Microeconomics: theory and applications with calculus

785 Pages·25.643 MB·English

by  Perloff, Jeffrey M

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Microeconomics
THEORY AND APPLICATIONS WITH CALCULUS
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Microeconomics
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Brief Contents
Preface 14
Chapter 1 Introduction 23
Chapter 2 Supply and Demand 31
Chapter 3 A Consumer’s Constrained Choice 83
Chapter 4 Demand 126
Chapter 5 Consumer Welfare and Policy Analysis 164
Chapter 6 Firms and Production 198
Chapter 7 Costs 231
Chapter 8 Competitive Firms and Markets 270
Chapter 9 Properties and Applications of the Competitive Model 311
Chapter 10 General Equilibrium and Economic Welfare 348
Chapter 11 Monopoly and Monopsony 385
Chapter 12 Pricing and Advertising 431
Chapter 13 Game Theory 471
Chapter 14 Oligopoly and Monopolistic Competition 505
Chapter 15 Factor Markets 554
Chapter 16 Uncertainty 589
Chapter 17 Property Rights, Externalities, Rivalry, and Exclusion 625
Chapter 18 Asymmetric Information 659
Chapter 19 Contracts and Moral Hazards 685
Answers to Selected Exercises 717
Definitions 738
References 744
Sources for Challenges and Applications 753
Index 761
Credits 780
5
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Contents
Preface 14 APPLICATION The Demand Elasticities
for Google Play and Apple Apps 53
Solved Problem 2.3 56
Chapter 1 Introduction 23
Supply Elasticity 57
Solved Problem 2.4 59
1.1 Microeconomics: The Allocation of Scarce
Long Run Versus Short Run 59
Resources 23
APPLICATION Oil Drilling in the Arctic
Trade-Offs 24
National Wildlife Refuge 60
Who Makes the Decisions 24
Solved Problem 2.5 61
How Prices Determine Allocations 24
APPLICATION Twinkie Tax 25 2.6 Effects of a Sales Tax 63
Equilibrium Effects of a Specific Tax 63
1.2 Models 25
The Same Equilibrium No Matter Who Is Taxed 65
APPLICATION Income Threshold Model
Who Pays the Tax? 65
and China 25
Solved Problem 2.6 67
Simplifications by Assumption 26
APPLICATION Subsidizing Ethanol 68
Testing Theories 27
The Similar Effects of Ad Valorem and Specific
Maximizing Subject to Constraints 27
Taxes 68
Positive Versus Normative 28
2.7 Quantity Supplied Need Not Equal Quantity
1.3 Uses of Microeconomic Models 29
Demanded 69
Summary 30
Price Ceiling 70
APPLICATION Venezuelan Price Ceilings
Chapter 2 Supply and Demand 31 and Shortages 72
Price Floor 73
CHALLENGE Quantities and Prices
2.8 When to Use the Supply-and-Demand Model 74
of Genetically Modified Foods 31
CHALLENGE SOLUTION Quantities
2.1 Demand 32 and Prices of Genetically Modified Foods 75
The Demand Function 33
Summary 76 ■ Exercises 77
Summing Demand Functions 37
APPLICATION Aggregating Corn
Demand Curves 38 Chapter 3 A Consumer’s Constrained
2.2 Supply 38 Choice 83
The Supply Function 39
Summing Supply Functions 41 CHALLENGE Why Americans Buy E-Books
How Government Import Policies Affect and Germans Do Not 83
Supply Curves 41 3.1 Preferences 85
2.3 Market Equilibrium 42 Properties of Consumer Preferences 85
Finding the Market Equilibrium 43 APPLICATION You Can’t Have Too Much
Forces That Drive a Market to Equilibrium 44 Money 86
Preference Maps 87
2.4 Shocking the Equilibrium: Comparative Statics 45
Indifference Curves 88
Comparative Statics with Discrete (Relatively
Solved Problem 3.1 90
Large) Changes 46
APPLICATION Occupational Licensing 47 3.2 Utility 90
