Intermediate Microeconomics : A Modern Approach

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ISBN: 9780393978308 | 0393978303
Cover: Hardcover
Copyright: 6/1/2002

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Unrivaled in its unique combination of analytical rigor and accessibility, Intermediate Microeconomics: A Modern Approach has garnered one of the broadest adoption lists in the market. Now appearing in its Sixth Edition, Professor Varian?s hallmark text is better than ever, featuring new treatments of game theory and competitive strategy, and a variety of new illustrative examples. Modern, authoritative, and above all crafted by an outstanding teacher and scholar, Intermediate Microeconomics, Sixth Edition will expand your students? analytic powers and strengthen their understanding of microeconomics.

Preface

xix

The Market

Constructing a Model

(2)

Optimization and Equilibrium

(1)

The Demand Curve

(2)

The Supply Curve

(2)

Market Equilibrium

(2)

Comparative Statics

(2)

Other Ways to Allocate Apartments

(3)

The Discriminating Monopolist

The Ordinary Monopolist

Rent Control

Which Way Is Best?

(1)

Pareto Efficiency

(1)

Comparing Ways to Allocate Apartments

(1)

Equilibrium in the Long Run

(1)

Summary

(1)

Review Questions

(1)

Budget Constraint

The Budget Constraint

(1)

Two Goods Are Often Enough

(1)

Properties of the Budget Set

(2)

How the Budget Line Changes

(2)

The Numeraire

(1)

Taxes, Subsidies, and Rationing

(5)

Example: The Food Stamp Program Budget Line Changes

(1)

Summary

(1)

Review Questions

(2)

Preferences

Consumer Preferences

(1)

Assumptions about Preferences

(1)

Indifference Curves

(1)

Examples of Preferences

(7)

Perfect Substitutes

Perfect Complements

Bads

Neutrals

Satiation

Discrete Goods

Well-Behaved Preferences

(4)

The Marginal Rate of Substitution

(2)

Other Interpretations of the MRS

(1)

Behavior of the MRS

(1)

Summary

(1)

Review Questions

(5)

Utility

Cardinal Utility

(1)

Constructing a Utility Function

(1)

Some Examples of Utility Functions

(6)

Example: Indifference Curves from Utility

Perfect Substitutes

Perfect Complements

Quasilinear Preferences

Cobb-Douglas Preferences

Marginal Utility

(1)

Marginal Utility and MRS

(1)

Utility for Commuting

(2)

Summary

(1)

Review Questions

(1)

Appendix

(3)

Example: Cobb-Douglas Preferences

Choice

Optimal Choice

(5)

Consumer Demand

(1)

Some Examples

(5)

Perfect Substitutes

Perfect Complements

Neutrals and Bads

Discrete Goods

Concave Preferences

Cobb-Douglas Preferences

Estimating Utility Functions

(2)

Implications of the MRS Condition

(2)

Choosing Taxes

(2)

Summary

(1)

Review Questions

(1)

Appendix

(6)

Example: Cobb-Douglas Demand Functions

Demand

Normal and Inferior Goods

(1)

Income Offer Curves and Engel Curves

(2)

Some Examples

(5)

Perfect Substitutes

Perfect Complements

Cobb-Douglas Preferences

Homothetic Preferences

Quasilinear Preferences

Ordinary Goods and Giffen Goods

104

(2)

The Price Offer Curve and the Demand Curve

106

(1)

Some Examples

107

(4)

Perfect Substitutes

Perfect Complements

A Discrete Good

Substitutes and Complements

111

(1)

The Inverse Demand Function

112

(2)

Summary

114

(1)

Review Questions

115

(1)

Appendix

115

(4)

Revealed Preference

The Idea of Revealed Preference

119

(1)

From Revealed Preference to Preference

120

(2)

Recovering Preferences

122

(2)

The Weak Axiom of Revealed Preference

124

(1)

Checking WARP

125

(3)

The Strong Axiom of Revealed Preference

128

(1)

How to Check SARP

129

(1)

Index Numbers

130

(2)

Price Indices

132

(3)

Example: Indexing Social Security Payments

Summary

135

(1)

Review Questions

135

(2)

Slutsky Equation

The Substitution Effect

137

(4)

