BOOK
Microeconomics: Theory and Applications with Calculus, Global Edition
(2017)
Additional Information
Book Details
Abstract
For courses in microeconomics.
Exploring Microeconomics: Formal Theory and Practical Problems
Significantly revised and updated with new real-world examples, exercises, and applications, this Fourth Edition of Microeconomics: Theory and Applications with Calculus remains the premiere microeconomics text to marry formal theory with robust, thoroughly analyzed real-world problems.
Intended as an intermediate microeconomics text, Perloff introduces economic theory through a combination of calculus, algebra, and graphs. The text integrates estimated, real-world problems and applications, using a step-by-step approach to demonstrate how microeconomic theory can be applied to solve practical problems and policy issues. Compared to other similar texts, the author also places greater emphasis on using contemporary theories--such as game theory and contract theory--to analyze markets.
MyEconLab® not included. Students, if MyEconLab is a recommended/mandatory component of the course, please ask your instructor for the correct ISBN and course ID. MyEconLab should only be purchased when required by an instructor. Instructors, contact your Pearson representative for more information.
MyEconLab is an online homework, tutorial, and assessment product designed to personalize learning and improve results. With a wide range of interactive, engaging, and assignable activities, students are encouraged to actively learn and retain tough course concepts.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Cover\r | Cover | ||
| Title Page\r | 3 | ||
| Copyright Page\r | 4 | ||
| Brief Contents\r | 5 | ||
| Contents\r | 6 | ||
| Preface | 14 | ||
| Chapter 1 Introduction | 23 | ||
| 1.1 Microeconomics: The Allocation of Scarce Resources | 23 | ||
| Trade-Offs | 24 | ||
| Who Makes the Decisions | 24 | ||
| How Prices Determine Allocations | 24 | ||
| APPLICATION Twinkie Tax | 25 | ||
| 1.2 Models | 25 | ||
| APPLICATION Income Threshold Model and China | 25 | ||
| Simplifications by Assumption | 26 | ||
| Testing Theories | 27 | ||
| Maximizing Subject to Constraints | 27 | ||
| Positive Versus Normative | 28 | ||
| 1.3 Uses of Microeconomic Models | 29 | ||
| Summary\r | 30 | ||
| Chapter 2 Supply and Demand | 31 | ||
| CHALLENGE Quantities and Prices of Genetically Modified Foods | 31 | ||
| 2.1 Demand | 32 | ||
| The Demand Function | 33 | ||
| Summing Demand Functions | 37 | ||
| APPLICATION Aggregating Corn Demand Curves | 38 | ||
| 2.2 Supply | 38 | ||
| The Supply Function | 39 | ||
| Summing Supply Functions | 41 | ||
| How Government Import Policies Affect Supply Curves | 41 | ||
| 2.3 Market Equilibrium | 42 | ||
| Finding the Market Equilibrium | 43 | ||
| Forces That Drive a Market to Equilibrium | 44 | ||
| 2.4 Shocking the Equilibrium: Comparative Statics | 45 | ||
| Comparative Statics with Discrete (Relatively Large) Changes | 46 | ||
| APPLICATION Occupational Licensing | 47 | ||
| Comparative Statics with Small Changes | 47 | ||
| Solved Problem 2.1 | 49 | ||
| Why the Shapes of Demand and Supply Curves Matter | 50 | ||
| 2.5 Elasticities | 51 | ||
| Demand Elasticity | 52 | ||
| Solved Problem 2.2 | 52 | ||
| APPLICATION The Demand Elasticities for Google Play and Apple Apps | 53 | ||
| Solved Problem 2.3 | 56 | ||
| Supply Elasticity | 57 | ||
| Solved Problem 2.4 | 59 | ||
| Long Run Versus Short Run | 59 | ||
| APPLICATION Oil Drilling in the Arctic National Wildlife Refuge | 60 | ||
| Solved Problem 2.5 | 61 | ||
| 2.6 Effects of a Sales Tax | 63 | ||
| Equilibrium Effects of a Specific Tax | 63 | ||
| The Same Equilibrium No Matter Who Is Taxed | 65 | ||
| Who Pays the Tax? | 65 | ||
| Solved Problem 2.6 | 67 | ||
| APPLICATION Subsidizing Ethanol | 68 | ||
