Microeconomics Theory andApplications with Calculus 4th

Cover......Page 1
Title Page......Page 4
Copyright Page......Page 5
Brief Contents......Page 6
Contents......Page 7
Preface......Page 15
 1.1 Microeconomics: The Allocation of Scarce Resources......Page 24
  How Prices Determine Allocations......Page 25
  APPLICATION Income Threshold Model and China......Page 26
  Simplifications by Assumption......Page 27
  Maximizing Subject to Constraints......Page 28
  Positive Versus Normative......Page 29
 1.3 Uses of Microeconomic Models......Page 30
 Summary......Page 31
 CHALLENGE Quantities and Prices of Genetically Modified Foods......Page 32
 2.1 Demand......Page 33
  The Demand Function......Page 34
  Summing Demand Functions......Page 38
 2.2 Supply......Page 39
  The Supply Function......Page 40
  How Government Import Policies Affect Supply Curves......Page 42
 2.3 Market Equilibrium......Page 43
  Finding the Market Equilibrium......Page 44
  Forces That Drive a Market to Equilibrium......Page 45
 2.4 Shocking the Equilibrium: Comparative Statics......Page 46
  Comparative Statics with Discrete (Relatively Large) Changes......Page 47
  Comparative Statics with Small Changes......Page 48
  Solved Problem 2.1......Page 50
  Why the Shapes of Demand and Supply Curves Matter......Page 51
 2.5 Elasticities......Page 52
  Solved Problem 2.2......Page 53
  APPLICATION The Demand Elasticities for Google Play and Apple Apps......Page 54
  Solved Problem 2.3......Page 57
  Supply Elasticity......Page 58
  Long Run Versus Short Run......Page 60
  APPLICATION Oil Drilling in the Arctic National Wildlife Refuge......Page 61
  Solved Problem 2.5......Page 62
  Equilibrium Effects of a Specific Tax......Page 64
  Who Pays the Tax?......Page 66
  Solved Problem 2.6......Page 68
  The Similar Effects of Ad Valorem and Specific Taxes......Page 69
 2.7 Quantity Supplied Need Not Equal Quantity Demanded......Page 70
  Price Ceiling......Page 71
  APPLICATION Venezuelan Price Ceilings and Shortages......Page 73
  Price Floor......Page 74
 2.8 When to Use the Supply-and-Demand Model......Page 75
  CHALLENGE SOLUTION Quantities and Prices of Genetically Modified Foods......Page 76
 Summary......Page 77
 Exercises......Page 78
 CHALLENGE Why Americans Buy E-Books and Germans Do Not......Page 84
  Properties of Consumer Preferences......Page 86
  APPLICATION You Can’t Have Too Much Money......Page 87
  Preference Maps......Page 88
  Indifference Curves......Page 89
  Utility Function......Page 91
  Willingness to Substitute Between Goods......Page 94
  Solved Problem 3.2......Page 96
  Curvature of Indifference Curves......Page 97
  Solved Problem 3.3......Page 100
 3.3 Budget Constraint......Page 101
 3.4 Constrained Consumer Choice......Page 103
  Finding an Interior Solution Using Graphs......Page 104
  Finding an Interior Solution Using Calculus......Page 106
  Solved Problem 3.5......Page 108
  Solved Problem 3.6......Page 109
  APPLICATION Utility Maximization for Recorded Tracks and Live Music......Page 111
  Finding Corner Solutions......Page 112
  Minimizing Expenditure......Page 116
  Solved Problem 3.8......Page 117
 3.5 Behavioral Economics......Page 118
  Endowment Effect......Page 119
  Salience......Page 120
 Summary......Page 122
 Exercises......Page 123
 CHALLENGE Paying Employees to Relocate......Page 127
  System of Demand Functions......Page 128
  Graphical Interpretation......Page 130
  APPLICATION Smoking Versus Eating and Phoning......Page 132
  How Income Changes Shift Demand Curves......Page 133
  Solved Problem 4.1......Page 135
  Consumer Theory and Income Elasticities......Page 136
