xx CONTENTS
Contents
Equilibrium in the Imperfectly Competitive Labor
Market 703
Module 4 AP Review
Module 72The Cost-Minimizing Input
Combination 706
Alternative Input Combinations 706
Substitutes and Complements in Factor Markets 706
Determining the Optimal Input Mix 707
Cost Minimization 707
The Cost-Minimization Rule 708
Module 42 AP Review
Module 73Theories of Income Distribution 711
The Marginal Productivity Theory of Income Distribution 711
Marginal Productivity and Wage Inequality 711
Market Power 713
Efficiency Wages 714
Discrimination 714
Wage Disparities in Practice 715
FYI:The Economics of Apartheid 715
Is the Marginal Productivity Theory of Income Distribution
Really True? 716
So Does Marginal Productivity Theory Work? 717
Module 64 AP Review
Section 13 Review 718
Section 14
Market Failure and the Role of Government 723
Module 74Introduction to Externalities 724
The Economics of Pollution 724
Costs and Benefits of Pollution 724
Pollution: An External Cost 726
FYI:Talking and Driving 727
The Inefficiency of Excess Pollution 727
Private Solutions to Externalities 728
FYI:Thank You for Not Smoking 729
Module 65 AP Review
Module 75Externalities and Public Policy 731
Policies Toward Pollution 731
Environmental Standards 731
Emissions Taxes 732
Tradable Emissions Permits 734
FYI:Cap and Trade 736
Production, Consumption, and Externalities 736
Private versus Social Benefits 736
Private versus Social Costs 739
Network Externalities 740
Module 66 AP Review
Module 76Public Goods 743
Private Goods—And Others 743
Characteristics of Goods 743
Why Markets Can Supply Only Private Goods
Efficiently 744
Public Goods 745
Providing Public Goods 746
How Much of a Public Good Should Be Provided? 747
FYI:Voting as a Public Good 749
Common Resources 749
The Problem of Overuse 749
The Efficient Use and Maintenance of a Common
Resource 750
Artificially Scarce Goods 751
Module 67 AP Review
Module 77Public Policy to Promote Competition 754
Promoting Competition 754
Antitrust Policy 754
The Sherman Antitrust Act of 1860 755
The Clayton Antitrust Act of 1914 755
The Federal Trade Commission Act of 1914 756
Dealing with Natural Monopoly 756
FYI:Cable Dilemmas 758
Module 77 AP Review 758
Module 78Income Inequality and Income
Distribution 761
The Problem of Poverty 761
Trends in Poverty 761
Who Are the Poor? 762
What Causes Poverty? 763
Consequences of Poverty 763
FYI:The Impeccable Economic Logic of Early Childhood
Intervention Programs 764
Economic Inequality 764
Economic Insecurity 766
FYI:Long-Term Trends in Income Inequality in the United
States 767