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Microeconomics, Global Edition

Microeconomics, Global Edition

Robert Pindyck | Daniel Rubinfeld

(2017)

Additional Information

Book Details

Abstract

For Intermediate Microeconomics courses.

 

Microeconomics and its role in decision making and public policy

Microeconomics exposes students to topics that play a central role in microeconomics. From game theory and competitive strategy, to the roles of uncertainty and information, and the analysis of pricing by firms with market power, the text helps students understand what’s going on in the world of business. It also shows students how microeconomics can be used as a practical tool for decision-making and for designing and understanding public policy. The 9th Edition further illustrates microeconomics’ relevance and usefulness with new coverage and examples, and an improved exposition that is clear and accessible as well as lively and engaging. With Microeconomics, readers will be able to fully appreciate how a modern economy functions.

 

MyLabTM Economics not included. Students, if MyLab Economics is a recommended/mandatory component of the course, please ask your instructor for the correct ISBN and course ID. MyLab Economics should only be purchased when required by an instructor. Instructors, contact your Pearson rep for more information.


MyLab Economics 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 Cover
Title Page 3
Copyright Page 4
About the Authors 6
Brief Contents 7
Contents 9
Preface 15
Part One Introduction: Markets and Prices 23
1 Preliminaries 25
1.1 The Themes of Microeconomics 26
Trade-Offs 26
Prices and Markets 27
Theories and Models 27
Positive versus Normative Analysis 28
1.2 What Is a Market? 29
Competitive versus Noncompetitive Markets 30
Market Price 30
Market Definition—The Extent of a Market 31
1.3 Real versus Nominal Prices 34
1.4 Why Study Microeconomics? 39
Corporate Decision Making: The Toyota Prius 39
Public Policy Design: Fuel Efficiency Standards for the Twenty-First Century 40
Summary 41
Questions for Review 41
Exercises 42
2 The Basics of Supply and Demand 43
2.1 Supply and Demand 44
The Supply Curve 44
The Demand Curve 45
2.2 The Market Mechanism 47
2.3 Changes in Market Equilibrium 48
2.4 Elasticities of Supply and Demand 55
Point versus Arc Elasticities 58
2.5 Short-Run versus Long-Run Elasticities 62
Demand 62
Supply 67
*2.6 Understanding and Predicting the Effects of Changing Market Conditions 71
2.7 Effects of Government Intervention—Price Controls 80
Summary 83
Questions for Review 83
Exercises 84
Part Two Producers, Consumers, and Competitive Markets 87
3 Consumer Behavior 89
Consumer Behavior 89
3.1 Consumer Preferences 91
Market Baskets 91
Some Basic Assumptions about Preferences 92
Indifference Curves 93
Indifference Maps 94
The Shape of Indifference Curves 95
The Marginal Rate of Substitution 96
Perfect Substitutes and Perfect Complements 98
3.2 Budget Constraints 104
The Budget Line 104
The Effects of Changes in Income and Prices 106
3.3 Consumer Choice 108
Corner Solutions 111
3.4 Revealed Preference 114
3.5 Marginal Utility and Consumer Choice 117
Rationing 120
*3.6 Cost-of-Living Indexes 122
Ideal Cost-of-Living Index 123
Laspeyres Index 124
Paasche Index 125
Price Indexes in the United States: Chain Weighting 126
Summary 127
Questions for Review 128
Exercises 128
4 Individual and Market Demand 131
4.1 Individual Demand 132
Price Changes 132
The Individual Demand Curve 132
Income Changes 134
Normal versus Inferior Goods 135
Engel Curves 136
Substitutes and Complements 138
4.2 Income and Substitution Effects 139
Substitution Effect 140
Income Effect 141
A Special Case: The Giffen Good 142
4.3 Market Demand 144
From Individual to Market Demand 144
Elasticity of Demand 146
Speculative Demand 149
4.4 Consumer Surplus 152
Consumer Surplus and Demand 152
4.5 Network Externalities 155
Positive Network Externalities 155
Negative Network Externalities 157
*4.6 Empirical Estimation of Demand 159
The Statistical Approach to Demand Estimation 160
The Form of the Demand Relationship 161
