Microeconomics / Edition 12

by Roger A. Arnold

Overview

What do John Elway, Mick Jagger, Arnold Schwarzenegger, Sandra Day O'Connor and Young MC all have in common? They all studied economics! In beginning your study of economics with this text, you have a unique opportunity to learn the basics through a clear presentation of concepts and exciting real-world applications that demonstrate how economics affects you, every day, in ways you may not even expect. Why do airlines overbook? How did Hurricane Katrina affect the economy? Do drug busts make a difference in crime? Will a higher minimum wage lead to fewer jobs? Are you more likely to be late to some classes than others? Economic analysis seeks answers to questions like these and so much more. Your journey down Economics Road begins with Chapter 1 - Enjoy!

A comprehensive Study Guide including many multiple choice, review, true/false, graphing, and other questions and problems is also available for purchase with this text. If you find yourself wondering more about the special perspective that economics can provide, you may be interested in How to Think Like an Economist, a supplemental paperback also written by Roger A. Arnold.

Product Details

ISBN-13:	9781305399433
Publisher:	Cengage Learning
Publication date:	01/01/2015
Pages:	624
Product dimensions:	8.30(w) x 9.90(h) x 0.80(d)

About the Author

Dr. Roger Arnold is at California State University San Marcos, where his fields of specialization are general microeconomic theory and monetary theory. Dr. Arnold earned his B.S. in economics from the University of Birmingham in England. He received his Ph.D. in economics from Virginia Tech.


Dr. Daniel Arnold is a research economist in the School of Public Health at University of California, Berkeley, where his field of specialization is health economics. He is also research director of the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare. He received his B.A. in economics and mathematics from Cornell University. He received his Ph.D. in economics from University of California, Santa Barbara.


Dr. David Arnold is at University of California, San Diego, where his fields of specialization are labor economics, imperfect competition, and discrimination. He received his B.A. in economics from University of California, Berkeley. He received his Ph.D. in economics from Princeton University.

Table of Contents

Preface     xix
An Introduction to Economics
Economics: The Science of Scarcity
What Economics Is About     1
A Definition of Economics     2
Goods and Bads     2
Resources     2
Scarcity and a Definition of Economics     2
Key Concepts in Economics     5
Opportunity Cost     5
Benefits and Costs     6
Decisions Made at the Margin     8
Efficiency     8
Unintended Effects     10
Exchange     11
Economic Categories     12
Positive and Normative Economics     12
Microeconomics and Macroeconomics     13
A Reader Asks     13
Analyzing the Scene     14
Chapter Summary     15
Key Terms and Concepts     16
Questions and Problems     16
Working with Diagrams     17
Two-Variable Diagrams     17
Slope of a Line     18
Slope of a Line Is Constant     18
Slope of a Curve     20
The 45[Degree] Line     20
Pie Charts     21
Bar Graphs     21
Line Graphs     21
AppendixSummary     24
Questions and Problems     24
Should You Major in Economics?     25
Five Myths about Economics and an Economics Major     26
What Awaits You as an Economics Major?     28
What Do Economists Do?     29
Places to Find More Information     30
Concluding Remarks     30
Economic Activities: Producing and Trading     31
The Production Possibilities Frontier     32
The Straight-Line PPF: Constant Opportunity Costs     32
The Bowed-Outward (Concave-Downward) PPF: Increasing Opportunity Costs     33
Law of Increasing Opportunity Costs     34
Economic Concepts within a PPF Framework     35
Exchange or Trade     38
Periods Relevant to Trade     39
Trade and the Terms of Trade     40
