Cover -- Half title -- Title -- Copyright -- Contents -- Introduction -- What Makes This Book Different -- Recommended Supplementary Reading -- Chapter 1: Finding the Optimal Use of a Limited Income -- I. Indifference Curves -- A. The Main Question -- B. Indifference Curves Slope Downward -- C. Other Things to Know about Indifference Curves -- II. Gains from Trade Using the Edgeworth Box Diagram -- A. Construction of the Box -- B. Pareto Superior Trades -- C. The Contract Curve: Pareto Optimal Allocations -- III. The Budget Line: The Essence of the Economic Problem -- A. Impact of Income Changes -- B. Impact of Price Changes -- IV. Consumer Choice: The Optimum Use of a Limited Income -- A. Determining the Optimal Solution -- B. Portraying an Exact Solution -- C. How a Change in Income Affects Choice -- D. The Impact of a Price Change on the Optimum Solution -- V. The Compensation Principle: The Dollar Value of Changes in Utility -- A. Valuing the Utility Change from a Price Reduction -- B. Anatomy of a Price Change: Income and "Price" Effects -- VI. Applications of the Compensation Principle -- A. Buckley's Tulips and Mums Problem -- B. Dominic's Report Card and Computer Games -- Chapter 2: Demand Curves and Consumer Surplus -- I. From Indifference Curves to Demand Curve -- II. Consumer Surplus -- A. An Intuitive Way to Understand Consumer Surplus -- B. Using the Compensation Principle -- C. Checking Back with the Indifference Curve Map -- III. Market Demand Curve -- A. Consumer Surplus When Demand Curves Are Linear -- B. Complements and Substitutes -- C. Changes in Income -- IV. Demand Elasticity -- A. Calculating the Elasticity for a Linear Demand Curve -- B. Relation of Elasticity to Total Revenue -- C. Long-run versus Short-run Elasticity -- V. Application: Imposition of a Tax -- A. Showing the Distortion on Indifference Curves.

B. Efficiency in a Kaldor-Hicks Sense -- C. Showing the Distortion on the Demand Curve -- D. Tax Burden: Application of Demand Elasticity -- Appendix: Consumer Surplus and Uncompensated Demand Curves -- Chapter 3: Supply Curves and the Flow of Resources -- Also Sunk Cost, Opportunity Cost, and Transactions Cost -- I. The World Market for Nickel -- A. The Supply of Nickel with No Fixed Costs -- B. Producer Surplus -- C. The World Price for Nickel -- D. Surpluses in Market Equilibrium -- II. The Solution with Fixed Costs and Many Firms -- A. Constructing the Cost Curves -- B. Sustainable Price: Equilibrium in a Long-run Sense -- III. Market Equilibrium: Entry, Exit, and Competitive Returns -- A. How to Evaluate the Sustainability of a Market Price -- B. The Dynamics of Entry -- C. The Concept of Long-run Supply -- IV. Producer Surplus, Long and Short Run, and Economic Rent -- A. Producer Surplus in a Short-run Sense -- B. The Concept of "Rent" -- C. The Dynamics of an Increase in Rent -- D. Portraying the Solution in the Market for Litigation Services -- E. The Long-run Supply Curve -- V. Bringing It All Together: Reconsidering a Tax on One Good -- A. Short-run Impact of the Tax -- B. Long-run Impact of the Tax -- VI. A Few Miscellaneous Cost Issues -- A. Sunk Cost -- B. Opportunity Cost -- C. Transactions Cost -- Appendix: Short- and Long-Term Impact of a Subsidy -- Chapter 4: Using Demand and Supply Curves to Evaluate Policy -- I. Shifts in Demand and Supply Curves -- II. Impact of a Maximum Price: The Case of Gasoline -- A. Setting Up the Problem -- B. The Queue for Gasoline -- C. The Social Cost of the Queue -- D. A First Lesson in Property Rights -- E. A Candidate for an Even More Inefficient Solution: Regulation -- III. The Economics of the Minimum Wage -- A. Unskilled Workers Still Employed Gain Rent.

B. Some Low-rent Workers Displace Some High-rent Workers -- C. High-rent Workers Outhustle Low-rent Workers -- D. Rent to Unskilled Workers -- E. Effort Adds Value, Which Attenuates Job Losses -- F. A Note on Unions -- IV. Price Supports -- A. Restriction on Output -- B. No Restriction on Supply -- Chapter 5: The Economics of Monopoly -- I. The Price Decision -- A. The Rule for Finding the Profit-maximizing Price -- B. Finding the Optimal Price -- C. Characteristics of the Monopoly Solution -- II. The Social Cost of Monopoly -- A. Deadweight Loss -- B. Market for Monopoly -- C. Rent Erosion -- III. Monopoly Price Discrimination -- A. Two Markets: Ice Cream Monopoly -- B. Perfect Price Discrimination -- C. Other Ways to Extract Consumer Surplus -- IV. Price Discrimination in Competitive Markets -- A. Movie Theaters -- B. Other Examples -- V. Competition of the Few -- A. Cheating -- B. Prisoner's Dilemma -- Appendix A: Price Discrimination in the Milk Market -- A. How Milk Regulations Work -- B. The Social Cost of Regulation -- Appendix B: The Movie Theater Cost Structure -- Chapter 6: Public Goods and Common Resources -- Toward Understanding the Economics of Property Rights -- I. An Introduction to Public Goods -- II. Innovations: Classic Public Goods -- A. The Solution in an Ideal World -- B. Patent Awards -- C. How the Patent System Affects Societal Surplus -- D. The Patent Quandary -- E. Other Ideas about Patents -- III. Contracts Under Duress: The Common Resource Problem -- A. Honor the Contract -- B. Nullify the Contract and Impose a Reasonable Settlement -- C. The Optimal Settlement Rule -- D. The Main Problem: Setting Average Value to Marginal Cost -- E. Another Way to Think about the Problem -- IV. The Source of Rent Erosion: Poorly Defined Property Rights -- Chapter 7: Externalities -- The Coase Theorem.

