Microeconomics, 6th Edition PDF by Paul Krugman and Robin Wells


Microeconomics, Sixth Edition

By Paul Krugman and Robin Wells

Microeconomics, Sixth Edition PDF by Paul Krugman and Robin Wells



PART 1 What Is Economics?


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


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


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


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 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


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


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


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


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


Winners, Losers, and Rent Control

So Why Are There Price Ceilings?

ECONOMICS >> in Action How Price Controls in

Venezuela Proved Disastrous

Price Floors



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



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


ECONOMICS >> in Action Responding to Your Tuition


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


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



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


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


FOR INQUIRING MINDS Taxing Income versus Taxing


ECONOMICS >> in Action State Tax Choices

BUSINESS CASE A Welcome Tax Hike: Microsoft Raises

Its Internal Carbon Tax


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


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–


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


BUSINESS CASE Li & Fung: From Guangzhou to You

PART 4 Economics and Decision Making


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


Making “How Much” Decisions: The Role of Marginal


Marginal Cost

Marginal Benefit

Marginal Analysis

GLOBAL COMPARISON House Sizes Around the World

A Principle with Many Uses

A Preview: How Consumption Decisions Are


ECONOMICS >> in Action The Cost of a Life

Sunk Costs

ECONOMICS >> in Action Biotech: The World’s Biggest


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 Appendix: How to Make Decisions Involving

Time: Understanding Present Value

How to Calculate the Present Value of a One-Year


How to Calculate the Present Value of Multiyear


How to Calculate the Present Value of Projects with

Revenues and Costs

PART 5 The Consumer


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


Budgets and Optimal Consumption

Budget Constraints and Budget Lines

Optimal Consumption Choice

FOR INQUIRING MINDS Food for Thought on Budget


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


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 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


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


Behind the Supply Curve: Inputs and Costs

The Farmer’s Margin

The Production Function

Inputs and Output

GLOBAL COMPARISON Wheat Yields Around the


From the Production Function to Cost Curves

ECONOMICS >> in Action Finding the Optimal Team


Two Key Concepts: Marginal Cost and Average Cost

Marginal Cost

Average Total Cost

Minimum Average Total Cost

Does the Marginal Cost Curve Always Slope


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


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


Free Entry and Exit

ECONOMICS >> in Action Pay-for-Delay Runs Out of


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


ECONOMICS >> in Action A Global Pork Shortage Hits

Chinese Diners Hard

BUSINESS CASE Retail Wars: Big Box Stores in the Age

of Amazon



“Shine Bright Like a Diamond”

Types of Market Structure

The Meaning of Monopoly

Monopoly: Our First Departure from Perfect


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


The Monopolist’s Profit-Maximizing Output and


Monopoly versus Perfect Competition

Monopoly: The General Picture

ECONOMICS >> in Action Shocked by the High Price of


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


Policies to Address the New Generation of Market


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



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


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?


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


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



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


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


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


Public Goods and Common Resources

The Great Stink

Private Goods — and Others

Characteristics of Goods

Why Markets Can Supply Only Private Goods


ECONOMICS >> in Action From Mayhem to


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


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


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


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


BUSINESS CASE Can the Entrepreneurial Spirit of the

United States Survive Threats to the ACA?

PART 9 Factor Markets and Risk


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


Factor Incomes and the Distribution of Income

FOR INQUIRING MINDS The Factor Distribution of

Income and Social Change in the Industrial


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


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



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



Chapter 19 Appendix: Indifference Curve Analysis of Labor


The Time Allocation Budget Line

The Effect of a Higher Wage Rate

Indifference Curve Analysis


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


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



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