Microeconomics, 6th Edition (The Pearson Series in Economics)

Cover......Page 1
Half Title Page......Page 3
Copyright Page......Page 4
Title Page......Page 5
Brief Contents......Page 6
Contents......Page 8
Preface......Page 16
Acknowledgments......Page 22
1.1 Microeconomics: The Allocation of Scarce Resources......Page 25
APPLICATION: Flu Vaccine Shortage......Page 26
1.2 Models......Page 27
Simplifications by Assumption......Page 28
Testing Theories......Page 29
Positive Versus Normative......Page 30
1.3 Uses of Microeconomic Models......Page 31
Summary......Page 32
CHALLENGE: Quantities and Prices of Genetically Modified Foods......Page 33
2.1 Demand......Page 34
The Demand Curve......Page 35
The Demand Function......Page 38
Summing Demand Curves......Page 40
2.2 Supply......Page 41
The Supply Curve......Page 42
The Supply Function......Page 43
Effects of Government Import Policies on Supply Curves......Page 44
Solved Problem 2.2......Page 45
2.3 Market Equilibrium......Page 46
Using Math to Determine the Equilibrium......Page 47
Forces That Drive the Market to Equilibrium......Page 48
Effects of a Shift in the Supply Curve......Page 49
Solved Problem 2.3......Page 50
Policies That Shift Supply Curves......Page 51
APPLICATION: Occupational Licensing......Page 52
Solved Problem 2.4......Page 53
Policies That Cause Demand to Differ from Supply......Page 54
APPLICATION: Price Controls Kill......Page 56
Why Supply Need Not Equal Demand......Page 58
2.6 When to Use the Supply-and-Demand Model......Page 59
CHALLENGE SOLUTION: Quantities and Prices of Genetically Modified Foods......Page 60
Summary......Page 61
Questions......Page 62
Problems......Page 65
CHALLENGE: Who Pays the Gasoline Tax?......Page 66
3.1 How Shapes of Supply and Demand Curves Matter......Page 67
3.2 Sensitivity of Quantity Demanded to Price......Page 68
Price Elasticity of Demand......Page 69
Elasticity Along the Demand Curve......Page 70
Demand Elasticity and Revenue......Page 72
Solved Problem 3.2......Page 73
Demand Elasticities over Time......Page 74
Other Demand Elasticities......Page 75
APPLICATION: Substitution May Save Endangered Species......Page 76
Elasticity of Supply......Page 77
Elasticity Along the Supply Curve......Page 78
APPLICATION: The Big Freeze......Page 79
APPLICATION: Oil Drilling in the Arctic National Wildlife Refuge......Page 80
Solved Problem 3.3......Page 81
Two Types of Sales Taxes......Page 83
Equilibrium Effects of a Specific Tax......Page 84
Tax Incidence of a Specific Tax......Page 85
Solved Problem 3.4......Page 86
APPLICATION: Subsidizing Ethanol......Page 87
The Same Equilibrium No Matter Who Is Taxed......Page 88
The Similar Effects of Ad Valorem and Specific Taxes......Page 89
Solved Problem 3.5......Page 90
CHALLENGE SOLUTION: Who Pays the Gasoline Tax?......Page 91
Summary......Page 92
Questions......Page 93
Problems......Page 95
CHALLENGE: Paying Employees to Relocate......Page 97
4.1 Preferences......Page 98
Properties of Consumer Preferences......Page 99
APPLICATION: Money Buys Happiness......Page 100
Preference Maps......Page 101
Solved Problem 4.1......Page 104
4.2 Utility......Page 107
Ordinal Preferences......Page 108
Utility and Indifference Curves......Page 109
Utility and Marginal Utility......Page 110
Utility and Marginal Rates of Substitution......Page 111
4.3 Budget Constraint......Page 112
Slope of the Budget Constraint......Page 113
Effect of a Change in Income on the Opportunity Set......Page 114
Solved Problem 4.2......Page 115
Solved Problem 4.3......Page 116
The Consumer’s Optimal Bundle......Page 117
APPLICATION: Buying an SUV in the United States Versus Europe......Page 119
Solved Problem 4.4......Page 120
Optimal Bundles on Convex Sections of Indifference Curves......Page 121
Buying Where More Is Better......Page 122
Food Stamps......Page 123
APPLICATION: Benefiting from Food Stamps......Page 125
Endowment Effect......Page 126
APPLICATION: Opt In Versus Opt Out......Page 127
Salience......Page 128
CHALLENGE SOLUTION: Paying Employees to Relocate......Page 129
Summary......Page 130
