| Preface |
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xv | |
| Acknowledgments |
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xix | |
| Part I An Introduction to Microeconomics |
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1 | (38) |
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Microeconomics: A Working Methodology |
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2 | (37) |
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Choice of Production Technique |
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3 | (1) |
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The Water Shortage Problem |
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4 | (5) |
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8 | (1) |
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Agricultural Price Support Programs |
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9 | (5) |
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Competitive Equilibrium Price and Quantity |
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11 | (1) |
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12 | (2) |
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14 | (5) |
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15 | (1) |
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16 | (1) |
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Preferences of Individuals |
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16 | (1) |
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Self-Interest and Making Choices |
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17 | (1) |
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17 | (2) |
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19 | (1) |
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Positive and Normative Economics |
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20 | (3) |
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21 | (1) |
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22 | (1) |
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23 | (16) |
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The Circular Flow of Economic Activity |
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23 | (1) |
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24 | (1) |
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25 | (1) |
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26 | (2) |
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Appendix 1A: Model Building |
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28 | (1) |
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28 | (1) |
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29 | (2) |
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31 | (4) |
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Further Applications of the Model |
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35 | (1) |
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36 | (1) |
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37 | (2) |
| Part II Individual Choice |
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39 | (146) |
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40 | (34) |
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Completeness and Consistency of Preferences |
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41 | (3) |
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41 | (1) |
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42 | (2) |
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Nonsatiation and Maximizing Behaviour |
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44 | (3) |
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Tradeoffs and Indifference Curves |
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47 | (6) |
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Continuity of Preferences |
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49 | (1) |
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The Slope of Indifference Curves |
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50 | (1) |
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50 | (1) |
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Non-Intersecting Indifference Curves |
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51 | (2) |
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Tradeoffs and the Marginal Rate of Substitution |
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53 | (4) |
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Marginal Rate of Substitution and Marginal Value |
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56 | (1) |
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Diminishing Marginal Rate of Substitution |
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56 | (1) |
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57 | (17) |
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Constructing a Utility Function |
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57 | (2) |
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59 | (1) |
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The Meaning of Utility Numbers |
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60 | (1) |
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Shapes of Indifference Curves |
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61 | (3) |
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Application: Overtime Pay |
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64 | (1) |
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Application: Pay Day Versus Consumption |
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65 | (2) |
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67 | (2) |
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Application: The Shopping Cart Puzzle |
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69 | (1) |
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70 | (1) |
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71 | (2) |
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73 | (1) |
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74 | (40) |
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74 | (1) |
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75 | (5) |
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Attainable Consumption Bundles |
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75 | (1) |
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Opportunity Cost, Real Income, and Relative Prices |
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76 | (2) |
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Application: A Connecticut Yankee in King Arthur's Court |
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78 | (1) |
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Endowments Rather than Money |
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79 | (1) |
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The Consumer's Choice Problem |
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80 | (4) |
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81 | (1) |
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The Solution: Demand Functions |
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82 | (2) |
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Graphic Analysis of Utility Maximization |
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84 | (9) |
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84 | (2) |
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86 | (3) |
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Application: Excise Tax Versus Lump-Sum Tax |
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89 | (2) |
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Application: Membership Fees as Lump-Sum Taxes |
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91 | (2) |
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Comparative Statics Analysis of Demand |
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93 | (1) |
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Consumption Response to a Change in Income |
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94 | (2) |
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Normal Goods and Inferior Goods |
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94 | (1) |
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95 | (1) |
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Complements and Substitutes |
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96 | (2) |
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Consumption Response to a Change in Price |
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98 | (3) |
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The Price-Consumption Path |
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98 | (1) |
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98 | (2) |
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Application: Ingenious Advertising and the Demand Curve |
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100 | (1) |
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101 | (13) |
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Some Own-Price Elasticities of Demand |
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103 | (1) |
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Some Income Elasticities of Demand |
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104 | (1) |
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Some Cross-Price Elasticities of Demand |
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105 | (1) |
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106 | (1) |
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107 | (4) |
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Appendix 3A: Composite Commodities |
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111 | (1) |
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112 | (2) |