Example: Calculating the Substitution Effect

The Income Effect

141

(1)

Example: Calculating the Income Effect

Sign of the Substitution Effect

142

(1)

The Total Change in Demand

143

(1)

Rates of Change

144

(3)

The Law of Demand

147

(1)

Examples of Income and Substitution Effects

147

(6)

Example: Rebating a Tax

Example: Voluntary Real Time Pricing

Another Substitution Effect

153

(2)

Compensated Demand Curves

155

(1)

Summary

156

(1)

Review Questions

157

(1)

Appendix

157

(3)

Example: Rebating a Small Tax

Buying and Selling

Net and Gross Demands

160

(1)

The Budget Constraint

161

(2)

Changing the Endowment

163

(1)

Price Changes

164

(3)

Offer Curves and Demand Curves

167

(1)

The Slutsky Equation Revisited

168

(4)

Use of the Slutsky Equation

172

(1)

Example: Calculating the Endowment Income Effect

Labor Supply

173

(1)

The Budget Constraint Comparative Statics of Labor Supply

174

(4)

Example: Overtime and the Supply of Labor

Summary

178

(1)

Review Questions

179

(1)

Appendix

179

(3)

Intertemporal Choice

The Budget Constraint

182

(3)

Preferences for Consumption

185

(1)

Comparative Statics

186

(1)

The Slutsky Equation and Intertemporal Choice

187

(2)

Inflation

189

(2)

Present Value: A Closer Look

191

(2)

Analyzing Present Value for Several Periods

193

(1)

Use of Present Value

194

(3)

Example: Valuing a Stream of Payments

Example: The True Cost of a Credit Card

Bonds

197

(2)

Example: Installment Loans

Taxes

199

(1)

Example: Scholarships and Savings

Choice of the Interest Rate

200

(1)

Summary

201

(1)

Review Questions

201

(1)

Asset Markets

Rates of Return

202

(2)

Arbitrage and Present Value

204

(1)

Adjustments for Differences among Assets

204

(1)

Assets with Consumption Returns

205

(1)

Taxation of Asset Returns

206

(1)

Applications

207

(4)

Depletable Resources

When to Cut a Forest

Example: Gasoline Prices during the Gulf War

Financial Institutions

211

(1)

Summary

212

(1)

Review Questions

213

(1)

Appendix

213

(2)

Uncertainty

Contingent Consumption

215

(5)

Example: Catastrophe Bonds

Utility Functions and Probabilities

220

(1)

Example: Some Examples of Utility Functions

Expected Utility

221

(1)

Why Expected Utility Is Reasonable

222

(2)

Risk Aversion

224

(4)

Example: The Demand for Insurance

Diversification

228

(1)

Risk Spreading

228

(1)

Role of the Stock Market

229

(1)

Summary

230

(1)

Review Questions

230

(1)

Appendix

231

(3)

Example: The Effect of Taxation on Investment in Risky Assets

Risky Assets

Mean-Variance Utility

234

(5)

Measuring Risk

239

(2)

Equilibrium in a Market for Risky Assets

241

(1)

How Returns Adjust

242

(4)

Example: Ranking Mutual Funds

Summary

246

(1)

Review Questions

246

(2)

Consumer's Surplus

Demand for a Discrete Good

248

(1)

Constructing Utility from Demand

249

(1)

Other Interpretations of Consumer's Surplus

250

(1)

From Consumer's Surplus to Consumers' Surplus

251

(1)

Approximating a Continuous Demand

251

(1)

Quasilinear Utility

251

(1)

Interpreting the Change in Consumer's Surplus

252

(2)

Example: The Change in Consumer's Surplus

Compensating and Equivalent Variation

254

(4)

Example: Compensating and Equivalent Variations

Example: Compensating and Equivalent Variation for Quasilinear Preferences

Producer's Surplus

258

(2)

Benefit, Cost Analysis

260

(2)

Rationing Calculating Gains and Losses

262

(1)

Summary

263

(1)

Review Questions

263

(1)

Appendix

264

(2)

Example: A Few Demand Functions

Example: CV, EV, and Consumer's Surplus

Market Demand

From Individual to Market Demand

266

(2)

The Inverse Demand Function

268

(1)

