banks. Banks did not have an opportunity to assess the profitability of
individual enterprises; such considerations were irrelevant in the old
command socialist systems. Bankers in these economies were thus
unaccustomed to the roles that would be required
know in which direction each of the curves shifts and the extent to
which each curve shifts.
The circular flow model provides an overview of demand and supply
in product and factor markets and suggests how these markets are
linked to one another.
a series of $1 payments, made at the end of each year for the next 10
years, is $6.145. Using that same interest rate, the present value of a
series of 10 payments of $1,000 each is $1,000 times 6.145, or $6,145.
TABLE 13.3 PRESENT VALUE OF $1 TO BE
at output levels where there are neither economies nor diseconomies of
scale. For the range of output over which the firm experiences constant
returns to scale, the long-run average cost curve is horizontal.
Figure 8.15Economies and Diseconomies of Scale
2,500 boats, as shown in the table in Figure 17.6 "The Mutual Benefits of
Trade". Roadway thus emerges with 4,500 trucks (the 7,000 it produces at
B minus the 2,500 it ships) and 9,500 boats. It has 500 more of each good
than it did before trade. The prec
8. What model of oligopoly behavior were the DRAM producers
discussed in the Case in Point following? How might the DRAM
producers have achieved their goal and still stayed within the law?
9. Explain why a price increase for foreigners would increase Cost
Changes in Demand and in Production Cost
The primary application of the model of perfect competition is in
predicting how firms will respond to changes in demand and in production
costs. To see how firms respond to a particular change, we determine how
Combining Janet Bains budget line and indifference curves
from Figure 7.9 "The Budget Line" andFigure 7.11 "Indifference
Curves", we find a point that (1) satisfies the budget constraint and (2)
is on the highest indifference curve possible. That occurs f
Another approach to dealing with problems of external costs is direct
regulation. For example, a firm may be ordered to reduce its pollution. A
person who turns his or her front yard into a garbage dump may be
ordered to clean it up. Participants at a rau
This document is attributed to Libby Rittenberg and
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: http:/www.saylor.org/books/
About the Authors
Libby Rittenberg has been a Professor of Econo
Dionne Searcey, Amy Schatz, Almar LaTour and Dennis K. Berman, A
Reborn AT&T to Buy BellSouth, The Wall Street Journal Online, March 6,
2006, A1. Sara Silver, Dennis K. Berman, and Leila cs Abroud, In Lucent
Deal, Two Rivals Face Inroads from China, The W
elasticity of demand is greater than 1, unit price elastic if it is equal to 1,
and price inelastic if it is less than 1. The price elasticity of demand is
useful in forecasting the response of quantity demanded to price changes;
it is also useful for pre
purchases have ranged between 15 and 20% of GDP ever since. The
Vietnam War, the Persian Gulf War, and the wars in Afghanistan and Iraq
did not have the impact on purchases that characterized World War II or
even the Korean War. A second development, the
Emissions and Pollution Abatement", applying the marginal decision rule
in the case of emissions suggests that the efficient level of pollution occurs
at six pounds of CO emitted per week. At any lower level, the marginal
benefits of the pollution would o
Figure 21.21 Stock Prices and a Mystery Variable
The movement of the monthly average of the Dow Jones Industrial
Average, a widely reported index of stock values, corresponded closely
to changes in a mystery variable, X. Did the mystery variable
Many people who fall below the poverty line have not received aid
from particular programs.
Source: U.S. Census Bureau, Current Population Survey, 2006 Annual
Social and Economic Supplement.
Not all people whose incomes fall below the poverty line receive
and services is capital. Capital may thus include physical goods and
intellectual discoveries. Any resource is capital if it satisfies two criteria:
1. The resource must have been produced.
2. The resource can be used to produce other goods and services.
resources for which the cost is greatest, not lowest. Describe this
countrys production possibilities curve.
11. The U.S. Constitution bans states from restricting imports of goods
and services from other states. Suppose this restriction did not exist
forms of backdoor payments, which sometimes force the price of rental
housing above what would exist in the absence of controls.
Finally, we looked at the market for health care and a special feature
behind demand and supply in this market that helps to e
Antitrust Policy and Business Regulation
Start Up: The Plastic War
The $2.5 trillion market for credit and debit cards received a major jolt in
2004 when the U.S. Supreme Court let stand a lower court ruling that Visa
and MasterCard had violate