Intermediate Microeconomics A Modern Approach

ISBN-10: 0393973700

ISBN-13: 9780393973709

Edition: 5th 1999

Authors: Hal R. Varian

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This edition continues the title's contemporary emphasis and is aimed at students studying microeconomics in their first or second years. It provides fresh insights into information technology, expanded coverage of strategic behaviour and a new chapter on auctions featuring fresh research.
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Book details

Edition: 5th
Copyright year: 1999
Publisher: W. W. Norton & Company, Incorporated
Binding: Hardcover
Pages: 724
Size: 6.93" wide x 9.45" long x 0.52" tall
Weight: 1.320
Language: English

Prefacep. xix
The Market
Constructing a Modelp. 1
Optimization and Equilibriump. 3
The Demand Curvep. 3
The Supply Curvep. 5
Market Equilibriump. 7
Comparative Staticsp. 9
Other Ways to Allocate Apartmentsp. 11
The Discriminating Monopolist
The Ordinary Monopolist
Rent Control
Which Way Is Best?p. 14
Pareto Efficiencyp. 15
Comparing Ways to Allocate Apartmentsp. 16
Equilibrium in the Long Runp. 17
Summaryp. 18
Review Questionsp. 19
Budget Constraint
The Budget Constraintp. 20
Two Goods Are Often Enoughp. 21
Properties of the Budget Setp. 22
How the Budget Line Changesp. 24
The Numerairep. 26
Taxes, Subsidies, and Rationingp. 26
Example: The Food Stamp Program Budget Line Changesp. 31
Summaryp. 31
Review Questionsp. 32
Preferences
Consumer Preferencesp. 34
Assumptions about Preferencesp. 35
Indifference Curvesp. 36
Examples of Preferencesp. 37
Perfect Substitutes
Perfect Complements
Bads
Neutrals
Satiation
Discrete Goods
Well-Behaved Preferencesp. 44
The Marginal Rate of Substitutionp. 48
Other Interpretations of the MRSp. 50
Behavior of the MRSp. 51
Summaryp. 52
Review Questionsp. 52
Utility
Cardinal Utilityp. 57
Constructing a Utility Functionp. 58
Some Examples of Utility Functionsp. 59
Example: Indifference Curves from Utility Perfect Substitutes
Perfect Complements
Quasilinear Preferences
Cobb-Douglas Preferences
Marginal Utilityp. 65
Marginal Utility and MRSp. 66
Utility for Commutingp. 67
Summaryp. 69
Review Questionsp. 70
Appendixp. 70
Example: Cobb-Douglas Preferences
Choice
Optimal Choicep. 73
Consumer Demandp. 78
Some Examplesp. 78
Perfect Substitutes
Perfect Complements
Neutrals and Bads
Discrete Goods
Concave Preferences
Cobb-Douglas Preferences
Estimating Utility Functionsp. 83
Implications of the MRS Conditionp. 85
Choosing Taxesp. 87
Summaryp. 89
Review Questionsp. 89
Appendixp. 90
Example: Cobb-Douglas Demand Functions
Demand
Normal and Inferior Goodsp. 96
Income Offer Curves and Engel Curvesp. 97
Some Examplesp. 99
Perfect Substitutes
Perfect Complements
Cobb-Douglas Preferences
Homothetic Preferences
Quasilinear Preferences
Ordinary Goods and Giffen Goodsp. 104
The Price Offer Curve and the Demand Curvep. 106
Some Examplesp. 107
Perfect Substitutes
Perfect Complements
A Discrete Good
Substitutes and Complementsp. 111
The Inverse Demand Functionp. 112
Summaryp. 114
Review Questionsp. 115
Appendixp. 116
Revealed Preference
The Idea of Revealed Preferencep. 119
From Revealed Preference to Preferencep. 120
Recovering Preferencesp. 122
The Weak Axiom of Revealed Preferencep. 124
Checking WARPp. 125
The Strong Axiom of Revealed Preferencep. 128
How to Check SARPp. 129
Index Numbersp. 130
Price Indicesp. 132
Example: Indexing Social Security Payments Summaryp. 135
Review Questionsp. 135
Slutsky Equation
The Substitution Effectp. 137
Example: Calculating the Substitution Effect The Income Effectp. 141
Example: Calculating the Income Effect Sign of the Substitution Effectp. 142
The Total Change in Demandp. 143
Rates of Changep. 144
The Law of Demandp. 147
Examples of Income and Substitution Effectsp. 147
Example: Rebating a Tax Another Substitution Effectp. 151
Compensated Demand Curvesp. 154
Summaryp. 154
Review Questionsp. 155
Appendixp. 155
Example: Rebating a Small Tax
Buying and Selling
Net and Gross Demandsp. 158
The Budget Constraintp. 159