| The Similar Effects of Ad Valorem and Specific Taxes | 68 | ||
| 2.7 Quantity Supplied Need Not Equal Quantity Demanded | 69 | ||
| Price Ceiling | 70 | ||
| APPLICATION Venezuelan Price Ceilings and Shortages | 72 | ||
| Price Floor | 73 | ||
| 2.8 When to Use the Supply-and-Demand Model | 74 | ||
| CHALLENGE SOLUTION Quantities and Prices of Genetically Modified Foods | 75 | ||
| Summary | 76 | ||
| Exercises | 77 | ||
| Chapter 3 A Consumer’s Constrained Choice | 83 | ||
| CHALLENGE Why Americans Buy E-Books and Germans Do Not | 83 | ||
| 3.1 Preferences | 85 | ||
| Properties of Consumer Preferences | 85 | ||
| APPLICATION You Can’t Have Too Much Money | 86 | ||
| Preference Maps | 87 | ||
| Indifference Curves | 88 | ||
| Solved Problem 3.1 | 90 | ||
| 3.2 Utility | 90 | ||
| Utility Function | 90 | ||
| Willingness to Substitute Between Goods | 93 | ||
| Solved Problem 3.2 | 95 | ||
| APPLICATION MRS Between Recorded Tracks and Live Music | 96 | ||
| Curvature of Indifference Curves | 96 | ||
| Solved Problem 3.3 | 99 | ||
| APPLICATION Indifference Curves Between Food and Clothing | 100 | ||
| 3.3 Budget Constraint | 100 | ||
| 3.4 Constrained Consumer Choice | 102 | ||
| Finding an Interior Solution Using Graphs | 103 | ||
| Solved Problem 3.4 | 105 | ||
| Finding an Interior Solution Using Calculus | 105 | ||
| Solved Problem 3.5 | 107 | ||
| Solved Problem 3.6 | 108 | ||
| Solved Problem 3.7 | 110 | ||
| APPLICATION Utility Maximization for Recorded Tracks and Live Music | 110 | ||
| Finding Corner Solutions | 111 | ||
| Minimizing Expenditure | 115 | ||
| Solved Problem 3.8 | 116 | ||
| 3.5 Behavioral Economics | 117 | ||
| Tests of Transitivity | 118 | ||
| Endowment Effect | 118 | ||
| APPLICATION Opt In Versus Opt Out | 119 | ||
| Salience | 119 | ||
| CHALLENGE SOLUTION Why Americans Buy E-Books and Germans Do Not | 121 | ||
| Summary | 121 | ||
| Exercises | 122 | ||
| Chapter 4 Demand | 126 | ||
| CHALLENGE Paying Employees to Relocate | 126 | ||
| 4.1 Deriving Demand Curves | 127 | ||
| System of Demand Functions | 127 | ||
| Graphical Interpretation | 129 | ||
| APPLICATION Smoking Versus Eating and Phoning | 131 | ||
| 4.2 Effects of an Increase in Income | 132 | ||
| How Income Changes Shift Demand Curves | 132 | ||
| Solved Problem 4.1 | 134 | ||
| Consumer Theory and Income Elasticities | 135 | ||
| Solved Problem 4.2 | 136 | ||
| APPLICATION Fast-Food Engel Curve | 138 | ||
| Solved Problem 4.3 | 140 | ||
| 4.3 Effects of a Price Increase | 141 | ||
| Income and Substitution Effects with a Normal Good | 141 | ||
| Solved Problem 4.4 | 143 | ||
| APPLICATION Substituting Alcohol for Marijuana | 144 | ||
| Solved Problem 4.5 | 144 | ||
| Income and Substitution Effects with an Inferior Good | 145 | ||
| Solved Problem 4.6 | 145 | ||
| Compensated Demand Curve | 146 | ||
| Solved Problem 4.7 | 149 | ||
| Slutsky Equation | 149 | ||
| 4.4 Cost-of-Living Adjustment | 151 | ||
| Inflation Indexes | 152 | ||
| Effects of Inflation Adjustments | 153 | ||
| APPLICATION Reducing the CPI Substitution Bias | 156 | ||
| 4.5 Revealed Preference | 157 | ||
| Recovering Preferences | 157 | ||
| Substitution Effect | 158 | ||
| CHALLENGE SOLUTION Paying Employees to Relocate | 159 | ||
| Summary | 160 | ||
| Exercises | 161 | ||
| Chapter 5 Consumer Welfare and Policy Analysis | 164 | ||
| CHALLENGE Per-Hour Versus Lump-Sum Childcare Subsidies | 164 | ||
| 5.1 Uncompensated Consumer Welfare | 165 | ||
| Willingness to Pay | 166 | ||
| An Individual’s Consumer Surplus | 166 | ||
| APPLICATION Willingness to Pay and Consumer Surplus on eBay | 168 | ||
| Effect of a Price Change on Consumer Surplus | 169 | ||
| Solved Problem 5.1 | 169 | ||
| Market Consumer Surplus | 170 | ||
| 5.2 Compensated Consumer Welfare | 171 | ||
| Indifference Curve Analysis | 171 | ||