Comparative Statics with Small Changes 47 Utility Function 90
Solved Problem 2.1 49 Willingness to Substitute Between Goods 93
Why the Shapes of Demand and Supply Solved Problem 3.2 95
Curves Matter 50 APPLICATION MRS Between Recorded
Tracks and Live Music 96
2.5 Elasticities 51
Curvature of Indifference Curves 96
Demand Elasticity 52
Solved Problem 3.3 99
Solved Problem 2.2 52
6
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Contents 7
APPLICATION Indifference Curves Between 4.5 Revealed Preference 157
Food and Clothing 100 Recovering Preferences 157
3.3 Budget Constraint 100 Substitution Effect 158
3.4 Constrained Consumer Choice 102 CHALLENGE SOLUTION Paying Employees
to Relocate 159
Finding an Interior Solution Using Graphs 103
Solved Problem 3.4 105 Summary 160 ■ Exercises 161
Finding an Interior Solution Using Calculus 105
Solved Problem 3.5 107 Chapter 5 Consumer Welfare and Policy
Solved Problem 3.6 108 Analysis 164
Solved Problem 3.7 110
APPLICATION Utility Maximization for CHALLENGE Per-Hour Versus Lump-Sum
Recorded Tracks and Live Music 110 Childcare Subsidies 164
Finding Corner Solutions 111 5.1 Uncompensated Consumer Welfare 165
Minimizing Expenditure 115 Willingness to Pay 166
Solved Problem 3.8 116 An Individual’s Consumer Surplus 166
3.5 Behavioral Economics 117 APPLICATION Willingness to Pay
Tests of Transitivity 118 and Consumer Surplus on eBay 168
Endowment Effect 118 Effect of a Price Change on Consumer Surplus 169
APPLICATION Opt In Versus Opt Out 119 Solved Problem 5.1 169
Salience 119 Market Consumer Surplus 170
CHALLENGE SOLUTION Why Americans 5.2 Compensated Consumer Welfare 171
Buy E-Books and Germans Do Not 121 Indifference Curve Analysis 171
Summary 121 ■ Exercises 122 APPLICATION Compensating Variation and
Equivalent Variation for the Internet 173
Compensated Demand Curves and Consumer
Chapter 4 Demand 126
Welfare 174
CHALLENGE Paying Employees to Relocate 126 Comparing the Three Welfare Measures 175
4.1 Deriving Demand Curves 127 Solved Problem 5.2 177
System of Demand Functions 127 5.3 Effects of Government Policies on Consumer
Graphical Interpretation 129 Welfare 178
APPLICATION Smoking Versus Eating Quotas 178
and Phoning 131 Food Stamps 180
4.2 Effects of an Increase in Income 132 APPLICATION Food Stamps Versus Cash 182
How Income Changes Shift Demand Curves 132 5.4 Deriving Labor Supply Curves 182
Solved Problem 4.1 134 Labor-Leisure Choice 182
Consumer Theory and Income Elasticities 135 Solved Problem 5.3 185
Solved Problem 4.2 136 Income and Substitution Effects 186
APPLICATION Fast-Food Engel Curve 138 Solved Problem 5.4 187
Solved Problem 4.3 140 Shape of the Labor Supply Curve 188
4.3 Effects of a Price Increase 141 APPLICATION Working After Winning
Income and Substitution Effects with the Lottery 189
Income Tax Rates and the Labor Supply
a Normal Good 141
Solved Problem 4.4 143 Curve 189
APPLICATION Substituting Alcohol Solved Problem 5.5 191
for Marijuana 144 CHALLENGE SOLUTION Per-Hour Versus
Solved Problem 4.5 144 Lump-Sum Childcare Subsidies 193
Income and Substitution Effects with Summary 194 ■ Exercises 195
an Inferior Good 145
Solved Problem 4.6 145 Chapter 6 Firms and Production 198
Compensated Demand Curve 146
Solved Problem 4.7 149 CHALLENGE Labor Productivity During
Slutsky Equation 149 Downturns 198
4.4 Cost-of-Living Adjustment 151 6.1 The Ownership and Management of Firms 199