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114 | (44) |
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114 | (4) |
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Relative Prices, Speculation, and Shipping the Good Apples Out |
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114 | (3) |
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Objections to the Law of Demand |
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117 | (1) |
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Income and Substitution Effects |
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118 | (5) |
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Income and Substitution Effects for a Price Increase |
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119 | (1) |
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Income and Substitution Effects for a Price Decrease |
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120 | (2) |
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The Negative Substitution Effect |
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122 | (1) |
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The Ambiguous Income Effect |
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122 | (1) |
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The Slope of the Demand Curve |
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122 | (1) |
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The Compensated Demand Curve |
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123 | (6) |
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The Substitution Effect Revisited |
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123 | (2) |
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The Compensated Demand Function |
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125 | (2) |
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Application: COLA Clauses and Consuming an Endowment |
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127 | (2) |
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129 | (6) |
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Application: Religious Behaviour |
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130 | (1) |
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Application: Rationing by Waiting in Squash |
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131 | (3) |
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Institutional Mechanisms for Allocation |
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134 | (1) |
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Measuring Benefits and Costs |
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135 | (14) |
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Equivalent Variation for a New Good |
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135 | (1) |
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Compensating Variation for a New Good |
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135 | (3) |
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Equivalent Variation for a Price Change |
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138 | (1) |
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Compensating Variation for a Price Change |
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138 | (1) |
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Comparing Equivalent Variation and Compensating Variation |
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138 | (1) |
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139 | (2) |
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Application: Total Value Versus Marginal Value |
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141 | (4) |
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Application: Two-Part Tariffs |
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145 | (3) |
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Application: Experimental Problems with EV and CV |
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148 | (1) |
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149 | (9) |
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149 | (3) |
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152 | (1) |
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153 | (1) |
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154 | (3) |
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157 | (1) |
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Intertemporal Decision Making and Capital Values |
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158 | (27) |
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Intertemporal Value Comparisons |
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159 | (6) |
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A Perfect Market for Loanable Funds |
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160 | (1) |
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160 | (1) |
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161 | (1) |
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Application: You're a Millionaire! (almost) |
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162 | (1) |
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163 | (1) |
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Application: Old Equipment and Stock Investments |
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163 | (2) |
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The Demand for Consumer Capital and Complementary Goods |
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165 | (3) |
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Application: Built-In Low Quality? |
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168 | (1) |
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Intertemporal Allocation of Nonrenewable Resources |
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168 | (4) |
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Individual Supply Behaviour |
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168 | (1) |
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169 | (1) |
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Application: When to Harvest |
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170 | (2) |
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Application: The Rate of Return on a Stradivarius |
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172 | (1) |
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172 | (13) |
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173 | (3) |
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The Intertemporal Allocation of Lifetime Income |
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176 | (1) |
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177 | (5) |
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182 | (1) |
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182 | (2) |
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184 | (1) |
| Part III Production and Cost |
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185 | (76) |
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Production and Cost: One Variable Input |
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186 | (40) |
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186 | (4) |
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Defining the Production Function |
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187 | (1) |
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Fixed-Proportions Production Function |
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188 | (1) |
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Variable-Proportions Production Functions |
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188 | (2) |
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190 | (4) |
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191 | (1) |
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Application: Who is the Better Economist? The Poet or the Critic? |
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192 | (1) |
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192 | (1) |
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Sunk, Avoidable, Fixed, and Variable Costs |
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193 | (1) |
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Cost-Minimization Problems |
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194 | (2) |
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The Long-Run Cost-Minimization Problem |
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195 | (1) |
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Short-Run Cost-Minimization Problems |
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195 | (1) |
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Production: One Variable Input |
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196 | (9) |
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196 | (1) |
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197 | (1) |
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Diminishing Marginal Productivity |
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198 | (2) |
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Assumption: Diminishing Marginal Product |
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200 | (2) |
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202 | (3) |
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Costs of Production: One Variable Input |
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205 | (21) |
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The Variable Cost Function Illustrated |
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205 | (1) |
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Deriving the Variable Cost Function |
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206 | (2) |
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Average Variable Cost and Short-Run Marginal Cost |