  Solved Problem 4.2......Page 137
  APPLICATION Fast-Food Engel Curve......Page 139
  Solved Problem 4.3......Page 141
  Income and Substitution Effects with a Normal Good......Page 142
  Solved Problem 4.4......Page 144
  Solved Problem 4.5......Page 145
  Solved Problem 4.6......Page 146
  Compensated Demand Curve......Page 147
  Slutsky Equation......Page 150
 4.4 Cost-of-Living Adjustment......Page 152
  Inflation Indexes......Page 153
  Effects of Inflation Adjustments......Page 154
 APPLICATION Reducing the CPI Substitution Bias......Page 157
  Recovering Preferences......Page 158
  Substitution Effect......Page 159
  CHALLENGE SOLUTION Paying Employees to Relocate......Page 160
 Summary......Page 161
 Exercises......Page 162
 CHALLENGE Per-Hour Versus Lump-Sum Childcare Subsidies......Page 165
 5.1 Uncompensated Consumer Welfare......Page 166
  An Individual’s Consumer Surplus......Page 167
  APPLICATION Willingness to Pay and Consumer Surplus on eBay......Page 169
  Solved Problem 5.1......Page 170
  Market Consumer Surplus......Page 171
  Indifference Curve Analysis......Page 172
  APPLICATION Compensating Variation and Equivalent Variation for the Internet......Page 174
  Compensated Demand Curves and Consumer Welfare......Page 175
  Comparing the Three Welfare Measures......Page 176
  Solved Problem 5.2......Page 178
  Quotas......Page 179
  Food Stamps......Page 181
  Labor-Leisure Choice......Page 183
  Solved Problem 5.3......Page 186
  Income and Substitution Effects......Page 187
  Solved Problem 5.4......Page 188
  Shape of the Labor Supply Curve......Page 189
  Income Tax Rates and the Labor Supply Curve......Page 190
  Solved Problem 5.5......Page 192
  CHALLENGE SOLUTION Per-Hour Versus Lump-Sum Childcare Subsidies......Page 194
 Summary......Page 195
 Exercises......Page 196
 CHALLENGE Labor Productivity During Downturns......Page 199
  Private, Public, and Nonprofit Firms......Page 200
  The Ownership of For-Profit Firms......Page 201
  What Owners Want......Page 202
  Time and the Variability of Inputs......Page 203
 6.3 Short-Run Production: One Variable and One Fixed Input......Page 204
  Solved Problem 6.1......Page 205
  Interpretation of Graphs......Page 206
  Solved Problem 6.2......Page 208
  APPLICATION Malthus and the Green Revolution......Page 209
  Isoquants......Page 211
  APPLICATION A Semiconductor Integrated Circuit Isoquant......Page 214
  Substituting Inputs......Page 215
  Diminishing Marginal Rates of Technical Substitution......Page 216
  The Elasticity of Substitution......Page 217
 6.5 Returns to Scale......Page 219
  Constant, Increasing, and Decreasing Returns to Scale......Page 220
  APPLICATION Returns to Scale in Various Industries......Page 221
  Varying Returns to Scale......Page 222
  Relative Productivity......Page 223
  Innovations......Page 224
  APPLICATION Tata Nano’s Technical and Organizational Innovations......Page 225
  CHALLENGE SOLUTION Labor Productivity During Downturns......Page 226
 Summary......Page 227
 Exercises......Page 228
 CHALLENGE Technology Choice at Home Versus Abroad......Page 232
 7.1 Measuring Costs......Page 233
  APPLICATION The Opportunity Cost of an MBA......Page 234
  Opportunity Cost of Capital......Page 235
  Sunk Costs......Page 236
  Short-Run Cost Measures......Page 237
  Solved Problem 7.2......Page 238
  Short-Run Cost Curves......Page 240
  Production Functions and the Shape of Cost Curves......Page 241
  APPLICATION Short-Run Cost Curves for a Japanese Beer Manufacturer......Page 243
  Short-Run Cost Summary......Page 244
 7.3 Long-Run Costs......Page 245
  Input Choice......Page 246