Costs of Trades     40
Trades and Third-Party Effects     42
Production, Trade, and Specialization     42
Producing and Trading     42
Profit and a Lower Cost of Living     45
A Benevolent and All-Knowing Dictator Versus the Invisible Hand     45
A Reader Asks     46
Analyzing the Scene     47
Chapter Summary      47
Key Terms and Concepts     48
Questions and Problems     48
Working with Numbers and Graphs     49
Supply and Demand: Theory     50
A Note about Theories     51
What Is Demand?     51
The Law of Demand     52
What Does Ceteris Paribus Mean?     52
Four Ways to Represent the Law of Demand     52
Two Prices: Absolute and Relative     53
Why Does Quantity Demanded Go Down as Price Goes Up?     53
Individual Demand Curve and Market Demand Curve     54
A Change in Quantity Demanded Versus a Change in Demand     55
What Factors Cause the Demand Curve to Shift?     57
Movement Factors and Shift Factors     59
Supply     60
The Law of Supply     61
Why Most Supply Curves Are Upward Sloping     61
Changes in Supply Mean Shifts in Supply Curves     62
What Factors Cause the Supply Curve to Shift?     63
A Change in Supply Versus a Change in Quantity Supplied     64
The Market: Putting Supply and Demand Together     65
Supply and Demand at Work at an Auction     65
The Language of Supply and Demand: A Few Important Terms      66
Moving to Equilibrium: What Happens to Price When There Is a Surplus or a Shortage?     67
Speed of Moving to Equilibrium     68
Moving to Equilibrium: Maximum and Minimum Prices     68
Equilibrium in Terms of Consumers' and Producers' Surplus     70
What Can Change Equilibrium Price and Quantity?     71
Price Controls     73
Price Ceiling: Definition and Effects     73
Price Floor: Definition and Effects     76
Do Buyers Prefer Lower Prices to Higher Prices?     76
A Reader Asks     77
Analyzing the Scene     78
Chapter Summary     78
Key Terms and Concepts     79
Questions and Problems     80
Working with Numbers and Graphs     80
Supply and Demand: Practice     82
Why Do Colleges Use GPAs, ACTs, and SATs for Purposes of Admission?     83
What Will Happen to the Price of Marijuana If the Purchase and Sale of Marijuana Are Legalized?     84
Where Did You Get That Music?     85
Television Shows During the Olympics     86
Who Feeds Cleveland?     86
The Minimum Wage Law     87
Loud Talking at a Restaurant     88
Price Ceiling in the Kidney Market      89
Healthcare and the Right to Sue Your HMO     91
Being Late to Class     92
If Gold Prices Are the Same Everywhere, Then Why Aren't House Prices?     93
Do You Pay for Good Weather?     94
Paying All Professors the Same Salary     94
Price Floors and Winners and Losers     96
College Superathletes     97
Supply and Demand on a Freeway     99
What Does Price Have to Do with Getting to Class on Time?     101
The Space Within Space     102
10 a.m. Classes in College     102
Who Pays the Tax?     103
A Reader Asks     105
Analyzing the Scene     105
Chapter Summary     106
Key Terms and Concepts     107
Questions and Problems     107
Working with Numbers and Graphs     108
Microeconomics
Microeconomic Fundamentals
Elasticity     109
How to Approach the Study of Microeconomics     110
Consumers     110
Firms     110
Factor Owners     111
Choices Are Made in Market Settings     111
Recap     111
Elasticity: Part 1     111
Price Elasticity of Demand      111
Elasticity Is Not Slope     113
From Perfectly Elastic to Perfectly Inelastic Demand     113
Price Elasticity of Demand and Total Revenue (Total Expenditure)     115
Elasticity: Part 2     119
Price Elasticity of Demand Along a Straight-Line Demand Curve     119
Determinants of Price Elasticity of Demand     120
Other Elasticity Concepts     123
Cross Elasticity of Demand     123
Income Elasticity of Demand     125
Price Elasticity of Supply     125
Price Elasticity of Supply and Time     127
A Reader Asks     128
Analyzing the Scene     128
Chapter Summary     129
Key Terms and Concepts     130