| APPLICATION Compensating Variation and Equivalent Variation for the Internet | 173 | ||
| Compensated Demand Curves and Consumer Welfare | 174 | ||
| Comparing the Three Welfare Measures | 175 | ||
| Solved Problem 5.2 | 177 | ||
| 5.3 Effects of Government Policies on Consumer Welfare | 178 | ||
| Quotas | 178 | ||
| Food Stamps | 180 | ||
| APPLICATION Food Stamps Versus Cash | 182 | ||
| 5.4 Deriving Labor Supply Curves | 182 | ||
| Labor-Leisure Choice | 182 | ||
| Solved Problem 5.3 | 185 | ||
| Income and Substitution Effects | 186 | ||
| Solved Problem 5.4 | 187 | ||
| Shape of the Labor Supply Curve | 188 | ||
| APPLICATION Working After Winning the Lottery | 189 | ||
| Income Tax Rates and the Labor Supply Curve | 189 | ||
| Solved Problem 5.5 | 191 | ||
| CHALLENGE SOLUTION Per-Hour Versus Lump-Sum Childcare Subsidies | 193 | ||
| Summary | 194 | ||
| Exercises | 195 | ||
| Chapter 6 Firms and Production | 198 | ||
| CHALLENGE Labor Productivity During Downturns | 198 | ||
| 6.1 The Ownership and Management of Firms | 199 | ||
| Private, Public, and Nonprofit Firms | 199 | ||
| APPLICATION Chinese State-Owned Enterprises | 200 | ||
| The Ownership of For-Profit Firms | 200 | ||
| The Management of Firms | 201 | ||
| What Owners Want | 201 | ||
| 6.2 Production | 202 | ||
| Production Functions | 202 | ||
| Time and the Variability of Inputs | 202 | ||
| 6.3 Short-Run Production: One Variable and One Fixed Input | 203 | ||
| Solved Problem 6.1 | 204 | ||
| Interpretation of Graphs | 205 | ||
| Solved Problem 6.2 | 207 | ||
| Law of Diminishing Marginal Returns | 208 | ||
| APPLICATION Malthus and the Green Revolution | 208 | ||
| 6.4 Long-Run Production: Two Variable Inputs | 210 | ||
| Isoquants | 210 | ||
| APPLICATION A Semiconductor Integrated Circuit Isoquant | 213 | ||
| Substituting Inputs | 214 | ||
| Solved Problem 6.3 | 215 | ||
| Diminishing Marginal Rates of Technical Substitution | 215 | ||
| The Elasticity of Substitution | 216 | ||
| Solved Problem 6.4 | 218 | ||
| 6.5 Returns to Scale | 218 | ||
| Constant, Increasing, and Decreasing Returns to Scale | 219 | ||
| Solved Problem 6.5 | 220 | ||
| APPLICATION Returns to Scale in Various Industries | 220 | ||
| Varying Returns to Scale | 221 | ||
| 6.6 Productivity and Technical Change | 222 | ||
| Relative Productivity | 222 | ||
| APPLICATION A Good Boss Raises Productivity | 223 | ||
| Innovations | 223 | ||
| APPLICATION Tata Nano’s Technical and Organizational Innovations | 224 | ||
| CHALLENGE SOLUTION Labor Productivity During Downturns | 225 | ||
| Summary | 226 | ||
| Exercises | 227 | ||
| Chapter 7 Costs | 231 | ||
| CHALLENGE Technology Choice at Home Versus Abroad | 231 | ||
| 7.1 Measuring Costs | 232 | ||
| Opportunity Costs | 233 | ||
| APPLICATION The Opportunity Cost of an MBA | 233 | ||
| Solved Problem 7.1 | 234 | ||
| Opportunity Cost of Capital | 234 | ||
| Sunk Costs | 235 | ||
| 7.2 Short-Run Costs | 236 | ||
| Short-Run Cost Measures | 236 | ||
| APPLICATION The Sharing Economy and the Short Run | 237 | ||
| Solved Problem 7.2 | 237 | ||
| Short-Run Cost Curves | 239 | ||
| Production Functions and the Shape of Cost Curves | 240 | ||
| APPLICATION Short-Run Cost Curves for a Japanese Beer Manufacturer | 242 | ||
| Effects of Taxes on Costs | 243 | ||
| Short-Run Cost Summary | 243 | ||
| 7.3 Long-Run Costs | 244 | ||
| Input Choice | 245 | ||
| Solved Problem 7.3 | 248 | ||
| Solved Problem 7.4 | 250 | ||
| How Long-Run Cost Varies with Output | 252 | ||
| Solved Problem 7.5 | 253 | ||
| Solved Problem 7.6 | 255 | ||
| The Shape of Long-Run Cost Curves | 255 | ||
| APPLICATION 3D Printing | 256 | ||
| Estimating Cost Curves Versus Introspection | 257 | ||
| 7.4 Lower Costs in the Long Run | 257 | ||
| Long-Run Average Cost as the Envelope of Short-Run Average Cost Curves | 257 | ||
| APPLICATION Choosing an Inkjet or Laser Printer | 259 | ||
