Intermediate.Microeconomics-A.Modern.Approach

Cover......Page 1
Copyright......Page 4
Title Page......Page 5
Contents......Page 9
Preface......Page 21
Constructing a Model......Page 27
The Demand Curve......Page 29
The Supply Curve......Page 31
The Market Equilibrium......Page 33
Comparative Statics......Page 35
Other Ways to Allocate Apartments......Page 37
The Ordinary Monopolist......Page 38
Rent Control......Page 39
Which Way Is Best?......Page 40
Pareto Efficiency......Page 41
Comparing Ways to Allocate Apartments......Page 42
Equilibrium in the Long Run......Page 43
Summary......Page 44
Review Questions......Page 45
The Budget Constraint......Page 46
Two Goods Are Often Enough......Page 47
Properties of the Budget Set......Page 48
How the Budget Line Changes......Page 50
Taxes, Subsidies, and Rationing......Page 52
Example: The Food Stamp Program......Page 55
Summary......Page 57
Review Questions......Page 58
Chapter 3 Preferences......Page 59
Consumer Preferences......Page 60
Assumptions about Preferences......Page 61
Indifference Curves......Page 62
Examples of Preferences......Page 63
Perfect Substitutes......Page 64
Perfect Complements......Page 66
Neutrals......Page 67
Satiation......Page 69
Well-Behaved Preferences......Page 70
The Marginal Rate of Substitution......Page 74
Other Interpretations of the MRS......Page 76
Behavior of the MRS......Page 77
Review Questions......Page 78
Chapter 4 Utility......Page 80
Cardinal Utility......Page 83
Constructing a Utility Function......Page 84
Some Examples of Utility Function......Page 85
Perfect Substitutes......Page 87
Quasilinear Preferences......Page 88
Cobb-Douglas Preferences......Page 89
Marginal Utility......Page 91
Marginal Utility and MRS......Page 92
Utility of Commuting......Page 93
Summary......Page 95
Appendix......Page 96
Example: Cobb-Douglas Preferences......Page 98
Optimal Choice......Page 99
Perfect Substitutes......Page 104
Perfect Complements......Page 105
Discrete Goods......Page 107
Cobb-Douglas Preferences......Page 108
Estimating Utility Functions......Page 109
Implications of the MRS Condition......Page 111
Choosing Taxes......Page 113
Review Questions......Page 115
Appendix......Page 116
Example: Cobb-Douglas Demand Functions......Page 119
Chapter 6 Demand......Page 121
Normal and Inferior Goods......Page 122
Income Offer Curves and Engel Curves......Page 123
Perfect Complements......Page 125
Cobb-Douglas Preferences......Page 126
Homothetic Preferences......Page 127
Quasilinear Preferences......Page 128
Ordinary Goods and Giffen Goods......Page 130
The Price Offer Curve and the Demand Curve......Page 132
Perfect Complements......Page 133
A Discrete Good......Page 134
Substitutes and Complements......Page 137
The Inverse Demand Function......Page 138
Summary......Page 140
Appendix......Page 141
Chapter 7 Revealed Preference......Page 144
The Idea of Revealed Preference......Page 145
From Revealed Preference to Preference......Page 146
Recovering Preferences......Page 148
The Weak Axiom of Revealed Preference......Page 150
Checking WARP......Page 151
The Strong Axiom of Revealed Preference......Page 154
How to Check SARP......Page 155
Index Numbers......Page 156
Price Indices......Page 158
Example: Indexing Social Security Payments......Page 159
Review Questions......Page 161
Chapter 8 Slutsky Equation......Page 162
The Substitution Effect......Page 163
Example: Calculating the Substitution Effect......Page 166
The Income Effect......Page 167
Sign of the Substitution Effect......Page 168
The Total Change in Demand......Page 169
Rates of Change......Page 170
Examples of Income and Substitution Effects......Page 173
EXAMPLE: Rebating a Tax......Page 174
EXAMPLE: Voluntary Real Time Pricing......Page 177
Another Substitution Effect......Page 179
Compensated Demand Curves......Page 181
Summary......Page 182