Example: Adding Up ``Linear'' Demand Curves

Discrete Goods

269

(1)

The Extensive and the Intensive Margin

269

(1)

Elasticity

270

(2)

Example: The Elasticity of a Linear Demand Curve

Elasticity and Demand

272

(1)

Elasticity and Revenue

273

(3)

Example: Strikes and Profits

Constant Elasticity Demands

276

(1)

Elasticity and Marginal Revenue

277

(2)

Example: Setting a Price Marginal Revenue Curves

279

(1)

Income Elasticity

280

(1)

Summary

281

(1)

Review Questions

282

(1)

Appendix

283

(6)

Example: The Laffer Curve

Example: Another Expression for Elasticity

Equilibrium

Supply

289

(1)

Market Equilibrium

289

(1)

Two Special Cases

290

(1)

Inverse Demand and Supply Curves

291

(2)

Example: Equlibrium with Linear Curves

Comparative Statics

293

(1)

Example: Shifting Both Curves

Taxes

294

(4)

Example: Taxation with Linear Demand and Supply

Passing Along a Tax

298

(2)

The Deadweight Loss of a Tax

300

(6)

Example: The Market for Loans

Example: Food Subsidies

Pareto Efficiency

306

(2)

Example: Waiting in Line

Summary

308

(1)

Review Questions

309

(2)

Auctions

Classification of Auctions

311

(1)

Bidding Rules

Auction Design

312

(3)

Other Auction Forms

315

(1)

Problems with Auctions

316

(1)

The Winner's Curse

317

(1)

Summary

318

(1)

Review Questions

318

(1)

Technology

Inputs and Outputs

319

(1)

Describing Technological Constraints

320

(1)

Example of Technology

321

(2)

Fixed Proportions

Perfect Substitutes

Cobb-Douglas

Properties of Technology

323

(2)

The Marginal Product

325

(1)

The Technical Rate of Substitution

325

(1)

Diminishing Marginal Product

326

(1)

Diminishing Technical Rate of Substitution

326

(1)

The Long Run and the Short Run

327

(1)

Returns to Scale

327

(2)

Summary

329

(1)

Review Questions

330

(1)

Profit Maximization

Profits

331

(2)

The Organization of Firms

333

(1)

Profits and Stock Market Value

333

(2)

Fixed and Variable Factors

335

(1)

Short-Run Profit Maximization

335

(2)

Comparative Statics

337

(1)

Profit Maximization in the Long Run

338

(1)

Inverse Factor Demand Curves

339

(1)

Profit Maximization and Returns to Scale

340

(1)

Revealed Profitability

341

(4)

Example: How Do Farmers React to Price Supports?

Cost Minimization

345

(1)

Summary

345

(1)

Review Questions

346

(1)

Appendix

347

(2)

Cost Minimization

349

(4)

Example: Minimizing Costs for Specific Technologies

Revealed Cost Minimization

353

(1)

Returns to Scale and the Cost Function

354

(2)

Long-Run and Short-Run Costs

356

(2)

Fixed and Quasi-Fixed Costs

358

(1)

Sunk Costs

358

(1)

Summary

359

(1)

Review Questions

359

(1)

Appendix

360

(3)

Cost Curves

Average Costs

363

(2)

Marginal Costs

365

(2)

Marginal Costs and Variable Costs

367

(4)

Example: Specific Cost Curves

Example: Marginal Cost Curves for Two Plants

Long-Run Costs

371

(2)

Discrete Levels of Plant Size

373

(2)

Long-Run Marginal Costs

375

(1)

Summary

376

(1)

Review Questions

377

(1)

Appendix

377

(2)

Firm Supply

Market Environments

379

(1)

Pure Competition

380

(2)

The Supply Decision of a Competitive Firm

382

(2)

An Exception

384

(1)

Another Exception

385

(2)

Example: Pricing Operating Systems

The Inverse Supply Function

387

(1)

Profits and Producer's Surplus

387

(4)

Example: The Supply Curve for a Specific Cost Function The

Long-Run Supply Curve of a Firm

391

(2)

Long-Run Constant Average Costs

393

(1)

Summary

394

(1)

Review Questions

395

(1)

Appendix

395

(2)

Industry Supply

Short-Run Industry Supply

397

(1)