| Short-Run and Long-Run Expansion Paths | 260 | ||
| How Learning by Doing Lowers Costs | 260 | ||
| 7.5 Cost of Producing Multiple Goods | 262 | ||
| APPLICATION Medical Economies of Scope | 264 | ||
| CHALLENGE SOLUTION Technology Choice at Home Versus Abroad | 264 | ||
| Summary | 265 | ||
| Exercises | 266 | ||
| Chapter 8 Competitive Firms and Markets | 270 | ||
| CHALLENGE The Rising Cost of Keeping On Truckin’ | 270 | ||
| 8.1 Perfect Competition | 271 | ||
| Price Taking | 271 | ||
| Why a Firm’s Demand Curve Is Horizontal | 272 | ||
| Perfect Competition in the Chicago Commodity Exchange | 273 | ||
| Deviations from Perfect Competition | 273 | ||
| Derivation of a Competitive Firm’s Demand Curve | 274 | ||
| Why Perfect Competition Is Important | 276 | ||
| Solved Problem 8.1 | 276 | ||
| 8.2 Profit Maximization | 276 | ||
| Profit | 277 | ||
| Two Steps to Maximizing Profit | 278 | ||
| 8.3 Competition in the Short Run | 280 | ||
| Short-Run Competitive Profit Maximization | 281 | ||
| Solved Problem 8.2 | 283 | ||
| APPLICATION Fracking and Shutdowns | 286 | ||
| Short-Run Firm Supply Curve | 287 | ||
| Solved Problem 8.3 | 288 | ||
| Short-Run Market Supply Curve | 289 | ||
| Short-Run Competitive Equilibrium | 291 | ||
| Solved Problem 8.4 | 292 | ||
| 8.4 Competition in the Long Run | 293 | ||
| Long-Run Competitive Profit Maximization | 293 | ||
| Long-Run Firm Supply Curve | 293 | ||
| APPLICATION The Size of Ethanol Processing Plants | 294 | ||
| Long-Run Market Supply Curve | 295 | ||
| APPLICATION Entry and Exit of Solar Power Firms | 296 | ||
| APPLICATION Upward-Sloping Long-Run Supply Curve for Cotton | 298 | ||
| APPLICATION Reformulated Gasoline Supply Curves | 302 | ||
| Solved Problem 8.5 | 303 | ||
| Long-Run Competitive Equilibrium | 304 | ||
| CHALLENGE SOLUTION The Rising Cost of Keeping On Truckin’ | 305 | ||
| Summary | 306 | ||
| Exercises | 307 | ||
| Chapter 9 Properties and Applications of the Competitive Model | 311 | ||
| CHALLENGE Liquor Licenses | 311 | ||
| 9.1 Zero Profit for Competitive Firms in the Long Run | 312 | ||
| Zero Long-Run Profit with Free Entry | 312 | ||
| Zero Long-Run Profit When Entry Is Limited | 313 | ||
| The Need to Maximize Profit | 315 | ||
| 9.2 Producer Surplus | 315 | ||
| Measuring Producer Surplus Using a Supply Curve | 315 | ||
| Using Producer Surplus | 317 | ||
| Solved Problem 9.1 | 317 | ||
| 9.3 Competition Maximizes Welfare | 318 | ||
| Measuring Welfare | 318 | ||
| Why Producing Less Than the Competitive Output Lowers Welfare | 319 | ||
| Why Producing More Than the Competitive Output Lowers Welfare | 320 | ||
| APPLICATION The Deadweight Loss of Christmas Presents | 322 | ||
| 9.4 Policies That Shift Supply Curves | 323 | ||
| APPLICATION Welfare Effects of Allowing Fracking | 324 | ||
| 9.5 Policies That Create a Wedge Between Supply and Demand Curves | 325 | ||
| Welfare Effects of a Sales Tax | 325 | ||
| Welfare Effects of a Price Floor | 327 | ||
| Solved Problem 9.2 | 329 | ||
| APPLICATION How Big Are Farm Subsidies and Who Gets Them? | 330 | ||
| Welfare Effects of a Price Ceiling | 331 | ||
| Solved Problem 9.3 | 332 | ||
| APPLICATION The Social Cost of a Natural Gas Price Ceiling | 333 | ||
| 9.6 Comparing Both Types of Policies: Trade | 333 | ||
| Free Trade Versus a Ban on Imports | 334 | ||
| Solved Problem 9.4 | 335 | ||
| APPLICATION Russian Food Ban | 336 | ||
| Free Trade Versus a Tariff | 336 | ||
| Solved Problem 9.5 | 339 | ||
| Free Trade Versus a Quota | 340 | ||
| Rent Seeking | 340 | ||
| CHALLENGE SOLUTION Liquor Licenses | 341 | ||
| Summary | 343 | ||
| Exercises | 343 | ||
| Chapter 10 General Equilibrium and Economic Welfare | 348 | ||
| CHALLENGE Anti-Price Gouging Laws | 348 | ||
| 10.1 General Equilibrium | 350 | ||
| Competitive Equilibrium in Two Interrelated Markets | 351 | ||