Appendix......Page 183
Net and Gross Demands......Page 186
The Budget Constraint......Page 187
Changing the Endowment......Page 189
Price Changes......Page 190
Offer Curves and Demand Curves......Page 193
The Slutsky Equation Revisited......Page 194
EXAMPLE: Calculating the Endowment Income Effect......Page 198
The Budget Constraint......Page 199
Comparative Statics of Labor Supply......Page 200
EXAMPLE: Overtime and the Supply of Labor......Page 203
Summary......Page 204
Appendix......Page 205
The Budget Constraint......Page 208
Preferences for Consumption......Page 211
Comparative Statics......Page 212
The Slutsky Equation and Intertemporal Choice......Page 213
Inflation......Page 215
Present Value: A Closer Look......Page 217
Analyzing Preset Value for Several Periods......Page 219
Use of Present Value......Page 220
EXAMPLE: The True Cost of a Credit Card......Page 222
EXAMPLE: Extending Copyright......Page 223
Bonds......Page 224
EXAMPLE: Installment Loans......Page 225
EXAMPLE: Scholarships and Savings......Page 226
Choice of the Interest Rate......Page 227
Review Questions......Page 228
Rates of Return......Page 229
Adjustments for Differences among Assets......Page 231
Assets with Consumption Returns......Page 232
Taxation of Asset Returns......Page 233
Market Bubbles......Page 234
Applications......Page 235
Depletable Resources......Page 236
When to Cut a Forest......Page 237
EXAMPLE: Gasoline Prices during the Gulf War......Page 238
Financial Institutions......Page 239
Summary......Page 240
Appendix......Page 241
Contingent Consumption......Page 243
EXAMPLE: Catastrophe Bonds......Page 247
EXAMPLE: Some Examples of Utility Functions......Page 248
Expected Utility......Page 249
Why Expected Utility Is Reasonable......Page 250
Risk Aversion......Page 252
EXAMPLE: The Demand for Insurance......Page 253
Risk Spreading......Page 256
Role of the Stock Market......Page 257
Review Questions......Page 258
Appendix......Page 259
EXAMPLE: The Effect of Taxation on Investment in Risky Assets......Page 261
Mean-Variance Utility......Page 262
Measuring Risk......Page 267
Equilibrium in a Market for Risky Assets......Page 269
How Returns Adjust......Page 271
EXAMPLE: Value at Risk......Page 272
EXAMPLE: Ranking Mutual Funds......Page 273
Summary......Page 275
Review Questions......Page 276
Chapter 14 Consumer's Surplus......Page 277
Demand for a Discrete Good......Page 278
Constructing Utility from Demand......Page 279
Other Interpretations of Consumer's Surplus......Page 280
Quasilinear Utility......Page 281
Interpreting the Change in Consumer's Surplus......Page 282
Compensating and Equivalent Variation......Page 284
EXAMPLE: Compensating and Equivalent Variations......Page 286
Producer's Surplus......Page 288
Benefit-Cost Analysis......Page 290
Rationing......Page 291
Calculating Gains and Losses......Page 292
Review Questions......Page 293
Appendix......Page 294
Example: A Few Demand Functions Example: CV, EV, and Consumer’s Surplus......Page 295
From Individual to Market Demand......Page 296
EXAMPLE: Adding Up “Linear” Demand Curves......Page 298
The Extensive and the Intensive Margin......Page 299
Elasticity......Page 300
EXAMPLE: The Elasticity of a Linear Demand Curve......Page 301
Elasticity and Demand......Page 302
Elasticity and Revenue......Page 303
EXAMPLE: Strikes and Profits......Page 305
Constant Elasticity Demands......Page 306
Elasticity and Marginal Revenue......Page 307
EXAMPLE: Setting a Price......Page 308
Marginal Revenue Curves......Page 309
Income Elasticity......Page 310
Summary......Page 311
Review Questions......Page 312
Appendix......Page 313
EXAMPLE: The Laffer Curve......Page 314
EXAMPLE: Another Expression for Elasticity......Page 316
Chapter 16 Equilibrium......Page 318
Market Equilibrium......Page 319
Two Special Cases......Page 320