Interview and Experimental Approaches to Demand Determination 163
Summary 164
Questions for Review 164
Exercises 165
5 Uncertainty and Consumer Behavior 179
5.1 Describing Risk 180
Probability 180
Expected Value 181
Variability 181
Decision Making 183
5.2 Preferences Toward Risk 185
Different Preferences Toward Risk 186
5.3 Reducing Risk 190
Diversification 190
Insurance 191
The Value of Information 194
*5.4 The Demand for Risky Assets 196
Assets 196
Risky and Riskless Assets 197
Asset Returns 197
The Trade-Off Between Risk and Return 199
The Investor’s Choice Problem 200
Summary 205
Questions for Review 205
Exercises 205
6 Production 209
The Production Decisions of a Firm 209
6.1 Firms and Their Production Decisions 210
Why Do Firms Exist? 211
The Technology of Production 212
The Production Function 212
The Short Run versus the Long Run 213
6.2 Production with One Variable Input (Labor) 214
Average and Marginal Products 214
The Slopes of the Product Curve 215
The Average Product of Labor Curve 217
The Marginal Product of Labor Curve 217
The Law of Diminishing Marginal Returns 218
Labor Productivity 222
6.3 Production with Two Variable Inputs 224
Isoquants 224
Input Flexibility 226
Diminishing Marginal Returns 226
Substitution Among Inputs 226
Production Functions—Two Special Cases 228
6.4 Returns to Scale 231
Describing Returns to Scale 232
Summary 234
Questions for Review 234
Exercises 235
7 The Cost of Production 237
7.1 Measuring Cost: Which Costs Matter? 237
Economic Cost versus Accounting Cost 238
Opportunity Cost 238
Sunk Costs 239
Fixed Costs and Variable Costs 241
Fixed versus Sunk Costs 242
Marginal and Average Cost 244
7.2 Cost in the Short Run 245
The Determinants of Short-Run Cost 245
The Shapes of the Cost Curves 246
7.3 Cost in the Long Run 251
The User Cost of Capital 251
The Cost-Minimizing Input Choice 252
The Isocost Line 253
Choosing Inputs 253
Cost Minimization with Varying Output Levels 257
The Expansion Path and Long-Run Costs 258
7.4 Long-Run versus Short-Run Cost Curves 261
The Inflexibility of Short-Run Production 261
Long-Run Average Cost 262
Economies and Diseconomies of Scale 263
The Relationship between Short-Run and Long-Run Cost 266
7.5 Production with Two Outputs—Economies of Scope 267
Product Transformation Curves 267
Economies and Diseconomies of Scope 268
The Degree of Economies of Scope 269
*7.6 Dynamic Changes in Costs— The Learning Curve 270
Graphing the Learning Curve 270
Learning versus Economies of Scale 271
*7.7 Estimating and Predicting Cost 275
Cost Functions and the Measurement of Scale Economies 276
Summary 278
Questions for Review 279
Exercises 280
8 Profit Maximization and Competitive Supply 289
8.1 Perfectly Competitive Markets 289
When Is a Market Highly Competitive? 291
8.2 Profit Maximization 292
Do Firms Maximize Profit? 292
Alternative Forms of Organization 293
8.3 Marginal Revenue, Marginal Cost, and Profit Maximization 294
Demand and Marginal Revenue for a Competitive Firm 295
Profit Maximization by a Competitive Firm 297
8.4 Choosing Output in the Short Run 297
Short-Run Profit Maximization by a Competitive Firm 297
When Should the Firm Shut Down? 299
8.5 The Competitive Firm’s Short-Run Supply Curve 302
The Firm’s Response to an Input Price Change 303
8.6 The Short-Run Market Supply Curve 305
Elasticity of Market Supply 306
Producer Surplus in the Short Run 308
8.7 Choosing Output in the Long Run 310
Long-Run Profit Maximization 310
Long-Run Competitive Equilibrium 311
Economic Rent 314
Producer Surplus in the Long Run 315
8.8 The Industry’s Long-Run Supply Curve 316
Constant-Cost Industry 317
Increasing-Cost Industry 318
Decreasing-Cost Industry 319
The Effects of a Tax 320
Long-Run Elasticity of Supply 321
Summary 324
Questions for Review 324
Exercises 325
9 The Analysis of Competitive Markets 327
9.1 Evaluating the Gains and Losses from Government Policies—Consumer and Producer Surplus 327
Review of Consumer and Producer Surplus 328
Application of Consumer and Producer Surplus 329
9.2 The Efficiency of a Competitive Market 333
9.3 Minimum Prices 338
9.4 Price Supports and Production Quotas 342
