Microeconomic: Theory and Applications, 11th Edition

Acknowledgments  x

Chapter 1: An Introduction to Microeconomics 1

1.1 The Scope of Microeconomic Theory  2

1.2 The Nature and Role of Theory  2

1.3 Positive versus Normative Analysis  4

1.4 Market Analysis and Real versus Nominal Prices  5

1.5 Basic Assumptions about Market Participants  6

1.6 Opportunity Cost  6

1.7 Production Possibility Frontier  10

Chapter 2: Supply and Demand 15

2.1 Demand and Supply Curves  16

2.2 Determination of Equilibrium Price and Quantity  23

2.3 Adjustment to Changes in Demand or Supply  25

2.4 Government Intervention in Markets: Price Controls  28

2.5 Elasticities  33

2.6 The Mathematics Associated with Elasticities  42

Chapter 3: The Theory of Consumer Choice 48

3.1 Consumer Preferences  50

3.2 The Budget Constraint  59

3.3 The Consumer’s Choice  63

3.4 Changes in Income and Consumption Choices  68

3.5 Are People Selfish?  74

3.6 The Utility Approach to Consumer Choice  77

Chapter 4: Individual and Market Demand 85

4.1 Price Changes and Consumption Choices  86

4.2 Income and Substitution Effects of a Price Change  91

4.3 Income and Substitution Effects: Inferior Goods 96

4.4 From Individual to Market Demand  99

4.5 Consumer Surplus  101

4.6 Price Elasticity and the Price–Consumption Curve 107

4.7 Network Effects  109

4.8 The Basics of Demand Estimation  113

4.9 Deriving the Consumer’s Demand Curve Mathematically  117

Chapter 5: Using Consumer Choice Theory 122

5.1 Excise Subsidies, Health Care, and Consumer Welfare  123

5.2 Subsidizing Health Insurance: ObamaCare  128

5.3 Public Schools and the Voucher Proposal  133

5.4 Paying for Garbage  137

5.5 The Consumer’s Choice to Save or Borrow  141

5.6 Investor Choice  147

Chapter 6: Exchange, Efficiency, and Prices 158

6.1 Two-Person Exchange  159

6.2 Efficiency in the Distribution of Goods  165

6.3 Competitive Equilibrium and Efficient Distribution  169

6.4 Price and Nonprice Rationing and Efficiency  173

*6.5 Some of the Mathematics behind Efficiency in Exchange  176

Chapter 7: Production 180

7.1 Relating Output to Inputs  181

7.2 Production When Only One Input Is Variable: The Short Run  182

7.3 Production When All Inputs Are Variable: The Long Run  189

7.4 Returns to Scale  194

7.5 Functional Forms and Empirical Estimation of Production Functions  197

*7.6 The Mathematics behind Production Theory  201

Chapter 8: The Cost of Production 207

8.1 The Nature of Cost  208

8.2 Short-Run Cost of Production  209

8.3 Short-Run Cost Curves  213

8.4 Long-Run Cost of Production  218

8.5 Input Price Changes and Cost Curves  224

8.6 Long-Run Cost Curves  227

8.7 Learning by Doing  230

8.8 Importance of Cost Curves to Market Structure  232

8.9 Using Cost Curves: Controlling Pollution  234

8.10 Economies of Scope  237

8.11 Estimating Cost Functions  238

*8.12 The Mathematics behind Production Cost  240

Chapter 9: Profit Maximization in Perfectly Competitive Markets 245

9.1 The Assumptions of Perfect Competition  246

9.2 Profit Maximization  248

9.3 The Demand Curve for a Competitive Firm  250

9.4 Short-Run Profit Maximization  252

9.5 The Perfectly Competitive Firm’s Short-Run Supply Curve  257

9.6 The Short-Run Industry Supply Curve  260

9.7 Long-Run Competitive Equilibrium  262

9.8 The Long-Run Industry Supply Curve  266

9.9 When Does the Competitive Model Apply? 274

*9.10 The Mathematics behind Perfect Competition  276

Chapter 10: Using the Competitive Model 280

10.1 The Evaluation of Gains and Losses  281

10.2 Excise Taxation  287

10.3 Airline Regulation and Deregulation  296

10.4 City Taxicab Markets  301