Questions and Problems     131
Working with Numbers and Graphs     131
Consumer Choice: Maximizing Utility and Behavioral Economics     132
Utility Theory     133
Utility: Total and Marginal     133
Law of Diminishing Marginal Utility     133
The Solution to the Diamond-Water Paradox     136
Consumer Equilibrium and Demand     137
Equating Marginal Utilities per Dollar     137
Maximizing Utility and the Law of Demand      138
Should the Government Provide the Necessities of Life for Free?     138
Behavioral Economics     140
Are People Willing to Reduce Others' Incomes?     140
Is {dollar}1 Always {dollar}1?     141
Coffee Mugs and the Endowment Effect     142
Does the Endowment Effect Hold Only for New Traders?     143
A Reader Asks     144
Analyzing the Scene     145
Chapter Summary     145
Key Terms and Concepts     146
Questions and Problems     146
Working with Numbers and Graphs     147
Budget Constraint and Indifference Curve Analysis     148
The Budget Constraint     148
Slope of the Budget Constraint     148
What Will Change the Budget Constraint?     149
Indifference Curves     149
Constructing an Indifference Curve     150
Characteristics of Indifference Curves     150
The Indifference Map and the Budget Constraint Come Together     153
From Indifference Curves to a Demand Curve     154
Appendix Summary     155
Questions and Problems     156
Production and Costs     157
Why Firms Exist      158
The Market and the Firm: Invisible Hand Versus Visible Hand     158
The Alchian and Demsetz Answer     158
Shirking in a Team     158
Ronald Coase on Why Firms Exist     159
Markets: Outside and Inside the Firm     160
The Firm's Objective: Maximizing Profit     160
Accounting Profit Versus Economic Profit     162
Zero Economic Profit Is Not as Bad as It Sounds     163
Production     163
Production in the Short Run     164
Marginal Physical Product and Marginal Cost     166
Average Productivity     168
Costs of Production: Total, Average, Marginal     169
The AVC and ATC Curves in Relation to the MC Curve     171
Tying Short-Run Production to Costs     174
One More Cost Concept: Sunk Cost     174
Production and Costs in the Long Run     178
Long-Run Average Total Cost Curve     178
Economies of Scale, Diseconomies of Scale, and Constant Returns to Scale     179
Why Economies of Scale?     180
Why Diseconomies of Scale?     180
Minimum Efficient Scale and Number of Firms in an Industry     180
Shifts in Cost Curves     181
Taxes      181
Input Prices     181
Technology     181
A Reader Asks     182
Analyzing the Scene     182
Chapter Summary     183
Key Terms and Concepts     184
Questions and Problems     184
Working with Numbers and Graphs     185
Product Markets and Policies
Perfect Competition     187
Market Structures     188
The Theory of Perfect Competition     188
A Perfectly Competitive Firm Is a Price Taker     189
The Demand Curve for a Perfectly Competitive Firm Is Horizontal     190
The Marginal Revenue Curve of a Perfectly Competitive Firm Is the Same as Its Demand Curve     191
Theory and Real-World Markets     192
Perfect Competition in the Short Run     193
What Level of Output Does the Profit-Maximizing Firm Produce?     193
The Perfectly Competitive Firm and Resource Allocative Efficiency     194
To Produce or Not to Produce: That Is the Question     195
The Perfectly Competitive Firm's Short-Run Supply Curve     197
From Firm to Market (Industry) Supply Curve     197
Why Is the Market Supply Curve Upward Sloping?     198
Perfect Competition in the Long Run     200
The Conditions of Long-Run Competitive Equilibrium     200
The Perfectly Competitive Firm and Productive Efficiency     201
Industry Adjustment to an Increase in Demand     201
What Happens as Firms Enter an Industry in Search of Profits?     204
Industry Adjustment to a Decrease in Demand     205
Differences in Costs, Differences in Profits: Now You See It, Now You Don't     205
Profit and Discrimination     206