Questions......Page 131
Problems......Page 133
CHALLENGE: Per-Hour Versus Lump-Sum Child-Care Subsidies......Page 135
5.1 Deriving Demand Curves......Page 136
Indifference Curves and a Rotating Budget Line......Page 137
Price-Consumption Curve......Page 138
APPLICATION: Quitting Smoking......Page 139
Solved Problem 5.2......Page 140
Effects of a Rise in Income......Page 142
Solved Problem 5.3......Page 144
Consumer Theory and Income Elasticities......Page 145
5.3 Effects of a Price Change......Page 148
Income and Substitution Effects with a Normal Good......Page 149
Income and Substitution Effects with an Inferior Good......Page 151
Solved Problem 5.4......Page 152
5.4 Cost-of-Living Adjustments......Page 153
Inflation Indexes......Page 154
Effects of Inflation Adjustments......Page 156
APPLICATION: Fixing the CPI Substitution Bias......Page 159
Labor-Leisure Choice......Page 160
Income and Substitution Effects......Page 162
Solved Problem 5.5......Page 163
Shape of the Labor Supply Curve......Page 164
APPLICATION: Working After Winning the Lottery......Page 165
Income Tax Rates and Labor Supply......Page 166
APPLICATION: Maximizing Income Tax Revenue......Page 168
CHALLENGE SOLUTION: Per-Hour Versus Lump-Sum Child-Care Subsidies......Page 169
Questions......Page 171
Problems......Page 174
CHALLENGE: Labor Productivity During Recessions......Page 175
Private, Public, and Nonprofit Firms......Page 176
The Ownership of For-Profit Firms......Page 177
What Owners Want......Page 178
Production Functions......Page 179
Time and the Variability of Inputs......Page 180
Total Product......Page 181
Graphing the Product Curves......Page 182
Law of Diminishing Marginal Returns......Page 185
APPLICATION: Malthus and the Green Revolution......Page 186
6.4 Long-Run Production: Two Variable Inputs......Page 187
Isoquants......Page 188
APPLICATION: A Semiconductor Integrated Circuit Isoquant......Page 191
Substituting Inputs......Page 192
Solved Problem 6.1......Page 194
Constant, Increasing, and Decreasing Returns to Scale......Page 195
Solved Problem 6.2......Page 196
APPLICATION: Returns to Scale in U.S. Manufacturing......Page 197
Varying Returns to Scale......Page 198
Relative Productivity......Page 199
Innovations......Page 200
APPLICATION: Tata Nano’s Technical and Organizational Innovations......Page 201
CHALLENGE SOLUTION: Labor Productivity During Recessions......Page 202
Summary......Page 204
Questions......Page 205
Problems......Page 207
CHALLENGE: Technology Choice at Home Versus Abroad......Page 208
7.1 The Nature of Costs......Page 209
APPLICATION: The Opportunity Cost of an MBA......Page 210
Costs of Durable Inputs......Page 211
Sunk Costs......Page 212
Short-Run Cost Measures......Page 213
Short-Run Cost Curves......Page 215
Production Functions and the Shape of Cost Curves......Page 216
APPLICATION: Short-Run Cost Curves for a Furniture Manufacturer......Page 219
Effects of Taxes on Costs......Page 220
Solved Problem 7.2......Page 221
Short-Run Cost Summary......Page 222
Input Choice......Page 223
Solved Problem 7.3......Page 228
How Long-Run Cost Varies with Output......Page 229
The Shape of Long-Run Cost Curves......Page 231
APPLICATION: Innovations and Economies of Scale......Page 234
7.4 Lower Costs in the Long Run......Page 235
Long-Run Average Cost as the Envelope of Short-Run Average Cost Curves......Page 236
APPLICATION: Long-Run Cost Curves in Furniture Manufacturing and Oil Pipelines......Page 237
APPLICATION: Choosing an Inkjet or a Laser Printer......Page 238
The Learning Curve......Page 239
APPLICATION: Cut-Rate Heart Surgeries......Page 241
7.5 Cost of Producing Multiple Goods......Page 242
APPLICATION: Economies of Scope......Page 243
CHALLENGE SOLUTION: Technology Choice at Home Versus Abroad......Page 244
Summary......Page 245
Questions......Page 246
Problems......Page 248
CHALLENGE: The Rising Cost of Keeping on Truckin’......Page 250
Price Taking......Page 251
Why the Firm’s Demand Curve Is Horizontal......Page 252
Derivation of a Competitive Firm’s Demand Curve......Page 253
Why We Study Perfect Competition......Page 255