Inverse Demand and Supply Curves......Page 321
EXAMPLE: Equilibrium with Linear Curves......Page 322
EXAMPLE: Shifting Both Curves......Page 323
Taxes......Page 324
EXAMPLE: Taxation with Linear Demand and Supply......Page 326
Passing Along a Tax......Page 328
The Deadweight Loss of a Tax......Page 330
EXAMPLE: The Market for Loans......Page 332
EXAMPLE: Food Subsidies......Page 335
Pareto Efficiency......Page 336
EXAMPLE: Waiting in Line......Page 338
Review Questions......Page 339
Chapter 17 Auctions......Page 341
Bidding Rules......Page 342
Auction Design......Page 343
Other Auction Forms......Page 346
EXAMPLE: Late Bidding on eBay......Page 347
Position Auctions......Page 348
Two Bidders......Page 349
More Than Two Bidders......Page 350
Quality Scores......Page 351
EXAMPLE: Taking Bids Off the Wall......Page 352
Stable Marriage Problem......Page 353
Mechanism Design......Page 355
Review Questions......Page 357
Inputs and Outputs......Page 358
Describing Technological Constraints......Page 359
Fixed Proportions......Page 360
Cobb-Douglas......Page 361
Properties of Technology......Page 362
The Technical Rate of Substitution......Page 364
Diminishing Technical Rate of Sustitution......Page 365
Returns to Scale......Page 366
EXAMPLE: Datacenters......Page 368
Summary......Page 369
Review Questions......Page 370
Profits......Page 371
Profits and Stock Market Value......Page 373
The Boundaries of the Firm......Page 375
Short-Run Maximization......Page 376
Comparative Statics......Page 378
Profit Maximization in the Long Run......Page 379
Inverse factor Demand Curves......Page 380
Profit Maximization and Returns to Scale......Page 381
Revealed Profitability......Page 382
Summary......Page 386
Review Questions......Page 387
Appendix......Page 388
Cost Minimization......Page 390
EXAMPLE: Minimizing Costs for Speci.c Technologies......Page 393
Revealed Cost Minimization......Page 394
Returns to Scale and the Cost Function......Page 395
Long-Run and Short-Run Costs......Page 397
Sunk Costs......Page 399
Review Questions......Page 400
Appendix......Page 401
Average Costs......Page 404
Marginal Costs......Page 406
Marginal Costs and Variable Costs......Page 408
EXAMPLE: Specific Cost Curves......Page 409
EXAMPLE: Marginal Cost Curves for Two Plants......Page 410
Cost Curves for Online Auctions......Page 412
Long-Run Costs......Page 413
Discrete Levels of Plant Size......Page 415
Long-Run Marginal Costs......Page 416
Summary......Page 417
Review Questions......Page 418
Appendix......Page 419
Market Environments......Page 421
Pure Competition......Page 422
The Supply Decision of a Competitive Firm......Page 424
An Exception......Page 426
Another Exception......Page 427
Profits and Producer's Surplus......Page 429
EXAMPLE: The Supply Curve for a Specific Cost Function......Page 431
The Long-Run Supply Curve of a Firm......Page 433
Long-Run Constant Average Costs......Page 435
Summary......Page 436
Appendix......Page 437
Short-Run Industry Supply......Page 439
Industry Equilibrium in the Short Run......Page 440
Industry Equilibrium in the Long Run......Page 441
The Long-Run Supply Curve......Page 443
EXAMPLE: Taxation in the Long Run and in the Short Run......Page 446
The Meaning of Zero Profits......Page 447
Fixed Factors and Economic Rent......Page 448
Economic Rent......Page 450
EXAMPLE: Liquor Licenses......Page 452
The Politics of Rent......Page 453
EXAMPLE: Farming the Government......Page 454
Two-Tiered Oil Pricing......Page 455
Price Controls......Page 457
The Entitlement Program......Page 458
Optimal Production of Emissions......Page 459
A Carbon Tax......Page 461
Cap and Trade......Page 462
Review Questions......Page 463
Chapter 24 Monopoly......Page 465
Maximizing Profits......Page 466
Linear Demand Curve and Monopoly......Page 467
EXAMPLE: The Impact of Taxes on a Monopolist......Page 469
