Intermediate micro economics a modern approach 7e

Intermediate micro economics a modern approach 7e Intermediate micro economics a modern approach 7e Intermediate micro economics a modern approach 7e Intermediate micro economics a modern approach 7e Intermediate micro economics a modern approach 7e Intermediate micro economics a modern approach 7e Intermediate micro economics a modern approach 7e

CONTENTS Preface xix The Market Constructing a Model Optimization and Equilibrium The Deriar rid Curve The Supply Curve Market Equilibrium Comparative Statics Other Ways to Allocate Apartments 11 The Discrzminati~~g Monopolist The Ordinary Ibfonopolist a Rent Control a Which Way Is Best? 14 Pareto Efficiency 15 Comparing Ways to Allocate Apartrnerits 16 Equilibrium in the Long Run 17 Surnmary 18 Review Questions 19 Budget Constraint The Budget Constraint 20 Two Goods Are Often Enough 21 Properties of t,he Budget Set 22 How the Budget Line Changes 24 The Numeraire 26 Taxes, Subsidies, and Rationing 26 Example: The Food Stamp Program Budget Line Changes 31 Summary 31 Review Questions 32 Vlll CONTENTS Preferences Corlsunler Preferences 34 Assumptioris about Preferences 35 IndifPerfect Substitutes ference Curves 36 Examples of Preferences 37 Perfect Complements Bads Neutrals Satiation Discrete Goods Well-Behaved Preferences 44 The Marginal Rate of Substitution 48 Other Interpretations of the MRS 50 Behavior of the hfRS 51 Summary 52 Review Questions 52 Utility Cardinal Utility 57 Constructing a Utility Function 58 Some Examples of Utility Functions 59 Example: Indzfference Curves from Utility Perfect Complements Quasilinear Preferences Perfect Substitutes Cobb-Douglas Preferences Marginal Utility 65 Marginal Utility and MRS 66 Utility for Commuting 67 Summary 69 Review Example: Cobb-Douglas Preferences Questions 70 Appendix 70 Optimal Choice 73 Consurner Demand 78 Some Exarriples 78 Perfect Substitutes Perfect Complements Neutrals and Bads Discrete Goods Concave Preferences Cobb-Douglas Preferences Estimating Utility Functions 83 Implications of the MRS Condition 85 Choosing Taxes 87 Summary 89 Review Questions 89 Appendix 90 Example: Cobb-Douglas Demand Functions Demand Normal and Inferior Goods 96 Income Offer Curves and Erlgel Curves 97 Some Examples 99 Perfect Substitutes Perfect Complements Cobb-Douglas Preferences Homothetic Preferences Quasilinear Ordinary Goods and Giffen Goods 104 The Price Offer Preferences Perfect Curve and the Demand Curve 106 Some Examples 107 Perfect Complements A Discrete Good Substitutes Substitutes and Complements 111 The Inverse Demand Function 112 Sumnlary 114 Review Questions 115 Appendix 115 CONTENTS I X Revealed Preference The Idea of Revealed Preference 119 From Revealed Preference to Preference 120 Recovering Preferences 122 The Weak Axiom of Revealed Preference 124 Checking WARP 125 The Strong Axiom of Revealed Preference 128 How to Check SARP 129 Index Numbers 130 Price Indices 132 Example: Indexing Social Security Payments Summary 135 Review Questions 135 Slutsky Equation Example: Calculating the Substitution EfThe Substitution Effect 137 Example: Calculating the Income Effect fect The Income Effect 141 Sign of the Substitution Effect 142 The Total Change in Dernand 143 Rates of Change 144 The Law of Demand 147 Exarrlples of Income Example: Rebating a Tax Example: and Substitution Effects 147 Voluntay Real Time Pricing Another Substitution Effect 153 Compensated Demand Curves 155 Summary 156 Review Questions 157 Appendix 157 Example: Rebating a Small Tax Buying and Selling Net and Gross Demands 160 The Budget Constraint 161 Changing the Endowment 163 Price Changes 164 Offer Curves and Demand Curves 167 The Slutsky Equation Revisited 168 Use of the Slutsky Equation 172 Example: Calculating the Endowment Income Effect Labor Supply 173 The Budget Constraint Comparative Statics of Example: Overtime and the S7~pplyof Labor SumLabor Supply 174 mary 178 R.eview Questions 179 Appendix 179 X CONTENTS Intertemporal Choice The