Reading Guide

Reading Guide for Unit 6

Chapter and sections in Taylor to Read

Pg #


2 Choice in a World of Scarcity
Choosing What to Consume 16 Ignore now. Not necessary now- we covered this in unit 1
A Consumption Choice Budget Constraint 16
How Changes in Income and Prices Affect the Budget Constraint 18
Personal Preferences Determine Specific Choices 18
From a Model with Two Goods to the Real World of Many Goods 20
Choosing between Labor and Leisure 20
An Example of a Labor-Leisure Budget Constraint 20
How a Change in Wages Affects the Labor-Leisure Budget Constraint 20
Making a Choice Along the Labor-Leisure Budget Constraint 22
Choosing between Present and Future Consumption 22
Interest Rates: The Price of Intertemporal Choice 23
The Power of Compound Interest 24
An Example of Intertemporal Choice 25
Three Implications of Budget Constraints: Opportunity Cost, Marginal Decision-Making, and Sunk Costs 26
Opportunity Cost 26
Marginal Decision-Making and Diminishing Marginal Utility 28
Sunk Costs 29
The Behavior of Profit-Seeking Firms 29
Defining Profits 29
Why Earning High Profits Isn’t Easy 30
The Production Possibilities Frontier and Social Choices 30
The Shape of the Production Possibilities Frontier and Diminishing Marginal Returns 32 Re-read and review this sub-section.  The concept of diminishing marginal returns is the basis of cost analysis.
Productive Efficiency and Allocative Efficiency 34 Ignore now. Not necessary now- we covered this in unit 1
Why Society Must Choose 35
Confronting Objections to the Economic Approach 35
A First Objection: People, Firms, and Society Don’t Act Like This 35
A Second Objection: People, Firms, and Society Should’t Do This 37
Facing Scarcity and Making Trade-offs 38
Key Concepts and Summary 38
Review Questions 40
9 Cost and Industry Structure
173 Read- Important.  This entire chapter, while relatively short, is very important. It lays the foundation for Units 8-11.  Pay particular attention to Exhibits 9-4 and 9-8.
  The Structure of Costs in the Short Run 174
  Fixed and Variable Costs 174
Average Costs, Average Variable Costs, Marginal Costs 177
Lessons Taught by Alternative Measures of Costs 178
A Variety of Cost Patterns 179
The Structure of Costs in the Long Run 180
  Choice of Production Technology 180
Economies of Scale 182
Shapes of Long-Run Average Cost Curves 183
The Size and Number of Firms in an Industry 185
Shifting Patterns of Long-Run Average Cost 187
Conclusion 188
Key Concepts and Summary 188
Review Questions 190