Intermediate Microeconomic Theory: Tools and Step-by-Step Examples

Title Page
Copyright
Contents
Chapter Examples
Preface
	Organization of the Book
	How to Use This Textbook
	Ancillary Materials
	Acknowledgments
1 Introduction
	1.1 What Is Microeconomics?
	1.2 Comparative Statics
	1.3 Overview of the Book
		1.3.1 Consumer Theory
		1.3.2 Production Theory
		1.3.3 Markets—Putting Consumers and Producers Together
		1.3.4 Strategy—Let’s Play Games!
		1.3.5 Putting Game Theory to Work
		1.3.6 More Market Failures—When Markets Work Well and When They Don’t
2 Consumer Preferences and Utility
	2.1 Introduction
	2.2 Bundles
	2.3 Preferences for Bundles
		2.3.1 Ranking Bundles with More Units
		2.3.2 Satiation and Bliss Points
	2.4 Utility Functions
	2.5 Marginal Utility
		2.5.1 Diminishing Marginal Utility
	2.6 Indifference Curves
		2.6.1 Properties of Indifference Curves
	2.7 Marginal Rate of Substitution
		2.7.1 Diminishing MRS
	2.8 Special Types of Utility Functions
		2.8.1 Perfect Substitutes
		2.8.2 Perfect Complements
		2.8.3 Cobb-Douglas
		2.8.4 Quasilinear
		2.8.5 Stone-Geary
	2.9 A Look at Behavioral Economics—Social Preferences
		2.9.1 Fehr-Schmidt Social Preferences
		2.9.2 Bolton and Ockenfels Social Preferences
	Appendix. Finding the Marginal Rate of Substitution
	Exercises
3 Consumer Choice
	3.1 Introduction
	3.2 Budget Constraint
	3.3 Utility Maximization Problem
	3.4 Utility Maximization Problem in Extreme Scenarios
	3.5 Revealed Preference
	3.6 Kinked Budget Lines
		3.6.1 Quantity Discounts
		3.6.2 Introducing Coupons
	Appendix A. Applying the Lagrange Method to Solve the Utility Maximization Problem
	Appendix B. Expenditure Minimization Problem
		Relationship between the Utility Maximization Problem and the Expenditure Minimization Problem
	Exercises
4 Substitution and Income Effects
	4.1 Introduction
	4.2 Income Changes
		4.2.1 Using the Derivative of Demand
		4.2.2 Using Income Elasticity
		4.2.3 Using the Income-Consumption Curve
		4.2.4 Using the Engel Curve
	4.3 Price Changes
		4.3.1 Using the Derivative of Demand
		4.3.2 Using the Price-Elasticity of Demand
		4.3.3 Using Price-Consumption Curves
	4.4 Income and Substitution Effects
	4.5 Putting Income and Substitution Effects Together
		4.5.1 Income and Substitution Effects on the Labor Market
	Appendix A. Not All Goods Can Be Inferior
	Appendix B. An Alternative Representation of Income and Substitution Effects
		Using Elasticities to Represent the Slutsky Equation
	Exercises
5 Measuring Welfare Changes
	5.1 Introduction
	5.2 Consumer Surplus
	5.3 Compensating Variation
	5.4 Equivalent Variation
	5.5 Measuring Welfare Changes with No Income Effects
	Appendix. An Alternative Representation of the Compensating and Equivalent Variations
