GLOBAL EDITION

Principles of Microeconomics

The Eleventh Edition of the best-selling blend of the latest economic theory, institutional material, and real-world applications. It is an accessible introduction to economics and provides readers with a strong understanding of how economies function.

ELEVENTH EDITION

Karl E. Case • Ray C. Fair • Sharon M. Oster

This Global Edition has been edited to include enhancements making it more relevant to students outside the United States. The editorial team at Pearson has worked closely with educators around the globe to include: •

This revised edition includes global coverage from the Middle East, Europe, and Asia • Expanded coverage of professional skepticism as well as coverage of the global economic recession • Economics in Practice boxes contain real-world examples and include discussion questions Case • Fair • Oster

This is a special edition of an established title widely used by colleges and universities throughout the world. Pearson published this exclusive edition for the benefit of students outside the United States and Canada. If you purchased this book within the United States or Canada you should be aware that it has been imported without the approval of the Publisher or Author.

ELEVENTH EDITION

Princip les of

Microeconomics GLOBAL EDITION

Principles of Microeconomics, Global Edition Table of Contents Cover Title Page Contents PART I Introduction To Economics 1 The Scope and Method ofEconomics Why Study Economics? To Learn a Way of Thinking To Understand Society To Be an Informed Citizen

The Scope of Economics Microeconomics and Macroeconomics

ECONOMICS IN PRACTICE iPod and the World The Diverse Fields of Economics

The Method of Economics Theories and Models

ECONOMICS IN PRACTICE Does Your RoommateMatter for Your Grades? Economic Policy

An Invitation Summary Review Terms and Concepts Problems Appendix: How to Read and Understand Graphs

2 The Economic Problem: Scarcityand Choice Scarcity, Choice, and Opportunity Cost Scarcity and Choice in a One-PersonEconomy Scarcity and Choice in an Economy of Twoor More

ECONOMICS IN PRACTICE Nannies andOpportunity Cost The Production Possibility Frontier The Economic Problem

ECONOMICS IN PRACTICE Trade Offs among Highand Middle Income Countries in the Middle East Economic Systems and the Role ofGovernment Command Economies Laissez-Faire Economies: The Free Market Mixed Systems, Markets, and Governments

Looking Ahead Summary Review Terms and Concepts Problems

3 Demand, Supply, and MarketEquilibrium Firms and Households: The Basic Decision-Making Units

Table of Contents Input Markets and Output Markets: The CircularFlow Demand in Product/Output Markets Changes in Quantity Demanded versus Changes inDemand Price and Quantity Demanded: The Law ofDemand Other Determinants of Household Demand

ECONOMICS IN PRACTICE Have You Bought ThisTextbook? Shift of Demand versus Movement Along aDemand Curve From Household Demand to Market Demand

Supply in Product/Output Markets Price and Quantity Supplied: The Law ofSupply Other Determinants of Supply Shift of Supply versus Movement Along a SupplyCurve From Individual Supply to Market Supply

Market Equilibrium Excess Demand Excess Supply Changes in Equilibrium

ECONOMICS IN PRACTICE Coffee or Tea? Demand and Supply in Product Markets: AReview Looking Ahead: Markets and the Allocation ofResources

ECONOMICS IN PRACTICE Why Do the Prices ofDelicacies and Goodies Increase Prior to Chinese NewYear? Summary Review Terms and Concepts Problems

4 Demand and SupplyApplications The Price System: Rationing and AllocatingResources Price Rationing Constraints on the Market and AlternativeRationing Mechanisms

ECONOMICS IN PRACTICE Why Is My Hotel RoomSo Expensive? A Tale of Hurricane Sandy Prices and the Allocation of Resources Price Floor

Supply and Demand Analysis: An Oil ImportFee ECONOMICS IN PRACTICE The Price of FreeMcMuffins: McBreakfast Giveaway a Big Hit Supply and Demand and Market Efficiency Consumer Surplus Producer Surplus Competitive Markets Maximize the Sum ofProducer and Consumer Surplus Potential Causes of Deadweight Loss FromUnder- and Overproduction

Looking Ahead Summary Review Terms and Concepts Problems

Table of Contents 5 Elasticity Price Elasticity of Demand Slope and Elasticity Types of Elasticity

