Microeconomics Global Edition

Cover
Half Title Page
Title Page
Copyright Page
Brief Contents
Contents
Preface
Chapter 1: Introduction
	1.1 Microeconomics: The Allocation of Scarce Resources
		Trade-Offs
		Who Makes the Decisions
		Prices Determine Allocations
		APPLICATION Twinkie Tax
	1.2 Models
		APPLICATION Income Threshold Model and China
		Simplifications by Assumption
		Testing Theories
		Maximizing Subject to Constraints
		Positive Versus Normative
	1.3 Uses of Microeconomic Models
	Summary
Chapter 2: Supply and Demand
	CHALLENGE Quantities and Prices of Genetically Modified Foods
	2.1 Demand
		The Demand Curve
		APPLICATION Calorie Counting
		The Demand Function
		Solved Problem 2.1
		Summing Demand Curves
		APPLICATION Aggregating Corn Demand Curves
	2.2 Supply
		The Supply Curve
		The Supply Function
		Summing Supply Curves
		How Government Import Policies Affect Supply Curves
		Solved Problem 2.2
	2.3 Market Equilibrium
		Using a Graph to Determine the Equilibrium
		Using Math to Determine the Equilibrium
		Forces That Drive the Market to Equilibrium
	2.4 Shocking the Equilibrium
		Effects of a Shock to the Supply Curve
		Solved Problem 2.3
		Effects of a Shock to the Demand Curve
	2.5 Effects of Government Interventions
		Policies That Shift Supply Curves
		APPLICATION Occupational Licensing
		Solved Problem 2.4
		Policies That Cause the Quantity Demanded to ­Differ from the Quantity Supplied
		APPLICATION Venezuelan Price Ceilings and Shortages
		Solved Problem 2.5
		Why the Quantity Supplied Need Not Equal the Quantity Demanded
	2.6 When to Use the Supply-and-Demand Model
		CHALLENGE SOLUTION Quantities and Prices of Genetically Modified Foods
	Summary
	Questions
Chapter 3: Applying the Supply-and-Demand Model
	CHALLENGE Who Pays the Gasoline Tax?
	3.1 How Shapes of Supply and Demand Curves Matter
	3.2 Sensitivity of the Quantity Demanded to Price
		Price Elasticity of Demand
		Solved Problem 3.1
		APPLICATION The Demand Elasticities for Google Play and Apple Apps
		Elasticity Along the Demand Curve
		Demand Elasticity and Revenue
		Solved Problem 3.2
		APPLICATION Amazon Prime
		Demand Elasticities over Time
		Other Demand Elasticities
		APPLICATION Anti-Smoking Policies May Reduce Drunk Driving
	3.3 Sensitivity of the Quantity Supplied to Price
		Elasticity of Supply
		Elasticity Along the Supply Curve
		Supply Elasticities over Time
		APPLICATION Oil Drilling in the Arctic National Wildlife Refuge
		Solved Problem 3.3
	3.4 Effects of a Sales Tax
		Effects of a Specific Tax on the Equilibrium
		The Equilibrium Is the Same No Matter Whom the Government Taxes
		Solved Problem 3.4
		Firms and Customers Share the Burden of the Tax
		APPLICATION Taxes to Prevent Obesity
		Solved Problem 3.5
		Ad Valorem and Specific Taxes Have Similar Effects
		Solved Problem 3.6
		Subsidies
		APPLICATION Subsidizing Ethanol
		CHALLENGE SOLUTION Who Pays the Gasoline Tax?
