Microeconomics / 3rd ed.

Preface p. xxiii
Part 1 Introduction: Markets and Prices p. 1
1 Preliminaries p. 3
1.1 The Themes of Microeconomics p. 4
1.2 What Is a Market? p. 7
1.3 Real versus Nominal Prices p. 11
1.4 Why Study Microeconomics? p. 15
Summary p. 17
Questions for Review p. 17
Exercises p. 18
2 The Basics of Supply and Demand p. 19
2.1 Supply and Demand p. 20
2.2 The Market Mechanism p. 23
2.3 Changes in Market Equilibrium p. 24
2.4 Elasticities of Supply and Demand p. 30
2.5 Short-Run versus Long-Run Elasticities p. 35
2.6 Understanding and Predicting the Effects of Changing Market Conditions p. 44
2.7 Effects of Government Intervention--Price Controls p. 53
Summary p. 55
Questions for Review p. 56
Exercises p. 57
Part 2 Producers, Consumers, and Competitive Markets p. 59
3 Consumer Behavior p. 61
3.1 Consumer Preferences p. 62
3.2 Budget Constraints p. 75
3.3 Consumer Choice p. 79
3.4 Revealed Preference p. 86
3.5 Marginal Utility and Consumer Choice p. 89
3.6 Cost-of-Living Indexes p. 92
Summary p. 98
Questions for Review p. 99
Exercises p. 99
4 Individual and Market Demand p. 101
4.1 Individual Demand p. 102
4.2 Income and Substitution Effects p. 110
4.3 Market Demand p. 116
4.4 Consumer Surplus p. 123
4.5 Network Externalities p. 127
4.6 Empirical Estimation of Demand p. 131
Summary p. 135
Questions for Review p. 136
Exercises p. 136
Appendix to Chapter 4: Demand Theory--A Mathematical Treatment p. 139
5 Choice Under Uncertainty p. 149
5.1 Describing Risk p. 150
5.2 Preferences Toward Risk p. 155
5.3 Reducing Risk p. 161
5.4 The Demand for Risky Assets p. 166
Summary p. 174
Questions for Review p. 175
Exercises p. 175
6 Production p. 177
6.1 The Technology of Production p. 178
6.2 Isoquants p. 179
6.3 Production with One Variable Input (Labor) p. 181
6.4 Production with Two Variable Inputs p. 191
6.5 Returns to Scale p. 197
Summary p. 201
Questions for Review p. 201
Exercises p. 202
7 The Cost of Production p. 203
7.1 Measuring Cost: Which Costs Matter? p. 203
7.2 Cost in the Short Run p. 208
7.3 Cost in the Long Run p. 215
7.4 Long-Run versus Short-Run Cost Curves p. 224
7.5 Production with Two Outputs--Economies of Scope p. 229
7.6 Dynamic Changes in Costs--The Learning Curve p. 232
7.7 Estimating and Predicting Cost p. 237
Summary p. 242
Questions for Review p. 243
Exercises p. 243
Appendix to Chapter 7: Production and Cost Theory--A Mathematical Treatment p. 246
8 Profit Maximization and Competitive Supply p. 251
8.1 Perfectly Competitive Markets p. 252
8.2 Profit Maximization p. 254
8.3 Marginal Revenue, Marginal Cost, and Profit Maximization p. 255
8.4 Choosing Output in the Short Run p. 258
8.5 The Competitive Firm's Short-Run Supply Curve p. 263
8.6 The Short-Run Market Supply Curve p. 266
8.7 Choosing Output in the Long Run p. 271
8.8 The Industry's Long-Run Supply Curve p. 277
Summary p. 283
Questions for Review p. 284
Exercises p. 284
9 The Analysis of Competitive Markets p. 287
9.1 Evaluating the Gains and Losses from Government Policies--Consumer and Producer Surplus p. 288
9.2 The Efficiency of a Competitive Market p. 294
9.3 Minimum Prices p. 298
9.4 Price Supports and Production Quotas p. 302
9.5 Import Quotas and Tariffs p. 309
9.6 The Impact of a Tax or Subsidy p. 313
