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| About the Authors | |
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| Preface | |
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| Introduction | |
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| Microeconomics | |
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| Introduction | |
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| Optimal Production Decisions | |
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| Pricing Policy | |
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| Efficient Allocation of a Society's Resources | |
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| Public Policy Concerning Market Structure | |
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| Microeconomics: Problem Solving and Science | |
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| Human Wants and Resources | |
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| Technology | |
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| Tasks Performed by an Economic System | |
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| Our Mixed Capitalist System | |
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| The Price System and Microeconomics | |
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| Hungary's Rough Transition toward the Price System | |
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| Model-Building and the Role of Models | |
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| Evaluating a Model | |
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| Summary | |
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| Questions/Problems | |
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| Demand and Supply | |
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| Introduction | |
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| Markets | |
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| The Demand Side of the Market | |
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| Coffee Bars Invade Manhattan | |
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| The Supply Side of the Market | |
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| The Price of Cotton: Highest since the Civil War | |
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| Determinants of Price | |
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| Price Floors and Ceilings | |
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| Rent Control, California-Style: Mobile-Home Owners versus Park Owners | |
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| Summary | |
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| Questions/Problems | |
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| Consumer Behavior and Market Demand | |
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| Tastes and Preferences of the Consumer | |
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| Introduction | |
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| Consumer Preferences | |
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| Indifference Curves | |
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| The Concept of Utility | |
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| The Marginal Rate of Substitution | |
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| Deciphering the Shapes of Indifference Curves | |
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| The Budget Line | |
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| Equilibrium of the Consumer | |
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| Consumer Choice and the New Phone Rates | |
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| Corner Solutions | |
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| Corner Solutions and Diminishing Marginal Rates of Substitution | |
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| Revealed Preference and the Measurement of Indifference Curves | |
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| Determinants of Consumer Tastes and Preferences | |
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| The Food Stamp Program | |
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| Budget Allocation by New York State: An Application | |
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| Summary | |
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| Questions/Problems | |
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| Ordinal and Cardinal Utility | |
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| Consumer Behavior and Individual Demand | |
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| Introduction | |
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| Effects of Changes in Consumer Money Income | |
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| Expenditures and Income | |
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| Effects of Changes in Commodity Prices | |
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| Substition and Income Effects | |
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| Energy Tax and Rebate Proposal | |
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| Consumer Surplus | |
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| Indexes of the Cost of Living | |
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| Household Response to Higher Energy Prices and Their Associated Losses in Consumer Surplus | |
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| Calculating a Cost-of-Living Index | |
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| Summary | |
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| Questions/Problems | |
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| Derivation of the Market Demand Curve | |
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| Introduction | |
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| The Price Elasticity of Demand | |
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| Residential Demand for Water | |
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| The Income Elasticity of Demand | |
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| The Cross-Price Elasticity of Demand | |
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| Fur Sales Take a Hit | |
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| Shifting Demand Curves | |
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| The Seller's Side of the Market and Marginal Revenue | |
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| Demand and the Distribution of Aggregate Income | |
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| Industry and Firm Demand Curves | |
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| The Measurement of Demand Curves | |
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| Attracting Quality Students with Partial Scholarships | |
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| Summary | |
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| Questions/Problems | |
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| Choices Involving Risk | |
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| Introduction | |
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| Probability | |
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| Expected Monetary Value | |
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| Investing in an Oil Venture: A Case Study | |
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| The Expected Value of Perfect Information | |
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| How Much Are Accurate Weather Forecasts Worth to Raisin Producers? A Case Study | |
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| The Expected Value of Partial Information | |
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| Should a Person Maximize Expected Monetary Value? | |
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| Maximizing Expected Utility | |
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| Should the Company Really Invest in the Oil Venture? | |
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| Preferences Regarding Risk | |
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| Hospitals and the Health Insurance Bind | |
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| Why People Buy Insurance | |
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| How Much Insurance Should an Individual Buy? | |
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| Are Two Consultants Better Than One? | |
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| Revisiting the Value of Information When People Are Averse to Risk | |
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| Behavior in the Face of Risk | |
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| The Precautionary Principle | |
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| The Cost of Exposure Limits That Have Been Set by Applying the Precautionary Principle | |
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| Summary | |
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| Questions/Problems | |
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| Demand for Airline Travel and the Pricing of Tickets | |
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| The Firm: Its Technology and Costs | |
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| The Firm and Its Technology | |
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| Introduction | |
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| Firm Owners and Managers: A Principal-Agent Problem | |
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| Technology and Inputs | |
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| The Short Run and the Long Run | |
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| Is a CEO Really Worth Half a Billion Dollars per Year? | |
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| The Production Function | |
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| The Law of Diminishing Marginal Returns and the Geometry of Average and Marginal Product Curves | |
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| The Production Function: Two Variable Inputs | |
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| Isoquants | |