	Summary
	Questions
Chapter 4: Consumer Choice
	CHALLENGE Why Americans Buy More Ebooks Than Do Germans
	4.1 Preferences
		Properties of Consumer Preferences
		APPLICATION You Can’t Have Too Much Money
		Preference Maps
		Solved Problem 4.1
		APPLICATION Indifference Curves Between Food and Clothing
	4.2 Utility
		Utility Function
		Ordinal Preferences
		Utility and Indifference Curves
		Marginal Utility
		Utility and Marginal Rates of Substitution
	4.3 Budget Constraint
		Slope of the Budget Constraint
		Solved Problem 4.2
		Effect of a Change in Price on the Opportunity Set
		Effect of a Change in Income on the Opportunity Set
		Solved Problem 4.3
	4.4 Constrained Consumer Choice
		The Consumer’s Optimal Bundle
		APPLICATION Substituting Alcohol for Marijuana
		Solved Problem 4.4
		Solved Problem 4.5
		Optimal Bundles on Convex Sections of Indifference Curves
		Buying Where More Is Better
		Food Stamps
		APPLICATION Benefiting from Food Stamps
	4.5 Behavioral Economics
		Tests of Transitivity
		Endowment Effect
		APPLICATION Opt In Versus Opt Out
		Salience and Bounded Rationality
		APPLICATION Unaware of Taxes
		CHALLENGE SOLUTION Why Americans Buy More Ebooks Than Do Germans
	Summary
	Questions
Chapter 5: Applying Consumer Theory
	CHALLENGE Per-Hour Versus Lump-Sum Childcare Subsidies
	5.1 Deriving Demand Curves
		Indifference Curves and a Rotating Budget Line
		Price-Consumption Curve
		APPLICATION Smoking Versus Eating and Phoning
		The Demand Curve Corresponds to the Price-Consumption Curve
		Solved Problem 5.1
	5.2 How Changes in Income Shift Demand Curves
		Effects of a Rise in Income
		Solved Problem 5.2
		Consumer Theory and Income Elasticities
		APPLICATION Fast-Food Engel Curve
	5.3 Effects of a Price Change
		Income and Substitution Effects with a Normal Good
		Solved Problem 5.3
		Solved Problem 5.4
		Income and Substitution Effects with an Inferior Good
		Solved Problem 5.5
		Compensating Variation and Equivalent Variation
		APPLICATION What’s Your Smart Phone Worth to You?
	5.4 Cost-of-Living Adjustments
		Inflation Indexes
		Effects of Inflation Adjustments
		APPLICATION Paying Employees to Relocate
	5.5 Deriving Labor Supply Curves
		Labor-Leisure Choice
		Income and Substitution Effects
		Solved Problem 5.6
		Shape of the Labor Supply Curve
		APPLICATION Working After Winning the Lottery
		Income Tax Rates and Labor Supply
		CHALLENGE SOLUTION Per-Hour Versus Lump-Sum Childcare Subsidies
	Summary
	Questions
Chapter 6: Firms and Production
	CHALLENGE More Productive Workers During Downturns
	6.1 The Ownership and Management of Firms
		Private, Public, and Nonprofit Firms
		APPLICATION Chinese State-Owned Enterprises
		The Ownership of For-Profit Firms
		The Management of Firms
		What Owners Want
	6.2 Production
		Production Functions
		Varying Inputs over Time
	6.3 Short-Run Production
		Total Product
		Marginal Product of Labor
		Solved Problem 6.1
		Average Product of Labor
		Graphing the Product Curves
		Law of Diminishing Marginal Returns
		APPLICATION Malthus and the Green Revolution
	6.4 Long-Run Production
		Isoquants
		APPLICATION A Semiconductor Integrated Circuit Isoquant
		Substituting Inputs
		Solved Problem 6.2
	6.5 Returns to Scale
		Constant, Increasing, and Decreasing Returns to Scale
		Solved Problem 6.3
		APPLICATION Returns to Scale in Various ­Industries
		Varying Returns to Scale
	6.6 Productivity and Technical Change
		Relative Productivity
		Innovations
		APPLICATION Robots and the Food You Eat
		APPLICATION A Good Boss Raises Productivity
		CHALLENGE SOLUTION Labor Productivity During Downturns
	Summary
	Questions
Chapter 7: Costs
	CHALLENGE Technology Choice at Home Versus Abroad
	7.1 The Nature of Costs
		Opportunity Costs
		APPLICATION The Opportunity Cost of an MBA
		Solved Problem 7.1
		Opportunity Cost of Capital
		Sunk Costs
	7.2 Short-Run Costs
		Short-Run Cost Measures
		APPLICATION The Sharing Economy and the Short Run
		Short-Run Cost Curves
		Production Functions and the Shape of Cost Curves
		APPLICATION A Beer Manufacturer’s Short-Run Cost Curves
		Effects of Taxes on Costs
		Solved Problem 7.2
		Short-Run Cost Summary
	7.3 Long-Run Costs
		All Costs Are Avoidable in the Long Run
		Minimizing Cost
		Isocost Line
		Combining Cost and Production Information
		Solved Problem 7.3
		Factor Price Changes
		Solved Problem 7.4
		The Long-Run Expansion Path and the Long-Run Cost Function
		Solved Problem 7.5
		The Shape of Long-Run Cost Curves
		APPLICATION 3D Printing
		Estimating Cost Curves Versus Introspection
	7.4 Lower Costs in the Long Run
		Long-Run Average Cost as the Envelope of Short-Run Average Cost Curves
		APPLICATION A Beer Manufacturer’s Long-Run Cost Curves
		APPLICATION Should You Buy an Inkjet or a Laser Printer?