10.5 Consumer and Producer Surplus, and the Net Gains from Trade  304

10.6 Government Intervention in Markets: Quantity Controls 310

Chapter 11: Monopoly 316

11.1 The Monopolist’s Demand and Marginal Revenue Curves  317

11.2 Profit-Maximizing Output of a Monopoly  319

11.3 Further Implications of Monopoly Analysis  325

11.4 The Measurement and Sources of Monopoly Power  329

11.5 The Efficiency Effects of Monopoly  335

11.6 Public Policy toward Monopoly 339

*11.7 The Math behind Monopoly  343

Chapter 12: Product Pricing with Monopoly Power 348

12.1 Price Discrimination  350

12.2 Three Necessary Conditions for Price Discrimination 354

12.3 Price and Output Determination with Price Discrimination  356

12.4 Intertemporal Price Discrimination and Peak-Load Pricing  360

12.5 Two-Part Tariffs  366

*12.6 The Mathematics behind Price Discrimination  371

Chapter 13: Monopolistic Competition and Oligopoly 375

13.1 Price and Output under Monopolistic Competition  376

13.2 Oligopoly and the Cournot Model  382

13.3 Other Oligopoly Models  386

13.4 Cartels and Collusion  392

Chapter 14: Game Theory and the Economics of Information 405

14.1 Game Theory 407

14.2 The Prisoner’s Dilemma Game  411

14.3 Repeated Games  416

14.4 Asymmetric Information  421

14.5 Adverse Selection and Moral Hazard  425

14.6 Limited Price Information  430

14.7 Advertising  431

Chapter 15: Using Noncompetitive Market Models 437

15.1 The Size of the Deadweight Loss of Monopoly438

15.2 Do Monopolies Suppress Inventions?  442

15.3 Natural Monopoly  445

15.4 More on Game Theory: Iterated Dominance and Commitment  449

Chapter 16: Employment and Pricing of Inputs 456

16.1 The Input Demand Curve of a Competitive Firm  457

16.2 Industry and Market Demand Curves for an Input 463

16.3 The Supply of Inputs  466

16.4 Industry Determination of Price and Employment of Inputs  468

16.5 Input Price Determination in a Multi-Industry Market  471

16.6 Input Demand and Employment by an Output Market Monopoly  474

16.7 Monopsony in Input Markets  476

*16.8 The Calculus behind Input Demand by Competitive and Monopoly Firms  478

Chapter 17: Wages, Rent, Interest, and Profit 482

17.1 The Income–Leisure Choice of the Worker  483

17.2 The Supply of Hours of Work  486

17.3 The General Level of Wage Rates  491

17.4 Why Wages Differ  493

17.5 Economic Rent  497

17.6 Monopoly Power in Input Markets: The Case of Unions 499

17.7 Borrowing, Lending, and the Interest Rate  503

17.8 Investment and the Marginal Productivity of Capital  504

17.9 Saving, Investment, and the Interest Rate  507

17.10 Why Interest Rates Differ  509

Chapter 18: Using Input Market Analysis 513

18.1 The Minimum Wage 514

18.2 Who Really Pays for Social Security?  521

18.3 The Hidden Cost of Social Security  524

18.4 The NCAA Cartel  528

18.5 Discrimination in Employment  534

18.6 The Benefits and Costs of Immigration  538

Chapter 19: General Equilibrium Analysis and Economic Efficiency 545

19.1 Partial and General Equilibrium Analysis Compared  546

19.2 Economic Efficiency  550

19.3 Conditions for Economic Efficiency  552

19.4 Efficiency in Production  552

19.5 The Production Possibility Frontier and Efficiency in Output  556

19.6 Competitive Markets and Economic Efficiency  562

19.7 The Causes of Economic Inefficiency  565

Chapter 20: Public Goods and Externalities 571

20.1 What Are Public Goods?  573

20.2 Efficiency in the Provision of a Public Good  575

20.3 Externalities  579

20.4 Externalities and Property Rights  585

20.5 Controlling Pollution, Revisited 589

Answers to Selected Problems  596

Glossary  604

Index  611

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