Microeconomic Theory: Basic Principles and Extensions ISBN-10: 1111525536 ISBN-13: 978-1111525538

Cover......Page 1
Title Page......Page 5
Copyright......Page 6
Contents......Page 13
Preface......Page 21
PART ONE: Introduction......Page 25
Theoretical Models......Page 27
Verification of Economic Models......Page 28
General Features of Economic Models......Page 29
Development of the Economic Theory of Value......Page 33
Modern Developments......Page 41
Summary......Page 42
Suggestions for Further Reading......Page 43
Maximization of a Function of One Variable......Page 45
Functions of Several Variables......Page 50
Maximization of Functions of Several Variables......Page 57
The Envelope Theorem......Page 59
Constrained Maximization......Page 63
Envelope Theorem in Constrained Maximization Problems......Page 69
Inequality Constraints......Page 70
Second-Order Conditions and Curvature......Page 72
Homogeneous Functions......Page 79
Integration......Page 82
Dynamic Optimization......Page 87
Mathematical Statistics......Page 91
Summary......Page 100
Problems......Page 101
Suggestions for Further Reading......Page 106
Extensions: Second-Order Conditions and Matrix Algebra......Page 107
PART TWO: Choice and Demand......Page 111
Axioms of Rational Choice......Page 113
Utility......Page 114
Trades and Substitution......Page 116
The Mathematics of Indifference Curves......Page 123
Utility Functions for Specific Preferences......Page 126
Summary......Page 130
Problems......Page 131
Suggestions for Further Reading......Page 134
Extensions: Special Preferences......Page 136
CHAPTER 4 Utility Maximization and Choice......Page 141
An Initial Survey......Page 142
The Two-Good Case: A Graphical Analysis......Page 143
The n-Good Case......Page 146
Indirect Utility Function......Page 152
The Lump Sum Principle......Page 153
Expenditure Minimization......Page 155
Properties of Expenditure Functions......Page 158
Problems......Page 160
Suggestions for Further Reading......Page 164
Extensions: Budget Shares......Page 165
Demand Functions......Page 169
Changes in Income......Page 171
Changes in a Good's Price......Page 173
The Individual’s Demand Curve......Page 176
Compensated (Hicksian) Demand Curves and Functions......Page 179
A Mathematical Development of Response to Price Changes......Page 184
Demand Elasticities......Page 187
Consumer Surplus......Page 193
Revealed Preference and the Substitution Effect......Page 198
Summary......Page 200
Problems......Page 201
Suggestions for Further Reading......Page 204
Extensions: Demand Concepts and the Evaluation of Price Indices......Page 205
The Two-Good Case......Page 211
Substitutes and Complements......Page 213
Net (Hicksian) Substitutes and Complements......Page 215
Composite Commodities......Page 217
Home Production, Attributes of Goods, and Implicit Prices......Page 221
Problems......Page 224
Suggestions for Further Reading......Page 227
Extensions: Simplifying Demand and Two-Stage Budgeting......Page 228
PART THREE: Uncertainty and Strategy......Page 231
Mathematical Statistics......Page 233
Fair Gambles and the Expected Utility Hypothesis......Page 234
Expected Utility......Page 235
The von Neumann–Morgenstern Theorem......Page 236
Risk Aversion......Page 238
Measuring Risk Aversion......Page 241
Insurance......Page 246
Diversification......Page 247
Flexibility......Page 248
Information......Page 255
The State-Preference Approach to Choice under Uncertainty......Page 256
Summary......Page 262
Problems......Page 263
Suggestions for Further Reading......Page 266
Extensions: The Portfolio Problem......Page 268
Basic Concepts......Page 275
Prisoners' Dilemma......Page 276
Nash Equilibrium......Page 278
Mixed Strategies......Page 284
Continuum of Actions......Page 289
Sequential Games......Page 292
Repeated Games......Page 298
Incomplete Information......Page 301
Simultaneous Bayesian Games......Page 302
Signaling Games......Page 306
Experimental Games......Page 312
Summary......Page 314
Problems......Page 315
Suggestions for Further Reading......Page 319
Extensions: Existence of Nash Equilibrium......Page 320
PART FOUR: Production and Supply......Page 325
Marginal Productivity......Page 327
Isoquant Maps and the Rate of Technical Substitution......Page 330
Returns to Scale......Page 334
The Elasticity of Substitution......Page 337
Four Simple Production Functions......Page 340
Technical Progress......Page 344
Summary......Page 348
Problems......Page 349
Suggestions for Further Reading......Page 352
Extensions: Many-Input Production Functions......Page 353
Definitions of Costs......Page 357
Cost-Minimizing Input Choices......Page 360
Cost Functions......Page 365
Cost Functions and Shifts in Cost Curves......Page 369
Short-Run, Long-Run Distinction......Page 379
Summary......Page 386
Problems......Page 387
Suggestions for Further Reading......Page 390