Summary p. 320
Questions for Review p. 320
Exercises p. 321
Part 3 Market Structure and Competitive Strategy p. 325
10 Market Power: Monopoly and Monopsony p. 327
10.1 Monopoly p. 328
10.2 Monopoly Power p. 339
10.3 Sources of Monopoly Power p. 345
10.4 The Social Costs of Monopoly Power p. 347
10.5 Monopsony p. 352
10.6 Monopsony Power p. 355
10.7 Limiting Market Power: The Antitrust Laws p. 359
Summary p. 364
Questions for Review p. 365
Exercises p. 365
11 Pricing with Market Power p. 369
11.1 Capturing Consumer Surplus p. 370
11.2 Price Discrimination p. 371
11.3 Intertemporal Price Discrimination and Peak-Load Pricing p. 382
11.4 The Two-Part Tariff p. 385
11.5 Bundling p. 392
11.6 Advertising p. 403
Summary p. 407
Questions for Review p. 408
Exercises p. 408
Appendix to Chapter 11: Transfer Pricing in the Integrated Firm p. 413
12 Monopolistic Competition and Oligopoly p. 423
12.1 Monopolistic Competition p. 424
12.2 Oligopoly p. 429
12.3 Price Competition p. 437
12.4 Competition versus Collusion: The Prisoners' Dilemma p. 442
12.5 Implications of the Prisoners' Dilemma for Oligopolistic Pricing p. 445
12.6 Cartels p. 451
Summary p. 456
Questions for Review p. 457
Exercises p. 457
13 Game Theory and Competitive Strategy p. 461
13.1 Gaming and Strategic Decisions p. 461
13.2 Dominant Strategies p. 464
13.3 The Nash Equilibrium Revisited p. 466
13.4 Repeated Games p. 472
13.5 Sequential Games p. 476
13.6 Threats, Commitments, and Credibility p. 479
13.7 Entry Deterrence p. 483
13.8 Bargaining Strategy p. 489
13.9 Auctions p. 491
Summary p. 496
Questions for Review p. 497
Exercises p. 498
14 Markets for Factor Inputs p. 501
14.1 Competitive Factor Markets p. 501
14.2 Equilibrium in a Competitive Factor Market p. 514
14.3 Factor Markets with Monopsony Power p. 518
14.4 Factor Markets with Monopoly Power p. 523
Summary p. 529
Questions for Review p. 530
Exercises p. 530
15 Investment, Time, and Capital Markets p. 533
15.1 Stocks versus Flows p. 534
15.2 Present Discounted Value p. 534
15.3 The Value of a Bond p. 538
15.4 The Net Present Value Criterion for Capital Investment Decisions p. 542
15.5 Adjustments for Risk p. 545
15.6 Investment Decisions by Consumers p. 549
15.7 Intertemporal Production Decisions--Depletable Resources p. 551
15.8 How Are Interest Rates Determined? p. 555
Summary p. 558
Questions for Review p. 558
Exercises p. 559
Part 4 Information, Market Failure, and the Role of Government p. 561
16 General Equilibrium and Economic Efficiency p. 563
16.1 General Equilibrium Analysis p. 563
16.2 Efficiency in Exchange p. 567
16.3 Equity and Efficiency p. 575
16.4 Efficiency in Production p. 578
16.5 The Gains from Free Trade p. 585
16.6 An Overview--The Efficiency of Competitive Markets p. 590
16.7 Why Markets Fail p. 591
Summary p. 593
Questions for Review p. 594
Exercises p. 594
17 Markets with Asymmetric Information p. 595
17.1 Quality Uncertainty and the Market for Lemons p. 596
17.2 Market Signaling p. 601
17.3 Moral Hazard p. 606
17.4 The Principal-Agent Problem p. 609
17.5 Managerial Incentives in an Integrated Firm p. 613
17.6 Asymmetric Information in Labor Markets: Efficiency Wage Theory p. 616
Summary p. 619
Questions for Review p. 619
Exercises p. 619
18 Externalities and Public Goods p. 621