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| Substitution among Inputs | |
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| The Long Run and Returns to Scale | |
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| The Measurement of Production Functions | |
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| Should Two Kansas Wheat Farms Merge? | |
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| Summary | |
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| Questions/Problems | |
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| Optimal Input Combination and Cost Functions | |
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| Introduction | |
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| Optimal Combination of Inputs | |
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| Production of Wheat: An Application | |
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| Costs | |
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| Rice-Milling in Indonesia | |
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| Pollution Control: An Application | |
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| Social Costs versus Private Costs | |
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| Explicit Costs versus Implicit Costs | |
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| Proper Comparison of Alternatives | |
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| Cost Functions in the Short Run | |
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| Least-Cost Reductions of Carbon Emissions | |
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| Cost Functions in the Long Run | |
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| Economies of Scope | |
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| The Measurement of Cost Functions | |
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| The Shape of the Short-Run Marginal Cost Curve | |
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| Summary | |
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| Questions/Problems | |
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| Production and Cost Theory at Work: The Cost of Climate Policy | |
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| Market Structure, Price, and Output | |
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| Perfect Competition | |
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| Introduction | |
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| Perfect Competition | |
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| Price Determination in the Short Run | |
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| Auctions and Experimental Economics | |
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| Price Determination in the Long Run | |
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| What Would Be the Effects of National Dental Insurance? | |
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| The Market for Sulfur Emissions Permits | |
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| Agricultural Prices and Output: An Application | |
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| Summary | |
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| Questions/Problems | |
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| Applying the Competitive Model | |
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| Introduction | |
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| Producer Surplus and Total Surplus | |
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| Perfect Competition and the Maximization of Total Surplus | |
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| The Effect of a Price Ceiling | |
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| A Price Ceiling for Gasoline | |
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| New York Apartments: A Case Study | |
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| The Effect of a Price Floor | |
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| Agricultural Price Supports: Another Case Study | |
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| Protecting Domestic Producers: Tariffs and Quotas | |
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| Restrictions on U.S. Imports of Japanese Autos: A Third Case Study | |
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| Gains and Losses from Steel Import Quotas | |
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| Effects on Price of an Excise Tax | |
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| Deadweight Loss from an Excise Tax | |
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| Should the Gasoline Tax Be Raised? | |
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| Postcript | |
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| Summary | |
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| Questions/Problems | |
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| Monopoly | |
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| Introduction | |
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| Short-Run Equilibrium Price and Output | |
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| Long-Run Equilibrium Price and Output | |
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| Playing the Slots at Foxwoods | |
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| Multiplant Monopoly | |
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| A Comparison of Monopoly with Perfect Competition | |
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| Monopoly Power | |
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| Price Discrimination | |
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| The Microsoft Finding and the Value of Startup Software Companies | |
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| Two-Part Tariffs and Tying | |
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| Two-Part Tariffs in the National Football League | |
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| Bundling: Another Pricing Technique | |
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| Public Regulation of Monopoly | |
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| Case Studies | |
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| Summary | |
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| Questions/Problems | |
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| Monopolistic Competition and Oligopoly | |
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| Introduction | |
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| Monopolistic Competition | |
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| Equilibrium Price and Output in the Short and Long Runs | |
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| Excess Capacity and Product Diversity | |
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| Markup Pricing | |
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| Comparisons with Perfect Competition and Monopoly | |
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| Advertising Expenditures: A Simple Model | |
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| Optimal Advertising Expenditures: A Graphical Analysis | |
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| The Social Value of Advertising | |
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| Advertising, Spectacles, and the FTC | |
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| Oligopoly | |
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| The Nash Equilibrium | |
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| An Example of a Nash Equilibrium: The Cournot Model | |
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| The Stackelberg Model | |
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| The Bertrand Model | |
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| Collusion and Cartels | |
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| The Retail Market for Tires | |
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| The Instability of Cartels | |
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| The OPEC Oil Cartel: An Application | |
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| The International Supply of Crude Oil | |
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| Price Leadership | |
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| Entry and Contestable Markets | |
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| Summary | |
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| Questions/Problems | |
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| Game Theory and Strategic Behavior | |
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| Introduction | |
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| The Theory of Games | |
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| Game Trees | |
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| Nash Equilibria: Further Discussion | |
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| Maximin Strategies | |
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| Should Amherst Buy All Its Steel from Duquesne? | |
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| The Prisoners' Dilemma | |
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| Cheating on a Cartel Agreement | |
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| The Repeated Prisoners' Dilemma and the Tit-for-Tat Strategy | |
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| Strategic Moves | |
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| The Role of Incentives and Contracts | |
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| Threats: Empty and Credible | |
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| Deterrence of Entry | |
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| Limit Pricing | |
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| First-Mover Advantages | |
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| How Governments Can Tilt the Outcome of Oligopoly | |
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| Capacity Expansion and Preemption | |
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| Nonprice Competition | |
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| The Effects of Oligopoly | |