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208 | (3) |
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Average Product and Average Cost |
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211 | (1) |
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Marginal Product and Marginal Cost |
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211 | (1) |
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212 | (1) |
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Short-Run Total Cost and Short-Run Average Cost |
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212 | (1) |
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Application: Traffic Congestion and Multi-Plant Firms |
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213 | (6) |
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Application: The Allocation of Output Among Different Plants |
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219 | (1) |
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Application: Sports Stars, Submarines, Triage, and Book Publishing |
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219 | (2) |
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221 | (1) |
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222 | (3) |
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225 | (1) |
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Production and Cost: Many Variable Inputs |
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226 | (35) |
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Isoquants and Input Substitution |
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226 | (2) |
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227 | (1) |
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Marginal Rate of Technical Substitution |
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228 | (5) |
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Perfect Substitutes and Perfect Complements |
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231 | (1) |
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Diminishing Marginal Rate of Technical Substitution |
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231 | (1) |
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MRTS as a Ratio of Marginal Products |
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232 | (1) |
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Application: Religious Inputs and Church Growth |
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233 | (1) |
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233 | (4) |
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Application: Centers of Excellence |
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236 | (1) |
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The Cost-Minimization Problem: A Perspective |
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237 | (2) |
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Solving Cost-Minimization Problems |
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239 | (4) |
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The First Principle of Cost Minimization |
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240 | (1) |
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The Second Principle of Cost Minimization |
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241 | (2) |
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Comparative Statics for Input Prices |
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243 | (3) |
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Comparative Statics for the Level of Output |
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246 | (6) |
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Normal and Inferior Inputs |
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246 | (2) |
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Long-Run Costs and Output |
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248 | (4) |
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Comparing Long-Run and Short-Run Costs |
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252 | (3) |
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A Theory of Market Structure |
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255 | (6) |
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257 | (1) |
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257 | (3) |
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260 | (1) |
| Part IV Markets For Goods |
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261 | (92) |
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The Theory of Perfect Competition |
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262 | (33) |
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Competitive Model of Exchange |
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262 | (7) |
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263 | (1) |
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263 | (1) |
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264 | (1) |
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265 | (1) |
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Pareto Optimality, or Efficiency |
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266 | (2) |
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The Role of Initial Allocation |
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268 | (1) |
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268 | (1) |
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Potential Difficulties With the Competitive Model |
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269 | (4) |
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Price Taking or Price Manipulating |
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269 | (2) |
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Large Numbers and Price-Taking Behaviour |
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271 | (1) |
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Price Making: The Walrasian Auctioneer |
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271 | (1) |
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272 | (1) |
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Robustness of the Competitive Model |
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272 | (1) |
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The Assumptions of Perfect Competition |
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273 | (1) |
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The Firm's Short-Run Supply Decision |
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274 | (5) |
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Short-Run Competitive Equilibrium |
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279 | (5) |
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280 | (1) |
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Aggregating Short-Run Supply |
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281 | (1) |
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Short-Run Competitive Equilibrium |
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282 | (2) |
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Efficiency of the Short-Run Competitive Equilibrium |
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284 | (1) |
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Long-Run Competitive Equilibrium |
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285 | (10) |
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No-Exit, No-Entry, and Long-Run Equilibrium |
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286 | (1) |
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Price Equal to Minimum Average Cost |
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286 | (1) |
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The Individual Firm in Long-Run Equilibrium |
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287 | (1) |
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288 | (2) |
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290 | (1) |
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291 | (3) |
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294 | (1) |
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Applications of the Competitive Model |
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295 | (26) |
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Comparative Statics in the Basic Supply and Demand Model |
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295 | (2) |
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Reading the Newspaper and Other Stories |
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297 | (2) |
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Warm Houses in Cold Climates |
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299 | (3) |
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302 | (2) |
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304 | (5) |
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305 | (1) |
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Apparent Effects of Rent Control |
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306 | (1) |
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306 | (2) |
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308 | (1) |
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309 | (6) |
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312 | (1) |
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313 | (2) |
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Application: Do Costs Determine Prices? |
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315 | (1) |
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315 | (6) |
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318 | (1) |
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318 | (2) |
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320 | (1) |
