The production possibilities frontier 367
International trade 372
The principle of comparative advantage 376
The determinants of trade 379
The winners and losers from trade 380
Restrictions on trade 384
Criticisms of comparative advantage theory 391
Other theories of international trade 392
Conclusion 396
PART 8
Heterodox Economics 401
18 Information and behavioural
economics 401
Principal and agent 401
Asymmetric information 402
Behavioural economics 408
Conclusion 412
19 Heterodox theories in economics 416
Introduction 416
Institutional economics 419
Feminist economics 422
Complexity economics 425
Conclusion 428
Glossary 432
Index 438
Credits 447
List of formulae 448