Budget Constraint 182 Preferences for Consumption 185 Comparative Statics 186 The Slutsky Equation and Intertemporal Choice 187 Inflation 189 Present Value: A Closer Look 191 Analyzing Present Value for Several Periods 193 Use of Present Value 194 Example: Valuing a Stream of Payments Example: The True Cost of a Credit Card Bonds 197 Example: Installment Loans Taxes 199 Example: Scholarships and Savings Choice of the Interest Rate 200 Summary 201 Review Questions 201 Asset Markets Rates of Return 202 Arbitrage and Present Value 204 Adjustments for Differences among Assets 204 Assets with Consumption Returns 205 Taxation of Asset Returns 206 Applications 207 Depletable When to Cut a Forest Example: Gasoline Prices during Resources the Gulf W a r Financial Institutions 211 Summary 212 Review Questions 213 Appendix 213 Uncertainty Contingent Consumption 215 Example: Catastrophe Bonds Utility Example: Some Examples of Utility Functions and Probabilities 220 Functions Expected Utility 221 Why Expected Utility Is Reasonable 222 Risk Aversion 224 Example: The Demand for Insurance Diversification 228 Risk Spreading 228 Role of the Stock Market 229 Summary 230 Review Questions 230 Appendix 231 Example: The Effect of Taxation on Investment in Risky Assets Risky Assets Mean-Variance Utility 234 Measuring Risk 239 Equilibrium in a Market for Risky Assets 241 How Returns Adjust 242 Example: Ranking Mutual Funds Summary 246 Review Questions 246 CONTENTS X I 14 Consumer's Surplus Denland for a Discrete Good 248 Constructing Utility from Demand 249 Other Interpretations of Consumer's Surplus 250 From Consurner's Surplus to Consumers' Surplus 251 Approximat,ing a Continuous Demand 251 Quasilinear Utility 251 Interpreting the Change in Consumer's Surplus 252 Exam,ple: The Change i n Consumer's Surplus Cornperisati~igand Equivalent Variation 254 Example: Compensating Variations Example: Compensating and Equivalent Variand Eq~~izialent ation for Quasilinear Preferences Producer's Surplus 258 Benefit-Cost Analysis 260 Rationing Calculating Gains and Losses 262 Suminary 263 Review Questions 263 Appendix 264 Example: A Fern Demand F ~ ~ n c t i o n s Example: C V , E V , and Consumer's Surplus 15 Market Demand From Individual to Market Demand 266 The Inverse Demand Function 268 Example: Adding Up "Linear" Demand Curves Discrete Goods 269 The Extensive and the Intensive Margin 269 Elasticity 270 Example: The Elasticity of a Linear Demand Curve Elasticity and Demand 272 Elasticity and Revenue 273 Example: Strikes and Profits Const ant Ela~t~icity Demands 276 Elasticity and Marginal Revenue 277 Example: Setting a Price Marginal Revenue Curves 279 Income Elasticit,y 280 Slirrlmary 281 Review Questions 282 Appendix 283 Example: The Laffer Curve Example: Another Expression for Elasticity 16 Equilibrium Supply 289 Market Equilibrium 289 Two Special Cases 290 InExample: Equilibrium with Linverse Derrlarld and Supply Curves 291 Example: Shifling Both Curves ear Curves Comparative Statics 293 Taxes 294 Example: Taxation with Linear Demand and Supply PassExample: ing Along a Tax 298 The Deadweight Loss of a Tax 300 The Market for Loans Example: Food Subsidies Example: Subsidies in Example: Waiting i n Line Summary 309 Iraq Pareto Efficiency 306 Revicw Quest,ions 309 XI1 CONTENTS Auctions Classification of Auctions 312 Bidding Rules Auction Design 313 Other Auction Forms 316 Example: Late Bidding on eBay Example: Online Ad Auctions Problems with Auctions 319 The Winner's Curse 320 Summary 320 Review Questions 321 Technology Inputs and Outputs 322 Describing Technological Constraints 323 Examples of Technology 324 Fixed Proportions Perfect Substitutes Cobb-Douglas Properties of Technology 326 The Marginal Product 328 The Technical Rate of Substitution 328 Diminishing Marginal Product 329 Diminishing Technical Rate of Substitution 329 The Long Run and the Short Run 330 Returns to Scale 330 Summary 332 Review Questions 333 Profit Maximization Profits 334 The Organization of Firms 336 