I. Why Externality Issues are Different -- II. Airport Noise -- A. Setting Up an Externality Model -- B. There Is No Costless Solution to an Externality Problem -- C. The Socially Optimum Level of Externality -- III. The Coase Theorem -- A. Airlines Own Noise Rights -- B. Homeowners Own Noise Rights -- C. What If Transactions Costs Are Not Zero? -- D. Corrective Taxes -- IV. Allowing for Noise Abatement -- A. Stylized Abatement Technology -- B. A Corrective Tax with Abatement -- C. Coase with Abatement -- D. Tradable Noise Permits -- E. What If Homeowners Can Abate Some Noise? -- Chapter 8: Pollution in the Workplace: Contract or Externality? -- An Introduction to the Rules of Law -- I. Compensation for Exposure to Air Particulates -- A. Setting Up the Air Particulate Problem -- B. The Demand for Clean Air -- C. The Supply of Clean Air -- D. The Socially Optimal Amount of Clean Air -- II. How do We Obtain the Socially Efficient Solution? -- A. A Contract Solution (Buyer Beware) -- B. Regulatory Solution -- C. Strict Liability Standard -- III. The Compensation Principle and Economic Damages -- A. Torts Are the Flip Side of Contracts -- B. What If Judgment Amounts Are Not Economic Damages? -- C. Transactions Costs Again -- D. Value of Life in a Contract Setting -- E. Value of Life in a Liability Setting -- IV. Negligence Standards -- A. An Efficient Negligence Standard -- B. What If Workers Can Reduce Harm Themselves? -- C. Contributory Negligence -- D. Comparative Negligence -- E. Strict Liability with Contributory Negligence -- Appendix A: The Decision to Smoke and Rules of Law -- Appendix B: Driving and Accidents -- Appendix C: Abatement with Masks -- Chapter 9: Lemons Markets and Adverse Selection -- Signals, Bonds, Reputation, and Tie-ins as Solutions -- I. The "Lemons" Market Problem -- A. How a "Lemons" Market Arises.

B. A Market for Information -- II. Bonding a Promise of High Quality -- A. Reputation Value -- B. Quality Assurance Premium: Where Does Reputation Value Come From? -- C. Specialized Investments -- D. Advertising -- E. Warranties -- III. Problems When The Seller is Uninformed: Adverse Selection -- A. Temporal Adverse Selection -- B. Cross-section Adverse Selection -- C. Some Market Solutions -- D. A "Tie-in" Contract -- E. The Employment Contract as a Tie-in -- IV. Adverse Selection in the Job Market -- Appendix: Auctions as Applications of Demand Theory and Bonding -- Chapter 10: Sorting as a Solution to Asymmetric Information -- Coaxing Market Participants to Divulge Valuable Information -- I. Bonds That also Perform Sorting: The Becker-Stigler Police Model -- A. A Becker-Stigler Pension Bond -- B. An Indenture Premium -- C. How Does the Bond Create a Sort? -- D. An Alternative Bond: An Efficiency Wage -- E. Putting the Two Bonds Together -- II. The Spence Model of Sorting -- A. The Idea in Brief -- B. Application to Law School -- C. Pursuing the Model One Step Further -- III. Other Sorting Devices in the Labor Market -- A. The Not-so-free Free Sick Leave -- B. Sorting on the Basis of Discount Rates -- C. 401(k) Pension Plans: Another Sort on the Basis of Discount Rates -- D. A Postscript on Becker-Stigler: Role of High Discounters -- IV. More Examples of Sorts and Bonds -- A. Slotting Allowances -- B. Preparing for a Job Interview -- Chapter 11: Moral Hazard and Agency Problems -- When Mispricing Affects Behavior -- I. Nomenclature -- II. Moral Hazard -- A. A Simple Water Meter Example -- B. The Moral Hazard of Insurance -- C. The Proverbial Free Lunch -- D. Limits on Moral Hazard -- E. Moral Hazard Is Not Necessarily a "Showstopper" -- III. Precommitment as a Solution to Ex Post Moral Hazard: The Case of Health Insurance.

A. The Moral Hazard Problem.