Industry Equilibrium in the Short Run

398

(1)

Industry Equilibrium in the Long Run

399

(2)

The Long-Run Supply Curve

401

(4)

Example: Taxation in the Long Run and in the Short Run

The Meaning of Zero Profits

405

(1)

Fixed Factors and Economic Rent

406

(2)

Example: Tax Licenses in New York City

Economic Rent

408

(2)

Rental Rates and Prices

410

(1)

Example: Liquor Licenses

The Politics of Rent

411

(2)

Example: Farming the Government

Energy Policy

413

(4)

Two-Tiered Oil Pricing

Price Controls

The Entitlement Program

Summary

417

(1)

Review Questions

418

(2)

Monopoly

Maximizing Profits

420

(1)

Linear Demand Curve and Monopoly

421

(2)

Markup Pricing

423

(2)

Example: The Impact of Taxes on Monopolist

Inefficiency of Monopoly

425

(2)

Deadweight Loss of Monopoly

427

(3)

Example: The Optimal Life of a Patent

Natural Monopoly

430

(2)

What Causes Monopolies?

432

(3)

Example: Diamonds Are Forever

Example: Pooling in Auction Markets

Summary

435

(1)

Review Questions

436

(1)

Appendix

437

(2)

Monopoly Behavior

Price Discrimination

439

(1)

First-Degree Price Discrimination

439

(2)

Second-Degree Price Discrimination

441

(4)

Example: Price Discrimination in Airfares

Third-Degree Price Discrimination

445

(4)

Example: Linear Demand Curves

Example: Calculating Optional Price Discrimination

Example: Price Discrimination in Academic Journals

Bundling

449

(2)

Example: Software Suites

Two-Part Tariffs

451

(2)

Monopolistic Competition

453

(3)

A Location Model of Product Differentiation

456

(2)

Product Differentiation

458

(1)

More Vendors

458

(1)

Summary

459

(1)

Review Questions

460

(1)

Factor Markets

Monopoly in the Output Market

461

(3)

Monopsony

464

(4)

Example: The Minimum Wage

Upstream and Downstream Monopolies

468

(2)

Summary

470

(1)

Review Questions

471

(1)

Appendix

471

(3)

Oligopoly

Choosing a Strategy

474

(1)

Quantity Leadership

474

(6)

The Followers Problem

The Leader's Problem

Price Leadership

480

(2)

Comparing Price Leadership and Quantity Leadership

482

(1)

Simultaneous Quantify Setting

482

(2)

An Example of Cournot Equilibrium

484

(2)

Adjustment to Equilibrium

486

(1)

Many Firms in Cournot Equilibrium

486

(1)

Simultaneous Price Setting

487

(1)

Collusion

488

(3)

Punishment Strategies

491

(3)

Example: Price Matching and Competition

Example: Voluntary Export Restraints

Comparison of the Solutions

494

(1)

Summary

495

(1)

Review Questions

496

(1)

Game Theory

The Payoff Matrix of a Game

497

(2)

Nash Equilibrium

499

(1)

Mixed Strategies

500

(1)

The Prisoner's Dilemma

501

(2)

Repeated Games

503

(2)

Enforcing a Cartel

505

(1)

Example: Tit for Tat in Airline Pricing

Sequential Games

506

(3)

A Game of Entry Deterrence

509

(1)

Summary

510

(1)

Review Questions

511

(1)

Game Applications

Best Response Curves

512

(2)

Mixed Strategies

514

(2)

Games of Coordination

516

(4)

Battle of the Sexes

Prisoner's Dilemma

Assurance Games

Chicken

How to Coordinate

Games of Competition

520

(5)

Games of Coexistence

525

(2)

Games of Commitment

527

(8)

The Frog and the Scorpion

The Kindly Kidnapper

When Strength Is Weakness

Savings and Social Security

Hold Up

Bargaining

535

(3)

The Ultimatum Game

Summary

538

(1)

Review Questions

539

(2)

Exchange

The Edgeworth Box

541

(2)

Trade

543

(1)

Pareto Efficient Allocations

544

(2)

Market Trade

546

(2)

The Algebra of Equilibrium

548

(2)

Walras' Law

550

(3)