Changing the Endowmentp. 161
Price Changesp. 162
Offer Curves and Demand Curvesp. 165
The Slutsky Equation Revisitedp. 166
Use of the Slutsky Equationp. 170
Example: Calculating the Endowment Income Effect Labor Supplyp. 171
The Budget Constraint
Comparative Statics of Labor Supplyp. 172
Example: Overtime and the Supply of Labor Summaryp. 176
Review Questionsp. 177
Appendixp. 177
Intertemporal Choice
The Budget Constraintp. 180
Preferences for Consumptionp. 183
Comparative Staticsp. 184
The Slutsky Equation and Intertemporal Choicep. 185
Inflationp. 187
Present Value: A Closer Lookp. 189
Analyzing Present Value for Several Periodsp. 191
Use of Present Valuep. 192
Example: Valuing a Stream of Payments Example: The True Cost of a Credit Card Bondsp. 195
Example: Installment Loans Taxesp. 197
Example: Scholarships and Savings Choice of the Interest Ratep. 198
Summaryp. 199
Review Questionsp. 199
Asset Markets
Rates of Returnp. 200
Arbitrage and Present Valuep. 202
Adjustments for Differences among Assetsp. 202
Assets with Consumption Returnsp. 203
Taxation of Asset Returnsp. 204
Applicationsp. 205
Depletable Resources
When to Cut a Forest
Example: Gasoline Prices during the Gulf War Financial Institutionsp. 209
Summaryp. 210
Review Questionsp. 211
Appendixp. 211
Uncertainty
Contingent Consumptionp. 213
Utility Functions and Probabilitiesp. 217
Example: Some Examples of Utility Functions Expected Utilityp. 218
Why Expected Utility Is Reasonablep. 219
Risk Aversionp. 221
Example: The Demand for Insurance Diversificationp. 225
Risk Spreadingp. 225
Role of the Stock Marketp. 226
Summaryp. 227
Review Questionsp. 227
Appendixp. 228
Example: The Effect of Taxation on Investment in Risky Assets
Risky Assets
Mean-Variance Utilityp. 231
Measuring Riskp. 236
Equilibrium in a Market for Risky Assetsp. 238
How Returns Adjustp. 239
Example: Ranking Mutual Funds Summaryp. 243
Review Questionsp. 243
Consumer's Surplus
Demand for a Discrete Goodp. 245
Constructing Utility from Demandp. 246
Other Interpretations of Consumer's Surplusp. 247
From Consumer's Surplus to Consumers' Surplusp. 248
Approximating a Continuous Demandp. 248
Quasilinear Utilityp. 248
Interpreting the Change in Consumer's Surplusp. 249
Example: The Change in Consumer's Surplus Compensating and Equivalent Variationp. 251
Example: Compensating and Equivalent Variations Example: Compensating and Equivalent Variation for Quasilinear Preferences Producer's Surplusp. 255
Calculating Gains and Lossesp. 257
Summaryp. 258
Review Questionsp. 259
Appendixp. 259
Example: A Few Demand Functions Example: CV, EV, and Consumer's Surplus
Market Demand
From Individual to Market Demandp. 262
The Inverse Demand Functionp. 264
Example: Adding Up "Linear" Demand Curves Discrete Goodsp. 265
The Extensive and the Intensive Marginp. 265
Elasticityp. 266
Example: The Elasticity of a Linear Demand Curve Elasticity and Demandp. 268
Elasticity and Revenuep. 269
Example: Strikes and Profits Constant Elasticity Demandsp. 272
Elasticity and Marginal Revenuep. 273
Example: Setting a Price Marginal Revenue Curvesp. 275
Income Elasticityp. 276
Summaryp. 277
Review Questionsp. 278
Appendixp. 279
Example: The Laffer Curve Example: Another Expression for Elasticity
Equilibrium
Supplyp. 285
Market Equilibriump. 285
Two Special Casesp. 286
Inverse Demand and Supply Curvesp. 287
Example: Equilibrium with Linear Curves Comparative Staticsp. 289
Example: Shifting Both Curves Taxesp. 290
Example: Taxation with Linear Demand and Supply Passing Along a Taxp. 294
The Deadweight Loss of a Taxp. 296
Example: The Market for Loans Example: Food Subsidies Pareto Efficiencyp. 302
Example: Waiting in Line Summaryp. 304
Review Questionsp. 305
Auctions
Classification of Auctionsp. 307
Bidding Rules
Auction Designp. 308
Problems with Auctionsp. 311
The Winner's Cursep. 312
Summaryp. 312
Review Questionsp. 313
Technology
Inputs and Outputsp. 314
Describing Technological Constraintsp. 315
Examples of Technologyp. 316
Fixed Proportions
Perfect Substitutes