Calculating Elasticities Calculating Percentage Changes Elasticity Is a Ratio of Percentages The Midpoint Formula Elasticity Changes Along a Straight-Line DemandCurve Elasticity and Total Revenue

The Determinants of Demand Elasticity ECONOMICS IN PRACTICE Price Elasticities ofExport Demand for Malaysias Electronics Availability of Substitutes

ECONOMICS IN PRACTICE Elasticities at aDelicatessen in the Short Run and Long Run The Importance of Being Unimportant The Time Dimension Other Important Elasticities Income Elasticity of Demand Cross-Price Elasticity of Demand Elasticity of Supply

Looking Ahead Summary Review Terms and Concepts Problems

PART II The Market System: Choices Made by Households and Firms 6 Household Behavior and ConsumerChoice Household Choice in Output Markets The Determinants of Household Demand The Budget Constraint The Equation of the Budget Constraint

The Basis of Choice: Utility Diminishing Marginal Utility Allocating Income to Maximize Utility The Utility-Maximizing Rule

ECONOMICS IN PRACTICE Where Do FoodiesLive? Diminishing Marginal Utility and Downward-Sloping Demand

Income and Substitution Effects The Income Effect The Substitution Effect

Household Choice in Input Markets The Labor Supply Decision

ECONOMICS IN PRACTICE Substitution and MarketBaskets The Price of Leisure

Table of Contents Income and Substitution Effects of a WageChange Saving and Borrowing: Present versus FutureConsumption

A Review: Households in Output and InputMarkets Summary Review Terms and Concepts Problems Appendix: Indifference Curves

7 The Production Process: TheBehavior of Profit-MaximizingFirms The Behavior of Profit-Maximizing Firms Profits and Economic Costs Short-Run versus Long-Run Decisions The Bases of Decisions: Market Price of Outputs,Available Technology, and Input Prices

The Production Process Production Functions: Total Product, MarginalProduct, and Average Product Production Functions with Two Variable Factors ofProduction

ECONOMICS IN PRACTICE Learning about GrowingPineapples in Ghana Choice of Technology

ECONOMICS IN PRACTICE How Fast Should aTruck Driver Go? Looking Ahead: Cost and Supply

Summary Review Terms and Concepts Problems Appendix: Isoquants and Isocosts

8 Short-Run Costs and OutputDecisions Costs in the Short Run Fixed Costs Variable Costs

ECONOMICS IN PRACTICE Flying Standby Total Costs Short-Run Costs: A Review

Output Decisions: Revenues, Costs, and ProfitMaximization Perfect Competition

ECONOMICS IN PRACTICE Average and MarginalCosts at Suwannarat Civil Co., Ltd. Total Revenue and Marginal Revenue Comparing Costs and Revenues to Maximize Profit The Short-Run Supply Curve

Looking Ahead Summary Review Terms and Concepts Problems

9 Long-Run Costs and OutputDecisions Short-Run Conditions and Long-RunDirections Maximizing Profits

Table of Contents Minimizing Losses The Short-Run Industry Supply Curve Long-Run Directions: A Review

Long-Run Costs: Economies and Diseconomies ofScale Increasing Returns to Scale

ECONOMICS IN PRACTICE Economies of Scale inthe World Marketplace ECONOMICS IN PRACTICE Economies of Scale inSolar Constant Returns to Scale Diseconomies of Scale U-Shaped Long-Run Average Costs

Long-Run Adjustments to Short-RunConditions Short-Run Profits: Moves In and Out ofEquilibrium

ECONOMICS IN PRACTICE The Long-Run AverageCost Curve: Flat or U-Shaped? The Long-Run Adjustment Mechanism:Investment Flows Toward ProfitOpportunities

ECONOMICS IN PRACTICE Success of the AirlineIndustry ECONOMICS IN PRACTICE Why is Food SoExpensive at the Airport? Output Markets: A Final Word

Summary Review Terms and Concepts Problems Appendix: External Economies and Diseconomies

10 Input Demand: The Labor andLand Markets Input Markets: Basic Concepts Demand for Inputs: A Derived Demand Inputs: Complementary and Substitutable Diminishing Returns