Price Supports 342
Production Quotas 344
9.5 Import Quotas and Tariffs 351
9.6 The Impact of a Tax or Subsidy 355
The Effects of a Subsidy 359
Summary 362
Questions for Review 362
Exercises 363
Part Three Market Structure and Competitive Strategy 367
10 Market Power: Monopoly and Monopsony 369
10.1 Monopoly 370
Average Revenue and Marginal Revenue 370
The Monopolist’s Output Decision 371
An Example 373
A Rule of Thumb for Pricing 375
Shifts in Demand 377
The Effect of a Tax 378
*The Multiplant Firm 379
10.2 Monopoly Power 380
Production, Price, and Monopoly Power 383
Measuring Monopoly Power 383
The Rule of Thumb for Pricing 384
10.3 Sources of Monopoly Power 387
The Elasticity of Market Demand 388
The Number of Firms 388
The Interaction Among Firms 389
10.4 The Social Costs of Monopoly Power 389
Rent Seeking 390
Price Regulation 391
Natural Monopoly 392
Regulation in Practice 393
10.5 Monopsony 394
Monopsony and Monopoly Compared 397
10.6 Monopsony Power 398
Sources of Monopsony Power 398
The Social Costs of Monopsony Power 399
Bilateral Monopoly 400
10.7 Limiting Market Power: The Antitrust Laws 401
Restricting What Firms Can Do 402
Enforcement of the Antitrust Laws 404
Antitrust in Europe 404
Summary 408
Questions for Review 409
Exercises 409
11 Pricing with Market Power 413
11.1 Capturing Consumer Surplus 414
11.2 Price Discrimination 415
First-Degree Price Discrimination 415
Second-Degree Price Discrimination 418
Third-Degree Price Discrimination 418
11.3 Intertemporal Price Discrimination and Peak-Load Pricing 424
Intertemporal Price Discrimination 425
Peak-Load Pricing 426
11.4 The Two-Part Tariff 428
*11.5 Bundling 433
Relative Valuations 434
Mixed Bundling 436
Bundling in Practice 440
Tying 443
*11.6 Advertising 443
A Rule of Thumb for Advertising 445
Summary 448
Questions for Review 448
Exercises 449
12 Monopolistic Competition and Oligopoly 465
12.1 Monopolistic Competition 466
The Makings of Monopolistic Competition 466
Equilibrium in the Short Run and the Long Run 467
Monopolistic Competition and Economic Efficiency 468
12.2 Oligopoly 470
Equilibrium in an Oligopolistic Market 471
The Cournot Model 472
The Linear Demand Curve—An Example 475
First Mover Advantage—The Stackelberg Model 477
12.3 Price Competition 478
Price Competition with Homogeneous Products—The Bertrand Model 478
Price Competition with Differentiated Products 479
12.4 Competition versus Collusion: The Prisoners’ Dilemma 483
12.5 Implications of the Prisoners’ Dilemma for Oligopolistic Pricing 486
Price Rigidity 486
Price Signaling and Price Leadership 487
The Dominant Firm Model 490
12.6 Cartels 491
Analysis of Cartel Pricing 492
Summary 496
Questions for Review 497
Exercises 497
13 Game Theory and Competitive Strategy 501
13.1 Gaming and Strategic Decisions 501
Noncooperative versus Cooperative Games 502
13.2 Dominant Strategies 504
13.3 The Nash Equilibrium Revisited 506
Maximin Strategies 508
*Mixed Strategies 510
13.4 Repeated Games 512
13.5 Sequential Games 517
The Extensive Form of a Game 517
The Advantage of Moving First 518
13.6 Threats, Commitments, and Credibility 519
Empty Threats 520
Commitment and Credibility 520
Bargaining Strategy 522
13.7 Entry Deterrence 524
Strategic Trade Policy and International Competition 527
*13.8 Auctions 530
Auction Formats 531
Valuation and Information 531
Private-Value Auctions 532
Common-Value Auctions 533
Maximizing Auction Revenue 535
Bidding and Collusion 535
Summary 538
Questions for Review 538
Exercises 539
14 Markets for Factor Inputs 543
14.1 Competitive Factor Markets 543
Demand for a Factor Input When Only One Input Is Variable 544
Demand for a Factor Input When Several Inputs Are Variable 547
The Market Demand Curve 548
The Supply of Inputs to a Firm 551
The Market Supply of Inputs 553
14.2 Equilibrium in a Competitive Factor Market 556
Economic Rent 556
14.3 Factor Markets with Monopsony Power 560
Monopsony Power: Marginal and Average Expenditure 560
Purchasing Decisions with Monopsony Power 561
Bargaining Power 562
14.4 Factor Markets with Monopoly Power 564
Monopoly Power over the Wage Rate 564