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321 | (32) |
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321 | (1) |
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The Monopolist's Revenue Functions |
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322 | (5) |
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322 | (3) |
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Marginal Revenue and the Price Elasticity of Demand |
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325 | (1) |
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325 | (2) |
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327 | (3) |
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Application: Are Artists and Authors Altruists? |
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330 | (1) |
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The Inefficiency of Monopoly |
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330 | (3) |
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Application: Why is it so Hard to Shop in Holland? |
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333 | (1) |
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333 | (4) |
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Government Franchise Monopoly |
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334 | (1) |
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334 | (1) |
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334 | (1) |
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Technological (or Natural) Monopoly |
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334 | (1) |
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Monopoly by Good Management |
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335 | (2) |
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Regulatory Responses to Monopoly |
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337 | (5) |
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Divestiture in a Resource-Based Monopoly |
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337 | (1) |
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Responses to Natural Monopoly |
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338 | (3) |
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Application: The Plush Carpet Theorem |
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341 | (1) |
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342 | (11) |
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The Appropriability Problem |
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343 | (1) |
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343 | (2) |
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Product Development in the Absence of Patents |
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345 | (1) |
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345 | (1) |
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346 | (3) |
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349 | (1) |
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349 | (3) |
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352 | (1) |
| Part V Resource Markets and General Equilibrium |
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353 | (104) |
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Input Markets and the Allocation of Resources |
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354 | (44) |
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The Role of Input Markets |
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354 | (1) |
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Perfectly Competitive Input Markets |
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355 | (1) |
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The Supply of Non-Labour Inputs |
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356 | (1) |
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357 | (6) |
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Responses to Changes in Non-Work Income |
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359 | (1) |
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Responses to a Change in the Wage Rate |
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359 | (2) |
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361 | (2) |
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The Firm's Demand for one Variable Input |
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363 | (5) |
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Input Demand in a One-Good Economy |
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363 | (4) |
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Value of the Marginal Product |
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367 | (1) |
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Input Demand With Many Variable Inputs |
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368 | (3) |
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Downward-Sloping, Long-Run Input Demand Curve |
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369 | (1) |
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A Comparison of Long-Run and Short-Run Input Demand |
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370 | (1) |
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Competitive Equilibrium in an Input Market |
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371 | (4) |
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Application: The Levitical Curse |
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373 | (1) |
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Application: Who Supports Immigration? |
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374 | (1) |
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Monopsony in Input Markets |
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375 | (6) |
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The Monopsonist's Factor Cost Functions |
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375 | (3) |
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The Short-Run Monopsony Equilibrium |
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378 | (2) |
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The Inefficiency of Monopsony |
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380 | (1) |
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Sources of Monopsony Power |
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381 | (2) |
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382 | (1) |
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Monopoly and Specialized Inputs |
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383 | (1) |
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Monopoly, Monopsony, and Pareto Optimality |
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383 | (1) |
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The Firm's Demand for capital Inputs |
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384 | (3) |
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Human Capital Decisions Over Time |
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387 | (11) |
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393 | (1) |
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394 | (3) |
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397 | (1) |
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The Distribution of Income |
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398 | (29) |
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398 | (3) |
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What Does a Distribution of Income Mean? |
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400 | (1) |
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Determinants of the Income Distribution |
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401 | (2) |
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403 | (5) |
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The Productivity Principle |
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403 | (1) |
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404 | (1) |
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Thought Experiments for the Productivity Principle |
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405 | (1) |
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Input Prices and Scarcity |
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406 | (1) |
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The Redistributionist Principle |
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406 | (1) |
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An Alternative Hypothesis |
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407 | (1) |
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408 | (6) |
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Competitive Labour Markets |
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409 | (2) |
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Monopsonistic Labour Markets |
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411 | (2) |
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Union Wage Rates: Some Analogous Issues |
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413 | (1) |
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Application: Substitution and Union Wages |
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414 | (1) |
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Wage Floors in a Two-Sector Model |
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414 | (4) |
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The Underemployment Equilibrium |
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415 | (1) |
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The Unemployment Equilibrium |
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416 | (2) |
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418 | (9) |