Cobb-Douglas
Properties of Technologyp. 318
The Marginal Productp. 320
The Technical Rate of Substitutionp. 320
Diminishing Marginal Productp. 321
Diminishing Technical Rate of Substitutionp. 321
The Long Run and the Short Runp. 322
Returns to Scalep. 322
Summaryp. 324
Review Questionsp. 325
Profit Maximization
Profitsp. 326
The Organization of Firmsp. 328
Profits and Stock Market Valuep. 328
Fixed and Variable Factorsp. 330
Short-Run Profit Maximizationp. 330
Comparative Staticsp. 332
Profit Maximization in the Long Runp. 333
Inverse Factor Demand Curvesp. 334
Profit Maximization and Returns to Scalep. 335
Revealed Profitabilityp. 336
Example: How Do Farmers React to Price Supports? Cost Minimizationp. 340
Summaryp. 340
Review Questionsp. 341
Appendixp. 342
Cost Minimization
Cost Minimizationp. 344
Example: Minimizing Costs for Specific Technologies Revealed Cost Minimizationp. 348
Returns to Scale and the Cost Functionp. 349
Long-Run and Short-Run Costsp. 351
Fixed and Quasi-Fixed Costsp. 353
Sunk Costsp. 353
Summaryp. 354
Review Questionsp. 354
Appendixp. 355
Cost Curves
Average Costsp. 358
Marginal Costsp. 360
Marginal Costs and Variable Costsp. 362
Example: Specific Cost Curves Example: Marginal Cost Curves for Two Plants Long-Run Costsp. 366
Discrete Levels of Plant Sizep. 368
Long-Run Marginal Costsp. 370
Summaryp. 371
Review Questionsp. 372
Appendixp. 372
Firm Supply
Market Environmentsp. 374
Pure Competitionp. 375
The Supply Decision of a Competitive Firmp. 377
An Exceptionp. 379
Another Exceptionp. 380
Example: Pricing Operating Systems The Inverse Supply Functionp. 382
Profits and Producer's Surplusp. 382
Example: The Supply Curve for a Specific Cost Function The Long-Run Supply Curve of a Firmp. 386
Long-Run Constant Average Costsp. 388
Summaryp. 389
Review Questionsp. 390
Appendixp. 390
Industry Supply
Short-Run Industry Supplyp. 392
Industry Equilibrium in the Short Runp. 393
Industry Equilibrium in the Long Runp. 394
The Long-Run Supply Curvep. 396
Example: Taxation in the Long Run and in the Short Run The Meaning of Zero profitsp. 400
Fixed Factors and Economic Rentp. 401
Example: Taxi Licenses in New York City Economic Rentp. 401
Rental Rates and Pricesp. 405
Example: Liquor Licenses The Politics of Rentp. 406
Example: Farming the Government Energy Policyp. 408
Two-Tiered Oil Pricing
Price Controls
The Entitlement Program
Summaryp. 412
Review Questionsp. 413
Monopoly
Maximizing Profitsp. 415
Linear Demand Curve and Monopolyp. 416
Markup Pricingp. 418
Example: The Impact of Taxes on a Monopolist Inefficiency of Monopolyp. 420
Deadweight Loss of Monopolyp. 425
Example: The Optimal Life of a Patent Natural Monopolyp. 425
What Causes Monopolies?p. 427
Example: Diamonds Are Forever Example: Pooling in Auction Markets Summaryp. 430
Review Questionsp. 431
Appendixp. 432
Monopoly Behavior
Price Discriminationp. 434
First-Degree Price Discriminationp. 434
Second-Degree Price Discriminationp. 436
Example: Price Discrimination in Airfares Third-Degree Price Discriminationp. 440
Example: Linear Demand Curves Example: Calculating Optimal Price Discrimination Example: Price Discrimination in Acade mic Journals Bundlingp. 444
Example: Software Suites Two-Part Tariffsp. 446
Monopolistic Competitionp. 448
A Location Model of Product Differentiationp. 451
Product Differentiationp. 453
More Vendorsp. 453
Summaryp. 454
Review Questionsp. 455
Factor Markets
Monopoly in the Output Marketp. 456
Monopsonyp. 459
Example: The Minimum Wage Upstream and Downstream Monopoliesp. 463
Summaryp. 465
Review Questionsp. 466
Appendixp. 466
Oligopoly
Choosing a Strategyp. 469
Quantity Leadershipp. 469
The Follower's Problem
The Leader's Problem
Price Leadershipp. 475
Comparing Price Leadership and Quantity Leadershipp. 477
Simultaneous Quantity Settingp. 477
An Example of Cournot Equilibriump. 479
Adjustment to Equilibriump. 481
Many Firms in Cournot Equilibriump. 481
Simultaneous Price Settingp. 482
Collusionp. 483
Punishment Strategiesp. 486