Inflation Indexes 152 Private, Public, and Nonprofit Firms 199
Effects of Inflation Adjustments 153 APPLICATION Chinese State-Owned
APPLICATION Reducing the CPI Substitution Enterprises 200
Bias 156 The Ownership of For-Profit Firms 200
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8 Contents
The Management of Firms 201 Solved Problem 7.2 237
What Owners Want 201 Short-Run Cost Curves 239
Production Functions and the Shape
6.2 Production 202
of Cost Curves 240
Production Functions 202
Time and the Variability of Inputs 202 APPLICATION Short-Run Cost Curves
for a Japanese Beer Manufacturer 242
6.3 Short-Run Production: One Variable
Effects of Taxes on Costs 243
and One Fixed Input 203
Short-Run Cost Summary 243
Solved Problem 6.1 204
7.3 Long-Run Costs 244
Interpretation of Graphs 205
Input Choice 245
Solved Problem 6.2 207
Law of Diminishing Marginal Returns 208 Solved Problem 7.3 248
APPLICATION Malthus and the Green Solved Problem 7.4 250
How Long-Run Cost Varies with Output 252
Revolution 208
Solved Problem 7.5 253
6.4 Long-Run Production: Two Variable Inputs 210
Solved Problem 7.6 255
Isoquants 210
The Shape of Long-Run Cost Curves 255
APPLICATION A Semiconductor Integrated
APPLICATION 3D Printing 256
Circuit Isoquant 213
Estimating Cost Curves Versus
Substituting Inputs 214
Introspection 257
Solved Problem 6.3 215
7.4 Lower Costs in the Long Run 257
Diminishing Marginal Rates of Technical
Long-Run Average Cost as the Envelope
Substitution 215
of Short-Run Average Cost Curves 257
The Elasticity of Substitution 216
Solved Problem 6.4 218 APPLICATION Choosing an Inkjet or Laser
Printer 259
6.5 Returns to Scale 218
Short-Run and Long-Run Expansion Paths 260
Constant, Increasing, and Decreasing
How Learning by Doing Lowers Costs 260
Returns to Scale 219
7.5 Cost of Producing Multiple Goods 262
Solved Problem 6.5 220
APPLICATION Returns to Scale in Various APPLICATION Medical Economies of Scope 264
Industries 220 CHALLENGE SOLUTION Technology
Choice at Home Versus Abroad 264
Varying Returns to Scale 221
6.6 Productivity and Technical Change 222 Summary 265 ■ Exercises 266
Relative Productivity 222
APPLICATION A Good Boss Raises
Productivity 223 Chapter 8 Competitive Firms and Markets 270
Innovations 223
CHALLENGE The Rising Cost of Keeping
APPLICATION Tata Nano’s Technical On Truckin’ 270
and Organizational Innovations 224
8.1 Perfect Competition 271
CHALLENGE SOLUTION Labor Productivity
Price Taking 271
During Downturns 225
Why a Firm’s Demand Curve Is Horizontal 272
Summary 226 ■ Exercises 227
Perfect Competition in the Chicago
Commodity Exchange 273
Deviations from Perfect Competition 273
Chapter 7 Costs 231
Derivation of a Competitive Firm’s Demand
CHALLENGE Technology Choice at Home Curve 274
Versus Abroad 231 Why Perfect Competition Is Important 276
7.1 Measuring Costs 232 Solved Problem 8.1 276
Opportunity Costs 233 8.2 Profit Maximization 276
APPLICATION The Opportunity Cost Profit 277
of an MBA 233 Two Steps to Maximizing Profit 278
Solved Problem 7.1 234 8.3 Competition in the Short Run 280
Opportunity Cost of Capital 234 Short-Run Competitive Profit Maximization 281
Sunk Costs 235 Solved Problem 8.2 283
7.2 Short-Run Costs 236 APPLICATION Fracking and Shutdowns 286
Short-Run Cost Measures 236 Short-Run Firm Supply Curve 287
APPLICATION The Sharing Economy Solved Problem 8.3 288