Inefficiency of Monopoly......Page 471
Deadweight Loss of Monopoly......Page 473
EXAMPLE: The Optimal Life of a Patent......Page 475
EXAMPLE: Patent Thickets......Page 476
Natural Monopoly......Page 477
What Causes Monopolies?......Page 480
EXAMPLE: Pooling in Auction Markets......Page 482
EXAMPLE: Price Fixing in Computer Memory Markets......Page 483
Review Questions......Page 484
Appendix......Page 485
Chapter 25 Monopoly Behavior......Page 487
First-Degree Price Discrimination......Page 488
EXAMPLE: First-degree Price Discrimination in Practice......Page 490
Second-Degree Price Discrimination......Page 491
EXAMPLE: Price Discrimination in Airfares......Page 493
EXAMPLE: Prescription Drug Prices......Page 494
Third-Degree Price Discrimination......Page 495
EXAMPLE: Linear Demand Curves......Page 496
EXAMPLE: Calculating Optimal Price Discrimination......Page 498
EXAMPLE: Price Discrimination in Academic Journals......Page 499
Bundling......Page 500
Two-Part Tariffs......Page 501
Monopolistic Competition......Page 502
A Location Model of Product Differentiation......Page 506
Product Differentiation......Page 508
More Vendors......Page 509
Review Questions......Page 510
Monopoly in the Output Market......Page 511
Monopsony......Page 514
EXAMPLE: The Minimum Wage......Page 517
Upstream and Downstream Monopolies......Page 518
Summary......Page 520
Appendix......Page 521
Chapter 27 Oligopoly......Page 523
EXAMPLE: Pricing Matching......Page 524
Quantity Leadership......Page 525
The Follower’s Problem......Page 526
The Leader’s Problem......Page 528
Price Leadership......Page 530
Simultaneous Quantity Setting......Page 533
An Example of Cournot Equilibrium......Page 535
Adjustment to Equilibrium......Page 536
Many Firms in Cournot Equilibrium......Page 537
Simultaneous Price Setting......Page 538
Collusion......Page 539
Punishment Strategies......Page 541
EXAMPLE: Price Matching and Competition......Page 543
EXAMPLE: Voluntary Export Restraints......Page 544
Summary......Page 545
Review Questions......Page 546
The Payoff Matrix of a Game......Page 548
Nash Equilibrium......Page 550
Misex Strategies......Page 551
EXAMPLE: Rock Paper Scissors......Page 552
The Prisoner's Dilemma......Page 553
Repeated Games......Page 555
Enforcing a Cartel......Page 556
EXAMPLE: Tit for Tat in Airline Pricing......Page 557
Sequential Games......Page 558
A Game of Entry Deferrence......Page 560
Summary......Page 562
Review Questions......Page 563
Best Response Curves......Page 564
Mixed Strategies......Page 566
Battle of the Sexes......Page 568
Prisoner’s Dilemma......Page 569
Assurance Games......Page 570
How to Coordinate......Page 571
Games of Competition......Page 572
Games of Coexistence......Page 577
The Frog and the Scorpion......Page 579
The Kindly Kidnapper......Page 581
When Strength Is Weakness......Page 583
Savings and Social Security......Page 584
Hold Up......Page 586
Bargaining......Page 587
Summary......Page 590
Review Questions......Page 591
Chapter 30 Behavioral Economics......Page 592
The Disease Dilemma......Page 593
Anchoring Effects......Page 594
Bracketing......Page 595
Constructed Preferences......Page 596
Law of Small Numbers......Page 597
Asset Integration and Loss Aversion......Page 599
Discounting......Page 600
Self-control......Page 601
Strategic Interaction and Social Norms......Page 602
Ultimatum Game......Page 603
Assessment of Behavioral Economics......Page 604
Summary......Page 605
Review Questions......Page 607
Chapter 31 Exchange......Page 608
The Edgeworth Box......Page 609
Trade......Page 611
Pareto Efficient Allocations......Page 612
Market Trade......Page 614
The Algebra of Equilibrium......Page 616
Walras' Law......Page 618
Relative Prices......Page 619
EXAMPLE: An Algebraic Example of Equilibrium......Page 620
The Existence of Equilibrium......Page 621