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The Efficient Transfer Mechanism |
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418 | (2) |
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420 | (1) |
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421 | (2) |
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423 | (1) |
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424 | (2) |
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426 | (1) |
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Competitive General Equilibrium |
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427 | (30) |
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Efficiency in an Exchange Economy |
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428 | (4) |
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The Edgeworth Box Diagram |
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428 | (3) |
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Efficiency in Consumption |
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431 | (1) |
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431 | (1) |
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Competitive Equilibrium in an Exchange Economy |
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432 | (5) |
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Budget Lines in an Exchange Economy |
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433 | (1) |
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Finding the Competitive Equilibrium |
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434 | (3) |
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The First Theorem of Welfare Economics |
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437 | (1) |
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The Second Theorem of Welfare Economics |
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437 | (1) |
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Efficiency in General Equilibrium with Production |
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437 | (9) |
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Efficiency in Consumption |
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438 | (1) |
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Production Possibilities Set |
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438 | (1) |
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Application: Heading Down the Home Stretch |
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439 | (1) |
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440 | (2) |
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The Marginal Rate of Transformation |
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442 | (2) |
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Efficiency in Product Mix |
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444 | (2) |
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Efficiency and General Competitive Equilibrium |
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446 | (3) |
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449 | (8) |
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The Inefficiency of Monopoly |
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449 | (1) |
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450 | (1) |
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451 | (1) |
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452 | (2) |
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454 | (2) |
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456 | (1) |
| Part VI Imperfect Competition |
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457 | (86) |
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Price Discrimination and Monopoly Practices |
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459 | (26) |
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Price Discrimination and Market Segmentation |
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459 | (1) |
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Perfect Price Discrimination |
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460 | (1) |
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Ordinary Price Discrimination |
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461 | (4) |
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Application: Why are Home Delivered Newspapers so Cheaply? |
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465 | (1) |
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Market Segmentation Revisited |
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466 | (2) |
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Price Discrimination and the Law |
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468 | (1) |
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Multipart of Block Pricing |
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469 | (3) |
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Monopsonistic Price Discrimination |
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472 | (3) |
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475 | (1) |
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476 | (3) |
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All-or-Nothing Demands and the Exploitation of Affection |
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479 | (6) |
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481 | (1) |
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482 | (2) |
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484 | (1) |
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Game Theory and Oligopoly |
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485 | (34) |
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486 | (1) |
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487 | (1) |
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Duopoly as a Prisoners' Dilemma |
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488 | (3) |
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Application: Dominant Strategies in Game Shows |
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489 | (1) |
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490 | (1) |
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491 | (1) |
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The Cournot Duopoly Model |
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491 | (6) |
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494 | (1) |
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495 | (2) |
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The Cournot Model with Many Firms |
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497 | (1) |
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498 | (3) |
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The Collusive Model of Oligopoly |
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501 | (2) |
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503 | (1) |
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Repeated Play, Supergames, and Richer Strategies |
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503 | (2) |
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505 | (5) |
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506 | (1) |
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506 | (3) |
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Strategic Choice of Industry Output |
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509 | (1) |
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510 | (1) |
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Refinements of Limit Output |
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510 | (3) |
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513 | (6) |
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514 | (1) |
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515 | (3) |
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518 | (1) |
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519 | (24) |
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Chamberlin's Symmetrically Differentiated Products |
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521 | (5) |
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521 | (1) |
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Symmetric Demand Functions |
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522 | (4) |
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Chamberlin's Large-Numbers Case |
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526 | (3) |
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526 | (1) |
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526 | (1) |
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Efficiency and the Chamberlin Model |
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526 | (2) |
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Application: The Optimal Number of Breakfast Cereals |
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528 | (1) |
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Address Models of Monopolistic Competition |
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529 | (14) |
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A Model of Spatial Competition |
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530 | (1) |
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Short-Run Price Equilibrium |
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530 | (4) |
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534 | (1) |
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Profit in Long-Run Equilibrium |
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535 | (1) |
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Application: Product Proliferation |
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536 | (1) |
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537 | (1) |
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Application: Localized Competition in the Automobile Industry |
