Microeconomics, Sixth Edition
By Paul Krugman and Robin Wells
Contents:
Preface
PART 1 What Is Economics?
INTRODUCTION
An Engine for Growth and Discovery
A Day in the Megacity
The Invisible Hand
My Benefit, Your Cost
Good Times, Bad Times
Onward and Upward
An Engine for Discovery
CHAPTER 1
First Principles
Common Ground
Principles That Underlie Individual Choice: The Core of Economics
Principle #1: Choices Are Necessary Because Resources Are Scarce
Principle #2: The True Cost of Something Is Its Opportunity Cost
Principle #3: “How Much” Is a Decision at the Margin
Principle #4: People Respond to Incentives,
Exploiting Opportunities to Make Themselves Better Off
ECONOMICS >> in Action The Cost of Marriage: China’s
One-Child Policy Creates Millions of Lonely Bachelors
Interaction: How Economies Work
Principle #5: There Are Gains from Trade
Principle #6: Markets Move Toward Equilibrium
Principle #7: Resources Should Be Used Efficiently to Achieve Society’s Goals
Principle #8: Markets Usually Lead to Efficiency,
But When They Don’t, Government Intervention
Can Improve Society’s Welfare
ECONOMICS >> in Action Wait, Then Hurry Up, and Wait Again
Economy-Wide Interactions
Principle #9: One Person’s Spending Is Another Person’s Income
Principle #10: Overall Spending Sometimes Gets Out of Line with the Economy’s Productive
Capacity; When It Does, Government Policy Can Change Spending
Principle #11: Increases in the Economy’s Potential Lead to Economic Growth Over Time
BUSINESS CASE How Priceline Revolutionized the Travel Industry
CHAPTER 2
Economic Models: Trade-offs and Trade
From Kitty Hawk to Dreamliner
Models in Economics: Some Important Examples
Trade-offs: The Production Possibility Frontier
Comparative Advantage and Gains from Trade
Comparative Advantage and International Trade, in Reality
GLOBAL COMPARISON Pajama Republics
Transactions: The Circular-Flow Diagram
ECONOMICS >> in Action Rich Nation, Poor Nation Using Models
Positive versus Normative Economics
When and Why Economists Disagree
ECONOMICS >> in Action When Economists Agree
BUSINESS CASE Efficiency, Opportunity Cost, and the
Logic of Lean Production
CHAPTER 2
Chapter 2 Appendix: Graphs in Economics
Getting the Picture
Graphs, Variables, and Economic Models
How Graphs Work
Two-Variable Graphs
Curves on a Graph
A Key Concept: The Slope of a Curve
The Slope of a Linear Curve
Horizontal and Vertical Curves and Their Slopes
The Slope of a Nonlinear Curve
Calculating the Slope Along a Nonlinear Curve
Maximum and Minimum Points
Calculating the Area Below or Above a Curve
Graphs That Depict Numerical Information
Types of Numerical Graphs
Challenges with Interpreting Numerical Graphs
PART 2 Supply and Demand
CHAPTER 3
Supply and Demand
A Natural Gas Boom and Bust
Supply and Demand: A Model of a Competitive Market
The Demand Curve
The Demand Schedule and the Demand Curve
Shifts of the Demand Curve
GLOBAL COMPARISON Pay More, Pump Less
Understanding Shifts of the Demand Curve
ECONOMICS >> in Action Beating the Traffic
The Supply Curve
The Supply Schedule and the Supply Curve
Shifts of the Supply Curve
Understanding Shifts of the Supply Curve
ECONOMICS >> in Action The Plunging Cost of Solar Panels
Supply, Demand, and Equilibrium
Finding the Equilibrium Price and Quantity
Using Equilibrium to Describe Markets
ECONOMICS >> in Action The Price of Admission
Changes in Supply and Demand
What Happens When the Demand Curve Shifts
What Happens When the Supply Curve Shifts
Simultaneous Shifts of Supply and Demand Curves
ECONOMICS >> in Action Holy Guacamole!