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| Summary | |
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| Questions/Problems | |
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| Shaking the Tree of Global Telecommunications Markets | |
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| Markets for Inputs | |
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| Price and Employment of Inputs | |
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| Introduction | |
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| Profit Maximization and Input Employment | |
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| The Firm's Demand Curve: The Case of One Variable Input | |
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| The Firm's Demand Curve: The Case of Several Variable Inputs | |
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| The Market Demand Curve | |
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| Determinants of the Price Elasticity of Demand for an Input | |
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| The Market Supply Curve | |
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| Income and Substitution Effects in the Supply of Labor | |
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| Equilibrium Price and Employment of an Input | |
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| Rent | |
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| Imperfectly Competitive Output Markets | |
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| Does Immigration Benefit the United States? | |
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| Monopsony | |
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| Effects of Increasing the Minimum Wage | |
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| Summary | |
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| Questions/Problems | |
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| Investment Decisions | |
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| Introduction | |
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| Intertemporal Choice: Consumption and Saving | |
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| Interest Rates and Investment | |
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| The Equilibrium Level of Interest Rates | |
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| Present Value | |
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| Valuing a Stream of Payments | |
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| The Net Present Value Rule for Investment Decisions | |
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| Neil Simon Goes Off-Broadway | |
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| The Investment Decision: An Example | |
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| Real versus Nominal Interest Rates | |
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| Risk and Diversification | |
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| Diversifiable and Nondiversifiable Risk | |
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| The Capital-Asset Pricing Model | |
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| Including Risk in Net Present Value Calculations: Some Examples | |
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| The Stock Market: The Efficient Markets Hypothesis | |
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| Internal Rates of Return and Bond Yields | |
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| How Much Is a Bond Worth? | |
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| Game Theory in Action: Investment as a Strategic Decision | |
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| Pricing Exhaustible Resources | |
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| Game Theory in Action: A Tit-for-Tat Time Horizon | |
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| Summary | |
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| Questions/Problems | |
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| Sex Discrimination and Comparable Worth | |
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| Information, Efficiency, and Government | |
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| General Equilibrium Analysis and Resource Allocation | |
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| Introduction | |
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| Partial Equilibrium Analysis versus General Equilibrium Analysis | |
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| The Existence of General Equilibrium | |
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| A Simple Model of General Equilibrium | |
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| Deregulation of Railroads and Trucks | |
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| Resource Allocation and the Edgeworth Box Diagram | |
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| Exchange | |
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| Production | |
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| Allocation of Fissionable Material | |
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| The Production Possibilities Curve | |
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| Production and Exchange | |
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| Summary | |
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| Questions/Problems | |
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| The Promotion of Economic Efficiency | |
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| Introduction | |
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| A Definition of Economic Efficiency | |
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| Marginal Conditions for Economic Efficiency | |
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| The Utility Possibilities Curve | |
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| Equity Considerations | |
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| John Rawls on Social Justice | |
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| Perfect Competition and Economic Efficiency | |
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| External Economies and Diseconomies | |
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| External Diseconomies on the Highways | |
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| Increasing Returns, Public Goods, and Imperfect Information | |
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| Static Efficiency and Economic Progress | |
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| Fairness, Equity, and Efficiency | |
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| Summary | |
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| Questions/Problems | |
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| Economic Benefits from Free Trade | |
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| The Prevalence of Asymmetric Information | |
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| Introduction | |
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| Used Cars: An Example of Asymmetric Information | |
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| A Graphical Analysis of the Market for Used Cars | |
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| Asymmetric Information in the Fixture Market | |
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| Asymmetric Information and Market Failure | |
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| Adverse Selection: A Problem of Hidden Information | |
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| Consequences of Adverse Selection | |
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| Market Signaling | |
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| Dawat, McDonald's, and the Importance of Reputation | |
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| Moral Hazard: A Problem of Hidden Action | |
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| Principal-Agent Problems | |
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| Game Theory in Action: Superior Knowledge as a Deterrent to Entry | |
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| Efficiency Wage Theory | |
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| Summary | |
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| Questions/Problems | |
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| Public Goods, Externalities, and the Role of Government | |
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| Introduction | |
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| Characteristics of a Public Good | |
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| Efficient Output of a Public Good | |
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| Provision of Public Goods | |
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| The Effect of Voting Rules | |
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| Externalities: The Case of Environmental Pollution | |
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| Game Theory in Action: The Tragedy of the Commons from a Strategic Perspective | |
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| Property Rights and Coase's Theorem | |
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| Government Intervention and Benefit-Cost Analysis | |
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| Economic Efficiency and Global Policy to Combat Climate Change | |
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| Anemia Reduction in Indonesia, Kenya, and Mexico: An Application | |
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| Limitations of Government Effectiveness | |
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| Summary | |
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| Questions/Problems | |
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| The FCC and the "Biggest Auction in the Known Universe" | |
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| Glossary of Terms | |
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| Brief Answers to Odd Numbered Questions | |
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| Index | |