| APPLICATION Partial-Equilibrium Versus Multimarket-Equilibrium Analysis in Corn and Soybean Markets | 352 | ||
| Minimum Wages with Incomplete Coverage | 353 | ||
| Solved Problem 10.1 | 355 | ||
| APPLICATION Urban Flight | 356 | ||
| 10.2 Trading Between Two People | 356 | ||
| Endowments | 356 | ||
| Mutually Beneficial Trades | 358 | ||
| Solved Problem 10.2 | 360 | ||
| Deriving the Contract Curve | 360 | ||
| Solved Problem 10.3 | 361 | ||
| Bargaining Ability | 361 | ||
| 10.3 Competitive Exchange | 361 | ||
| Competitive Equilibrium | 362 | ||
| Solved Problem 10.4 | 364 | ||
| The Efficiency of Competition | 364 | ||
| Obtaining Any Efficient Allocation Using Competition | 364 | ||
| 10.4 Production and Trading | 365 | ||
| Comparative Advantage | 365 | ||
| Solved Problem 10.5 | 367 | ||
| Efficient Product Mix | 369 | ||
| Competition | 369 | ||
| 10.5 Efficiency and Equity | 371 | ||
| Role of the Government | 371 | ||
| APPLICATION The Wealthy Get Wealthier | 372 | ||
| Efficiency | 374 | ||
| Equity | 375 | ||
| Efficiency Versus Equity | 378 | ||
| Theory of the Second Best | 379 | ||
| CHALLENGE SOLUTION Anti-Price Gouging Laws | 380 | ||
| Summary | 381 | ||
| Exercises | 382 | ||
| Chapter 11 Monopoly and Monopsony | 385 | ||
| CHALLENGE Brand-Name and Generic Drugs | 385 | ||
| 11.1 Monopoly Profit Maximization | 386 | ||
| The Necessary Condition for Profit Maximization | 387 | ||
| Marginal Revenue and the Demand Curves | 387 | ||
| Solved Problem 11.1 | 389 | ||
| Marginal Revenue Curve and the Price Elasticity of Demand | 389 | ||
| An Example of Monopoly Profit Maximization | 390 | ||
| APPLICATION Apple’s iPad | 392 | ||
| Solved Problem 11.2 | 393 | ||
| Choosing Price or Quantity | 394 | ||
| Effects of a Shift of the Demand Curve | 395 | ||
| APPLICATION Cable Cars and Profit Maximization | 396 | ||
| 11.2 Market Power and Welfare | 397 | ||
| Market Power and the Shape of the Demand Curve | 397 | ||
| The Lerner Index | 398 | ||
| Solved Problem 11.3 | 398 | ||
| Sources of Market Power | 399 | ||
| Effect of Market Power on Welfare | 399 | ||
| 11.3 Taxes and Monopoly | 401 | ||
| Effects of a Specific Tax | 401 | ||
| Solved Problem 11.4 | 402 | ||
| Welfare Effects of Ad Valorem Versus Specific Taxes | 404 | ||
| 11.4 Causes of Monopolies | 405 | ||
| Cost Advantages | 405 | ||
| Solved Problem 11.5 | 407 | ||
| Government Actions That Create Monopolies | 407 | ||
| APPLICATION The Botox Patent Monopoly | 409 | ||
| 11.5 Government Actions That Reduce Market Power | 410 | ||
| Regulating Monopolies | 410 | ||
| Solved Problem 11.6 | 412 | ||
| APPLICATION Natural Gas Regulation | 414 | ||
| Increasing Competition | 415 | ||
| APPLICATION Movie Studios Attacked by 3D Printers! | 415 | ||
| Solved Problem 11.7 | 416 | ||
| 11.6 Networks, Dynamics, and Behavioral Economics | 416 | ||
| Network Externalities | 417 | ||
| Network Externalities and Behavioral Economics | 417 | ||
| Network Externalities as an Explanation for Monopolies | 418 | ||
| APPLICATION Critical Mass and eBay | 418 | ||
| Introductory Prices: A Two-Period Monopoly Model | 419 | ||
| 11.7 Monopsony | 419 | ||
| Monopsony Profit Maximization | 420 | ||
| Welfare Effects of Monopsony | 422 | ||
| Solved Problem 11.8 | 423 | ||
| CHALLENGE SOLUTION Brand-Name and Generic Drugs | 424 | ||
| Summary | 425 | ||
| Exercises | 426 | ||
| Chapter 12 Pricing and Advertising | 431 | ||
| CHALLENGE Sale Price | 431 | ||
| 12.1 Conditions for Price Discrimination | 433 | ||
| Why Price Discrimination Pays | 433 | ||
| Which Firms Can Price Discriminate | 433 | ||
| APPLICATION Disneyland Pricing | 434 | ||
| Preventing Resale | 434 | ||
| APPLICATION Preventing Resale of Designer Bags | 435 | ||
| Not All Price Differences Are Price Discrimination | 435 | ||