  Solved Problem 7.3......Page 249
  Solved Problem 7.4......Page 251
  How Long-Run Cost Varies with Output......Page 253
  Solved Problem 7.5......Page 254
  The Shape of Long-Run Cost Curves......Page 256
  APPLICATION 3D Printing......Page 257
  Long-Run Average Cost as the Envelope of Short-Run Average Cost Curves......Page 258
  APPLICATION Choosing an Inkjet or Laser Printer......Page 260
  How Learning by Doing Lowers Costs......Page 261
 7.5 Cost of Producing Multiple Goods......Page 263
  CHALLENGE SOLUTION Technology Choice at Home Versus Abroad......Page 265
 Summary......Page 266
 Exercises......Page 267
 CHALLENGE The Rising Cost of Keeping On Truckin’......Page 271
  Price Taking......Page 272
  Why a Firm’s Demand Curve Is Horizontal......Page 273
  Deviations from Perfect Competition......Page 274
  Derivation of a Competitive Firm’s Demand Curve......Page 275
 8.2 Profit Maximization......Page 277
  Profit......Page 278
  Two Steps to Maximizing Profit......Page 279
 8.3 Competition in the Short Run......Page 281
  Short-Run Competitive Profit Maximization......Page 282
  Solved Problem 8.2......Page 284
  APPLICATION Fracking and Shutdowns......Page 287
  Short-Run Firm Supply Curve......Page 288
  Solved Problem 8.3......Page 289
  Short-Run Market Supply Curve......Page 290
  Short-Run Competitive Equilibrium......Page 292
  Solved Problem 8.4......Page 293
  Long-Run Firm Supply Curve......Page 294
  APPLICATION The Size of Ethanol Processing Plants......Page 295
  Long-Run Market Supply Curve......Page 296
  APPLICATION Entry and Exit of Solar Power Firms......Page 297
  APPLICATION Upward-Sloping Long-Run Supply Curve for Cotton......Page 299
  APPLICATION Reformulated Gasoline Supply Curves......Page 303
  Solved Problem 8.5......Page 304
  Long-Run Competitive Equilibrium......Page 305
  CHALLENGE SOLUTION The Rising Cost of Keeping On Truckin’......Page 306
 Summary......Page 307
 Exercises......Page 308
 CHALLENGE Liquor Licenses......Page 312
  Zero Long-Run Profit with Free Entry......Page 313
  Zero Long-Run Profit When Entry Is Limited......Page 314
  Measuring Producer Surplus Using a Supply Curve......Page 316
  Solved Problem 9.1......Page 318
  Measuring Welfare......Page 319
  Why Producing Less Than the Competitive Output Lowers Welfare......Page 320
  Why Producing More Than the Competitive Output Lowers Welfare......Page 321
  APPLICATION The Deadweight Loss of Christmas Presents......Page 323
 9.4 Policies That Shift Supply Curves......Page 324
  APPLICATION Welfare Effects of Allowing Fracking......Page 325
  Welfare Effects of a Sales Tax......Page 326
  Welfare Effects of a Price Floor......Page 328
  Solved Problem 9.2......Page 330
  APPLICATION How Big Are Farm Subsidies and Who Gets Them?......Page 331
  Welfare Effects of a Price Ceiling......Page 332
  Solved Problem 9.3......Page 333
 9.6 Comparing Both Types of Policies: Trade......Page 334
  Free Trade Versus a Ban on Imports......Page 335
  Solved Problem 9.4......Page 336
  Free Trade Versus a Tariff......Page 337
  Solved Problem 9.5......Page 340
  Rent Seeking......Page 341
  CHALLENGE SOLUTION Liquor Licenses......Page 342
 Exercises......Page 344
 CHALLENGE Anti-Price Gouging Laws......Page 349
 10.1 General Equilibrium......Page 351
  Competitive Equilibrium in Two Interrelated Markets......Page 352
  APPLICATION Partial-Equilibrium Versus Multimarket-Equilibrium Analysis in Corn and Soybean Markets......Page 353
  Minimum Wages with Incomplete Coverage......Page 354
  Solved Problem 10.1......Page 356
  Endowments......Page 357
  Mutually Beneficial Trades......Page 359
  Deriving the Contract Curve......Page 361
