Economics for Lawyers

"Economics for Lawyers provides systematic instruction in economic theory relevant to law, starting with indifference curves and working its way through the basics of game theory... [It] is a very good textbook. It is comprehensive, well-organized, clearly written, and very usable... [T]he focus of the book is unique; I know of no other book that attempts to do the same thing."--G. Thomas Woodward, The Federal Lawyer

Richard A. Ippolito retired in 2004 as Professor of Law and Economics from the George Mason University School of Law, where he taught the materials that form the basis for this book to more than 1,000 law students over the course of his five-year tenure. He earned his Ph.D. in economics from the University of Chicago in 1974, and spent twenty-five years working with lawyers on policy and regulatory issues. His previous books include "Pension Plans" and "Employee Performance".

Introduction xv What Makes This Book Different xvii Recommended Supplementary Reading xviii Chapter 1: Finding the Optimal Use of a Limited Income 1 I. INDIFFERENCE CURVES 1 A. The Main Question 1 B. Indifference Curves Slope Downward 2 C. Other Things to Know about Indifference Curves 4 II. GAINS FROM TRADE USING THE EDGEWORTH BOX DIAGRAM 6 A. Construction of the Box 8 B. Pareto Superior Trades 10 C. The Contract Curve: Pareto Optimal Allocations 12 III. THE BUDGET LINE: THE ESSENCE OF THE ECONOMIC PROBLEM 14 A. Impact of Income Changes 16 B. Impact of Price Changes 16 IV. CONSUMER CHOICE: THE OPTIMUM USE OF A LIMITED INCOME 16 A. Determining the Optimal Solution 16 B. Portraying an Exact Solution 18 C. How a Change in Income Affects Choice 19 D. The Impact of a Price Change on the Optimum Solution 20 V. THE COMPENSATION PRINCIPLE: THE DOLLAR VALUE OF CHANGES IN UTILITY 20 A. Valuing the Utility Change from a Price Reduction 20 B. Anatomy of a Price Change: Income and "Price" Effects 23 VI. APPLICATIONS OF THE COMPENSATION PRINCIPLE 24 A. Buckley's Tulips and Mums Problem 24 B. Dominic's Report Card and Computer Games 33 Chapter 2: Demand Curves and Consumer Surplus 41 I. FROM INDIFFERENCE CURVES TO DEMAND CURVE 41 II. CONSUMER SURPLUS 46 A. An Intuitive Way to Understand Consumer Surplus 47 B. Using the Compensation Principle 49 C. Checking Back with the Indifference Curve Map 51 III. MARKET DEMAND CURVE 52 A. Consumer Surplus When Demand Curves Are Linear 55 B. Complements and Substitutes 57 C. Changes in Income 59 IV. DEMAND ELASTICITY 59 A. Calculating the Elasticity for a Linear Demand Curve 60 B. Relation of Elasticity to Total Revenue 63 C. Long-run versus Short-run Elasticity 67 V. APPLICATION: IMPOSITION OF A TAX 68 A. Showing the Distortion on Indifference Curves 68 B. Efficiency in a Kaldor-Hicks Sense 70 C. Showing the Distortion on the Demand Curve 73 D. Tax Burden: Application of Demand Elasticity 76 APPENDIX: CONSUMER SURPLUS AND UNCOMPENSATED DEMAND CURVES 80 Chapter 3: Supply Curves and the Flow of Resources Also Sunk Cost, Opportunity Cost, and Transactions Cost 82 I. THE WORLD MARKET FOR NICKEL 83 A. The Supply of Nickel with No Fixed Costs 83 B. Producer Surplus 85 C. The World Price for Nickel 86 D. Surpluses in Market Equilibrium 88 II. THE SOLUTION WITH FIXED COSTS AND MANY FIRMS 89 A. Constructing the Cost Curves 90 B. Sustainable Price: Equilibrium in a Long-run Sense 94 III. MARKET EQUILIBRIUM: ENTRY, EXIT, AND COMPETITIVE RETURNS 95 A. How to Evaluate the Sustainability of a Market Price 95 B. The Dynamics of Entry 96 C. The Concept of Long-run Supply 99 IV. PRODUCER SURPLUS, LONG AND SHORT RUN, AND ECONOMIC RENT 100 A. Producer Surplus in a Short-run Sense 100 B. The Concept of "Rent" 101 C. The Dynamics of an Increase in Rent 103 D. Portraying the Solution in the Market for Litigation Services 104 E. The Long-run Supply Curve 107 V. BRINGING IT ALL TOGETHER: RECONSIDERING A TAX ON ONE GOOD 111 A. Short-run Impact of the Tax 111 B. Long-run Impact of the Tax 113 VI. A FEW MISCELLANEOUS COST ISSUES 115 A. Sunk Cost 115 B. Opportunity Cost 120 C. Transactions Cost 122 APPENDIX: SHORT- AND LONG-TERM IMPACT OF A SUBSIDY 125 Chapter 4: Using Demand and Supply Curves to Evaluate Policy 127 I. SHIFTS IN DEMAND AND SUPPLY CURVES 128 II. IMPACT OF A MAXIMUM PRICE: THE CASE OF GASOLINE 131 A. Setting Up the Problem 131 B. The Queue for Gasoline 133 C. The Social Cost of the Queue 135 D. A First Lesson in Property Rights 137 E. A Candidate for an Even More Inefficient Solution: Regulation 139 III. THE ECONOMICS OF THE MINIMUM WAGE 140 A. Unskilled Workers Still Employed Gain Rent 141 B. Some Low-rent Workers Displace Some High-rent Workers 142 C. High-rent Workers Outhustle Low-rent Workers 143 D. Rent to Unskilled Workers 146 E. Effort Adds Value, Which Attenuates Job Losses 147 F. A Note on Unions 148 IV. PRICE SUPPORTS 148 A. Restriction on Output 149 B. No Restriction