Extensions: The Translog Cost Function......Page 391
The Nature and Behavior of Firms......Page 395
Profit Maximization......Page 397
Marginal Revenue......Page 399
Short-Run Supply by a Price-Taking Firm......Page 404
Profit Functions......Page 407
Profit Maximization and Input Demand......Page 413
Summary......Page 419
Problems......Page 420
Suggestions for Further Reading......Page 424
Extensions: Boundaries of the Firm......Page 425
PART FIVE: Competitive Markets......Page 431
Market Demand......Page 433
Pricing in the Very Short Run......Page 437
Short-Run Price Determination......Page 439
Shifts in Supply and Demand Curves: A Graphical Analysis......Page 443
Mathematical Model of Market Equilibrium......Page 446
Long-Run Analysis......Page 449
Long-Run Equilibrium: Constant Cost Case......Page 450
Shape of the Long-Run Supply Curve......Page 452
Comparative Statics Analysis of Long-Run Equilibrium......Page 455
Producer Surplus in the Long Run......Page 459
Economic Efficiency and Welfare Analysis......Page 462
Price Controls and Shortages......Page 465
Tax Incidence Analysis......Page 466
Problems......Page 471
Suggestions for Further Reading......Page 475
Extensions: Demand Aggregation and Estimation......Page 477
Perfectly Competitive Price System......Page 481
A Graphical Model of General Equilibrium with Two Goods......Page 482
Comparative Statics Analysis......Page 491
General Equilibrium Modeling and Factor Prices......Page 493
A Mathematical Model of Exchange......Page 495
A Mathematical Model of Production and Exchange......Page 506
Computable General Equilibrium Models......Page 509
Summary......Page 513
Problems......Page 514
Suggestions for Further Reading......Page 518
Extensions: Computable General Equilibrium Models......Page 519
PART SIX: Market Power......Page 523
Barriers to Entry......Page 525
Profit Maximization and Output Choice......Page 527
Monopoly and Resource Allocation......Page 531
Monopoly, Product Quality, and Durability......Page 534
Price Discrimination......Page 537
Second-Degree Price Discrimination through Price Schedules......Page 541
Regulation of Monopoly......Page 543
Summary......Page 547
Problems......Page 548
Suggestions for Further Reading......Page 551
Extensions: Optimal Linear Two-Part Tariffs......Page 552
Short-Run Decisions: Pricing and Output......Page 555
Bertrand Model......Page 557
Cournot Model......Page 558
Capacity Constraints......Page 564
Product Differentiation......Page 565
Tacit Collusion......Page 571
Longer-Run Decisions: Investment, Entry, and Exit......Page 575
Strategic Entry Deterrence......Page 581
Signaling......Page 583
How Many Firms Enter?......Page 586
Innovation......Page 590
Summary......Page 592
Problems......Page 593
Suggestions for Further Reading......Page 596
Extensions: Strategic Substitutes and Complements......Page 597
PART SEVEN: Pricing in Input Markets......Page 603
Allocation of Time......Page 605
A Mathematical Analysis of Labor Supply......Page 608
Market Supply Curve for Labor......Page 612
Labor Market Equilibrium......Page 613
Wage Variation......Page 615
Monopsony in the Labor Market......Page 619
Labor Unions......Page 622
Problems......Page 625
Suggestions for Further Reading......Page 629
Capital and the Rate of Return......Page 631
Determining the Rate of Return......Page 633
The Firm's Demand for Capital......Page 640
Present Discounted Value Approach to Investment Decisions......Page 642
Natural Resource Pricing......Page 647
Problems......Page 650
Suggestions for Further Reading......Page 654
Present Discounted Value......Page 655
Continuous Time......Page 657
PART EIGHT: Market Failure......Page 663
Complex Contracts as a Response to Asymmetric Information......Page 665
Principal-Agent Model......Page 666
Hidden Actions......Page 669
Owner-Manager Relationship......Page 670
Moral Hazard in Insurance......Page 674
Hidden Types......Page 679
Nonlinear Pricing......Page 680
Adverse Selection in Insurance......Page 687
Market Signaling......Page 694
Auctions......Page 696
Problems......Page 700
Suggestions for Further Reading......Page 703
Extensions: Nonlinear Pricing with a Continuum of Types......Page 704
Defining Externalities......Page 709
Externalities and Allocative Inefficiency......Page 711
Solutions to the Externality Problem......Page 715
Attributes of Public Goods......Page 718
Public Goods and Resource Allocation......Page 720
Lindahl Pricing of Public Goods......Page 724
Voting and Resource Allocation......Page 727
A Simple Political Model......Page 729
Voting Mechanisms......Page 732
Problems......Page 734
Suggestions for Further Reading......Page 737
Extensions: Pollution Abatement......Page 738
Brief Answers to Queries......Page 741
Solutions to Odd-Numbered Problems......Page 751
Glossary of Frequently Used Terms......Page 763
Index......Page 771