Competitive Markets — and Others
BUSINESS CASE Uber Gives Riders a Lesson in Supply
and Demand
CHAPTER 4
Consumer and Producer Surplus
Mastering Textbook Economics
Consumer Surplus and the Demand Curve
Willingness to Pay and the Demand Curve
Willingness to Pay and Consumer Surplus
How Changing Prices Affect Consumer Surplus
FOR INQUIRING MINDS A Matter of Life and Death
ECONOMICS >> in Action Is Facebook Really Free?
Producer Surplus and the Supply Curve
Cost and Producer Surplus
How Changing Prices Affect Producer Surplus
ECONOMICS >> in Action Highs and Lows on Iowa’s Farms
Consumer Surplus, Producer Surplus, and the Gains from Trade
The Gains from Trade
The Efficiency of Markets
Equity and Efficiency
ECONOMICS >> in Action Take the Keys, Please
A Market Economy
Why Markets Typically Work So Well
A Few Words of Caution
ECONOMICS >> in Action A Great Leap — Backward
BUSINESS CASE Ticket Prices and Music’s Reigning
Couple, Beyoncé and Jay-Z
CHAPTER 5
Price Controls and Quotas: Meddling with Markets
A Bronx Tale
Why Governments Control Prices
Price Ceilings
Modeling a Price Ceiling
How a Price Ceiling Causes Inefficiency
FOR INQUIRING MINDS Mumbai’s Rent-Control
Millionaires
Winners, Losers, and Rent Control
So Why Are There Price Ceilings?
ECONOMICS >> in Action How Price Controls in
Venezuela Proved Disastrous
Price Floors
GLOBAL COMPARISON Check Out Our Low, Low
Wages!
How a Price Floor Causes Inefficiency
So Why Are There Price Floors?
ECONOMICS >> in Action The Rise and Fall of the
Unpaid Intern
Controlling Quantities
The Anatomy of Quantity Controls
The Costs of Quantity Controls
ECONOMICS >> in Action Crabbing, Quotas, and
Saving Lives in Alaska
BUSINESS CASE A Market Disruptor Gets Disrupted by
the Market
CHAPTER 6
Elasticity
Taken for a Ride
Defining and Measuring Elasticity
Calculating the Price Elasticity of Demand
An Alternative Way to Calculate Elasticities: The
Midpoint Method
ECONOMICS >> in Action Estimating Elasticities
Interpreting the Price Elasticity of Demand
How Elastic Is Elastic?
Price Elasticity Along the Demand Curve
What Factors Determine the Price Elasticity of
Demand?
ECONOMICS >> in Action Responding to Your Tuition
Bill
Other Demand Elasticities
The Cross-Price Elasticity of Demand
The Income Elasticity of Demand
GLOBAL COMPARISON Food’s Bite in World Budgets
ECONOMICS >> in Action Spending It
The Price Elasticity of Supply
Measuring the Price Elasticity of Supply
What Factors Determine the Price Elasticity of
Supply?
ECONOMICS >> in Action A Global Commodities Glut
An Elasticity Menagerie
BUSINESS CASE The American Airline Industry: Fly
Less and Charge More
PART 3 Individuals and Markets
CHAPTER 7
Taxes
The Founding Taxers
The Economics of Taxes: A Preliminary View
The Effect of an Excise Tax on Quantities and Prices
Price Elasticities and Tax Incidence
ECONOMICS >> in Action Who Pays the FICA?
The Benefits and Costs of Taxation
The Revenue from an Excise Tax
Tax Rates and Revenue
FOR INQUIRING MINDS French Tax Rates and L’Arc
Laffer
The Costs of Taxation
Elasticities and the Deadweight Loss of a Tax
ECONOMICS >> in Action Taxing Tobacco
Tax Fairness and Tax Efficiency
Two Principles of Tax Fairness
Equity versus Efficiency
ECONOMICS >> in Action Federal Tax Philosophy
Understanding the Tax System
Tax Bases and Tax Structure
Equity, Efficiency, and Progressive Taxation
Taxes in the United States
Different Taxes, Different Principles
GLOBAL COMPARISON You Think Your Taxes Are
High?