551

Example: An Algebraic Example of Equilibrium

The Existence of Equilibrium

553

(1)

Equilibrium and Efficiency

554

(1)

The Algebra of Efficiency

555

(3)

Example: Monopoly in the Edgeworth Box

Efficiency and Equilibrium

558

(2)

Implications of the First Welfare Theorem

560

(2)

Implications of the Second Welfare Theorem

562

(2)

Summary

564

(1)

Review Questions

565

(1)

Appendix

565

(2)

Production

The Robinson Crusoe Economy

567

(2)

Crusoe, Inc

569

(1)

The Firm

570

(1)

Robinson's Problem

571

(1)

Putting Them Together

571

(2)

Different Technologies

573

(2)

Production and the First Welfare Theorem

575

(1)

Production and the Second Welfare Theorem

576

(1)

Production Possibilities

576

(2)

Comparative Advantage

578

(2)

Pareto Efficiency

580

(2)

Castaways, Inc.

582

(2)

Robinson and Friday as Consumers

584

(1)

Decentralized Resource Allocation

585

(1)

Summary

586

(1)

Review Questions

586

(1)

Appendix

587

(3)

Welfare

Aggregation of Preferences

590

(2)

Social Welfare Functions

592

(2)

Welfare Maximization

594

(2)

Individualistic Social Welfare Functions

596

(1)

Fair Allocations

597

(1)

Envy and Equity

598

(2)

Summary

600

(1)

Review Questions

600

(1)

Appendix

601

(2)

Externalities

Smokers and Nonsmokers

603

(3)

Quasilinear Preferences and the Coase Theorem

606

(2)

Production Externalities

608

(5)

Example: Pollution Vouchers

Interpretation of the Conditions

613

(3)

Market Signals

616

(1)

The Tragedy of the Commons

616

(4)

Example: Overfishing

Automobile Pollution

620

(1)

Summary

621

(1)

Review Questions

622

(2)

Information Technology

Systems Competition

624

(1)

Problem of Complements

624

(4)

Relationships among Complementors

Lock-In

628

(3)

A Model of Competition with Switching Costs

Network Externalities

631

(1)

Markets with Network Externalities

631

(2)

Market Dynamics

633

(4)

Example: Network Externalities in Computer Software

Implications of Network Externalities

637

(1)

Rights Management

637

(2)

Ex ample: Video Rental

Sharing Intellectual property

639

(2)

Summary

641

(1)

Review Questions

642

(2)

Public Goods

When to Provide a Public Good?

644

(4)

Private Provision of the Public Good

648

(1)

Free Riding

648

(2)

Different Levels of the Public Good

650

(2)

Quasilinear Preferences and Public Goods

652

(2)

Example: Pollution Revisited

The Free Rider Problem

654

(2)

Comparison to Private Goods

656

(1)

Voting

657

(3)

Example: Agenda Manipulation

Demand Revelation

660

(4)

Example: An Example of the Clarke Tax

Problems with the Clarke Tax

664

(1)

Summary

665

(1)

Review Questions

665

(1)

Appendix

666

(2)

Asymmetric Information

The Market for Lemons

668

(1)

Quality Choice

669

(2)

Choosing the Quality

Adverse Selection

671

(2)

Moral Hazard

673

(1)

Moral Hazard and Adverse Selection

674

(1)

Signaling

675

(4)

Example: The Sheepskin Effect

Incentives

679

(5)

Example: Voting Rights in the Corporation

Example: Chinese Economic Reforms

Asymmetric Information

684

(3)

Example: Monitoring Costs

Example: The Grameen Bank

Summary

687

(1)

Review Questions

688

Mathematical Appendix

Functions

(1)

Graphs

(1)

Properties of Functions

(1)

Inverse Functions

(1)

Equations and Identities

(1)

Linear Functions

(1)

Changes and Rates of Change

(1)

Slopes and Intercepts

(1)

Absolute Values and Logarithms

(1)

Derivatives

(1)

Second Derivatives

(1)

The Product Rule and the Chain Rule

(1)

Partial Derivatives

(1)

Optimization

(1)

Constrained Optimization

(1)

Answers

(30)

Index

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Intermediate Microeconomics : A Modern Approach

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Intermediate Microeconomics : A Modern Approach

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