		Short-Run and Long-Run Expansion Paths
		The Learning Curve
	7.5 Cost of Producing Multiple Goods
		APPLICATION Medical Economies of Scope
		CHALLENGE SOLUTION Technology Choice at Home Versus Abroad
	Summary
	Questions
Chapter 8: Competitive Firms and Markets
	CHALLENGE The Rising Cost of Keeping On Truckin’
	8.1 Perfect Competition
		Price Taking
		Why the Firm’s Demand Curve Is Horizontal
		Deviations from Perfect Competition
		Derivation of a Competitive Firm’s Demand Curve
		Solved Problem 8.1
		Why We Study Perfect Competition
	8.2 Profit Maximization
		Profit
		Two Decisions for Maximizing Profit
	8.3 Competition in the Short Run
		Short-Run Output Decision
		Solved Problem 8.2
		Short-Run Shutdown Decision
		APPLICATION Fracking and Shutdowns
		Solved Problem 8.3
		Short-Run Firm Supply Curve
		Short-Run Market Supply Curve
		Short-Run Competitive Equilibrium
		Solved Problem 8.4
	8.4 Competition in the Long Run
		Long-Run Competitive Profit Maximization
		Long-Run Firm Supply Curve
		APPLICATION The Size of Ethanol Processing Plants
		Long-Run Market Supply Curve
		APPLICATION Entry and Exit of Solar Power Firms
		APPLICATION Upward-Sloping Long-Run Supply Curve for Cotton
		APPLICATION Reformulated Gasoline Supply Curves
		Solved Problem 8.5
		Long-Run Competitive Equilibrium
		CHALLENGE SOLUTION The Rising Cost of Keeping On Truckin’
	Summary
	Questions
Chapter 9: Applying the Competitive Model
	CHALLENGE Liquor Licenses
	9.1 Zero Profit for Competitive Firms in the Long Run
		Zero Long-Run Profit with Free Entry
		Zero Long-Run Profit When Entry Is Limited
		APPLICATION What’s a Name Worth?
		The Need to Maximize Profit
	9.2 Consumer Welfare
		Measuring Consumer Welfare Using a Demand Curve
		APPLICATION Willingness to Pay on eBay
		Effect of a Price Change on Consumer Surplus
		APPLICATION Goods with a Large Consumer ­Surplus Loss from Price Increases
		Solved Problem 9.1
	9.3 Producer Welfare
		Measuring Producer Surplus Using a Supply Curve
		Using Producer Surplus
		Solved Problem 9.2
	9.4 Competition Maximizes Welfare
		Solved Problem 9.3
		APPLICATION Deadweight Loss of Christmas ­Presents
	9.5 Policies That Shift Supply and Demand Curves
		Entry Barrier
		APPLICATION Welfare Effects of Allowing Fracking
	9.6 Policies That Create a Wedge Between Supply and Demand
		Welfare Effects of a Sales Tax
		APPLICATION The Deadweight Loss from Gas Taxes
		Solved Problem 9.4
		Welfare Effects of a Subsidy
		Solved Problem 9.5
		Welfare Effects of a Price Floor
		Solved Problem 9.6
		APPLICATION How Big Are Farm Subsidies and Who Gets Them?