FOR INQUIRING MINDS Taxing Income versus Taxing
Consumption
ECONOMICS >> in Action State Tax Choices
BUSINESS CASE A Welcome Tax Hike: Microsoft Raises
Its Internal Carbon Tax
CHAPTER 8
International Trade
The Everywhere Phone
Comparative Advantage and International Trade
Production Possibilities and Comparative
Advantage, Revisited
The Gains from International Trade
Comparative Advantage versus Absolute Advantage
Popular Misconceptions Arising from
Misunderstanding Comparative Advantage
GLOBAL COMPARISON Productivity and Wages
Around the World
Sources of Comparative Advantage
FOR INQUIRING MINDS How Scale Effects Drive
International Trade
ECONOMICS >> in Action How Hong Kong Lost Its
Shirts
Supply, Demand, and International Trade
The Effects of Imports
The Effects of Exports
International Trade and Wages
ECONOMICS >> in Action The China Shock
The Effects of Trade Protection
The Effects of a Tariff
The Effects of an Import Quota
ECONOMICS >> in Action The Steel Tariffs of 2018–
2019
The Political Economy of Trade Protection
Arguments for Trade Protection
The Politics of Trade Protection
International Trade Agreements and the World
Trade Organization
Challenges to Globalization
ECONOMICS >> in Action Trade War, What Is It Good
For?
BUSINESS CASE Li & Fung: From Guangzhou to You
PART 4 Economics and Decision Making
CHAPTER 9
Decision Making by Individuals and Firms
Making Decisions in Good Times and Bad
Costs, Benefits, and Profits
Explicit versus Implicit Costs
Accounting Profit versus Economic Profit
Making “Either–Or” Decisions
ECONOMICS >> in Action Airbnb and the Rising Cost of
Privacy
Making “How Much” Decisions: The Role of Marginal
Analysis
Marginal Cost
Marginal Benefit
Marginal Analysis
GLOBAL COMPARISON House Sizes Around the World
A Principle with Many Uses
A Preview: How Consumption Decisions Are
Different
ECONOMICS >> in Action The Cost of a Life
Sunk Costs
ECONOMICS >> in Action Biotech: The World’s Biggest
Loser
Behavioral Economics
Rational, but Human, Too
Irrationality: An Economist’s View
FOR INQUIRING MINDS “The Jingle Mail Blues”
Rational Models for Irrational People?
ECONOMICS >> in Action In Praise of Hard Deadlines
BUSINESS CASE J.C. Penney’s One-Price Strategy Upsets
Its Customers
CHAPTER 9
Chapter 9 Appendix: How to Make Decisions Involving
Time: Understanding Present Value
How to Calculate the Present Value of a One-Year
Project
How to Calculate the Present Value of Multiyear
Projects
How to Calculate the Present Value of Projects with
Revenues and Costs
PART 5 The Consumer
CHAPTER 10
The Rational Consumer
The Absolute Last Bite
Utility: Getting Satisfaction
Utility and Consumption
The Principle of Diminishing Marginal Utility
ECONOMICS >> in Action Is Salmon a Luxury? It
Depends
Budgets and Optimal Consumption
Budget Constraints and Budget Lines
Optimal Consumption Choice
FOR INQUIRING MINDS Food for Thought on Budget
Constraints
ECONOMICS >> in Action The Great Condiment Craze
Spending the Marginal Dollar
Marginal Utility per Dollar
Optimal Consumption
ECONOMICS >> in Action Buying Your Way Out of
Temptation
From Utility to the Demand Curve
Marginal Utility, the Substitution Effect, and the
Law of Demand
The Income Effect
ECONOMICS >> in Action Lower Gasoline Prices and
the Urge to Splurge
BUSINESS CASE Beyond Impossible: McDonald’s and
Burger King’s Beef-Free Battle
CHAPTER 10
Chapter 10 Appendix: Consumer Preferences and
Consumer Choice
Mapping the Utility Function
Indifference Curves
Properties of Indifference Curves
Indifference Curves and Consumer Choice
The Marginal Rate of Substitution
The Tangency Condition
The Slope of the Budget Line
Prices and the Marginal Rate of Substitution
Preferences and Choices
Using Indifference Curves: Substitutes and
Complements
Perfect Substitutes
Perfect Complements
Less Extreme CASEs
Prices, Income, and Demand
The Effects of a Price Increase
Income and Consumption
Income and Substitution Effects
PART 6 The Production Decision
CHAPTER 11
Behind the Supply Curve: Inputs and Costs
The Farmer’s Margin
The Production Function
Inputs and Output
GLOBAL COMPARISON Wheat Yields Around the
World
From the Production Function to Cost Curves
ECONOMICS >> in Action Finding the Optimal Team
Size
Two Key Concepts: Marginal Cost and Average Cost
Marginal Cost
Average Total Cost
Minimum Average Total Cost
Does the Marginal Cost Curve Always Slope
Upward?