Profits and Stock Market Value 336 The Boundaries of the Firm 338 Fixed and Variable Factors 339 Short-Run Profit Maximization 339 Comparative Statics 341 Profit Maximization in the Long Run 342 Inverse Factor Demand Curves 343 Profit Maximization and Returns to Scale 344 Revealed Profitability 345 Example: How Do Farmers React to Price Supports? Cost Minimization 349 Summary 349 Review Questions 350 Appendix 351 Cost Minimization Cost Minimization 353 Example: Minimizing Costs for Specific Technologies Revealed Cost Minimization 357 Returns to Scale and the Cost Function 358 Long-Run and Short-Run Costs 360 Fixed and Quasi-Fixed Costs 362 Sunk Costs 362 Summary 363 Review Questions 363 Appendix 364 CONTENTS X l l l 21 Cost Curves Average Costs 367 Marginal Costs 369 Marginal Costs and Variable Example: Specific Cost Curves Example: Marginal Cost Costs 371 Curves for Two Plants Long-Run Costs 375 Discrete Levels of Plant Size 377 Long-Run Marginal Costs 379 Summary 380 Review Questions 381 Appendix 381 22 Firm Supply Market Environments 383 Pure Competition 384 The Supply Decision of a Competitive Firm 386 An Exception 388 Another Exception 389 Example: Pricing Operating Systems The Inverse Supply Function 391 Profits and Producer's Surplus 391 Example: The Supply Curve for a Specific Cost Function The Long-Run Supply Curve of a Firm 395 Long-Run Constant Average Costs 397 Summary 398 Review Questions 399 Appendix 399 23 Industry Supply Short-Run Industry Supply 401 Industry Equilibrium in the Short Run 402 Industry Equilibrium in the Long Run 403 The Long-Run Supply Example: Taxation in the Long Run and in the Short Run Curve 405 The Meaning of Zero Profits 409 Fixed Factors and Economic Rent 410 Example: Taxi Licenses in New York City Economic Rent 412 Rental Rates and Prices 414 Example: Liquor Licenses The Politics of Rent 415 Example: Farming the Government Energy Policy 417 Two-Tiered Oil Pricing Price Controls The Entitlement Program Summary 421 Review Questions 422 XIV CONTENTS Monopoly Maximizing Profits 424 Linear Demand Curve and Monopoly 425 Markup Pricing 427 Example: The Impact of Taxes on a Monopolist Inefficiency of Monopoly 429 Deadweight Loss of Monopoly 431 Example: The Optimal Life of a Patent Example: Patent Thickets Natural Monopoly 435 What Causes Monopolies? 437 Example: Diamonds Are Forever Example: Pooling i n Auction Markets Example: Price Fixing i n Computer Memory Markets Summary 441 Review Questions 442 Appendix 443 Monopoly Behavior Price Discrimination 445 First-Degree Price Discrimination 445 Example: First-degree Price Discrimination in Practice Second-Degree Price Discrimination 448 Example: Price Discrimination i n Airfares Example: Prescription Drug Prices Third-Degree Price Discrimination 452 Example: Linear Demand Curves Example: Calculating Optimal Price Discrimination Example: Price Discrimination i n Academic Journals Bundling 457 Example: Software Suites Two-Part Tariffs 458 Monopolistic Competition 459 A Location Model of Product Differentiation 463 Product Differentiation 465 More Vendors 466 Summary 467 Review Questions 467 Factor Markets Monopoly in the Output Market 468 Monopsony 471 Example: The Minimum Wage Upstream and Downstream Monopolies 475 Summary 477 Review Questions 478 Appendix 478 CONTENTS XV 27 Oligopoly Choosing a Strategy 481 Quantity Leadership 481 The Follower's Price Leadership 487 Comparing Problem rn The Leader's Problem Price Leadership and Quantity Leadership 489 Simultaneous Quantity Setting 489 An Example of Cournot Equilibrium 491 Adjustment to Equilibrium 493 Many Firms in Cournot Equilibrium 493 Simultaneous Price Setting 494 Collusion 495 Punishment Strategies 498 Example: Price Matching and Competition Example: Voluntary Export Restraints Comparison of the Solutions 501 Summary 502 Review Questions 503 28 Came Theory The Payoff Matrix of a Game 504 Nash Equilibrium 506 Mixed Example: Rock Paper Scissors The Prisoner's Dilemma Strategies 507 509 Repeated Games 511 Enforcing a