 10.3 Competitive Exchange......Page 362
  Competitive Equilibrium......Page 363
  Obtaining Any Efficient Allocation Using Competition......Page 365
  Comparative Advantage......Page 366
  Solved Problem 10.5......Page 368
  Competition......Page 370
  Role of the Government......Page 372
  APPLICATION The Wealthy Get Wealthier......Page 373
  Efficiency......Page 375
  Equity......Page 376
  Efficiency Versus Equity......Page 379
  Theory of the Second Best......Page 380
  CHALLENGE SOLUTION Anti-Price Gouging Laws......Page 381
 Summary......Page 382
 Exercises......Page 383
 CHALLENGE Brand-Name and Generic Drugs......Page 386
 11.1 Monopoly Profit Maximization......Page 387
  Marginal Revenue and the Demand Curves......Page 388
  Marginal Revenue Curve and the Price Elasticity of Demand......Page 390
  An Example of Monopoly Profit Maximization......Page 391
  APPLICATION Apple’s iPad......Page 393
  Solved Problem 11.2......Page 394
  Choosing Price or Quantity......Page 395
  Effects of a Shift of the Demand Curve......Page 396
  APPLICATION Cable Cars and Profit Maximization......Page 397
  Market Power and the Shape of the Demand Curve......Page 398
  Solved Problem 11.3......Page 399
  Effect of Market Power on Welfare......Page 400
  Effects of a Specific Tax......Page 402
  Solved Problem 11.4......Page 403
  Welfare Effects of Ad Valorem Versus Specific Taxes......Page 405
  Cost Advantages......Page 406
  Government Actions That Create Monopolies......Page 408
  APPLICATION The Botox Patent Monopoly......Page 410
  Regulating Monopolies......Page 411
  Solved Problem 11.6......Page 413
  APPLICATION Natural Gas Regulation......Page 415
  APPLICATION Movie Studios Attacked by 3D Printers!......Page 416
 11.6 Networks, Dynamics, and Behavioral Economics......Page 417
  Network Externalities and Behavioral Economics......Page 418
  APPLICATION Critical Mass and eBay......Page 419
 11.7 Monopsony......Page 420
  Monopsony Profit Maximization......Page 421
  Welfare Effects of Monopsony......Page 423
  Solved Problem 11.8......Page 424
  CHALLENGE SOLUTION Brand-Name and Generic Drugs......Page 425
 Summary......Page 426
 Exercises......Page 427
 CHALLENGE Sale Price......Page 432
  Which Firms Can Price Discriminate......Page 434
  Preventing Resale......Page 435
  Not All Price Differences Are Price Discrimination......Page 436
  How a Firm Perfectly Price Discriminates......Page 437
  Solved Problem 12.1......Page 439
  Perfect Price Discrimination Is Efficient but Harms Some Consumers......Page 440
  APPLICATION Botox and Price Discrimination......Page 442
 12.3 Group Price Discrimination......Page 443
  APPLICATION Harry Potter Price Discrimination......Page 444
  Prices and Elasticities......Page 445
  APPLICATION Reselling Textbooks......Page 446
  Solved Problem 12.2......Page 447
  Identifying Groups......Page 448
  APPLICATION Buying Discounts......Page 449
  Welfare Effects of Group Price Discrimination......Page 450
 12.4 Nonlinear Price Discrimination......Page 451
 12.5 Two-Part Pricing......Page 453
  Two-Part Pricing with Identical Consumers......Page 454
  Two-Part Pricing with Differing Consumers......Page 455
 12.6 Tie-In Sales......Page 457
  Bundling......Page 458
 12.7 Advertising......Page 461
  Deciding Whether to Advertise......Page 462
  How Much to Advertise......Page 463
  Solved Problem 12.4......Page 464
  CHALLENGE SOLUTION Sale Price......Page 465
 Exercises......Page 467
 CHALLENGE Intel and AMD’s Advertising Strategies......Page 472
 13.1 Static Games......Page 474
  Normal-Form Games......Page 475
  Failure to Maximize Joint Profits......Page 478