		Welfare Effects of a Price Ceiling
		Solved Problem 9.7
		APPLICATION The Social Cost of a Natural Gas Price Ceiling
	9.7 Comparing Both Types of Policies: Imports
		Free Trade Versus a Ban on Imports
		APPLICATION Russian Food Ban
		Free Trade Versus a Tariff
		Free Trade Versus a Quota
		Rent Seeking
		CHALLENGE SOLUTION Liquor Licenses
	Summary
	Questions
Chapter 10: General Equilibrium and Economic Welfare
	CHALLENGE Anti-Price Gouging Laws
	10.1 General Equilibrium
		Feedback Between Competitive Markets
		Solved Problem 10.1
		Minimum Wages with Incomplete Coverage
		Solved Problem 10.2
		APPLICATION Urban Flight
	10.2 Trading Between Two People
		Endowments
		Mutually Beneficial Trades
		Solved Problem 10.3
		Bargaining Ability
	10.3 Competitive Exchange
		Competitive Equilibrium
		The Efficiency of Competition
		Obtaining Any Efficient Allocation Using Competition
	10.4 Production and Trading
		Comparative Advantage
		Solved Problem 10.4
		Efficient Product Mix
		Competition
	10.5 Efficiency and Equity
		Role of the Government
		APPLICATION The 1% Grow Wealthier
		Efficiency
		Equity
		APPLICATION How You Vote Matters
		Efficiency Versus Equity
		CHALLENGE SOLUTION Anti-Price Gouging Laws
	Summary
	Questions
Chapter 11: Monopoly
	CHALLENGE Brand-Name and Generic Drugs
	11.1 Monopoly Profit Maximization
		Marginal Revenue
		Solved Problem 11.1
		Choosing Price or Quantity
		Graphical Approach
		Mathematical Approach
		APPLICATION Apple’s iPad
		Solved Problem 11.2
		Effects of a Shift of the Demand Curve
	11.2 Market Power
		Market Power and the Shape of the Demand Curve
		APPLICATION Cable Cars and Profit Maximization
		Lerner Index
		Solved Problem 11.3
		Sources of Market Power
	11.3 Market Failure Due to Monopoly Pricing
		Solved Problem 11.4
	11.4 Causes of Monopoly
		Cost-Based Monopoly
		Solved Problem 11.5
		Government Creation of a Monopoly
		APPLICATION Botox Patent Monopoly
	11.5 Government Actions That Reduce Market Power
		Regulating Monopolies
		Solved Problem 11.6
		APPLICATION Natural Gas Regulation
		Increasing Competition
		APPLICATION Movie Studios Attacked by 3D Printers!