Cartel 512 Example: Tit for fat in Airline Pricing Sequential Games 514 A Game of Entry Deterrence 516 Summary 518 Review Questions 519 29 Came Applications Best Response Curves 520 Mixed Strategies 522 Games of Coordination 524 Battle of the Sexes rn Prisoner's Dilemma rn Assurance Games rn Chicken rn Hour to Coordinate Games of Competition 528 Games of Coexistence 533 Games of Commitment 535 The Frog and When Strength Is Weakness the Scorpion rn The Kindly Kidnapper rn Savings and Social Security rn Hold Up rn Bargaining 543 The Ultimatum Game rn Summary 546 Review Questions 547 ANSM'EKS 27.3 No, because one of thc choict:~open to the Stackelfxrg lender is to choose the level of output it wouId have in the C'ournot ~ c ~ i ~ i l i b r i So u n ~it always has to be able to at least this well 27.4 We know from the text that; we nlust have pi1 - l/njc\] = lZTC' Sirlctl ,tfC > 0, and p > we rnust have l / n ; ~ > \ Rcarrnngirlg this inequality gives the result - 27.5 Make f2(-gl)steeper t.han f l ( y ~ ) 27.6 Tn ge-,aa Only in the case of the Bertrand solution does price equal the m a s g i d cost 28 Game Th@sy 28.1 The s8c:oiid pbyer will defect in response t o the first player's (mistaken) defection, But then the first player will defect in response to that, and each play& continue to defect in response to the other's defection! This example shows that tit-for-tat may not be a very good s t r a t c u when players can m&e mista.kes in either their actions or their perceptiorls of the other player's qtioxls 28.2 Yes and no A player prefers to play a dominant strategy regardless of the strategy of t h e opponent (even if the upponerlt plays her own tiomilzant strategy) Thw-ifall of the piayers are using dominant strategies then it is the case that &begare all playing o strategv that is optitnnl giver the strategy of their opponents, and therefore a N w h equilibrium exists Hem-ever, not dl Nwh equilibria are dominant strategy equilibria: for example see Table _ , 28.3 Not nwemdy We know that your Nash equilibrium strategy is the bat thkg -&you to as long as your opponent is playing her Nash equilibrium strategy, but if she is not then perhaps there is a better strateggfor you ta pumre 28.3 Farmally, if the prisoners are allowed to retaliate the payoffs in the game may change This could result iri a Paruto efficient outconw f;>r the game (for exanpIe think of the case where the prisoners both agrvc: that thev will kill anyone who confesses, and assunle death hits a very lo\\- utility) 28.5 The daminant Nash eq>iilihriuinstrategy is to defect in t!ver;v round This strategy is derived via the sarrre backward indrlction procws rhat M-its used to derive the finite 10-ro11ndcase Thc rxperimental evidence using ,426 ANSWERS il~ll~.jlqtiia1lt.r time pcriotts beern< t o illdirate t,llat plnqcrs rarely use this straltyy 28.6 'Tiif ecl1lilit)rium tl;~5,iday?.erB choosilig left, and ptr~yerA choosing top P1qt.r I3 p t ' ~ f f ~t~o' sIrkcive first sir~crlt hat ~ e s u ! t sin a payoff of versus n payotf o f (Kutc, ho~-t:vcr.,tliat moving first i \ I ~ C always I ~ advantageorts in n qcjtlllc.rlt ial game ~ H I you I think of itn e>xalnple'.') 29 Game Applicdtions 29.1 111 it Xash equilibrirtm, each player is rnaking a best r m p e to the ol,hr>rplayer's best rrsponse In a dominant strategy equklibrium, each player's choicc is a hest response to any choic.~the other player makes 20.2 To.1)ct-wuse u7he11 7- = 1/:3 there is au infinity of' best responses, not a singit, ciilt3 as is required for the rnathemrtt?r.ai definition d a function 29.3 Not r~tccssarilv:it depeuds on the payoffs of thr game.