ECONOMICS IN PRACTICE Do ManagersMatter? Marginal Revenue Product

Labor Markets A Firm Using Only One Variable Factor ofProduction: Labor

ECONOMICS IN PRACTICE Productivity Change andWage Growth A Firm Employing Two Variable Factors ofProduction in the Short and Long Run

ECONOMICS IN PRACTICE The National FootballLeague Predicts Marginal Products Many Labor Markets

Land Markets Rent and the Value of Output Produced onLand

ECONOMICS IN PRACTICE Valuing Land The Firms Profit-Maximizing Condition in InputMarkets Input Demand Curves Shifts in Factor Demand Curves

Looking Ahead Summary Review Terms and Concepts Problems

Table of Contents 11 Input Demand: The CapitalMarket and the InvestmentDecision Capital, Investment, and Depreciation Capital

ECONOMICS IN PRACTICE Social Capital inEmerging Markets Investment and Depreciation

ECONOMICS IN PRACTICE Investment Banking,IPOs, and Beauty The Capital Market Capital Income: Interest and Profits Financial Markets in Action

ECONOMICS IN PRACTICE Who Owns Stocks in theThailand ? Mortgages and the Mortgage Market Capital Accumulation and Allocation

The Demand for New Capital and the InvestmentDecision Forming Expectations Comparing Costs and Expected Return

A Final Word on Capital Summary Review Terms and Concepts Problems Appendix: Calculating Present Value

12 General Equilibrium andthe Efficiency of PerfectCompetition Market Adjustment to Changes in Demand Allocative Efficiency and CompetitiveEquilibrium Pareto Efficiency

ECONOMICS IN PRACTICE More Corn to Burn, Lessto Eat Revisiting Consumer and Producer Surplus The Efficiency of Perfect Competition Perfect Competition versus Real Markets

The Sources of Market Failure Imperfect Competition Public Goods Externalities Imperfect Information

Evaluating the Market Mechanism Summary Review Terms and Concepts Problems

PART III Market Imperfections and the Role ofGovernment 13 Monopoly and AntitrustPolicy Imperfect Competition and Market Power: CoreConcepts Forms of Imperfect Competition and MarketBoundaries

Price and Output Decisions in Pure MonopolyMarkets Demand in Monopoly Markets

ECONOMICS IN PRACTICE Figuring Out the RightPrice

Table of Contents Perfect Competition and Monopoly Compared Monopoly in the Long Run: Barriers to Entry

ECONOMICS IN PRACTICE The Monopoly ofTenaga Nasional Berhad (TNB) of Malaysia The Social Costs of Monopoly Inefficiency and Consumer Loss Rent-Seeking Behavior

Price Discrimination Examples of Price Discrimination

Remedies for Monopoly: Antitrust Policy Major Antitrust Legislation

ECONOMICS IN PRACTICE What Happens WhenYou Google: The FTC Case against Google Imperfect Markets: A Review and a LookAhead

Summary Review Terms and Concepts Problems

14 Oligopoly Market Structure in an Oligopoly ECONOMICS IN PRACTICE Patents in the SmartPhone Industry Oligopoly Models The Collusion Model

ECONOMICS IN PRACTICE Price-Fixing Can SendYou to Jail! The Price-Leadership Model The Cournot Model

Game Theory Repeated Games A Game with Many Players: Collective Action CanBe Blocked by a Prisoners Dilemma

Oligopoly and Economic Performance Industrial Concentration and TechnologicalChange

The Role of Government Regulation of Mergers

ECONOMICS IN PRACTICE Blocking the AT&TMerger with T-Mobile A Proper Role?

Summary Review Terms and Concepts Problems

15 Monopolistic Competition Industry Characteristics Product Differentiation and Advertising How Many Varieties? How Do Firms Differentiate Products?