  APPLICATION Strategic Advertising......Page 480
  Multiple Equilibria......Page 481
  Solved Problem 13.1......Page 482
  Mixed Strategies......Page 483
  APPLICATION Tough Love......Page 484
 13.2 Dynamic Games......Page 485
  Repeated Game......Page 486
  Sequential Game......Page 487
  APPLICATION Keeping Out Casinos......Page 493
  Elements of Auctions......Page 494
  Bidding Strategies in Private-Value Auctions......Page 495
  APPLICATION Bidder’s Curse......Page 497
  APPLICATION GM’s Ultimatum......Page 498
  CHALLENGE SOLUTION Intel and AMD’s Advertising Strategies......Page 499
 Summary......Page 500
 Exercises......Page 501
 CHALLENGE Government Aircraft Subsidies......Page 506
 14.1 Market Structures......Page 508
 14.2 Cartels......Page 509
  Why Cartels Form......Page 510
  Why Cartels Fail......Page 511
  Laws Against Cartels......Page 512
  APPLICATION The Apple-Google-Intel-Adobe-Intuit-Lucasfilms-Pixar Wage Cartel......Page 513
  Maintaining Cartels......Page 514
  APPLICATION Cheating on the Maple Syrup Cartel......Page 515
 14.3 Cournot Oligopoly Model......Page 516
  The Duopoly Nash-Cournot Equilibrium......Page 517
  The Cournot Model with Many Firms......Page 521
  APPLICATION Mobile Number Portability......Page 524
  Solved Problem 14.1......Page 525
  Solved Problem 14.2......Page 527
 14.4 Stackelberg Oligopoly Model......Page 528
  Calculus Solution......Page 529
  Why Moving Sequentially Is Essential......Page 530
  Strategic Trade Policy: An Application of the Stackelberg Model......Page 531
  Solved Problem 14.3......Page 534
  Comparison of Collusive, Nash-Cournot, Stackelberg, and Competitive Equilibria......Page 535
 14.5 Bertrand Oligopoly Model......Page 537
  Nash-Bertrand Equilibrium with Identical Products......Page 538
  Nash-Bertrand Equilibrium with Differentiated Products......Page 540
 14.6 Monopolistic Competition......Page 543
  Monopolistically Competitive Equilibrium......Page 544
  Fixed Costs and the Number of Firms......Page 545
  Solved Problem 14.4......Page 546
  CHALLENGE SOLUTION Government Aircraft Subsidies......Page 547
 Exercises......Page 549
 CHALLENGE Does Going to College Pay?......Page 555
  A Firm’s Short-Run Factor Demand Curve......Page 556
  Solved Problem 15.1......Page 559
  A Firm’s Long-Run Factor Demand Curves......Page 561
  Competitive Factor Markets......Page 563
  APPLICATION Black Death Raises Wages......Page 565
 15.2 Capital Markets and Investing......Page 566
  Interest Rates......Page 567
  Stream of Payments......Page 568
  APPLICATION Saving for Retirement......Page 569
  Investing......Page 570
  Solved Problem 15.3......Page 572
  APPLICATION Durability of Telephone Poles......Page 573
  Time-Varying Discounting......Page 574
  Capital Markets, Interest Rates, and Investments......Page 576
 15.3 Exhaustible Resources......Page 577
  Price of a Scarce Exhaustible Resource......Page 578
  APPLICATION Redwood Trees......Page 581
  Why Price Might Not Rise......Page 582
  CHALLENGE SOLUTION Does Going to College Pay?......Page 584
 Exercises......Page 586
 CHALLENGE BP and Limited Liability......Page 590
 16.1 Assessing Risk......Page 591
  Probability......Page 592
  Expected Value......Page 593
  Solved Problem 16.1......Page 594
  Variance and Standard Deviation......Page 595
  Expected Utility Theory......Page 596
  Risk Aversion......Page 597
  Solved Problem 16.3......Page 599
  Risk Preference......Page 600
  APPLICATION Gambling......Page 601
  Degree of Risk Aversion......Page 602
 16.3 Reducing Risk......Page 604
  Diversification......Page 605
  APPLICATION Failure to Diversify......Page 607