$In chicken if both c~hooseto drive straight they receiv~the w r s t payoff 29 1.It i-; row's cxpect~cipayoff in the cqriilibriu~nstrategy of kicking to tilt lef~with probability 7, while coltmln jumps to the left with probability IJ-v h;zx e to surn t hc payoffs to row owr four event 5: the prubability row kirks left a i d colurriri ci~fendsleft x row's payoff in this case probability rorv kicks right at111column defends left x row's payoff in this case, md BO on 'rlie rmmbers are (.7)(.6)5Cl+ (.7)(.4)80 (+3)C.6190 (.3)(.4)20 = 62 + + + 29.5 I-Ip means that he will hid low in order to get the r n n t t ~ ~but t : then charge high prices subseqtlently for any chmgm The climb b~ to go dong, since it is costl~7for him to suitch in the middle of a job 30 Behavioral Economics 30.1 'l'ilr fit,.ht grortp is nlorc likely to briy 30.2 'Tilr -.t)t.itckctirlgr f f e r t " v,-iil 11~1-cILIOI-e v;irivt l l l ~ k i >its rlllc to tl~r "framing eff~ct.'' likely that the iucals chosen by Mary !- :30.:3 ['I r ,111 tt ~ r vitw point o f elassic*itlconsllrncl tk~cor?+ more C ~ O ~ CisP bett r7r 1311t i t i? certairllg pc~xsihlc:that too natz(~llclloice could confuse thc r:ittl~lo;:r~r~ SO 1tl ~ilightb~ s t f ~~ r h o i ~ Ife ~ O Uiiid decide to offer 50 mut ~ ~f u~n di hl I: i v o i tld be a goo41 idea 10 grorlp tllcrrl into a relat,iveiy small T I I litiht:~ of c';itt-.gorit.s 31.1.Yes For exanlplc < ~ > n sI i1 d!I{> ~~ 1i,c - ~ i r j o ~~ t~ - I I ~ >tII- Ic ~> C1)prsol: thing Then the ottler j>rT:,Fc?u is n.ursc oiF itt this ;iil,~c:;iiiollt l-:an Itc: he a.t an ;tllocation whc.si hr hn.cl 5tilli(!~lli~!g (lt.t:t~?~- i~ti!lIt~ 31-2 No For this w c ~ ~ l lrrirxilT\ d that ;IT t tit, alltlgecllv fa r ~ t o~ f f i < l d t ~ i t riilocation t.here is somtl way to ~nitk(lr:vPryonr l ~ r t~r t off con1 rnclicrir~gI t~ assumptiur~of Paretr-!rfhciency 31 -3 If ~vt:know the ro:it rawt cxur\-ix.t1ic.11 anv traciill~k11i k~ilrlvlitl 11p Jc)rllclrvhere 1 thc curve: hnn.r~r-c~z ri-c dr~ll't bur):^ I Y I I F ~ P 32.4 Yes but not ' ~ ~ ? t l - ~ , ~l l::~ i : k j ~ nc;r:lr!rlollf3 l: f'!st; ~.VOYSP i ) i f tr, zero 32 Production rc5r.irt:-i.c.stl-ii-(.It r , i l i t i I,,: 32.1 Giving up, l cocvlLriifrt1t.h 111) Y'i ivorth to plodu('? P O U I ~ ~( St ! ( j i ~ i i I ~ i \ ( ? T i 11 ; id fish j i ~ t i 32.2 A l~igherwage IV? >tllct profitrnaxi~nizinglerci Far tl-I[*f i r in 7,touid o c { + ! ~atr a poirit i,o the left the currcnt q~lilibriunl.cllt ni!ing a lov,*rr level of l;tI>or.denlanil Ho\vt~\.er u~ldprthis new budget c2i)llstr;titit I mk, 207 Arrow's E r n w r t E e -e~n, 616 624 Arrow, ~ e n n & , -k& ssset i n t e g r a i M b i s , 555 assets, 202 assurance games, 526 asymmetric infom&ion, 695 712 auctions, 31 I-32I, a average cost, 361-369, 388 curve, 370 fixed, 368 long-run 375, 3?6 pricing, 336 s ~ o I % - N ~ ,316 variable, 368, 370 398 average ~ u s tfunction, 359 axioms, 35 -&Wing hbar supply curt* 176 bad, 41, 81 Banghlesh, 713 barriers to entry, 404 battle of t,he scxts, 524 hehaviorsl economics, 549 behavioral game theory, 559 Benthamite welfare function 617 Bergson-Samutlson welfare functior~.62 Bertrand cornpetitiori, 494 Bertrand eg~~ilibriurn, 512 hest rwponse: 520 best respume curves, 520 beta, 240, 246 bid increment 312 bidding agent, 316 bidding pools 440 bliss, 43 bond, 197 barrower, 186 buundary optimum, 76 bracketing, 552 budget constraint, 20, 21, 161, 179: 183, 184, 201 line, 22, 31 set, 2 : 31 bulk discounts, 448 b~mdlm:457 capitai, 323 financial, 323 physical, 323 Capital Asset Pricing Model (C:.;ZPLI) 242 capltd @ins 206 cap~taigoods, 323 cardinal utilitv 57 cartel, 438 495, 502, 510, 513 catra.qtrophe bonrk 219 c ~ l i1)tio:tp irluustri- 6.57 clxi111rt& -13 c~l~ic-kc :i, 527 C:tiinese eror~o~nir rcforrr~s.710 c.l~trirc*I)chavior 549 r.};c>iceirllrier !;rlcertiti~~ty, 230, 553 C:li~,rkt!tax 689 rlassic.;t! utilitariitn, (il7 Cuase T'tteorcr~t.630 631 Co kl+DougIa.TlCavC! preferrnc.cs~82 rrtiliti function 22.5 cnnriil-icr~alfactor deniarid, 355, :3fi.? cr)mrir)rnlltiurr~s~ 10 ~ r ~ ~ ~197 ~ i ~ l s c:r , ~ ~ ~ t i k ;tvr-xage ni c.0~1; 397 r'{,rtst.iil~t returns to scale, 331 3;-5:1 344, R i O 103 cortst~rn+-elast,icit?d ~ m ~ r ct~rvt: id 276, $27 rcjris(rained rrinxirnizaticln 91 < t-~ris! rai!