and the Short Run 237 Short-Run Market Supply Curve 289
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Contents 9
Short-Run Competitive Equilibrium 291 9.6 Comparing Both Types of Policies: Trade 333
Solved Problem 8.4 292 Free Trade Versus a Ban on Imports 334
8.4 Competition in the Long Run 293 Solved Problem 9.4 335
Long-Run Competitive Profit Maximization 293 APPLICATION Russian Food Ban 336
Long-Run Firm Supply Curve 293 Free Trade Versus a Tariff 336
APPLICATION The Size of Ethanol Solved Problem 9.5 339
Processing Plants 294 Free Trade Versus a Quota 340
Long-Run Market Supply Curve 295 Rent Seeking 340
APPLICATION Entry and Exit of Solar Power CHALLENGE SOLUTION Liquor Licenses 341
Firms 296 Summary 343 ■ Exercises 343
APPLICATION Upward-Sloping Long-Run
Supply Curve for Cotton 298 Chapter 10 General Equilibrium and
APPLICATION Reformulated Gasoline Economic Welfare 348
Supply Curves 302
Solved Problem 8.5 303 CHALLENGE Anti-Price Gouging Laws 348
Long-Run Competitive Equilibrium 304 10.1 General Equilibrium 350
CHALLENGE SOLUTION The Rising Cost Competitive Equilibrium in Two Interrelated
of Keeping On Truckin’ 305 Markets 351
Summary 306 ■ Exercises 307 APPLICATION Partial-Equilibrium Versus
Multimarket-Equilibrium Analysis in
Corn and Soybean Markets 352
Chapter 9 Properties and Applications Minimum Wages with Incomplete Coverage 353
of the Competitive Model 311 Solved Problem 10.1 355
APPLICATION Urban Flight 356
CHALLENGE Liquor Licenses 311
10.2 Trading Between Two People 356
9.1 Zero Profit for Competitive Firms in the Endowments 356
Long Run 312 Mutually Beneficial Trades 358
Zero Long-Run Profit with Free Entry 312 Solved Problem 10.2 360
Zero Long-Run Profit When Entry Is Limited 313 Deriving the Contract Curve 360
The Need to Maximize Profit 315 Solved Problem 10.3 361
9.2 Producer Surplus 315 Bargaining Ability 361
Measuring Producer Surplus Using 10.3 Competitive Exchange 361
a Supply Curve 315 Competitive Equilibrium 362
Using Producer Surplus 317 Solved Problem 10.4 364
Solved Problem 9.1 317 The Efficiency of Competition 364
9.3 Competition Maximizes Welfare 318 Obtaining Any Efficient Allocation Using
Measuring Welfare 318 Competition 364
Why Producing Less Than the Competitive 10.4 Production and Trading 365
Output Lowers Welfare 319 Comparative Advantage 365
Why Producing More Than the Competitive Solved Problem 10.5 367
Output Lowers Welfare 320 Efficient Product Mix 369
APPLICATION The Deadweight Loss Competition 369
of Christmas Presents 322
10.5 Efficiency and Equity 371
9.4 Policies That Shift Supply Curves 323 Role of the Government 371
APPLICATION Welfare Effects of Allowing APPLICATION The Wealthy Get Wealthier 372
Fracking 324 Efficiency 374
9.5 Policies That Create a Wedge Between Equity 375
Supply and Demand Curves 325 Efficiency Versus Equity 378
Welfare Effects of a Sales Tax 325 Theory of the Second Best 379
Welfare Effects of a Price Floor 327 CHALLENGE SOLUTION Anti-Price
Solved Problem 9.2 329 Gouging Laws 380
APPLICATION How Big Are Farm Subsidies Summary 381 ■ Exercises 382
and Who Gets Them? 330
Welfare Effects of a Price Ceiling 331 Chapter 11 Monopoly and Monopsony 385
Solved Problem 9.3 332
APPLICATION The Social Cost of a Natural CHALLENGE Brand-Name and Generic Drugs 385
Gas Price Ceiling 333 11.1 Monopoly Profit Maximization 386
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