Topics for Analysis Within the Theory of Perfect Competition     207
Do Higher Costs Mean Higher Prices?     207
Will the Perfectly Competitive Firm Advertise?     207
Supplier-Set Price Versus Market-Determined Price: Collusion or Competition?     208
A Reader Asks     208
Analyzing the Scene     209
Chapter Summary     210
Key Terms and Concepts     211
Questions and Problems     211
Working with Numbers and Graphs     212
Monopoly     213
The Theory of Monopoly     214
Barriers to Entry: A Key to Understanding Monopoly     214
What Is the Difference Between a Government Monopoly and a Market Monopoly?     216
Monopoly Pricing and Output Decisions     216
The Monopolist's Demand and Marginal Revenue     216
The Monopolist's Demand and Marginal Revenue Curves Are Not the Same: Why Not?     217
Price and Output for a Profit-Maximizing Monopolist     218
If a Firm Maximizes Revenue, Does It Automatically Maximize Profit Too?     218
Perfect Competition and Monopoly     220
Price, Marginal Revenue, and Marginal Cost     220
Monopoly, Perfect Competition, and Consumers' Surplus     220
Monopoly or Nothing?     221
The Case Against Monopoly     222
The Deadweight Loss of Monopoly     222
Rent Seeking     223
X-Inefficiency     224
Price Discrimination     224
Types of Price Discrimination     225
Why a Monopolist Wants to Price Discriminate     225
Conditions of Price Discrimination     225
Moving to P = MC Through Price Discrimination     226
You Can Have the Comics, Just Give Me the Coupons     227
A Reader Asks     230
Analyzing the Scene     230
Chapter Summary     232
Key Terms and Concepts     232
Questions and Problems     232
Working with Numbers and Graphs     233
Monopolistic Competition, Oligopoly, and Game Theory     234
The Theory of Monopolistic Competition     235
The Monopolistic Competitor's Demand Curve     235
The Relationship Between Price and Marginal Revenue for a Monopolistic Competitor     235
Output, Price, and Marginal Cost for the Monopolistic Competitor     235
Will There Be Profits in the Long Run?     236
Excess Capacity: What Is It, and Is It "Good" or "Bad"?     237
The Monopolistic Competitor and Two Types of Efficiency     239
Advertising and Designer Labels     239
Oligopoly: Assumptions and Real-World Behavior     239
Price and Output Under Three Oligopoly Theories     204
The Cartel Theory     240
The Kinked Demand Curve Theory     243
The Price Leadership Theory     245
Game Theory, Oligopoly, and Contestable Markets     246
Prisoner's Dilemma     247
Oligopoly Firms' Cartels and the Prisoner's Dilemma     249
Are Markets Contestable?     251
A Review of Market Structures     252
Applications of Game Theory     252
Grades and Partying     252
The Arms Race     254
Speed Limit Laws     254
The Fear of Guilt as an Enforcement Mechanism      255
A Reader Asks     256
Analyzing the Scene     257
Chapter Summary     258
Key Terms and Concepts     258
Questions and Problems     258
Working with Numbers and Graphs     259
Government and Product Markets: Antitrust and Regulation     260
Antitrust     261
Antitrust Acts     261
Unsettled Points in Antitrust Policy     262
Antitrust and Mergers     265
Seven Antitrust Cases and Actions     266
Network Monopolies     269
Civil Action No. 98-1232     270
Regulation     271
The Case of Natural Monopoly     271
Regulating the Natural Monopoly     273
Regulating Industries That Are Not Natural Monopolies     275
Theories of Regulation     275
The Costs and Benefits of Regulation     276
Some Effects of Regulation Are Unintended     276
Deregulation     277
A Reader Asks     278
Analyzing the Scene     279
Chapter Summary     280
Key Terms and Concepts     280
Questions and Problems     280
Working with Numbers and Graphs      281
Factor Markets and Related Isues
Factor Markets: With Emphasis on the Labor Market     283
Factor Markets     284
The Demand for a Factor     284
Marginal Revenue Product: Two Ways to Calculate It     284