-~t,.A 10 ~~t.i,140rnir 36-1 i ? ~ n ~ k r =384 t c ' ~ t i ~ ~ ~ b: ~ i ih~a ri i o r ,548 c~irisrlnlrri-liurt r , 548 rol~aurr~rr prrft21cnces, 54 c o n s t ~ m ~ rslrrplzls, 's 219, 309, 444; ~ h ~ r i g in t ' 273 srnss 249 rorrsunier5' surplus, 251 441 ronsurnpt.lon bundle, 21 3.1 cc~ tzt ingent, 217 externality 585 600 rehtrns 205 continuous filnctiun, 578, A2 contract cnrvc 568, 569 convex, 52, 225 indiflerence canes, 52 isoquant 333 preferencrs 77, 578, 584 S P ~ 47 trcltnology 326 -321 coupmatiw game 481 cooperative insiirmce, 229 coardinat~oiigames, 524 corporation 33fi, 710 wst, 354 363 367 average 387-370, 398 average, f ~ ~ e 368 d average, long- run, 375 average cariabl~,368,370, 398 fixed, 362 long run, 3FO long run, average, 380 long run, margird, 379 marglnd, 369-3n, 398, 424 private, 635 short run, averap6, 380 variable, 368, 371 costly information, 694 coupon, 197 Courriat equilibrium, 491, 507 niodel 9 cle;l*lwcight loss 308, 416, 441 due to ~ I I V T I C I ~ O I ~431, , 4333 due t~ tax 3oil-302, 309 decent r i l l ~ z ~resource d allocation 608 rlec-rerwing returns to scale 332 rlemnnd curve , 1 18, 107, 112, 167 rurr-e fc2cing the firm, 384, 385 398 r!wtic, 2" 282 futlctio~~ 13, 95, 114 inpl~5tic 2% rcvciatwr~.1357 init el;isr;r '172 demand curve facing the firm, 384 demanded bundle, 78 dependent variable, AT depletable rwurces, 208 derivative, A6 derived factor demands, 3% diminishing rnaqpml rate c ~ f~ubst~itution, 52 diminishing technical rate of substitution, s Ding, 447 dim%lyrevedd $&wz&, 120 discrete godAs-$-:WS7348 dkmirniwiqg m t , 12, 14, 43%456,581: - d*-ms* > &9 &-~*.$&;*: dist~ibutiod-q&p$&ml 629 d i ~ i w t'& i ~ ~ dividmd, 2W domiom8 st-,.w, 676 ~ c l u i l i h 513 i~ dominates s : double markup; $Wdownstram &pdkt, 475 dtf0polyI381, 514 game, 512 - Dupuit, Emiie, 6& Dutch auction,312 eBay, 316 ecoaodc mgckian@-&ign 313 economic renk, 4Z&+r?, 42 t Edgeworth h, m, 588 627 effective price? m- e&.iencyP eE&nq p * , & cq~lation.A equifibri~nn,3, , 290, 572 analysis, 288 291 in loan market, 303 price, G8, 10, 18, 284-290, SOY principle 18 with taxes 296-305 equilibrium principle, 288 equilibrium strategy, 509 equitable, 622 equ~valentvariation, 254-258, 262, 265 d a t i o n auction, 317 ESS, 534 =timation of preferences, 135 everyone p a p auction, 317 edutiowwily stable st.rategy, 534 exburden, 302 excess demand, 14, 571, 573 e x o w risk aversion, 555 excessive choice, 552 existence of a competitive equilibrium, 577 exit 403, 404, 421 exogenous variable, expected return, 232, 236, 237 expect,ed utility, 223, 224 555 expected utility function, 222, 230 expected mlue 221, 224 expenditure share, 281 exponential discau ntting , 556 exrctensie form, 514 extensive margrn, 269 external monopolist 336 externaiitics, 627 630, 647 858, 670, 681 cunsumption, 626 production, 600 626 em, fkeJ%rn;:.;; efflm elasticity, 27WKtZ*-@4r m n q demand, electricity, 152 emission &mdads, 645 endogenous vasiable, endowment 180, 163-164 178, 587, 629 of consumpGari, 173 of time 174 endowment income efkct, 169, 171 i 72 176 face value, 197 factor demand, 343, 350 inverse function, 343 factors of product~on,322 fair 622 fair allocations, 621 fairness norms, 560 FCC, 311 feasible allocation, 565 Federal Cornnlunicat~rrrlsCommission (FCC), 311 finai a1locat ion, 565 financial assets, 202 Engel ctlrve, 97 99,102 finaricial capital, 323 English auction 312 ~ ntlement f program, 420 entry, 403-405, 421, 516 deterrence 516 envy, 622 financial institi~tiorls,2 1 finanrial i-trum~nts 197 financial markets 197 :337 First Theorern of Welfare Econoniirs, 570, 585, 588 599, BOO, 647 ,434 INDEX first-degrce price dihcrimination 445 447 first-order condition, A9 fixed cost 362 fixed factor 339, 349, 375, 411 fixed prrjportions, 40 fixed supply, 290 focal point, 525 food stamps, 29 food subsidy, 305 forest, 209 Framed, 549 framing negative, 5.50 positive 550 framing effects, 549 free disposai 326 free entry 404 407 free ridcr, 675, 682 637, 592 full i n c o m ~ ,174 function, A l continuous, 578 future value, 184, 192, 201 game thturrq; 504 554 gasoline tax, 148 general equilibririm, 564, 