18.1 Externalities p. 621
18.2 Ways of Correcting Market Failure p. 625
18.3 Externalities and Property Rights p. 638
18.4 Common Property Resources p. 642
18.5 Public Goods p. 644
18.6 Private Preferences for Public Goods p. 649
Summary p. 651
Questions for Review p. 651
Exercises p. 652
Appendix The Basics of Regression p. 655
Glossary p. 663
Answers to Selected Exercises p. 675
Index p. 687
List of Examples
Example 1.1 Markets for Prescription Drugs p. 10
Example 1.2 The Price of Eggs and the Price of a College Education p. 12
Example 1.3 The Minimum Wage p. 13
Example 2.1 The Price of Eggs and the Price of a College Education Revisited p. 26
Example 2.2 Wage Inequality in the United States p. 27
Example 2.3 The Long-Run Behavior of Natural Resource Prices p. 28
Example 2.4 The Market for Wheat p. 33
Example 2.5 The Demand for Gasoline and Automobiles p. 39
Example 2.6 The Weather in Brazil and the Price of Coffee in New York p. 41
Example 2.7 Declining Demand and the Behavior of Copper Prices p. 47
Example 2.8 Upheaval in the World Oil Market p. 49
Example 2.9 Price Controls and Natural Gas Shortages p. 54
Example 3.1 Designing New Automobiles p. 71
Example 3.2 Designing New Automobiles (II) p. 81
Example 3.3 Decision Making and Public Policy p. 82
Example 3.4 A College Trust Fund p. 85
Example 3.5 Revealed Preference for Recreation p. 88
Example 3.6 Gasoline Rationing p. 91
Example 3.7 The Bias in the CPI p. 97
Example 4.1 Consumer Expenditures in the United States p. 108
Example 4.2 The Effects of a Gasoline Tax p. 114
Example 4.3 The Aggregate Demand for Wheat p. 120
Example 4.4 The Demand for Housing p. 122
Example 4.5 The Value of Clean Air p. 125
Example 4.6 Network Externalities and the Demands for Computers and E-Mail p. 130
Example 4.7 The Demand for Ready-to-Eat Cereal p. 134
Example 5.1 Deterring Crime p. 154
Example 5.2 Business Executives and the Choice of Risk p. 160
Example 5.3 The Value of Title Insurance When Buying a House p. 163
Example 5.4 The Value of Information in the Dairy Industry p. 165
Example 5.5 Investing in the Stock Market p. 173
Example 6.1 Malthus and the Food Crisis p. 187
Example 6.2 Labor Productivity and the Standard of Living p. 189
Example 6.3 A Production Function for Wheat p. 196
Example 6.4 Returns to Scale in the Carpet Industry p. 199
Example 7.1 Choosing the Location for a New Law School Building p. 205
Example 7.2 Sunk, Fixed, and Variable Costs: Computers, Software, and Pizzas p. 207
Example 7.3 The Short-Run Cost of Aluminum Smelting p. 213
Example 7.4 The Effect of Effluent Fees on Input Choices p. 220
Example 7.5 Economies of Scope in the Trucking Industry p. 232
Example 7.6 The Learning Curve in Practice p. 236
Example 7.7 Cost Functions for Electric Power p. 240
Example 7.8 A Cost Function for the Savings and Loan Industry p. 241
Example 8.1 The Short-Run Output Decision of an Aluminum Smelting Plant p. 260
Example 8.2 Some Cost Considerations for Managers p. 261
Example 8.3 The Short-Run Production of Petroleum Products p. 265
Example 8.4 The Short-Run World Supply of Copper p. 268
Example 8.5 The Long-Run Supply of Housing p. 282
Example 9.1 Price Controls and Natural Gas Shortages p. 292
Example 9.2 The Market for Human Kidneys p. 295