| Types of Price Discrimination | 436 | ||
| 12.2 Perfect Price Discrimination | 436 | ||
| How a Firm Perfectly Price Discriminates | 436 | ||
| Solved Problem 12.1 | 438 | ||
| Perfect Price Discrimination Is Efficient but Harms Some Consumers | 439 | ||
| APPLICATION Botox and Price Discrimination | 441 | ||
| Transaction Costs and Perfect Price Discrimination | 442 | ||
| APPLICATION Google Uses Bidding for Ads to Price Discriminate | 442 | ||
| 12.3 Group Price Discrimination | 442 | ||
| APPLICATION Harry Potter Price Discrimination | 443 | ||
| Prices and Elasticities | 444 | ||
| APPLICATION Reselling Textbooks | 445 | ||
| Solved Problem 12.2 | 446 | ||
| Identifying Groups | 447 | ||
| APPLICATION Buying Discounts | 448 | ||
| Solved Problem 12.3 | 449 | ||
| Welfare Effects of Group Price Discrimination | 449 | ||
| 12.4 Nonlinear Price Discrimination | 450 | ||
| 12.5 Two-Part Pricing | 452 | ||
| Two-Part Pricing with Identical Consumers | 453 | ||
| Two-Part Pricing with Differing Consumers | 454 | ||
| APPLICATION Pricing iTunes | 456 | ||
| 12.6 Tie-In Sales | 456 | ||
| Requirement Tie-In Sales | 457 | ||
| APPLICATION Ties That Bind | 457 | ||
| Bundling | 457 | ||
| 12.7 Advertising | 460 | ||
| Deciding Whether to Advertise | 461 | ||
| How Much to Advertise | 462 | ||
| Solved Problem 12.4 | 463 | ||
| APPLICATION Super Bowl Commercials | 464 | ||
| CHALLENGE SOLUTION Sale Price | 464 | ||
| Summary | 466 | ||
| Exercises | 466 | ||
| Chapter 13 Game Theory | 471 | ||
| CHALLENGE Intel and AMD’s Advertising Strategies | 471 | ||
| 13.1 Static Games | 473 | ||
| Normal-Form Games | 474 | ||
| Failure to Maximize Joint Profits | 477 | ||
| APPLICATION Strategic Advertising | 479 | ||
| Multiple Equilibria | 480 | ||
| Solved Problem 13.1 | 481 | ||
| Mixed Strategies | 482 | ||
| APPLICATION Tough Love | 483 | ||
| Solved Problem 13.2 | 484 | ||
| 13.2 Dynamic Games | 484 | ||
| Repeated Game | 485 | ||
| Sequential Game | 486 | ||
| Solved Problem 13.3 | 492 | ||
| APPLICATION Keeping Out Casinos | 492 | ||
| 13.3 Auctions | 493 | ||
| Elements of Auctions | 493 | ||
| Bidding Strategies in Private-Value Auctions | 494 | ||
| Winner’s Curse | 496 | ||
| APPLICATION Bidder’s Curse | 496 | ||
| 13.4 Behavioral Game Theory | 497 | ||
| APPLICATION GM’s Ultimatum | 497 | ||
| CHALLENGE SOLUTION Intel and AMD’s Advertising Strategies | 498 | ||
| Summary | 499 | ||
| Exercises | 500 | ||
| Chapter 14 Oligopoly and Monopolistic Competition | 505 | ||
| CHALLENGE Government Aircraft Subsidies | 505 | ||
| 14.1 Market Structures | 507 | ||
| 14.2 Cartels | 508 | ||
| Why Cartels Form | 509 | ||
| Why Cartels Fail | 510 | ||
| Laws Against Cartels | 511 | ||
| APPLICATION The Apple-Google-Intel-Adobe-Intuit-Lucasfilms-Pixar Wage Cartel | 512 | ||
| Maintaining Cartels | 513 | ||
| APPLICATION Cheating on the Maple Syrup Cartel | 514 | ||
| Mergers | 515 | ||
| APPLICATION Mergers to Monopolize | 515 | ||
| 14.3 Cournot Oligopoly Model | 515 | ||
| The Duopoly Nash-Cournot Equilibrium | 516 | ||
| The Cournot Model with Many Firms | 520 | ||
| APPLICATION Mobile Number Portability | 523 | ||
| The Cournot Model with Nonidentical Firms | 524 | ||
| Solved Problem 14.1 | 524 | ||
| Solved Problem 14.2 | 526 | ||
| APPLICATION Bottled Water | 527 | ||
| 14.4 Stackelberg Oligopoly Model | 527 | ||
| Calculus Solution | 528 | ||
| Graphical Solution | 529 | ||
| Why Moving Sequentially Is Essential | 529 | ||
| Strategic Trade Policy: An Application of the Stackelberg Model | 530 | ||
| Solved Problem 14.3 | 533 | ||
| Comparison of Collusive, Nash-Cournot, Stackelberg, and Competitive Equilibria | 534 | ||
| APPLICATION Deadweight Losses in the Food and Tobacco Industries | 536 | ||
| 14.5 Bertrand Oligopoly Model | 536 | ||
| Nash-Bertrand Equilibrium with Identical Products | 537 | ||