588, 610 Georgia Power Company, 152 Giffen good, 103-105, 114, 136, 144 Google, 318 government-run monopolies, 437 Grarneen Bank, 713 graph A2 gross benefit, 249 gross complemds, 112 g ~ o , consumer's i surplns, 249 - gross demand, 167 178, 571 gross demands, 161 gross substitutes, f 12 Groves-Clarke tax, 689 , hawk-dove game, 533 Hicks srtbstitution effect, 153-155, 158 hidden action 701 h~ddeninformation, 701 homothetic preferences, 101 horizontd intercept, A.5 harizorltal supply curve, 290 huusilig rate of return on, 205 rent,rtl rate on, 205 tax treatment of, 283 hyperbolic discounting, 557 identity A3 irnplicit fi~nctions,71 in~plicitincome, 174 implicit rental rate, 205 zncentiv~compatibffity constraint, 708 incentire systenis, 106 incomp distribution, 267 eEect: 1112, 137 141-142, 166, 179, 252 exparision ~ a t h s 97 103 , offer r~~rves, 97-103 tax, 87 income e1astlcit.y of d e m k d , 281 increasing returns t aa+, 331 independem as-; independent variebbk, &I index fimd: 244, 246 index numbers I31 indexing, 133 indifference 34 indifference cwve, 52, 567 construction 6, 567 indirect revealed preference, 121, i28, 130 individualistic welfafe &tian, 621, 626 industry equilibrium long run, 903 short run, 40'2 industry supply fllrve, &I inelastic 282 inferior &md, !%, TtE, l f , 144, 1% 163 281 inflation expected rate sf,-Ul inflation rate, 190-1pI information l$-S inft-argjnal, 431 i :_ - , :initid andowmeat,+%5!, @ '@ idallment ioans, issmance, 225, 6%- 7M: inteUectua3 proper& - intensive margin, 2€# interest rate, 183 m, -tW, X@ nominal, 190, r e d , 190, 200 interior optimum, 76 internal monopulist, 358 internalization o f pmductiofi externdities, 640 internalized, 633 intertenlporal budget constraint, 1% choice 182 intertemporal chotceu, 182 IntrrTrrlst Technology, 434 intransitive preferences, 58 intransitivity .6K6 inverse demand function, 112, 113, 115, 268 291 inverse functior~.A3 -= 56r44, *A m- ins-t:rse suppIq filnction, 291 292 : 340 4S3, 591 (il!; ~sriqiianf,32 333, 354 isov;elfare curves 619 joint prod~icilonpossibilities w * iiii3 kinky tastes 76 Kndak, 435 labor market, 284 supply, 172-378 suppty curve, badward bcitding, 177 Laffer curve, 284 eff~ct,284,285 L a g ~ g emmittiplier, 92 Lagrangian, 589 612, 625 693 Laspeyres prlce i~ldeu.132 quantity index 131 Law of Demand: 147,156 law of diminishing margirra! pradut t ?SY L:ru of Large Numbers, 553 Leisure, 175 lender, 186 level set, 59 linear de~rland:427 linear Funcr ion, A4 liquidity, 2201, 204, 207 liquor licenses, 415 loans, 302 lock-in, 655 logarithm, i'6 long run, 17, 330, 333, 3313, %50 average cost, 375, 380 marginal costs, 379 long-run function, 360 fquilihriu~~t 406 supply n l r v e , 397, 405 12 I supply i~:tictiorr.395 loss ~ \ ~ e r w 155 tctwer enr-~r'ope,377 lump sum1 whsrdy, 27, 31 t ~ x 27 !uxl.~ryg ~ , > d101 ? cost I I I X U T ~goodsI 281 ;~l:trgiii:~i.A r l L ; ~ r g i ? j+.(,st ~~! :?c3r2!II:,~;:?:! 'JG :1rurla' f?lfl(f ';j,i.21fj ~!;iil> ; j s ~ ~ i rd~~str11 Id7 revealed prdtabiljtk- 345 revenue 273 rlgI:t r rrtandgttrl~ent.CiG.5 IHCIJlIlP rlsh 230 ~ ~ h s t ~ t i leffect, t l o ~ ~152, 153 adjtlsteil return 243 acijristri~t:rrt.242 a$er\e 22.5 n%rerter,230 l o ~ ~ +225 ? r 230 n e u t r ~ l 225 pr~miiinl.242 spreading 22'3 risk averse, 555 r~sk-freeasset, 236, 239 riskless arbitrage 204 risky asyet? 231-232, 236 taxation, 233 Rohirlson Crusoe econonly 59 rock paper scissors 508 Kubl tlsteiri bargalnirlg mode1, 543 s a h tax, 27, 295 satial ioi~,43 sealeci-bid auction 31 second d~rivative.A7 Secoritl Tt~t:ort:rn of Welfare Ecunomic:~ 583, 586 558 600 secnnd-degree price disc rim in at in^^, 4-25, 448 - seconrf-order cor~ditior?.A9 security, 197 self seiect 438 self-control, 557 self-serving attribution h i s , 558 separating equilibrium, 704 sequential game, 481, 514, 516, 518 sequential moves, 535 shadow prices, 590 sharecropping, 712 shareholder voting right-s, 710 sheepskin effect, 706 stiort run 17, 330 333, 339, 350 tivcr:igt= cost 380 cost function, 360 supply rrlrve, -121 s h i : r d o ~ n cundit iuli 38!1 sigrialil~~ 702 bi!llll1t~li?o~~ g i t l l l C -191 sill il~lt~trlcous nluvea, 535 sltigie peaked prt:fe\renc.es;(385 slept, A5 S It:;sky der~~artri furictioi! 