Example 9.3 Airline Regulation p. 300
Example 9.4 Supporting the Price of Wheat p. 306
Example 9.5 The Sugar Quota p. 312
Example 9.6 A Tax on Gasoline p. 318
Example 10.1 Astra-Merck Prices Prilosec p. 334
Example 10.2 Markup Pricing: Supermarkets to Designer Jeans p. 342
Example 10.3 The Pricing of Prerecorded Videocassettes p. 343
Example 10.4 Monopsony Power in U.S. Manufacturing p. 358
Example 10.5 A Phone Call About Prices p. 362
Example 10.6 The United States versus Microsoft p. 363
Example 11.1 The Economics of Coupons and Rebates p. 379
Example 11.2 Airline Fares p. 380
Example 11.3 How to Price a Best-Selling Novel p. 384
Example 11.4 Polaroid Cameras p. 389
Example 11.5 Pricing Cellular Phone Service p. 390
Example 11.6 The Complete Dinner versus a la Carte: A Restaurant's Pricing Problem p. 401
Example 11.7 Advertising in Practice p. 406
Example 12.1 Monopolistic Competition in the Markets for Colas and Coffee p. 428
Example 12.2 A Pricing Problem for Procter and Gamble p. 440
Example 12.3 Procter and Gamble in a Prisoners' Dilemma p. 444
Example 12.4 Price Leadership and Price Rigidity in Commercial Banking p. 448
Example 12.5 The Cartelization of Intercollegiate Athletics p. 455
Example 12.6 The Milk Cartel p. 456
Example 13.1 Acquiring a Company p. 463
Example 13.2 Oligopolistic Cooperation in the Water Meter Industry p. 474
Example 13.3 Competition and Collusion in the Airline Industry p. 475
Example 13.4 Wal-Mart Stores' Preemptive Investment Strategy p. 482
Example 13.5 DuPont Deters Entry in the Titanium Dioxide Industry p. 487
Example 13.6 Diaper Wars p. 488
Example 13.7 Internet Auctions p. 495
Example 14.1 The Demand for Jet Fuel p. 508
Example 14.2 Labor Supply for One- and Two-Earner Households p. 513
Example 14.3 Pay in the Military p. 517
Example 14.4 Monopsony Power in the Market for Baseball Players p. 520
Example 14.5 Teenage Labor Markets and the Minimum Wage p. 521
Example 14.6 The Decline of Private-Sector Unionism p. 527
Example 14.7 Wage Inequality--Have Computers Changed the Labor Market? p. 528
Example 15.1 The Value of Lost Earnings p. 537
Example 15.2 The Yields on Corporate Bonds p. 541
Example 15.3 Capital Investment in the Disposable Diaper Industry p. 548
Example 15.4 Choosing an Air Conditioner and a New Car p. 550
Example 15.5 How Depletable Are Depletable Resources? p. 554
Example 16.1 The Interdependence of International Markets p. 566
Example 16.2 The Effects of Automobile Import Quotas p. 588
Example 16.3 The Costs and Benefits of Special Protection p. 589
Example 17.1 Lemons in Major League Baseball p. 600
Example 17.2 Working into the Night p. 605
Example 17.3 Reducing Moral Hazard--Warranties of Animal Health p. 608
Example 17.4 Crisis in the Savings and Loan Industry p. 608
Example 17.5 Managers of Nonprofit Hospitals as Agents p. 611
Example 17.6 Efficiency Wages at Ford Motor Company p. 618
Example 18.1 The Costs and Benefits of Reduced Sulfur Dioxide Emissions p. 631
Example 18.2 Emissions Trading and Clean Air p. 632
Example 18.3 Regulating Municipal Solid Wastes p. 637
Example 18.4 The Coase Theorem at Work p. 641
Example 18.5 Crawfish Fishing in Louisiana p. 643
Example 18.6 The Demand for Clear Air p. 647
Example A.1 The Demand for Coal p. 661