The MRP Curve Is the Firm's Factor Demand Curve     285
Value Marginal Product     286
An Important Question: Is MRP = VMP?     286
Marginal Factor Cost: The Firm's Factor Supply Curve     286
How Many Units of a Factor Should a Firm Buy?     287
When There Is More Than One Factor, How Much of Each Factor Should the Firm Buy?     288
The Labor Market     289
Shifts in a Firm's MRP, or Factor Demand, Curve     289
Market Demand for Labor     291
The Elasticity of Demand for Labor     292
Market Supply of Labor     293
An Individual's Supply of Labor     295
Shifts in the Labor Supply Curve     295
Putting Supply and Demand Together     295
Why Do Wage Rates Differ?     296
Why Demand and Supply Differ in Different Labor Markets     297
Why Did You Choose the Major That You Chose?     298
Marginal Productivity Theory     299
Labor Markets and Information      300
Screening Potential Employees     300
Promoting from Within     300
Is It Discrimination or Is It an Information Problem?     300
A Reader Asks     302
Analyzing the Scene     302
Chapter Summary     303
Key Terms and Concepts     304
Questions and Problems     304
Working with Numbers and Graphs     305
Wages, Unions, and Labor     306
The Facts and Figures of Labor Unions     307
Types of Unions     307
Union Membership: The United States and Abroad     307
Objectives of Labor Unions     307
Employment for All Members     308
Maximizing the Total Wage Bill     308
Maximizing Income for a Limited Number of Union Members     308
Wage-Employment Tradeoff     308
Practices of Labor Unions     310
Affecting Elasticity of Demand for Union Labor     310
Affecting the Demand for Union Labor     310
Affecting the Supply of Union Labor     311
Affecting Wages Directly: Collective Bargaining     311
Strikes     312
Effects of Labor Unions     313
The Case of Monopsony      313
Unions' Effects on Wages     317
Unions' Effects on Prices     318
Unions' Effects on Productivity and Efficiency: Two Views     318
A Reader Asks     320
Analyzing the Scene     321
Chapter Summary     321
Key Terms and Concepts     322
Questions and Problems     322
Working with Numbers and Graphs     323
The Distribution of Income and Poverty     324
Some Facts About Income Distribution     325
Who Are the Rich and How Rich Are They?     325
The Effect of Age on the Income Distribution     327
A Simple Equation     327
Measuring Income Equality     328
The Lorenz Curve     328
The Gini Coefficient     329
A Limitation of the Gini Coefficient     330
Why Income Inequality Exists     331
Factors Contributing to Income Inequality     331
Income Differences: Some Are Voluntary, Some Are Not     334
Normative Standards of Income Distribution     335
The Marginal Productivity Normative Standard     335
The Absolute Income Equality Normative Standard     336
The Rawlsian Normative Standard      337
Poverty     338
What Is Poverty?     338
Limitations of the Official Poverty Income Statistics     339
Who Are the Poor?     339
What Is the Justification for Government Redistributing Income?     339
A Reader Asks     341
Analyzing the Scene     342
Chapter Summary     342
Key Terms and Concepts     343
Questions and Problems     343
Working with Numbers and Graphs     343
Interest, Rent, and Profit     344
Interest     345
Loanable Funds: Demand and Supply     345
The Price for Loanable Funds and the Return on Capital Goods Tend to Equality     347
Why Do Interest Rates Differ?     347
Nominal and Real Interest Rates     348
Present Value: What Is Something Tomorrow Worth Today?     349
Deciding Whether or Not to Purchase a Capital Good     350
Rent     351
David Ricardo, the Price of Grain, and Land Rent     351
The Supply Curve of Land Can Be Upward Sloping     351
Economic Rent and Other Factors of Production     352
Economic Rent and Baseball Players: The Perspective from Which the Factor Is Viewed Matters     353
Competing for Artificial and Real Rents     353
Do People Overestimate Their Worth to Others, or Are They Simply Seeking Economic Rent?     354