Equilibrium and Efficiency......Page 622
The Algebra of Efficiency......Page 623
EXAMPLE: Monopoly in the Edgeworth Box......Page 624
Efficiency and Equilibrium......Page 626
Implications of the First Welfare Theorem......Page 628
Implications of the Second Welfare Theorem......Page 630
Summary......Page 632
Appendix......Page 633
The Robinson Crusoe Economy......Page 635
Crusoe, Inc.......Page 637
The Firm......Page 638
Putting Them Together......Page 639
Different Technologies......Page 641
Production and the First Welfare Theorem......Page 643
Production Possibilities......Page 644
Comparative Advantage......Page 646
Pareto Efficiency......Page 648
Castaways, Inc.......Page 650
Robinson and Friday as Consumers......Page 652
Decentralized Resource Allocation......Page 653
Review Questions......Page 654
Appendix......Page 655
Chapter 33 Welfare......Page 657
Aggregation of Preferences......Page 658
Social Welfare Functions......Page 660
Welfare Maximization......Page 662
Individualistic Social Welfare Functions......Page 664
Fair Allocations......Page 665
Envy and Equity......Page 666
Review Questions......Page 668
Appendix......Page 669
Chapter 34 Externalities......Page 670
Smokers and Nonsmokers......Page 671
Quasilinear Preferences and the Coase Theorem......Page 674
Production Externalities......Page 676
EXAMPLE: Pollution Vouchers......Page 680
Interpretation of the Conditions......Page 681
EXAMPLE: Bees and Almonds......Page 684
The Tragedy of the Commons......Page 685
EXAMPLE: New England Lobsters......Page 688
Automobile Pollution......Page 689
Review Questions......Page 691
Chapter 35 Information Technology......Page 693
The Problem of Complements......Page 694
Relationships among Complementors......Page 697
EXAMPLE: Apple’s iPod and iTunes......Page 698
EXAMPLE: Who Makes an iPod?......Page 699
Lock-In......Page 700
A Model of Competition with Switching Costs......Page 701
EXAMPLE: Number Portability on Cell Phones......Page 703
Markets with Network Externalities......Page 704
Market Dynamics......Page 706
EXAMPLE: Network Externalities in Computer Software......Page 708
EXAMPLE: The Yellow Pages......Page 710
A Model of Two-sided Markets......Page 712
Rights Management......Page 713
Sharing Intellectual Property......Page 715
Summary......Page 718
Review Questions......Page 719
Chapter 36 Public Goods......Page 720
When to Provide a Public Good?......Page 721
Free Riding......Page 725
Different Levels of the Public Good......Page 727
Quasilinear Preferences and Public Goods......Page 729
EXAMPLE: Pollution Revisited......Page 730
The Free Rider Problem......Page 731
Comparison to Private Goods......Page 733
Voting......Page 734
EXAMPLE: Agenda Manipulation......Page 736
Groves Mechanism......Page 737
The VCG Mechanism......Page 738
Clarke-Groves Mechanism......Page 739
Problems with VCG......Page 740
Summary......Page 741
Appendix......Page 742
Chapter 37 Asymmetric Information......Page 744
The Market for Lemons......Page 745
Quality Choice......Page 746
Choosing the Quality......Page 747
Adverse Selection......Page 748
Moral Hazard......Page 750
Moral Hazard and Adverse Selection......Page 751
Signaling......Page 752
EXAMPLE: The Sheepskin Effect......Page 755
Incentives......Page 756
EXAMPLE: Chinese Economic Reforms......Page 760
Asymmetric Information......Page 761
EXAMPLE: Monitoring Costs......Page 762
EXAMPLE: The Grameen Bank......Page 763
Summary......Page 764
Review Questions......Page 765
Functions......Page 767
Properties of Functions......Page 768
Equations and Identities......Page 769
Changes and Rates of Change......Page 770
Slopes and Intercepts......Page 771
Dervatives......Page 772
Second Derivatives......Page 773
Partial Derivatives......Page 774
Optimization......Page 775
Constrained Optimization......Page 776
Answers......Page 777
Index......Page 797