"Adverse selection arises when one party knows more about the attributes of the good being sold than the other party."

"Producer surplus is the difference between the price a seller receives and the minimum price the seller is willing to accept."

"The demand curve shows the quantity demanded at each price."

"Individuals make choices at the margin, comparing the additional benefit of one more unit of an activity with the additional cost of that unit."

"The principle of marginal analysis states that the optimal quantity of an activity is the quantity at which marginal benefit equals marginal cost."

This chapter explores the concept of elasticity, a measure of responsiveness of one variable to changes in another. It focuses on price elasticity of demand, price elasticity of supply, and how elasticity affects the incidence of taxation and the deadweight loss from taxes.

Elasticity and Taxation

This chapter focuses on public goods (nonrival and nonexcludable) and common resources (rival but nonexcludable). It explains why markets often fail to provide efficient quantities of these goods and resources and discusses potential solutions, including government provision and regulation.

Public Goods and Common Resources

This chapter examines the market structure of monopoly, where a single firm is the sole producer of a good or service with no close substitutes. It analyzes how monopolists face a downward-sloping demand curve and can set prices, leading to lower output and potential deadweight loss compared to perfect competition.

Monopoly

This chapter analyzes the model of perfect competition, characterized by many small firms producing identical products, free entry and exit, and price-taking behavior. It explains how individual firms make production decisions in the short run and how the market supply curve is derived from the supply curves of individual firms.

Perfect Competition and the Supply Curve

This chapter introduces the use of economic models, particularly the production possibilities frontier (PPF), to illustrate trade-offs, opportunity costs, and efficiency. It then explains the concept of comparative advantage as the basis for mutually beneficial trade between individuals and countries.

Economic Models: Trade-offs and Trade

This chapter examines the factors that influence a firm's costs of production, which ultimately determine its supply curve. It introduces concepts like fixed costs, variable costs, total cost, marginal cost, and average costs, and how these costs vary with the level of output in the short run and the long run.

Behind the Supply Curve: Inputs and Costs

"A production possibilities frontier (PPF) illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given quantity of the other good produced."

This chapter explores oligopoly, a market structure with only a few sellers offering similar or identical products. It discusses the strategic interactions between these firms, including concepts like the prisoner's dilemma, collusion, and non-cooperative behavior, and how these influence market outcomes.

Oligopoly

"Marginal cost (MC) is the change in total cost generated by producing one more unit of output."

"A variable cost is a cost that depends on the quantity of output produced."

"An individual firm in a perfectly competitive market faces a perfectly elastic demand curve."

"In the long run, in a perfectly competitive industry with free entry and exit, economic profit is driven to zero."

"Compared with perfect competition, a monopolist produces less output and charges a higher price, creating deadweight loss for society."

"Gains from trade arise from specialization, in which individuals and countries specialize in producing the things they are comparatively better at producing."

"The market is in equilibrium when the quantity demanded equals the quantity supplied."

This chapter provides a more in-depth analysis of taxation. It examines different types of taxes, the principles of tax fairness and efficiency, and the trade-offs governments face when designing tax systems. It also discusses the impact of taxes on consumer and producer behavior.

Taxes

"Monopolistic competition is a market structure in which there are many firms selling differentiated products."

This chapter examines externalities, which are costs or benefits that affect parties not directly involved in a transaction. It analyzes negative externalities (costs imposed on others) and positive externalities (benefits conferred on others) and discusses government policies like taxes, subsidies, and regulation to address these market failures.

Externalities

This chapter explores the economic principles behind international trade. It revisits comparative advantage as the basis for trade and analyzes the gains from trade. It also examines the arguments for and against trade restrictions such as tariffs and quotas, and the effects of these policies.

International Trade

This chapter delves into the microeconomic foundations of decision-making by individuals and firms. It introduces concepts like utility maximization for consumers and profit maximization for firms, laying the groundwork for understanding their behavior in different market structures.

Decision Making by Individuals and Firms

"The supply curve shows the quantity supplied at each price."

"The price elasticity of demand is the ratio of the percentage change in the quantity demanded to the percentage change in the price."

"Tax incidence depends on the relative elasticities of supply and demand: the burden of the tax falls more heavily on the side of the market that is less elastic."

"A fixed cost is a cost that does not change with the quantity of output produced."

"Because its product is differentiated, a monopolistically competitive firm faces a downward-sloping demand curve."

"Firms aim to maximize profit, which is the difference between total revenue and total cost."

"An oligopoly is a market structure in which only a few sellers offer similar or identical products."

This chapter analyzes the effects of government-imposed price controls (price ceilings and price floors) and quantity controls (quotas). It shows how these interventions can lead to inefficiencies, shortages, surpluses, and deadweight loss, often creating unintended consequences and benefiting some at the expense of others.

Price Controls and Quotas: Meddling with Markets

"A quantity control, or quota, is an upper limit on the quantity of some good that can be bought or sold."

"The price elasticity of supply is the ratio of the percentage change in the quantity supplied to the percentage change in the price."

"In the long run, free entry and exit drive economic profit to zero in a monopolistically competitive industry."

"An externality is a cost or benefit that affects someone who did not choose to incur that cost or benefit."

"International trade allows countries to specialize in producing goods and services in which they have a comparative advantage, leading to overall gains from trade."

"A tariff is a tax levied on goods imported into a country."

"A good is nonrival in consumption if one person’s consumption of the good does not reduce the amount of the good available for others to consume."