		Solved Problem 11.7
	11.6 Networks, Dynamics, and Behavioral Economics
		Network Externalities
		Network Externalities and Behavioral Economics
		Network Externalities as an Explanation for Monopolies
		APPLICATION eBay’s Critical Mass
		A Two-Period Monopoly Model
		CHALLENGE SOLUTION Brand-Name and Generic Drugs
	Summary
	Questions
Chapter 12: Pricing and Advertising
	CHALLENGE Sale Prices
	12.1 Conditions for Price Discrimination
		Why Price Discrimination Pays
		APPLICATION Disneyland Pricing
		Which Firms Can Price Discriminate
		Preventing Resale
		APPLICATION Preventing Resale of Designer Bags
		Not All Price Differences Are Price Discrimination
		Types of Price Discrimination
	12.2 Perfect Price Discrimination
		How a Firm Perfectly Price Discriminates
		Perfect Price Discrimination Is Efficient but Harms Some Consumers
		APPLICATION Botox and Price Discrimination
		Solved Problem 12.1
		APPLICATION Google Uses Bidding for Ads to Price Discriminate
		Transaction Costs and Perfect Price Discrimination
	12.3 Group Price Discrimination
		APPLICATION Warner Brothers Sets Prices for a Harry Potter DVD
		Solved Problem 12.2
		Prices and Elasticities
		Solved Problem 12.3
		Preventing Resale
		APPLICATION Reselling Textbooks
		Solved Problem 12.4
		Identifying Groups
		APPLICATION Buying Discounts
		Welfare Effects of Group Price Discrimination
	12.4 Nonlinear Price Discrimination
	12.5 Two-Part Pricing
		Two-Part Pricing with Identical Customers
		Two-Part Pricing with Nonidentical Consumers
		APPLICATION iTunes for a Song
	12.6 Tie-In Sales
		Requirement Tie-In Sale
		APPLICATION Ties That Bind
		Bundling
		Solved Problem 12.5
	12.7 Advertising
		The Decision Whether to Advertise
		How Much to Advertise
		APPLICATION Super Bowl Commercials
		CHALLENGE SOLUTION Sale Prices
	Summary
	Questions
Chapter 13: Oligopoly and Monopolistic Competition
	CHALLENGE Government Aircraft Subsidies
	13.1 Market Structures
	13.2 Cartels
		Why Cartels Form
		Why Cartels Fail
		Laws Against Cartels
		APPLICATION The Apple-Google-Intel-Adobe-Intuit-Lucasfilms-Pixar Wage Cartel
		Maintaining Cartels
		APPLICATION Cheating on the Maple Syrup Cartel
		Mergers
		APPLICATION Mergers to Monopolize
	13.3 Cournot Oligopoly
		The Duopoly Nash-Cournot Equilibrium
		Equilibrium, Elasticity, and the Number of Firms
		APPLICATION Mobile Number Portability
		Nonidentical Firms
		Solved Problem 13.1
		Solved Problem 13.2
	13.4 Stackelberg Oligopoly
		Graphical Model
		Solved Problem 13.3
		Why Moving Sequentially Is Essential
		Comparison of Competitive, Stackelberg, Cournot, and Collusive Equilibria
	13.5 Bertrand Oligopoly
		Identical Products
		Differentiated Products
		APPLICATION Bottled Water
	13.6 Monopolistic Competition
		APPLICATION Monopolistically Competitive Food Truck Market
		Equilibrium
		Solved Problem 13.4
		Fixed Costs and the Number of Firms
		Solved Problem 13.5
		APPLICATION Zoning Laws as a Barrier to Entry by Hotel Chains
		CHALLENGE SOLUTION Government Aircraft ­Subsidies
	Summary
	Questions
Chapter 14: Game Theory
	CHALLENGE Intel and AMD’s Advertising ­Strategies
	14.1 Static Games
		Normal-Form Games
		Failure to Maximize Joint Profits
		APPLICATION Strategic Advertising
		Multiple Equilibria
		Solved Problem 14.1
		Mixed Strategies
		APPLICATION Tough Love
		Solved Problem 14.2
	14.2 Repeated Dynamic Games
		Strategies and Actions in Dynamic Games
		Cooperation in a Repeated Prisoners’ Dilemma Game
		Solved Problem 14.3
	14.3 Sequential Dynamic Games
		Game Tree
		Subgame Perfect Nash Equilibrium
		Credibility
		Dynamic Entry Game
		Solved Problem 14.4
		APPLICATION Keeping Out Casinos
		Solved Problem 14.5
	14.4 Auctions
		Elements of Auctions
		Bidding Strategies in Private-Value Auctions
		Winner’s Curse
		APPLICATION Bidder’s Curse
	14.5 Behavioral Game Theory
		APPLICATION GM’s Ultimatum
		An Experiment
		Reciprocity
		CHALLENGE SOLUTION Intel and AMD’s Advertising Strategies
	Summary
	Questions
Chapter 15: Factor Markets
	CHALLENGE Athletes’ Salaries and Ticket Prices
	15.1 Competitive Factor Market
		Short-Run Factor Demand of a Firm
		Solved Problem 15.1
		Solved Problem 15.2
		Long-Run Factor Demand
		Factor Market Demand
		Competitive Factor Market Equilibrium
	15.2 Effects of Monopolies on Factor Markets
		Market Structure and Factor Demands
		A Model of Market Power in Input and Output Markets
		APPLICATION Unions and Profits
		Solved Problem 15.3
	15.3 Monopsony
		Monopsony Profit Maximization
		APPLICATION Monopsony and the Gender Wage Gap
		Welfare Effects of Monopsony
		Solved Problem 15.4
		CHALLENGE SOLUTION Athletes’ Salaries and Ticket Prices
	Summary
	Questions
Chapter 16: Interest Rates, Investments, and Capital Markets
	CHALLENGE Does Going to College Pay?