Example: Price Matching and Competition Example: Voluntary Export RestraintsComparison of the Solutionsp. 489
Summaryp. 490
Review Questionsp. 491
Game Theory
The Payoff Matrix of a Gamep. 492
Nash Equilibriump. 494
Mixed Strategiesp. 495
The Prisoner's Dilemmap. 496
Repeated Gamesp. 498
Enforcing a Cartelp. 499
Example: Tit for Tat in Airline Pricing Sequential Gamesp. 501
A Game of Entry Deterrencep. 503
Summaryp. 505
Review Questionsp. 505
Exchange
The Edgeworth Boxp. 508
Tradep. 510
Pareto Efficient Allocationsp. 511
Market Tradep. 513
The Algebra of Equilibriump. 515
Walras' Lawp. 517
Relative Pricesp. 518
Example: An Algebraic Example of Equilibrium The Existence of Equilibriump. 520
Equilibrium and Efficiencyp. 521
The Algebra of Efficiencyp. 522
Example: Monopoly in the Edgeworth Box Efficiency and Equilibriump. 525
Implications of the First Welfare Theoremp. 527
Implications of the Second Welfare Theoremp. 529
Summaryp. 531
Review Questionsp. 532
Appendixp. 532
Production
The Robinson Crusoe Economyp. 534
Crusoe, Inc.p. 536
The Firmp. 537
Robinson's Problemp. 538
Putting Them Togetherp. 538
Different Technologiesp. 540
Production and the First Welfare Theoremp. 542
Production and the Second Welfare Theoremp. 543
Production Possibilitiesp. 543
Comparative Advantagep. 545
Pareto Efficiencyp. 547
Castaways, Inc.p. 549
Robinson and Friday as Consumersp. 551
Decentralized Resource Allocationp. 552
Summaryp. 553
Review Questionsp. 553
Appendixp. 554
Welfare
Aggregation of Preferencesp. 557
Social Welfare Functionsp. 559
Welfare Maximizationp. 561
Individualistic Social Welfare Functionsp. 563
Fair Allocationsp. 564
Envy and Equityp. 565
Summaryp. 567
Review Questionsp. 567
Appendixp. 568
Externalities
Smokers and Nonsmokersp. 570
Quasilinear Preferences and the Coase Theoremp. 573
Production Externalitiesp. 575
Example: Pollution Vouchers Interpretation of the Conditionsp. 580
Market Signalsp. 583
The Tragedy of the Commonsp. 583
Example: Overfishing Automobile Pollutionp. 587
Summaryp. 588
Review Questionsp. 589
Law and Economics
Crime and Punishmentp. 590
Qualificationsp. 593
Liability Lawp. 598
Bilateral Accidentsp. 596
Treble Damages in Antitrust Lawp. 598
Seeking to Be Damaged
Which Model Is Right?p. 601
Summaryp. 601
Review Questionsp. 601
Information Technology
Systems Competitionp. 603
Lock-Inp. 603
A Model of Competition with Switching Costs
Network Externalitiesp. 606
Markets with Network Externalitiesp. 606
Market Dynamicsp. 608
Example: Network Externalities in Computer Software Implications of Network Externalitiesp. 611
Rights Managementp. 612
Example: Video Rental Sharing Intellectual Propertyp. 614
Summaryp. 616
Review Questionsp. 616
Public Goods
When to Provide a Public Good?p. 618
Private Provision of the Public Goodp. 622
Free Ridingp. 622
Different Levels of the Public Goodp. 624
Quasilinear Preferences and Public Goodsp. 626
Example: Pollution Revisited The Free Rider Problemp. 628
Comparison to Private Goodsp. 630
Votingp. 631
Example: Agenda Manipulation Demand Revelationp. 634
Example: An Example of the Clarke Tax Problems with the Clarke Taxp. 638
Summaryp. 639
Review Questionsp. 639
Appendixp. 640
Asymmetric Information
The Market for Lemonsp. 642
Quality Choicep. 643
Choosing the Quality
Adverse Selectionp. 645
Moral Hazardp. 647
Moral Hazard and Adverse Selectionp. 648
Signalingp. 649
Example: The Sheepskin Effect Incentivesp. 653
Example: Voting Rights in the Corporation Example: Chinese Economic Reforms Asymmetric Informationp. 658
Example: Monitoring Costs Example: The Grameen Bank Summaryp. 661
Review Questionsp. 662
Mathematical Appendix
Functionsp. 1
Graphsp. 2
Properties of Functionsp. 2
Inverse Functionsp. 3
Equations and Identitiesp. 3
Linear Functionsp. 4
Changes and Rates of Changep. 4
Slopes and Interceptsp. 5
Absolute Values and Logarithmsp. 6
Derivativesp. 6
Second Derivativesp. 7
The Product Rule and the Chain Rulep. 8
Partial Derivativesp. 8
Optimizationp. 9
Constrained Optimizationp. 10
Answersp. 11
Indexp. 31
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