		A.1 Compensating Variation
		A.2 Equivalent Variation
6 Choice under Uncertainty
	6.1 Introduction
	6.2 Lotteries
	6.3 Expected Value
	6.4 Variance
	6.5 Expected Utility
	6.6 Risk Attitudes
		6.6.1 Risk Aversion
		6.6.2 Risk Loving
		6.6.3 Risk Neutrality
	6.7 Measuring Risk
		6.7.1 Risk Premium
		6.7.2 Certainty Equivalent
		6.7.3 Arrow-Pratt Coefficient of Absolute Risk Aversion
	6.8 A Look at Behavioral Economics—Nonexpected Utility
		6.8.1 Weighted Utility
		6.8.2 Prospect Theory
	Exercises
7 Production Functions
	7.1 Introduction
	7.2 Production Function
	7.3 Marginal and Average Product
	7.4 Relationship between APL and MPL
	7.5 Isoquants
	7.6 Marginal Rate of Technical Substitution
	7.7 Special Types of Production Functions
		7.7.1 Linear Production Function
		7.7.2 Fixed-Proportions Production Function
		7.7.3 Cobb-Douglas Production Function
		7.7.4 Constant Elasticity of Substitution Production Function
	7.8 Returns to Scale
	7.9 Technological Progress
		7.9.1 Types of Technological Progress
	Appendix A. MRTS as the Ratio of Marginal Products
	Appendix B. Elasticity of Substitution
	Exercises
8 Cost Minimization
	8.1 Introduction
	8.2 Isocost Lines
	8.3 Cost-Minimization Problem
	8.4 Input Demands
		8.4.1 Input Demand—Responses
	8.5 Cost Functions
	8.6 Types of Costs
	8.7 Average and Marginal Cost
		8.7.1 Output Elasticity to Total Cost
	8.8 Economies of Scale, Scope, and Experience
		8.8.1 Economies of Scale
		8.8.2 Economies of Scope
		8.8.3 Economies of Experience
	Appendix. Cost-Minimization Problem�A Lagrangian Analysis
	Exercises
9 Partial and General Equilibrium
	9.1 Introduction
	9.2 Features of Perfectly Competitive Markets
	9.3 Profit Maximization Problem
	9.4 Supply Curves
		9.4.1 Individual Firm Supply
		9.4.2 Market Supply
	9.5 Short-Run Supply Curve
	9.6 Market Equilibrium
		9.6.1 Short-Run Equilibrium
		9.6.2 Long-Run Equilibrium
	9.7 Producer Surplus
	9.8 General Equilibrium
		9.8.1 Equilibrium Prices
		9.8.2 Efficient Allocations
		9.8.3 Equilibrium versus Efficiency
		9.8.4 Adding Production to the Economy
	9.9 A Look at Behavioral Economics—Market Experiments
	Appendix. Efficient Allocations and Marginal Rate of Substitution
	Exercises
10 Monopoly
	10.1 Introduction
	10.2 Why Do Monopolies Exist?
	10.3 The Monopolist’s Profit Maximization Problem
		10.3.1 A Closer Look at Marginal Revenue
		10.3.2 Solving the Monopolist’s Problem
	10.4 Common Misunderstandings of Monopoly Markets
	10.5 The Lerner Index and Inverse Elasticity Pricing Rule
	10.6 Multiplant Monopoly
	10.7 Welfare Analysis under Monopoly
	10.8 Advertising in Monopoly
	10.9 Monopsony
	Exercises
11 Price Discrimination and Bundling
	11.1 Introduction
	11.2 Price Discrimination
		11.2.1 First-Degree Price Discrimination
		11.2.2 Second-Degree Price Discrimination
		11.2.3 Third-Degree Price Discrimination
	11.3 Bundling
	Exercises
12 Simultaneous-Move Games
	12.1 Introduction
	12.2 What Is a Game?
	12.3 Strategic Dominance
	12.4 Nash Equilibrium
	12.5 Common Games
	12.6 Mixed-Strategy Nash Equilibrium
		12.6.1 Graphical Representation of Best Responses
	Exercises
13 Sequential and Repeated Games
	13.1 Introduction
	13.2 Game Trees
	13.3 Why Don’t We Just Find the Nash Equilibrium of the Game Tree?
	13.4 Subgame-Perfect Equilibrium
		13.4.1 Subgame Perfect Equilibrium in More Involved Games
	13.5 Repeated Games
		13.5.1 Finite Repetitions
		13.5.2 Infinite Repetitions
	13.6 A Look at Behavioral Economics—Cooperation in the Experimental Lab?
	Exercises
14 Imperfect Competition
	14.1 Introduction
	14.2 Measuring Market Power
	14.3 Models of Imperfect Competition
		14.3.1 Cournot Model—Simultaneous Quantity Competition
		14.3.2 Bertrand Model—Simultaneous Price Competition
		14.3.3 Cartels and Collusion
	14.4 Stackelberg Model—Sequential Quantity Competition
	14.5 Product Differentiation
	Appendix. Cournot Model with N Firms
	Exercises
15 Games of Incomplete Information and Auctions
	15.1 Introduction
	15.2 Extending Nash Equilibria to Games of Incomplete Information
	15.3 Auctions
		15.3.1 Auctions as Allocation Mechanisms
	15.4 Second-Price Auctions
	15.5 First-Price Auctions
		15.5.1 Privately Observed Valuations
		15.5.2 Equilibrium Bidding in First-Price Auctions
		15.5.3 Extending the First-Price Auction to N Bidders
		15.5.4 First-Price Auctions with Risk-Averse Bidders
	15.6 Efficiency in Auctions
	15.7 Common-Value Auctions
	15.8 A Look at Behavioral Economics—Experiments with Auctions
	Appendix. First-Price Auctions in More General Settings
	Exercises
16 Contract Theory
	16.1 Introduction
	16.2 Moral Hazard
		16.2.1 Contracts When Effort Is Observable
		16.2.2 Contracts When Effort Is Unobservable
		16.2.3 Preventing Moral Hazard
	16.3 Adverse Selection
		16.3.1 Market for Lemons
		16.3.2 Market for Lemons—Symmetric Information
		16.3.3 Market for Lemons—Asymmetric Information
		16.3.4 Principal-Agent Model
		16.3.5 Principal-Agent Model—Symmetric Information
		16.3.6 Principal-Agent Model—Asymmetric Information
		16.3.7 Principal-Agent Model—Comparing Information Settings
		16.3.8 Preventing Adverse Selection
	Appendix. Showing That PCH and ICL Hold with Equality
	Exercises
17 Externalities and Public Goods
	17.1 Introduction
	17.2 Externalities
		17.2.1 Unregulated Equilibrium
		17.2.2 Social Optimum
	17.3 Restoring the Social Optimum
		17.3.1 Bargaining between the Affected Parties
		17.3.2 Government Intervention
	17.4 Public Goods
		17.4.1 A Look at Behavioral Economics—Public-Good Experiments
	17.5 Common-Pool Resources
		17.5.1 Finding Equilibrium Appropriation
		17.5.2 Common-Pool Resources—Joint Profit Maximization
	Exercises
References
Index