ECONOMICS >> in Action Smart Grid Economics
Short-Run versus Long-Run Costs
Returns to Scale
Summing Up Costs: The Short and Long of It
ECONOMICS >> in Action How the Sharing Economy
Reduces Fixed Cost
BUSINESS CASE The Rise of the Machine at Amazon
CHAPTER 12
Perfect Competition and the Supply Curve
Deck the Halls
Perfect Competition
Defining Perfect Competition
Two Necessary Conditions for Perfect Competition
FOR INQUIRING MINDS What’s a Standardized
Product?
Free Entry and Exit
ECONOMICS >> in Action Pay-for-Delay Runs Out of
Time
Production and Profits
Using Marginal Analysis to Choose the Profit-
Maximizing Quantity of Output
When Is Production Profitable?
The Short-Run Production Decision
Changing Fixed Cost
Summing Up: The Perfectly Competitive Firm’s
Profitability and Production Conditions
ECONOMICS >> in Action Farmers Know How
The Industry Supply Curve
The Short-Run Industry Supply Curve
The Long-Run Industry Supply Curve
The Cost of Production and Efficiency in Long-Run
Equilibrium
ECONOMICS >> in Action A Global Pork Shortage Hits
Chinese Diners Hard
BUSINESS CASE Retail Wars: Big Box Stores in the Age
of Amazon
CHAPTER 13
Monopoly
“Shine Bright Like a Diamond”
Types of Market Structure
The Meaning of Monopoly
Monopoly: Our First Departure from Perfect
Competition
What Monopolists Do
Why Monopolies Exist
GLOBAL COMPARISON What Accounts for America’s
High Drug Prices?
ECONOMICS >> in Action The Monopoly That Wasn’t:
China and the Market for Rare Earths
How a Monopolist Maximizes Profit
The Monopolist’s Demand Curve and Marginal
Revenue
The Monopolist’s Profit-Maximizing Output and
Price
Monopoly versus Perfect Competition
Monopoly: The General Picture
ECONOMICS >> in Action Shocked by the High Price of
Electricity
Monopoly and Public Policy
Welfare Effects of Monopoly
Policy Remedies to Monopoly
Dealing with Natural Monopoly
A New Generation of Market Power
A New Generation of Market Power and Monopoly
A New Generation of Market Power and
Monopsony
Policies to Address the New Generation of Market
Power
ECONOMICS >> in Action Are American Antitrust
Policy Makers Behind the Digital Times?
Price Discrimination
The Logic of Price Discrimination
Price Discrimination and Elasticity
Perfect Price Discrimination
BUSINESS CASE Amazon and Hachette Go to War
PART 7 Market Structure: Beyond Perfect Competition
CHAPTER 14
Oligopoly
Regulators Give Bridgestone a Flat Tire
The Prevalence of Oligopoly
ECONOMICS >> in Action Is It a Beer-opoly or Not?