"Consumer surplus is the difference between a buyer’s willingness to pay for a good and the price the buyer actually pays."

"The deadweight loss from a tax represents the value of the transactions that do not occur because of the tax."

"Oligopolists can increase their profits by forming a cartel and acting like a monopolist."

"Poverty exists when a family’s income is below a certain threshold (the poverty line) considered adequate to support a family of that size."

"Human capital—the accumulated knowledge and skills that workers acquire from education and training or from their life experiences—is a key determinant of wages."

"The supply of labor reflects the trade-off between leisure and income."

"The Lorenz curve is a graphical representation of income inequality."

This fundamental chapter develops the basic model of supply and demand. It explains the factors that shift the supply and demand curves and how their interaction determines the equilibrium price and quantity in a market. It also introduces the concepts of surplus and shortage.

Supply and Demand

"A monopolist’s demand curve is the market demand curve, which slopes downward."

"A price floor is a minimum price buyers are required to pay for a good or service."

"Taxes drive a wedge between the price paid by buyers and the price received by sellers."

"Although trade restrictions benefit certain domestic producers, they reduce overall economic welfare by raising prices and reducing the quantity of goods consumed."

This chapter introduces the concepts of consumer surplus (the net benefit buyers receive from a good) and producer surplus (the net benefit sellers receive). It demonstrates how market equilibrium maximizes the total surplus in a competitive market and how government interventions can reduce this surplus.

Consumer Surplus and Producer Surplus

"A negative externality creates a marginal social cost that exceeds the marginal private cost of production."

"Moral hazard occurs when one party changes its behavior after a contract is signed, in ways that could be costly to the other party."

"Economics is the study of how people make decisions in the face of scarcity."

"Total surplus is the sum of consumer surplus and producer surplus; it represents the total net benefit to consumers and producers from trading in the market."

"A perfectly competitive market is one in which all market participants—both consumers and producers—are price-takers."

"A good is nonexcludable if people cannot be prevented from consuming the good."

This chapter explores how imperfect information affects economic decisions and market outcomes. It discusses issues like asymmetric information, adverse selection, and moral hazard, and how market participants and institutions try to mitigate these problems through signaling, screening, and reputation.

The Economics of Information

"Markets usually lead to efficiency."

"An individual has a comparative advantage in producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people."

"A monopolist is a firm that is the sole seller of a good or service with no close substitutes."

"Because each oligopolist has an incentive to cheat on the cartel agreement, cartels are often unstable."

This chapter analyzes monopolistic competition, a market structure with many firms selling differentiated products. It explains how product differentiation allows firms to have some market power and engage in non-price competition like advertising. The chapter also discusses the long-run equilibrium in monopolistic competition, which involves zero economic profit but potential inefficiency.

Monopolistic Competition: The Quest for Product Differentiation

"A price ceiling is a maximum price sellers are allowed to charge for a good or service."

"Asymmetric information exists when one party to a transaction has more information relevant to the transaction than the other party."

This chapter analyzes the functioning of labor markets, focusing on the supply of labor by individuals and the demand for labor by firms. It discusses factors that determine wage rates, including human capital, education, and market power. The chapter also examines issues like labor unions and wage inequality.

Labor Markets

"The true cost of something is its opportunity cost: what you must give up to get it."

"Government intervention in markets with externalities can increase economic efficiency."

"The incidence of a tax—the division of the burden of the tax between buyers and sellers—depends on the price elasticities of demand and supply."

"Common resources are nonexcludable but rival in consumption, leading to the tragedy of the commons."

"The demand for labor is a derived demand—it results from the demand for the goods and services produced by labor."

This chapter examines the distribution of income in an economy and the causes and consequences of poverty. It discusses different measures of income inequality and explores various government policies aimed at reducing poverty and income disparities, along with the trade-offs involved.

Income Distribution and Poverty

"Government policies designed to reduce poverty and income inequality often involve trade-offs between equity and efficiency."

This introductory chapter lays out the fundamental principles of economics, focusing on individual choice, interaction among individuals, and economy-wide interactions. It introduces concepts like scarcity, opportunity cost, marginal analysis, incentives, and the gains from trade.

First Principles

Paul Krugman and Robin Wells’ Microeconomics (7th Edition) turns economic theory into a dynamic exploration of choices, incentives, and market forces. Through real-world examples and engaging narratives, it empowers readers to decode the complexities of microeconomics in modern life. This edition brings fresh insights, illuminating how economic principles impact our daily decisions and societal challenges. It’s both a learning tool and a guide to seeing the world differently...

When it comes to explaining fundamental economic principles by drawing on current economic issues and events, there is no one more effective than Nobel laureate and New York Times columnist Paul Krugman and co-author, Robin Wells. In this best-selling introductory textbook, Krugman and Wells’ signature storytelling style and uncanny eye for revealing examples will help students understand how economic concepts play out in our world. The new edition has been revised and enhanced throughout, including incisive new looks at long-run growth and at market power, and extensive coverage of the economic impacts and policy responses to the coronavirus pandemic. Microeconomics is supported by Achieve, which includes:<ul><li>Animated pre-lecture tutorials and bridge questions will help students to understand core economic topics before going to class</li><li>Access to an eBook for easy reading and searching</li><li>LearningCurve adaptive quizzing offers practice questions to check understanding and provide feedback</li><li>Step-by-Step graphs and Work It Out activities allow students to work step-by-step through scenarios so that they can see economic principles in action </li></ul>

PAUL KRUGMAN ; ROBIN WELLS

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9. Revise regularly