Profit......Page 256
APPLICATION: Breaking Even on Christmas Trees......Page 257
Two Steps to Maximizing Profit......Page 258
Short-Run Competitive Profit Maximization......Page 260
Solved Problem 8.1......Page 262
Short-Run Firm Supply Curve......Page 265
APPLICATION: Oil, Oil Sands, and Oil Shale Shutdowns......Page 266
Short-Run Market Supply Curve......Page 268
Short-Run Competitive Equilibrium......Page 270
Solved Problem 8.3......Page 272
Long-Run Firm Supply Curve......Page 273
Long-Run Market Supply Curve......Page 274
APPLICATION: Enter the Dragon: Masses Producing Art for the Masses......Page 277
APPLICATION: Upward-Sloping Long-Run Supply Curve for Cotton......Page 278
APPLICATION: Reformulated Gasoline Supply Curves......Page 283
Solved Problem 8.4......Page 284
Long-Run Competitive Equilibrium......Page 285
CHALLENGE SOLUTION: The Rising Cost of Keeping on Truckin’......Page 286
Questions......Page 288
Problems......Page 292
CHALLENGE: “Big Dry” Water Rationing......Page 294
Zero Long-Run Profit with Free Entry......Page 295
Zero Long-Run Profit When Entry Is Limited......Page 296
APPLICATION: Tiger Woods’ Rents......Page 298
Measuring Consumer Welfare Using a Demand Curve......Page 299
APPLICATION: Willingness to Pay and Consumer Surplus on eBay......Page 300
APPLICATION: Consumer Surplus from Television......Page 302
Effect of a Price Change on Consumer Surplus......Page 303
Solved Problem 9.1......Page 305
Measuring Producer Surplus Using a Supply Curve......Page 306
Using Producer Surplus......Page 307
Solved Problem 9.2......Page 308
9.4 Competition Maximizes Welfare......Page 309
Solved Problem 9.3......Page 311
APPLICATION: Deadweight Loss of Christmas Presents......Page 312
9.5 Policies That Shift Supply Curves......Page 313
Restricting the Number of Firms......Page 314
APPLICATION: Licensing Cabs......Page 316
Raising Entry and Exit Costs......Page 317
Welfare Effects of a Sales Tax......Page 318
Solved Problem 9.4......Page 319
Welfare Effects of a Price Floor......Page 321
Solved Problem 9.5......Page 323
APPLICATION: Farmer Subsidies......Page 324
Solved Problem 9.6......Page 325
APPLICATION: The Social Cost of a Natural Gas Price Ceiling......Page 326
9.7 Comparing Both Types of Policies: Imports......Page 327
Free Trade Versus a Ban on Imports......Page 328
Free Trade Versus a Tariff......Page 329
Free Trade Versus a Quota......Page 331
Rent Seeking......Page 332
CHALLENGE SOLUTION: “Big Dry” Water Rationing......Page 333
Summary......Page 334
Questions......Page 335
Problems......Page 339
CHALLENGE: Anti-Price Gouging Laws......Page 340
Feedback Between Competitive Markets......Page 342
Minimum Wages with Incomplete Coverage......Page 345
Solved Problem 10.1......Page 347
Endowments......Page 348
Mutually Beneficial Trades......Page 350
10.3 Competitive Exchange......Page 352
Competitive Equilibrium......Page 353
Obtaining Any Efficient Allocation Using Competition......Page 355
Comparative Advantage......Page 356
Solved Problem 10.3......Page 358
Efficient Product Mix......Page 359
Competition......Page 360
APPLICATION: Wealth Inequality......Page 362
Efficiency......Page 364
Equity......Page 366
APPLICATION: How You Vote Matters......Page 368
Efficiency Versus Equity......Page 370
CHALLENGE SOLUTION: Anti-Price Gouging Laws......Page 371
Questions......Page 373
Problems......Page 375
CHALLENGE: Pricing Apple’s iPod......Page 377
Marginal Revenue......Page 378
Solved Problem 11.1......Page 381
Graphical Approach......Page 383
Mathematical Approach......Page 385
Solved Problem 11.2......Page 386
Effects of a Shift of the Demand Curve......Page 387
Market Power and the Shape of the Demand Curve......Page 388
APPLICATION: Cable Cars and Profit Maximization......Page 390
Solved Problem 11.3......Page 391
11.3 Welfare Effects of Monopoly......Page 392
Solved Problem 11.4......Page 394
11.4 Cost Advantages That Create Monopolies......Page 395
Natural Monopoly......Page 396
Solved Problem 11.5......Page 397
Patents......Page 398
APPLICATION: Botox Patent Monopoly......Page 399