Understanding Oligopoly
A Duopoly Example
Collusion and Competition
ECONOMICS >> in Action The CASE Against Chocolate
Producers Melts
Games Oligopolists Play
The Prisoners’ Dilemma
FOR INQUIRING MINDS Prisoners of the Arms Race
and the Resurgent Cold War
Overcoming the Prisoners’ Dilemma: Repeated
Interaction and Tacit Collusion
ECONOMICS >> in Action The Ups and Downs of a
Cartel: OPEC Hits the Skids on U.S. Shale Oil
Oligopoly in Practice
The Legal Framework
GLOBAL COMPARISON The European Union and the
United States: Differing Approaches to Antitrust
Regulation
Tacit Collusion and Price Wars
Product Differentiation and Price Leadership
How Important Is Oligopoly?
ECONOMICS >> in Action The Price Wars of Christmas:
Amazon and Walmart Slug It Out
BUSINESS CASE Virgin Atlantic Blows the Whistle . . .
or Blows It?
CHAPTER 15
Monopolistic Competition and Product Differentiation
The Food Court of America
The Meaning of Monopolistic Competition
Large Numbers
Differentiated Products
Free Entry and Exit in the Long Run
Monopolistic Competition: In Sum
Product Differentiation
Differentiation by Style or Type
Differentiation by Location
Differentiation by Quality
Product Differentiation: In Sum
ECONOMICS >> in Action Abbondanza!
Understanding Monopolistic Competition
Monopolistic Competition in the Short Run
Monopolistic Competition in the Long Run
ECONOMICS >> in Action Hits and Flops in the App
Store
Monopolistic Competition versus Perfect Competition
Price, Marginal Cost, and Average Total Cost
Is Monopolistic Competition Inefficient?
Controversies About Product Differentiation
The Role of Advertising
Brand Names
ECONOMICS >> in Action The Perfume Industry:
Leading Consumers by the Nose
BUSINESS CASE Harry’s and the Dollar Shave Club Nick
the Profits of Schick and Gillette
PART 8 Microeconomics and Public Policy
CHAPTER 16
Externalities
Trouble Underfoot
Understanding Externalities
FOR INQUIRING MINDS Driving While Distracted
The Economics of a Negative Externality: Pollution
The Costs and Benefits of Pollution
Why a Market Economy Produces Too Much
Pollution
Private Solutions to Externalities
ECONOMICS >> in Action How Much Does Your
Electricity Really Cost?
Government Policy and Pollution
Environmental Standards
Emissions Taxes
GLOBAL COMPARISON Economic Growth and
Greenhouse Gases in Six Countries
Tradable Emissions Permits
Comparing Environmental Policies with an
Example
ECONOMICS >> in Action Cap and Trade
The Economics of Climate Change
The Causes of Climate Change
Policies to Address Climate Change
Climate Change Mitigation: Costs and Benefits
ECONOMICS >> in Action Over 3,500 Economists
Agree: Tax Greenhouse Gas Emissions
The Economics of Positive Externalities
Preserved Farmland: A Positive Externality
Positive Externalities in Today’s Economy
ECONOMICS >> in Action The Impeccable Economic
Logic of Early-Childhood Intervention Programs
Network Externalities
The External Benefits of a Network Externality
ECONOMICS >> in Action The Microsoft CASE
BUSINESS CASE Xcel Energy Goes for a Win-Win
CHAPTER 17
Public Goods and Common Resources
The Great Stink
Private Goods — and Others
Characteristics of Goods
Why Markets Can Supply Only Private Goods
Efficiently
ECONOMICS >> in Action From Mayhem to
Renaissance
Public Goods
Providing Public Goods
How Much of a Public Good Should Be Provided?
FOR INQUIRING MINDS Voting as a Public Good
GLOBAL COMPARISON Voting as a Public Good: The
Global Perspective
Cost-Benefit Analysis
ECONOMICS >> in Action American Infrastructure
Gets a D+
Common Resources
The Problem of Overuse
The Efficient Use and Maintenance of a Common
Resource
FOR INQUIRING MINDS When Fertile Farmland
Turned to Dust
ECONOMICS >> in Action Saving the Oceans with ITQs
Artificially Scarce Goods
ECONOMICS >> in Action Twenty-First Century Piracy
BUSINESS CASE Saving the “Beast”: Ecotourism
Protects the Jaguars of Brazil
CHAPTER 18
The Economics of the Welfare State
An Affair of the Heart
Poverty, Inequality, and Public Policy
The Logic of the Welfare State
The Problem of Poverty
Trends in Poverty
Who Are the Poor?
