Reading Guide

Chapter and sections in Taylor to Read
Pg #
10 Perfect Competition 191
Quantity Produced by a Perfectly Competitive Firm 192 Read- Important. Pay particular attention to Exhibits 10-3, 10-4, and 10-5
  Comparing Total Revenue and Total Cost 192
Comparing Marginal Revenue and Marginal Costs 194
Marginal Cost and the Supply Curve 195
Profits and Losses with the Average Cost Curve 196
The Shutdown Point 196
Short-Run Outcomes for Perfectly Competitive Firms 199
Entry and Exit in the Long Run 200
  How Entry and Exit Lead to Zero Profits 200
Economic Profit vs. Accounting Profit 201
The Economic Function of Profits 202
Factors of Production in Perfectly Competitive Markets 203 Skip this section for now.
  The Derived Demand for Labor 203
The Marginal Revenue Product of Labor 204
Are Workers Paid as Much as They Deserve? 205
Physical Capital Investment and the Hurdle Rate 206
Physical Capital Investment and Long-Run Average Cost 207
Efficiency in Perfectly Competitive Markets 208 Read – Important
Conclusion 209
Key Concepts and Summary 209 review
Review Questions 211 optional
In addition to the new readings listed above, it is useful to re-read and review the following sections that we studied in earlier Units.
2 Choice in a World of Scarcity 15 Skip. Not relevant to this unit.
Choosing What to Consume 16
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 Re-read
  Defining Profits 29
Why Earning High Profits Isn’t Easy 30
The Production Possibilities Frontier and Social Choices 30 Skip. Not relevant to this unit.
The Shape of the Production Possibilities Frontier and Diminishing Marginal Returns 32
Productive Efficiency and Allocative Efficiency 34
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
7 Elasticity 129
Price Elasticity of Demand 130 Pay attention to the concept of “perfect elasticity”.  It is important for the demand of one firm in perfect competition.
  Calculating the Elasticity of Demand 131
A Possible Confusion, a Clarification, and a Warning 133
Price Elasticity of Supply 134 Skip.  Not relevant to this unit.
Calculating the Elasticity of Supply 134
Elastic, Inelastic, and Unitary Elasticity 135
Applications of Elasticity 139
Does Raising Price Bring in More Revenue? 139
Passing on Costs to Consumers? 140
Long-Run vs. Short-Run Impact 143
Elasticity as a General Concept 144
Income Elasticity of Demand 144
Cross-Price Elasticity of Demand 145
Elasticity in Labor and Financial Capital Markets 146
Stretching the Concept of Elasticity 146
Conclusion 147
Key Concepts and Summary 147
Review Questions 149