157 t'clu;ition 1-56-258 169, 170> 179, 180 lh7, IPti liquat i u ~ i with , endort.~i~ent, 171 ~ t - l r ~it>- li 2-43 145 1dc:rit itl- races 01 cklarrgr 143 effect 141-142 Smith Adam 840 srrirluih fiinctiori A3 sor!;d L O S ~ 3130 (&I 635, 643, 647 social xlorms 516 suci:~l pr~ferenee.614, 684 Social Security 133 m c t a l welfare function, 611 saft.ware suite 457, 458 solut~on.AY Southwest Axlines, 447 stable equilibri~in~, 493 Stackelberg foilvwer , 482 leader, 484 rriodel 481 -486 514 standard dcvinti~n,235 state contingent secmity, 220 states of nature 21'7, 218, 230 stock market, 212 229, 337 value, 337 strateg~r:c k~urces,518 strategL interact lo^^, 480,504, 555 strategy method, 560 strict conwxrty; 48, 120 strict, preference, 34 Strong Axiom of R e % d e dPreference {SARP) 126 subsidies 306 subsidy, 27, 32 349 ad valorem, 27 '29 food, 305 lump sum, 27, 31 quantity, 27 substitute, 111, 115 gross, 112 substitution effect, 137, 1%, 142 153, 156 sufficient condition, T7 Sun hiicrusystems, 434 s ~ u i kcost, 362 sunk cost fallacy 556 supply curve 6-5, 10, 17, 18, 161, 168, 258 289 .309 398 competitlv~frrn 387 hor lsontal 2!Xr lr~dustry $03 irlverst~.39: Ir>~lgrilr:, ,495 397, 405, 406 321 ~narket,289 401 vertrtal 290 suppljr f r i n c t ~ u ~ :450 ~, Inverse 3 2'32 -nrtL-hirlgcosts 055, 658 3) I I I I K I U ~ ~ Itr{~a~iilent C 624 take-it-or-&wit, -%HI712 tangent, A tax, 11, 32 87, 199, 294, 309 408 d &rein, \ d u e of the marginal product 471) \.-blue tax, 27, 294 %miablecost, 368 \*iable fact,or, 339, 349 27,294 capital gains, 336 Clarke, 689 deadweight tWB, 300-302.YO9 gasoline 148 Gro%-Cl@k, 689 lump $urn, 37 i M ~ -: policy, 284 q u e , 27; r = d-* 27,w dm?, * 2we:: x ' - - , ~ \ariasee, 235 Vcrizall Wireless 65s tical intercept, A6 Lfickrey auctiox~.313 315 316, 315 van Ncumann-Morgenstern utility functiori, 222 vating sptem, 684 T+X ~ %age labor, 708,712 w%it&g in line, 308 I%~E&' law, 574, 515, 588 WAdt6iit1i wpiilibrinra, 512 m w tm - Ti@ -tflJd b k A+ of C s t Minimization ~ e a i ~ ~ i L L & i z t i ~o n3 , ~ @vAim], 357 ted&%d-;l&-& &&@&tion (TRS), 3% We& f i u m of Profit Maximization %-d -*, 322, 323,332, (WAPM), 346 3% Wkak Axiom of Revealed Preference, 124 t-kY weak preference; 34, 47 connzx, 326438' weakly preferred set, 36 p e r k t r e & , 3.57 weighted-sum-of-utilitimwelfare funcp e r f a s a ~ t & d357 , tion, 617 third-~%~@ee &ce diminatiion, 445, weifwe function 613, 624 452 Bergm~i-Sanluelson,621 time individualistic 621, 625 b&avim 0vpa1'q hw-Isiztn (minimax), 618 tirae d h a w , 556 welfare maximi*tatiun,625 time i n c p n s i q : , H? &&hehavet! indifference curves, 95 tit for %at 512; m3 dl-behaved preferences 45 47 52 186 tragedk of the axa%rms2 647 windfall profits 417 tran$formstion Em&=, 61 tax, 421 t r w f o i r n ~ , t i o& ~, - : I Winner's Curse, 320 trdth., 616,w inner's curse, 325 tv&good3 &prt -tafE;* tm-tiePad &g= - ulsimatum gaaai;'%M u-ntj-, 2%5 rkoice under, 230 urliform pricing, $52 unit cost function, 3% unit elwtic &mad, 277 262 upstream monopolist 475 utility 54 function, 55, 61, 89 possibilities frontier, 61 $9 possibilities set, 619 utility function concave 2% a, zero profits, 597 wr+sum ganm 528 ... emphasizing An analytical approach to economics is one that uses rigorous, logical reasoning This does not necessarily require the use of advanced mathematical methods The language of mathematics... editions of Intermediate Microeconomics has pleased me very much It has confirmed my belief that the market would welcome an analytic approach to microeconomics at the undergraduate level My aim in... verbally and graphically Many arguments are much simpler with a little mathematics, and all economics students should learn that In many cases I've found that with a little motivation, and a few