| Nash-Bertrand Equilibrium with Differentiated Products | 539 | ||
| 14.6 Monopolistic Competition | 542 | ||
| Monopolistically Competitive Equilibrium | 543 | ||
| Fixed Costs and the Number of Firms | 544 | ||
| Solved Problem 14.4 | 545 | ||
| APPLICATION Zoning Laws as a Barrier to Entry by Hotel Chains | 546 | ||
| CHALLENGE SOLUTION Government Aircraft Subsidies | 546 | ||
| Summary | 548 | ||
| Exercises | 548 | ||
| Chapter 15 Factor Markets | 554 | ||
| CHALLENGE Does Going to College Pay? | 554 | ||
| 15.1 Factor Markets | 555 | ||
| A Firm’s Short-Run Factor Demand Curve | 555 | ||
| Solved Problem 15.1 | 558 | ||
| A Firm’s Long-Run Factor Demand Curves | 560 | ||
| Competitive Factor Markets | 562 | ||
| APPLICATION Black Death Raises Wages | 564 | ||
| Solved Problem 15.2 | 565 | ||
| 15.2 Capital Markets and Investing | 565 | ||
| Interest Rates | 566 | ||
| Discount Rate | 567 | ||
| Stream of Payments | 567 | ||
| APPLICATION Saving for Retirement | 568 | ||
| Investing | 569 | ||
| Solved Problem 15.3 | 571 | ||
| Solved Problem 15.4 | 572 | ||
| Durability | 572 | ||
| APPLICATION Durability of Telephone Poles | 572 | ||
| Time-Varying Discounting | 573 | ||
| APPLICATION Falling Discount Rates and Self-Control | 575 | ||
| Capital Markets, Interest Rates, and Investments | 575 | ||
| Solved Problem 15.5 | 576 | ||
| 15.3 Exhaustible Resources | 576 | ||
| When to Sell an Exhaustible Resource | 577 | ||
| Price of a Scarce Exhaustible Resource | 577 | ||
| APPLICATION Redwood Trees | 580 | ||
| Why Price Might Not Rise | 581 | ||
| CHALLENGE SOLUTION Does Going to College Pay? | 583 | ||
| Summary | 585 | ||
| Exercises | 585 | ||
| Chapter 16 Uncertainty | 589 | ||
| CHALLENGE BP and Limited Liability | 589 | ||
| 16.1 Assessing Risk | 590 | ||
| Probability | 591 | ||
| Expected Value | 592 | ||
| Solved Problem 16.1 | 593 | ||
| Variance and Standard Deviation | 594 | ||
| 16.2 Attitudes Toward Risk\r | 595 | ||
| Expected Utility Theory | 595 | ||
| Risk Aversion | 596 | ||
| Solved Problem 16.2 | 598 | ||
| Solved Problem 16.3 | 598 | ||
| Risk Neutrality | 599 | ||
| Risk Preference | 599 | ||
| APPLICATION Gambling | 600 | ||
| Degree of Risk Aversion | 601 | ||
| Solved Problem 16.4 | 603 | ||
| 16.3 Reducing Risk | 603 | ||
| Just Say No | 604 | ||
| Obtaining Information | 604 | ||
| Diversification | 604 | ||
| APPLICATION Failure to Diversify | 606 | ||
| Insurance | 607 | ||
| Solved Problem 16.5 | 608 | ||
| APPLICATION Flight Insurance | 609 | ||
| APPLICATION Limited Insurance for Natural Disasters | 610 | ||
| 16.4 Investing Under Uncertainty | 611 | ||
| How Investing Depends on Attitudes Toward Risk | 611 | ||
| Investing with Uncertainty and Discounting | 613 | ||
| Solved Problem 16.6 | 613 | ||
| 16.5 Behavioral Economics and Uncertainty | 614 | ||
| Biased Assessment of Probabilities | 614 | ||
| APPLICATION Biased Estimates | 615 | ||
| Violations of Expected Utility Theory | 616 | ||
| Prospect Theory | 617 | ||
| APPLICATION Loss Aversion Contracts | 619 | ||
| CHALLENGE SOLUTION BP and Limited Liability | 619 | ||
| Summary | 621 | ||
| Exercises | 621 | ||
| Chapter 17 Property Rights, Externalities, Rivalry, and Exclusion | 625 | ||
| CHALLENGE Trade and Pollution | 625 | ||
| 17.1 Externalities | 626 | ||
| 17.2 The Inefficiency of Competition with Externalities | 627 | ||
| Supply-and-Demand Analysis | 627 | ||
| Cost-Benefit Analysis | 630 | ||
| APPLICATION Spam: A Negative Externality | 631 | ||
| 17.3 Regulating Externalities | 632 | ||
| Emissions Standard | 633 | ||
| APPLICATION Reducing Pulp and Paper Mill Pollution | 634 | ||
| Emissions Fee | 634 | ||
| Solved Problem 17.1 | 635 | ||
| APPLICATION Why Tax Drivers | 636 | ||
| Benefits Versus Costs from Controlling Pollution | 636 | ||
| APPLICATION Protecting Babies | 637 | ||