  Insurance......Page 608
  Solved Problem 16.5......Page 609
  APPLICATION Flight Insurance......Page 610
  APPLICATION Limited Insurance for Natural Disasters......Page 611
  How Investing Depends on Attitudes Toward Risk......Page 612
  Solved Problem 16.6......Page 614
  Biased Assessment of Probabilities......Page 615
  APPLICATION Biased Estimates......Page 616
  Violations of Expected Utility Theory......Page 617
  Prospect Theory......Page 618
  CHALLENGE SOLUTION BP and Limited Liability......Page 620
 Exercises......Page 622
 CHALLENGE Trade and Pollution......Page 626
 17.1 Externalities......Page 627
  Supply-and-Demand Analysis......Page 628
  Cost-Benefit Analysis......Page 631
  APPLICATION Spam: A Negative Externality......Page 632
 17.3 Regulating Externalities......Page 633
  Emissions Standard......Page 634
  Emissions Fee......Page 635
  Solved Problem 17.1......Page 636
  Benefits Versus Costs from Controlling Pollution......Page 637
  Emissions Fees Versus Standards Under Uncertainty......Page 638
 17.4 Market Structure and Externalities......Page 639
  Monopoly Versus Competitive Welfare with Externalities......Page 640
  Solved Problem 17.2......Page 641
  Coase Theorem......Page 642
  Markets for Pollution......Page 644
 17.6 Rivalry and Exclusion......Page 645
  Open-Access Common Property......Page 646
  APPLICATION Microsoft Word Piracy......Page 647
  Public Goods......Page 648
  Valuing Public Goods......Page 652
  CHALLENGE SOLUTION Trade and Pollution......Page 654
 Summary......Page 655
 Exercises......Page 656
 CHALLENGE Dying to Work......Page 660
  Insurance Markets......Page 662
  Products of Unknown Quality......Page 663
  Solved Problem 18.1......Page 665
  Solved Problem 18.2......Page 666
  Equalizing Information......Page 667
  APPLICATION Discounts for Data......Page 668
  APPLICATION Adverse Selection and Remanufactured Goods......Page 669
  Laws to Prevent Opportunism......Page 670
  Tourist-Trap Model......Page 671
  Advertising and Prices......Page 673
  Cheap Talk......Page 674
  Education as a Signal......Page 676
  Solved Problem 18.4......Page 677
  Screening in Hiring......Page 680
  CHALLENGE SOLUTION Dying to Work......Page 681
 Summary......Page 682
 Exercises......Page 683
 CHALLENGE Clawing Back Bonuses......Page 686
  A Model......Page 688
  Efficiency......Page 689
  Solved Problem 19.1......Page 690
  APPLICATION Honest Cabbie?......Page 691
  Efficient Contract......Page 692
  Full Information......Page 693
  Solved Problem 19.2......Page 696
  Asymmetric Information......Page 697
  APPLICATION Sing for Your Supper......Page 698
  Contracts and Efficiency......Page 699
  Solved Problem 19.3......Page 700
  Choosing the Best Contract......Page 701
  APPLICATION Health Insurance and Moral Hazard......Page 702
  Solved Problem 19.4......Page 703
  Bonding......Page 704
  Solved Problem 19.5......Page 705
  APPLICATION Capping Oil and Gas Bankruptcies......Page 706
  Efficiency Wages......Page 707
  After-the-Fact Monitoring......Page 708
 19.5 Contract Choice......Page 709
  APPLICATION Layoffs Versus Pay Cuts......Page 710
  CHALLENGE SOLUTION Clawing Back Bonuses......Page 712
 Summary......Page 713
 Exercises......Page 714
Answers to Selected Exercises......Page 718
Definitions......Page 739
References......Page 745
Sources for Challenges and Applications......Page 754
 A......Page 762
 C......Page 763
 D......Page 766
 E......Page 767
 G......Page 768
 I......Page 769
 L......Page 770
 M......Page 771
 N......Page 772
 P......Page 773
 S......Page 776
 T......Page 778
 U......Page 779
 Z......Page 780
Credits......Page 781