Unionized and Nonunionized Workers 566
Summary 569
Questions for Review 569
Exercises 570
15 Investment, Time, and Capital Markets 573
15.1 Stocks versus Flows 574
15.2 Present Discounted Value 575
Valuing Payment Streams 576
15.3 The Value of a Bond 578
Perpetuities 579
The Effective Yield on a Bond 580
15.4 The Net Present Value Criterion for Capital Investment Decisions 583
The Electric Motor Factory 584
Real versus Nominal Discount Rates 585
Negative Future Cash Flows 586
15.5 Adjustments for Risk 587
Diversifiable versus Nondiversifiable Risk 588
The Capital Asset Pricing Model 589
15.6 Investment Decisions by Consumers 592
15.7 Investments in Human Capital 594
*15.8 Intertemporal Production Decisions—Depletable Resources 598
The Production Decision of an Individual Resource Producer 598
The Behavior of Market Price 599
User Cost 599
Resource Production by a Monopolist 600
15.9 How Are Interest Rates Determined? 602
A Variety of Interest Rates 603
Summary 604
Questions for Review 605
Exercises 605
Part Four Information, Market Failure, and the Role of Government 607
16 General Equilibrium and Economic Efficiency 609
16.1 General Equilibrium Analysis 609
Two Interdependent Markets—Moving to General Equilibrium 610
Reaching General Equilibrium 611
Economic Efficiency 615
16.2 Efficiency in Exchange 616
The Advantages of Trade 617
The Edgeworth Box Diagram 617
Efficient Allocations 618
The Contract Curve 620
Consumer Equilibrium in a Competitive Market 621
The Economic Efficiency of Competitive Markets 623
16.3 Equity and Efficiency 624
The Utility Possibilities Frontier 624
Equity and Perfect Competition 626
16.4 Efficiency in Production 627
Input Efficiency 627
The Production Possibilities Frontier 628
Output Efficiency 629
Efficiency in Output Markets 631
16.5 The Gains from Free Trade 632
Comparative Advantage 632
An Expanded Production Possibilities Frontier 633
16.6 An Overview—The Efficiency of Competitive Markets 637
16.7 Why Markets Fail 638
Market Power 639
Incomplete Information 639
Externalities 639
Public Goods 640
Summary 641
Questions for Review 641
Exercises 642
17 Markets with Asymmetric Information 645
17.1 Quality Uncertainty and the Market for Lemons 646
The Market for Used Cars 646
Implications of Asymmetric Information 648
The Importance of Reputation and Standardization 649
17.2 Market Signaling 653
A Simple Model of Job Market Signaling 654
Guarantees and Warranties 656
17.3 Moral Hazard 658
17.4 The Principal–Agent Problem 660
The Principal–Agent Problem in Private Enterprises 660
The Principal–Agent Problem in Public Enterprises 663
Incentives in the Principal–Agent Framework 664
*17.5 Managerial Incentives in an Integrated Firm 666
Asymmetric Information and Incentive Design in the Integrated Firm 666
Applications 668
17.6 Asymmetric Information in Labor Markets: Efficiency Wage Theory 669
Summary 671
Questions for Review 672
Exercises 672
18 Externalities and Public Goods 675
18.1 Externalities 675
Negative Externalities and Inefficiency 676
Positive Externalities and Inefficiency 678
18.2 Ways of Correcting Market Failure 681
An Emissions Standard 682
An Emissions Fee 682
Standards versus Fees 683
Tradeable Emissions Permits 686
Recycling 689
18.3 Stock Externalities 693
Stock Buildup and Its Impact 694
18.4 Externalities and Property Rights 699
Property Rights 699
Bargaining and Economic Efficiency 700
Costly Bargaining—The Role of Strategic Behavior 701
A Legal Solution—Suing for Damages 701
18.5 Common Property Resources 703
18.6 Public Goods 705
Efficiency and Public Goods 706
Public Goods and Market Failure 708
Summary 709
Questions for Review 710
Exercises 711
19 Behavioral Economics 713
19.1 Reference Points and Consumer Preferences 714
19.2 Fairness 718
19.3 Rules of Thumb and Biases in Decision Making 719
19.4 Bubbles 726
Informational Cascades 728
19.5 Behavioral Economics and Public Policy 731
Summing Up 733
Summary 733
Questions for Review 734
Exercises 734
Appendix: The Basics of Regression 735
Glossary 743
Answers to Selected Exercises 753
Photo Credits 768
Index 769
List of Examples 783