Profit     354
Theories of Profit     354
What Is Entrepreneurship?     355
What Do a Microwave Oven and an Errand Runner Have in Common?     356
Profit and Loss as Signals     357
A Reader Asks     358
Analyzing the Scene     359
Chapter Summary     359
Key Terms and Concepts     360
Questions and Problems     360
Working with Numbers and Graphs     360
Market Failure and Public Choice
Market Failure: Externalities, Public Goods, and Asymmetric Information     361
Market Failure     362
Externalities     362
Costs and Benefits of Activities     362
Marginal Costs and Benefits of Activities     363
Social Optimality, or Efficiency, Conditions     363
Three Categories of Activities     363
Externalities in Consumption and in Production     364
Diagram of a Negative Externality     364
Diagram of a Positive Externality     366
Internalizing Externalities     366
Persuasion      368
Taxes and Subsidies     369
Assigning Property Rights     369
Voluntary Agreements     370
Combining Property Rights Assignments and Voluntary Agreements     370
Beyond Internalizing: Setting Regulations     372
Dealing with a Negative Externality in the Environment     373
Is No Pollution Worse Than Some Pollution?     373
Two Methods to Reduce Air Pollution     374
Public Goods: Excludable and Nonexcludable     376
Goods     376
The Free Rider     376
Nonexcludable Versus Nonrivalrous     377
Asymmetric Information     378
Asymmetric Information in a Product Market     379
Asymmetric Information in a Factor Market     380
Is There Market Failure?     380
Adverse Selection     381
Moral Hazard     383
A Reader Asks     384
Analyzing the Scene     385
Chapter Summary     385
Key Terms and Concepts     386
Questions and Problems     386
Working with Numbers and Graphs     387
Public Choice: Economic Theory Applied to Politics     388
Public Choice Theory     389
The Political Market     389
Moving Toward the Middle: The Median Voter Model     389
What Does the Theory Predict?     390
Voters and Rational Ignorance     393
The Costs and Benefits of Voting     393
Rational Ignorance     394
More About Voting     395
Voting for a Nonexcludable Public Good     395
Voting and Efficiency     396
Special Interest Groups     397
Information and Lobbying Efforts     398
Congressional Districts as Special Interest Groups     398
Public Interest Talk, Special Interest Legislation     399
Special Interest Groups and Rent Seeking     399
Government Bureaucracy     402
A View of Government     403
A Reader Asks     404
Analyzing the Scene     404
Chapter Summary     405
Key Terms and Concepts     406
Questions and Problems     406
Working with Numbers and Graphs     407
The Global Economy
International Economics and Globalization
International Trade     409
International Trade Theory     410
How Do Countries Know What to Trade?     410
How Do Countries Know When They Have a Comparative Advantage?     412
Trade Restrictions     414
The Distributional Effects of International Trade     414
Consumers' and Producers' Surplus     414
The Benefits and Costs of Trade Restrictions     415
If Free Trade Results in Net Gain, Why Do Nations Sometimes Restrict Trade?     418
The World Trade Organization (WTO)     421
A Reader Asks     422
Analyzing the Scene     422
Chapter Summary     423
Key Terms and Concepts     424
Questions and Problems     424
Working with Numbers and Graphs     425
International Finance     426
The Balance of Payments     427
Current Account     427
Capital Account     431
Official Reserve Account     431
Statistical Discrepancy     431
What the Balance of Payments Equals     432
The Foreign Exchange Market     432
The Demand for Goods     433
The Demand for and Supply of Currencies     433
Flexible Exchange Rates     435
The Equilibrium Exchange Rate     435
Changes in the Equilibrium Exchange Rate     436
Factors That Affect the Equilibrium Exchange Rate     436
Fixed Exchange Rates     439