ECONOMICS IN PRACTICE Organic, Free-RangeChickens Advertising

ECONOMICS IN PRACTICE Can Information ReduceObesity? Price and Output Determination in MonopolisticCompetition

Table of Contents Product Differentiation and DemandElasticity Price/Output Determination in the ShortRun Price/Output Determination in the Long Run

Economic Efficiency and ResourceAllocation Summary Review Terms and Concepts Problems

16 Externalities, Public Goods, andSocial Choice Externalities and Environmental Economics Marginal Social Cost and Marginal-CostPricing

ECONOMICS IN PRACTICE Adjusting to anEnvironmental Disaster: The Dust Bowl Private Choices and External Effects Internalizing Externalities

ECONOMICS IN PRACTICE Externalities Are inthe Air Public (Social) Goods The Characteristics of Public Goods Public Provision of Public Goods Optimal Provision of Public Goods Local Provision of Public Goods: TieboutHypothesis

Social Choice The Voting Paradox Government Inefficiency: Theory of PublicChoice Rent-Seeking Revisited

Government and the Market Summary Review Terms and Concepts Problems

17 Uncertainty and AsymmetricInformation Decision Making Under Uncertainty: TheTools Expected Value Expected Utility Attitudes Toward Risk

Asymmetric Information Adverse Selection Market Signaling

ECONOMICS IN PRACTICE Adverse Selection in theHealth Care Market ECONOMICS IN PRACTICE How to ReadAdvertisements Moral Hazard

Incentives ECONOMICS IN PRACTICE Hows theSnow? Labor Market Incentives

Summary Review Terms and Concepts Problems

18 Income Distribution andPoverty

Table of Contents The Sources of Household Income Wages and Salaries Income from Property

ECONOMICS IN PRACTICE Everything I Needed toKnow I Learned in Kindergarten! Income from the Government: TransferPayments

The Distribution of Income Income Inequality in the United States The World Distribution of Income

Causes of Increased Inequality ECONOMICS IN PRACTICE The New RichWork! Poverty

ECONOMICS IN PRACTICE IntergenerationalInequality The Distribution of Wealth

The Utility Possibilities Frontier The Redistribution Debate Arguments Against Redistribution Arguments in Favor of Redistribution

Redistribution Programs and Policies Financing Redistribution Programs: Taxes Expenditure Programs

ECONOMICS IN PRACTICE Expanding Medicare isComplicated Government or the Market? A Review

ECONOMICS IN PRACTICE Will Obamacare MakeYou Healthier? Summary Review Terms and Concepts Problems

19 Public Finance: The Economicsof Taxation The Economics of Taxation Taxes: Basic Concepts

ECONOMICS IN PRACTICE CalculatingTaxes Tax Equity What Is the Best Tax Base? The Gift and Estate Tax

Tax Incidence: Who Pays? The Incidence of Payroll Taxes The Incidence of Corporate Profits Taxes The Overall Incidence of Taxes in the UnitedStates: Empirical Evidence

Excess Burdens and the Principle ofNeutrality How Do Excess Burdens Arise? Measuring Excess Burdens Excess Burdens and the Degree of Distortion

The Principle of Second Best Optimal Taxation

Summary Review Terms and Concepts

Table of Contents Problems

PART IV The World Economy 20 International Trade,Comparative Advantage, andProtectionism Trade Surpluses and Deficits The Economic Basis for Trade: ComparativeAdvantage Absolute Advantage versus ComparativeAdvantage Terms of Trade Exchange Rates

The Sources of Comparative Advantage The Heckscher-Ohlin Theorem

Other Explanations for Observed TradeFlows Trade Barriers: Tariffs, Export Subsidies, andQuotas ECONOMICS IN PRACTICE Globalization ImprovesFirm Productivity U.S. Trade Policies, GATT, and the WTO

ECONOMICS IN PRACTICE What Happens WhenWe Lift a Quota? Free Trade or Protection? The Case for Free Trade The Case for Protection

ECONOMICS IN PRACTICE A Petition An Economic Consensus

Summary Review Terms and Concepts Problems

21 Economic Growth inDeveloping and TransitionalEconomies Life in the Developing Nations: Population andPoverty Economic Development: Sources andStrategies The Sources of Economic Development

ECONOMICS IN PRACTICE Corruption Strategies for Economic Development

ECONOMICS IN PRACTICE Who You Marry MayDepend on the Rain ECONOMICS IN PRACTICE Cell Phones IncreaseProfits for Fishermen in India Two Examples of Development: China andIndia

Development Interventions Random and Natural Experiments: Some NewTechniques in Economic Development Education Ideas Health Improvements Population Issues

The Transition to a Market Economy Six Basic Requirements for SuccessfulTransition

Summary Review Terms and Concepts Problems

Glossary

Table of Contents Index A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

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