| Emissions Fees Versus Standards Under Uncertainty | 637 | ||
| 17.4 Market Structure and Externalities | 638 | ||
| Monopoly and Externalities | 639 | ||
| Monopoly Versus Competitive Welfare with Externalities | 639 | ||
| Solved Problem 17.2 | 640 | ||
| Taxing Externalities in Noncompetitive Markets | 641 | ||
| 17.5 Allocating Property Rights to Reduce Externalities | 641 | ||
| Coase Theorem | 641 | ||
| APPLICATION Buying a Town | 643 | ||
| Markets for Pollution | 643 | ||
| APPLICATION Acid Rain Program | 644 | ||
| 17.6 Rivalry and Exclusion | 644 | ||
| Open-Access Common Property | 645 | ||
| Club Goods | 646 | ||
| APPLICATION Microsoft Word Piracy | 646 | ||
| Public Goods | 647 | ||
| Solved Problem 17.3 | 651 | ||
| Reducing Free Riding | 651 | ||
| Valuing Public Goods | 651 | ||
| APPLICATION What’s Their Beef? | 653 | ||
| CHALLENGE SOLUTION Trade and Pollution | 653 | ||
| Summary | 654 | ||
| Exercises | 655 | ||
| Chapter 18 Asymmetric Information | 659 | ||
| CHALLENGE Dying to Work | 659 | ||
| 18.1 Adverse Selection | 661 | ||
| Insurance Markets | 661 | ||
| Products of Unknown Quality | 662 | ||
| Solved Problem 18.1 | 664 | ||
| Lemons Market with Variable Quality | 665 | ||
| Solved Problem 18.2 | 665 | ||
| 18.2 Reducing Adverse Selection | 666 | ||
| Equalizing Information | 666 | ||
| APPLICATION Discounts for Data | 667 | ||
| APPLICATION Adverse Selection and Remanufactured Goods | 668 | ||
| Laws to Prevent Opportunism | 669 | ||
| 18.3 Market Power from Price Ignorance | 670 | ||
| Tourist-Trap Model | 670 | ||
| Solved Problem 18.3 | 672 | ||
| Advertising and Prices | 672 | ||
| 18.4 Problems Arising from Ignorance When Hiring | 673 | ||
| Cheap Talk | 673 | ||
| APPLICATION Cheap Talk in eBay’s Best Offer Market | 675 | ||
| Education as a Signal | 675 | ||
| Pooling Equilibrium | 676 | ||
| Solved Problem 18.4 | 676 | ||
| Screening in Hiring | 679 | ||
| CHALLENGE SOLUTION Dying to Work | 680 | ||
| Summary | 681 | ||
| Exercises | 682 | ||
| Chapter 19 Contracts and Moral Hazards | 685 | ||
| CHALLENGE Clawing Back Bonuses | 685 | ||
| 19.1 Principal-Agent Problem | 687 | ||
| A Model | 687 | ||
| Types of Contracts | 688 | ||
| Efficiency | 688 | ||
| Solved Problem 19.1 | 689 | ||
| APPLICATION Honest Cabbie? | 690 | ||
| 19.2 Production Efficiency | 691 | ||
| Efficient Contract | 691 | ||
| Full Information | 692 | ||
| Solved Problem 19.2 | 695 | ||
| Asymmetric Information | 696 | ||
| APPLICATION Sing for Your Supper | 697 | ||
| 19.3 Trade-Off Between Efficiency in Production and in Risk Bearing | 698 | ||
| Contracts and Efficiency | 698 | ||
| Solved Problem 19.3 | 699 | ||
| Choosing the Best Contract | 700 | ||
| APPLICATION Health Insurance and Moral Hazard | 701 | ||
| Solved Problem 19.4 | 702 | ||
| 19.4 Monitoring to Reduce Moral Hazard | 703 | ||
| Bonding | 703 | ||
| Solved Problem 19.5 | 704 | ||
| APPLICATION Capping Oil and Gas Bankruptcies | 705 | ||
| Deferred Payments | 706 | ||
| Efficiency Wages | 706 | ||
| After-the-Fact Monitoring | 707 | ||
| 19.5 Contract Choice | 708 | ||
| 19.6 Checks on Principals | 709 | ||
| APPLICATION Layoffs Versus Pay Cuts | 709 | ||
| CHALLENGE SOLUTION Clawing Back Bonuses | 711 | ||
| Summary | 712 | ||
| Exercises | 713 | ||
| Answers to Selected Exercises | 717 | ||
| Definitions | 738 | ||
| References | 744 | ||
| Sources for Challenges and Applications | 753 | ||
| Index | 761 | ||
| A\r | 761 | ||
| B\r | 762 | ||
| C\r | 762 | ||
| D\r | 765 | ||
| E\r | 766 | ||
| F\r | 767 | ||
| G\r | 767 | ||
| H\r | 768 | ||
| I\r | 768 | ||
| J\r | 769 | ||
| K\r | 769 | ||
| L\r | 769 | ||
| M\r | 770 | ||
| N\r | 771 | ||
| O\r | 772 | ||
| P\r | 772 | ||
| Q\r | 775 | ||
| R\r | 775 | ||
| S\r | 775 | ||
| T\r | 777 | ||
| U\r | 778 | ||
| V\r | 779 | ||
| W\r | 779 | ||
| Z\r | 779 | ||
| Credits | 780 |