	16.1 Comparing Money Today to Money in the Future
		Interest Rates
		Using Interest Rates to Connect the Present and Future
		APPLICATION Power of Compounding
		Stream of Payments
		Solved Problem 16.1
		APPLICATION Saving for Retirement
		Inflation and Discounting
		APPLICATION Winning the Lottery
	16.2 Choices over Time
		Investing
		Solved Problem 16.2
		Solved Problem 16.3
		Rate of Return on Bonds
		Behavioral Economics: Time-Varying Discounting
		APPLICATION Falling Discount Rates and Self-Control
	16.3 Exhaustible Resources
		When to Sell an Exhaustible Resource
		Price of a Scarce Exhaustible Resource
		APPLICATION Redwood Trees
		Why Price May Be Constant or Fall
	16.4 Capital Markets, Interest Rates, and Investments
		Solved Problem 16.4
		CHALLENGE SOLUTION Does Going to College Pay?
	Summary
	Questions
Chapter 17 Uncertainty
	CHALLENGE BP and Limited Liability
	17.1 Assessing Risk
		Probability
		Expected Value
		Solved Problem 17.1
		Variance and Standard Deviation
	17.2 Attitudes Toward Risk
		Expected Utility
		Risk Aversion
		Solved Problem 17.2
		APPLICATION Stocks’ Risk Premium
		Risk Neutrality
		Risk Preference
		APPLICATION Gambling
	17.3 Reducing Risk
		Just Say No
		Obtain and Use Information
		Diversify
		APPLICATION Failure to Diversify
		Buy Insurance
		Solved Problem 17.3
		APPLICATION Flight Insurance
		APPLICATION Limited Insurance for Natural Disasters
	17.4 Investing Under Uncertainty
		Risk-Neutral Investing
		Risk-Averse Investing
		Solved Problem 17.4
	17.5 Behavioral Economics of Uncertainty
		Biased Assessment of Probabilities
		APPLICATION Biased Estimates
		Violations of Expected Utility Theory
		Prospect Theory
		APPLICATION Loss Aversion Contracts
		CHALLENGE SOLUTION BP and Limited Liability
	Summary
	Questions
Chapter 18: Externalities, Open-Access, and Public Goods
	CHALLENGE Trade and Pollution
	18.1 Externalities
		APPLICATION Negative Externalities from Spam
	18.2 The Inefficiency of Competition with Externalities
		APPLICATION Global Warming
	18.3 Regulating Externalities
		Emissions Standard
		Emissions Fee
		Solved Problem 18.1
		APPLICATION Why Tax Drivers
		Benefits Versus Costs from Controlling Pollution
		APPLICATION Protecting Babies
	18.4 Market Structure and Externalities
		Monopoly and Externalities
		Monopoly Versus Competitive Welfare with Externalities
		Solved Problem 18.2
		Taxing Externalities in Noncompetitive Markets
	18.5 Allocating Property Rights to Reduce Externalities
		Coase Theorem
		APPLICATION Buying a Town
		Markets for Pollution
		APPLICATION Acid Rain Cap-and-Trade Program
		Markets for Positive Externalities
	18.6 Rivalry and Exclusion
		Open-Access Common Property
		APPLICATION Road Congestion
		Club Goods
		APPLICATION Software Piracy
		Public Goods
		Solved Problem 18.3
		APPLICATION Free Riding on Measles Vaccinations
		APPLICATION What’s Their Beef?