Fixed Exchange Rates and Overvalued/Undervalued Currency     440
What Is So Bad About an Overvalued Dollar?     441
Government Involvement in a Fixed Exchange Rate System     442
Options Under a Fixed Exchange Rate System     442
The Gold Standard     444
Fixed Exchange Rates Versus Flexible Exchange Rates     446
Promoting International Trade     446
Optimal Currency Areas     447
The Current International Monetary System     448
A Reader Asks     450
Analyzing the Scene     451
Chapter Summary     451
Key Terms and Concepts     452
Questions and Problems     453
Working with Numbers and Graphs     453
Globalization     454
What Is Globalization?     455
A Smaller World     455
A World Economy     455
Two Ways to "See" Globalization     456
No Barriers     456
A Union of States     456
Globalization Facts     456
International Trade     457
Foreign Exchange Trading     457
Foreign Direct Investment      457
Personal Investments     459
The World Trade Organization     459
Business Practices     459
Movement Toward Globalization     459
The End of the Cold War     459
Advancing Technology     460
Policy Changes     460
Benefits and Costs of Globalization     462
The Benefits     462
The Costs     464
The Continuing Globalization Debate     465
More or Less Globalization: A Tug of War?     466
Less Globalization     466
More Globalization     467
A Reader Asks     468
Analyzing the Scene     468
Chapter Summary     469
Key Terms and Concepts     469
Questions and Problems     470
Practical Economics
Financial Matters
Stocks, Bonds, Futures, and Options     471
Financial Markets     472
Stocks     472
Where Are Stocks Bought and Sold?     472
The Dow Jones Industrial Average (DMA)     474
How the Stock Market Works     475
Why Do People Buy Stock?     477
How to Buy and Sell Stock     478
Buying Stocks or Buying the Market      478
How to Read the Stock Market Page     480
Bonds     482
The Components of a Bond     482
Bond Ratings     482
Bond Prices and Yields (or Interest Rates)     483
Types of Bonds     483
How to Read the Bond Market Page     484
Risk and Return     485
Futures and Options     486
Futures     486
Options     488
A Reader Asks     489
Analyzing the Scene     490
Chapter Summary     491
Key Terms and Concepts     491
Questions and Problems     491
Working with Numbers and Graphs     492
Web Chapters
Web Chapters
Agriculture: Farmers' Problems, Government Policies, and Unintended Effects     741
Agriculture: The Issues     742
A Few Facts     742
Agriculture and Income Inelasticity     743
Agriculture and Price Inelasticity     743
Price Variability and Futures Contracts     744
Can Bad Weather Be Good for Farmers?     745
Agricultural Policies     746
Price Supports     746
Restricting Supply     746
Target Prices and Deficiency Payments     748
Production Flexibility Contract Payments, (Fixed) Direct Payments, and Countercyclical Payments     749
Nonrecourse Commodity Loans     749
A Reader Asks     750
Analyzing the Scene     751
Chapter Summary     751
Key Terms and Concepts     751
Questions and Problems     752
Working with Numbers and Graphs     753
International Impacts on the Economy     753
International Factors and Aggregate Demand     754
Net Exports     754
The J-Curve     755
International Factors and Aggregate Supply     756
Foreign Input Prices     756
Why Do Foreign Input Prices Change?     757
Factors That Affect Both Aggregate Demand and Aggregate Supply     757
The Exchange Rate     757
What Role Do Interest Rates Play?     758
Deficits: International Effects and Domestic Feedback     759
The Budget Deficit and Expansionary Fiscal Policy     759
The Budget Deficit and Contractionary Fiscal Policy     760
The Effects of Monetary Policy     761
A Reader Asks     763
Analyzing the Scene     764
Chapter Summary      764
Key Terms and Concepts     765
Questions and Problems     765
Working with Numbers and Graphs     766
Self-Test Appendix     493
Glossary     509
Index     517