What Causes Poverty?
Consequences of Poverty
Economic Inequality
Mean versus Median Household Income
International Comparisons of Inequality
When Is Inequality a Problem?
Economic Insecurity
GLOBAL COMPARISON Income, Redistribution, and
Inequality in Rich Countries
ECONOMICS >> in Action Long-Term Trends in Income
Inequality in the United States
The U.S. Welfare State
Means-Tested Programs
Social Security and Unemployment Insurance
The Effects of the Welfare State on Poverty and
Inequality
ECONOMICS >> in Action Welfare State Programs and
Poverty Rates in the Great Recession, 2007–2010
The Economics of Health Care
The Need for Health Insurance
Health Care in Other Countries
The Affordable Care Act
Effects of the ACA
ECONOMICS >> in Action What Medicaid Does
The Debate over the Welfare State
Problems with the Welfare State
The Politics of the Welfare State
ECONOMICS >> in Action The Not-So Melancholy
Danes?
BUSINESS CASE Can the Entrepreneurial Spirit of the
United States Survive Threats to the ACA?
PART 9 Factor Markets and Risk
CHAPTER 19
Factor Markets and the Distribution of Income
The Value of a Degree
The Economy’s Factors of Production
The Factors of Production
Why Factor Prices Matter: The Allocation of
Resources
Factor Incomes and the Distribution of Income
FOR INQUIRING MINDS The Factor Distribution of
Income and Social Change in the Industrial
Revolution
ECONOMICS >> in Action The Factor Distribution of
Income in the United States
Marginal Productivity and Factor Demand
Value of the Marginal Product
Value of the Marginal Product and Factor Demand
Shifts of the Factor Demand Curve
Market Equilibrium in the Factor Market
The Markets for Land and Capital
The Marginal Productivity Theory of Income
Distribution
ECONOMICS >> in Action Help Wanted at Flex!
Is the Marginal Productivity Theory of Income
Distribution Really True?
Wage Disparities in Practice
Wage Disparities and Marginal Productivity
Market Power
Efficiency Wages
Discrimination
FOR INQUIRING MINDS How Labor Works the
German Way
So Does Marginal Productivity Theory Work?
ECONOMICS >> in Action Marginal Productivity and
the Minimum Wage Puzzle
The Supply of Labor
Work versus Leisure
Wages and Labor Supply
Shifts of the Labor Supply Curve
GLOBAL COMPARISON The Overworked American?
ECONOMICS >> in Action The Real Housewives of the
United States
BUSINESS CASE Walmart Revolutionizes Its Labor
Practices
CHAPTER 19
Chapter 19 Appendix: Indifference Curve Analysis of Labor
Supply
The Time Allocation Budget Line
The Effect of a Higher Wage Rate
Indifference Curve Analysis
CHAPTER 20
Uncertainty, Risk, and Private Information
Extreme Weather
The Economics of Risk Aversion
Expectations and Uncertainty
The Logic of Risk Aversion
FOR INQUIRING MINDS The Paradox of Gambling
Paying to Avoid Risk
ECONOMICS >> in Action Warranties
Buying, Selling, and Reducing Risk
Trading Risk
Making Risk Disappear: The Power of
Diversification
FOR INQUIRING MINDS Those Pesky Emotions
The Limits of Diversification
ECONOMICS >> in Action When Lloyd’s Almost Lost It
Private Information: What You Don’t Know Can Hurt You
Adverse Selection: The Economics of Lemons Moral Hazard
ECONOMICS >> in Action Franchise Owners Try Harder
BUSINESS CASE PURE — An Insurance Company That
Withstands Hurricanes
Solutions to Check Your Understanding Questions
Glossary
Index