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538 | (1) |
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539 | (1) |
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Product Diversity: Equilibrium Versus Cost-Benefit Efficiency |
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540 | (1) |
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540 | (1) |
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541 | (1) |
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542 | (1) |
| Part VII Uncertainty and Asymmetric Information |
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543 | (101) |
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Choice Making Under Uncertainty |
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544 | (24) |
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545 | (5) |
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Calculating Expected Monetary Value |
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545 | (1) |
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The Expected-Utility Hypothesis |
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546 | (1) |
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The Expected-Utility Function |
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547 | (3) |
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Generalizing the Expected-Utility Approach |
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550 | (2) |
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551 | (1) |
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The Expected Utility Function |
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552 | (8) |
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554 | (2) |
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556 | (3) |
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Application: Another Form of Taxation? |
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559 | (1) |
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560 | (8) |
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560 | (2) |
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562 | (2) |
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564 | (1) |
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565 | (1) |
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566 | (1) |
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567 | (1) |
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Asymmetric Information, the Rules of the Game, and Externalities |
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568 | (28) |
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568 | (2) |
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Externalities and the Coase Theorem |
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570 | (3) |
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Application: No-Fault Divorce |
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572 | (1) |
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Information Costs, Transaction Costs, and Property Rights |
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573 | (2) |
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Asymmetric Information and Transaction Costs |
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575 | (3) |
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Back to Externalities and the Coase Theorem |
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577 | (1) |
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Externalities with Positive Transaction Costs |
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578 | (2) |
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Responses to Externalities |
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580 | (7) |
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Assigning Property Rights |
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580 | (2) |
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582 | (1) |
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583 | (3) |
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Application: Soldiers for Sale |
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586 | (1) |
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587 | (9) |
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588 | (1) |
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588 | (1) |
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588 | (2) |
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Public Provision of Nonrivalrous Goods |
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590 | (1) |
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Asymmetric Information and Revealed Preference |
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591 | (1) |
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592 | (1) |
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593 | (2) |
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595 | (1) |
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596 | (28) |
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General Issues in the Theory of the Firm |
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596 | (6) |
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596 | (2) |
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Three Relationships Between Residual Claimants and Control |
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598 | (1) |
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Additional Organizational Complexity |
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599 | (1) |
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Cooperation from Noncooperative Behaviour |
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600 | (1) |
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The Key: Organizational Solutions to Transaction Cost Problems |
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601 | (1) |
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The Existence of Multiperson Firms |
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602 | (1) |
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Three Models of Organization |
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602 | (7) |
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603 | (1) |
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A Partnership Alternative |
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604 | (3) |
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The Partnership Equilibrium |
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607 | (1) |
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Pareto-Optimality and Choice of Institutions |
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608 | (1) |
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609 | (5) |
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609 | (1) |
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Partnership with Team Production |
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610 | (1) |
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610 | (2) |
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Contracting and Monitoring Costs |
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612 | (2) |
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The Pareto-Preferred Organizational Forms |
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614 | (1) |
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Specialization and the Division of Labour |
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615 | (9) |
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Application: Where Have All the .400 Hitters Gone? |
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617 | (1) |
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618 | (1) |
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618 | (1) |
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619 | (1) |
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620 | (1) |
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621 | (2) |
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623 | (1) |
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Asymmetric Information and Market Behaviour |
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624 | (20) |
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624 | (6) |
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628 | (1) |
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Application: Why is Sugar Refined in Winnipeg? |
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628 | (2) |
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630 | (4) |
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631 | (1) |
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632 | (1) |
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Adverse Selection: The ``Lemons'' Principle |
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633 | (1) |
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634 | (4) |
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Application: The Veal Signal |
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636 | (1) |
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637 | (1) |
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Moral Hazard Problems: Hidden Actions |
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638 | (6) |
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Application: The Good Ol' Mule |
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640 | (1) |
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641 | (1) |
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641 | (2) |
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643 | (1) |
| Answers to Problems |
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644 | (25) |
| Glossary |
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669 | (6) |
| Index |
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675 | |
Other versions by this Author