APPLICATION: Property Rights and Pirates......Page 401
Regulating Monopolies......Page 402
Solved Problem 11.6......Page 404
APPLICATION: Natural Gas Regulation......Page 405
Network Externalities......Page 407
APPLICATION: Critical Mass and eBay......Page 409
CHALLENGE SOLUTION: Pricing Apple’s iPod......Page 410
Questions......Page 412
Problems......Page 414
CHALLENGE: Magazine Pricing and Advertising......Page 418
Why Price Discrimination Pays......Page 420
APPLICATION: Disneyland Pricing......Page 422
Preventing Resale......Page 423
Types of Price Discrimination......Page 424
How a Firm Perfectly Price Discriminates......Page 425
APPLICATION: Google Uses Bidding for Ads to Price Discriminate......Page 426
Perfect Price Discrimination: Efficient But Hurts Consumers......Page 427
APPLICATION: Botox Revisited......Page 429
Transaction Costs and Perfect Price Discrimination......Page 430
APPLICATION: Unions That Set Wages and Hours......Page 431
12.3 Quantity Discrimination......Page 432
12.4 Multimarket Price Discrimination Multimarket Price Discrimination with Two Groups......Page 433
Multimarket Price Discrimination with Two Groups......Page 434
APPLICATION: Smuggling Prescription Drugs into the United States......Page 436
Solved Problem 12.3......Page 437
APPLICATION: Buying Discounts......Page 439
12.5 Two-Part Tariffs......Page 441
A Two-Part Tariff with Identical Customers......Page 442
A Two-Part Tariff with Nonidentical Consumers......Page 443
12.6 Tie-In Sales......Page 444
APPLICATION: IBM......Page 445
Bundling......Page 446
Solved Problem 12.4......Page 447
APPLICATION: Available for a Song......Page 448
12.7 Advertising......Page 449
How Much to Advertise......Page 450
CHALLENGE SOLUTION: Magazine Pricing and Advertising......Page 452
Questions......Page 454
Problems......Page 457
CHALLENGE: Airline Frequent Flier Programs......Page 460
13.1 Market Structures......Page 462
Why Cartels Form......Page 463
Laws Against Cartels......Page 465
Why Cartels Fail......Page 467
Maintaining Cartels......Page 468
Mergers......Page 469
13.3 Noncooperative Oligopoly......Page 470
Cournot Model of an Airlines Market......Page 471
The Cournot Equilibrium and the Number of Firms......Page 475
APPLICATION: Air Ticket Prices and Rivalry......Page 477
The Cournot Model with Nonidentical Firms......Page 478
Solved Problem 13.1......Page 480
Solved Problem 13.2......Page 481
13.5 Stackelberg Model......Page 482
Stackelberg Graphical Model......Page 483
Solved Problem 13.3......Page 484
Strategic Trade Policy......Page 485
Solved Problem 13.4......Page 487
13.6 Comparison of Collusive, Cournot, Stackelberg, and Competitive Equilibria......Page 488
APPLICATION: Deadweight Losses in the Food and Tobacco Industries......Page 490
Bertrand Equilibrium with Identical Products......Page 491
Bertrand Equilibrium with Differentiated Products......Page 493
Cola Market......Page 494
13.8 Monopolistic Competition......Page 495
Monopolistically Competitive Equilibrium......Page 496
Fixed Costs and the Number of Firms......Page 497
Solved Problem 13.5......Page 498
CHALLENGE SOLUTION: Airline Frequent Flier Programs......Page 499
Summary......Page 501
Questions......Page 502
Problems......Page 503
CHALLENGE: Competing E-book Standards......Page 506
14.1 An Overview of Game Theory......Page 507
Normal-Form Games......Page 509
Predicting a Game’s Outcome......Page 510
Multiple Nash Equilibria, No Nash Equilibrium, and Mixed Strategies......Page 513
APPLICATION: Playing Chicken......Page 514
APPLICATION: Tough Love......Page 516
Solved Problem 14.1......Page 517
Cooperation......Page 518
APPLICATION: Strategic Advertising......Page 519
14.3 Dynamic Games......Page 520
Sequential Game......Page 521
APPLICATION: First Mover Advantages and Disadvantages......Page 525
Repeated Game......Page 526
Solved Problem 14.2......Page 527
Elements of Auctions......Page 528
Bidding Strategies in Private-Value Auctions......Page 529
APPLICATION: Bidders’ Curse......Page 531
CHALLENGE SOLUTION: Competing E-book Standards......Page 532
Summary......Page 534
Question......Page 0