		CHALLENGE SOLUTION Trade and Pollution
	Summary
	Questions
Chapter 19: Asymmetric Information
	CHALLENGE Dying to Work
	19.1 Adverse Selection
		Insurance Markets
		Products of Unknown Quality
		Solved Problem 19.1
		Solved Problem 19.2
	19.2 Reducing Adverse Selection
		Equalizing Information
		APPLICATION Discounts for Data
		APPLICATION Adverse Selection and ­Remanufactured Goods
		Restricting Opportunistic Behavior
	19.3 Price Discrimination Due to False Beliefs About Quality
		APPLICATION Reducing Consumers’ Information
	19.4 Market Power from Price Ignorance
		Tourist-Trap Model
		Solved Problem 19.3
		Advertising and Prices
	19.5 Problems Arising from Ignorance When Hiring
		Cheap Talk
		APPLICATION Cheap Talk in eBay’s Best Offer Market
		Education as a Signal
		Solved Problem 19.4
		Screening in Hiring
		CHALLENGE SOLUTION Dying to Work
	Summary
	Questions
Chapter 20: Contracts and Moral Hazards
	CHALLENGE Clawing Back Bonuses
	20.1 The Principal-Agent Problem
		Efficiency
		Symmetric Information
		Asymmetric Information
		Solved Problem 20.1
		APPLICATION Honest Cabbie?
	20.2 Using Contracts to Reduce Moral Hazard
		Fixed-Fee Contracts
		Contingent Contracts
		APPLICATION Health Insurance and Moral Hazard
		Solved Problem 20.2
		Solved Problem 20.3
		APPLICATION Sing for Your Supper
		Solved Problem 20.4
		Choosing the Best Contract
	20.3 Monitoring to Reduce Moral Hazard
		Bonding
		Solved Problem 20.5
		APPLICATION Capping Oil and Gas Bankruptcies
		Deferred Payments
		Efficiency Wages
		Monitoring Outcomes
	20.4 Checks on Principals
		APPLICATION Layoffs Versus Pay Cuts
	20.5 Contract Choice
		CHALLENGE SOLUTION Clawing Back Bonuses
	Summary
	Questions
Chapter Appendixes
	Appendix 2A: Regressions
	Appendix 3A: Effects of a Specific Tax on Equilibrium
	Appendix 4A: Utility and Indifference Curves
	Appendix 4B: Maximizing Utility
	Appendix 5A: The Slutsky Equation
	Appendix 5B: Labor-Leisure Model
	Appendix 6A: Properties of Marginal and Average Product Curves
	Appendix 6B: The Slope of an Isoquant
	Appendix 6C: Cobb-Douglas Production Function
	Appendix 7A: Minimum of the Average Cost Curve
	Appendix 7B: Japanese Beer Manufacturer’s Short-Run Cost Curves
	Appendix 7C: Minimizing Cost
	Appendix 8A: The Elasticity of the Residual Demand Curve
	Appendix 8B: Profit Maximization
	Appendix 9A: Demand Elasticities and Surplus
	Appendix 11A: Relationship Between a Linear Demand Curve and Its Marginal Revenue Curve
	Appendix 11B: Incidence of a Specific Tax on a Monopoly
	Appendix 12A: Perfect Price Discrimination
	Appendix 12B: Group Price Discrimination
	Appendix 12C: Block Pricing
	Appendix 12D: Two-Part Pricing
	Appendix 12E: Profit-Maximizing Advertising and Production
	Appendix 13A: Nash-Cournot Equilibrium
	Appendix 13B: Nash-Stackelberg Equilibrium
	Appendix 13C: Nash-Bertrand Equilibrium
	Appendix 15A: Factor Demands
	Appendix 15B: Monopsony
	Appendix 16A: The Present Value of Payments over Time
	Appendix 18A: Welfare Effects of Pollution in a Competitive Market
	Appendix 20A: Nonshirking Condition
Answers to Selected Questions and Problems
Sources for Challenges and Applications
References
Definitions
Index
Credits