Intermediate Microeconomics : A Modern Approach

by Varian, Hal R.

• ISBN13: 9780393973709
• ISBN10: 0393973700
• Edition: 5th
• Format: Hardcover
• Copyright: 1999-03-01
• Publisher: W W Norton & Co
• More Book Details

Table of Contents

Preface	xix
The Market
Constructing a Model	1	(2)
Optimization and Equilibrium	3	(1)
The Demand Curve	3	(2)
The Supply Curve	5	(2)
Market Equilibrium	7	(2)
Comparative Statics	9	(2)
Other Ways to Allocate Apartments	11	(3)
The Discriminating Monoplist • The Ordinary Monopolist • Rent Control • Which Way Is Best?	14	(1)
Pareto Efficiency	15	(1)
Comparing Ways to Allocate Apartments	16	(1)
Equilibrium in the Long Run	17	(1)
Summary	18	(1)
Review Questions	19	(1)
Budget Constraint
The Budget Constraint	20	(1)
Two Goods Are Often Enough	21	(1)
Properties of the Budget Set	22	(2)
How the Budget Line Changes	24	(2)
The Numeraire	26	(1)
Taxes, Subsidies, and Rationing	26	(5)
Example: The Food Stamp Program Budget Line Changes	31	(1)
Summary	31	(1)
Review Questions	32	(2)
Preferences
Consumer Preferences	34	(1)
Assumptions about Preferences	35	(1)
Indifference Curves	36	(1)
Examples of Preferences	37	(7)
Perfect Substitutes • Perfect Complements • Bads • Neutrals • Satiation • Discrete Goods • Well-Behaved Preferences	44	(4)
The Marginal Rate of Substitution	48	(2)
Other Interpretations of the MRS	50	(1)
Behavior of the MRS	51	(1)
Summary	52	(1)
Review Questions	52	(5)
Utility
Cardinal Utility	57	(1)
Constructing a Utility Function	58	(1)
Some Examples of Utility Functions	59	(6)
Example: Indifference Curves from Utility Perfect Substitutes • Perfect Complements • Quasiliner Preferences • Cobb-Douglas Preferences • Marginal Utility	65	(1)
Marginal Utility and MRS	66	(1)
Utility for Commuting	67	(2)
Summary	69	(1)
Review Questions	70	(1)
Appendix	70	(3)
Example: Cobb-Douglas Preferences
Choice
Optimal Choice	73	(5)
Consumer Demand	78	(1)
Some Examples	78	(5)
Perfect Substitutes • Perfect Complements • Neutrals and Bads • Discrete Goods • Concave Preferences • Cobb-Douglas Preferences • Estimating Utility Functions	83	(2)
Implications of the MRS Condition	85	(2)
Choosing Taxes	87	(2)
Summary	89	(1)
Review Questions	89	(1)
Appendix	90	(6)
Example: Cobb-Douglas Demand Functions
Demand
Normal and Inferior Goods	96	(1)
Income Offer Curves and Engel Curves	97	(2)
Some Examples	99	(5)
Perfect Substitutes • Perfect Complements • Cobb-Douglas Preferences • Homothetic Preferences • Quasilinear Preferences • Ordinary Goods and Giffen Goods	104	(2)
The Price Offer Curve and the Demand Curve	106	(1)
Some Examples	107	(4)
Perfect Substitutes • Perfect Complements • A Discrete Good • Substitutes and Complements	111	(1)
The Inverse Demand Function	112	(2)
Summary	114	(1)
Review Questions	115	(1)
Appendix	116	(3)
Reealed Preference
The Idea of Revealed Preference	119	(1)
From Revealed Preference to Preference	120	(2)
Recovering Preferences	122	(2)
The Weak Axiom of Revealed Preferences	124	(1)
Checking WARP	125	(3)
The Strong Axiom of Revealed Preference	128	(1)
How to Check SARP	129	(1)
Index Numbers	130	(2)
Price Indices	132	(3)
Example: Indexing Social Security Payments Summary	135	(1)
Review Questions	135	(2)
Slutsky Equation
The Substitution Effect	137	(4)
Example: Calculating the Substitution Effect The Income Effect	141	(1)
Example: Calculating the Income Effect Sign of the Substitution Effect	142	(1)
The Total Change in Demand	143	(1)
Rates of Change	144	(3)
The Law of Demand	147	(1)
Examples of Income and Substitution Effect	147	(4)
Example: Rebating a Tax Another Substitution Effect	151	(3)
Compensated Demand Curves	154	(1)
Summary	154	(1)
Review Questions	155	(1)
Appendix	155	(3)
Example: Rebating a Small Tax
Buying and Selling
Net and Gross Demands	158	(1)
The Budget Constraint	159	(2)
Changing the Endowment	161	(1)
Price Changes	162	(3)
Offer Curves and Demand Curves	165	(1)
The Slutsky Equation Revisited	166	(4)
Use of the Slutsky Equation	170	(1)
Example: Calculating the Endowment Income Effect Labor Supply	171	(1)
The Budget Constraint • Comparative Statics of Labor Supply	172	(4)
Example: Overtime and the Supply of Labor Summary	176	(1)
Review Questions	177	(1)
Appendix	177	(3)
Intertemporal Choice
The Budget Constraint	180	(3)
Preferences for Consumption	183	(1)
Comparative Statics	184	(1)
The Slutsky Equation and Intertemporal Choice	185	(2)
Inflation	187	(2)
Present Value: A Closer Look	189	(2)
Analyzing Present Value for Several Periods	191	(1)
Use of Present Value	192	(3)
Example: Valuing a Stream of Payments Example: The True Cost of a Credit Card Bonds	195	(2)
Example: Installment Loans Taxes	197	(1)
Example: Scholarships and Savings Choice of the Interest Rate	198	(1)
Summary	199	(1)
Review Questions	199	(1)
Asset Markets
Rates of Return	200	(2)
Arbitrage and Present Value	202	(1)
Adjustments for Differences among Assets	202	(1)
Assets with Consumption Returns	203	(1)
Taxation of Asset Returns	204	(1)
Applications	205	(4)
Depletable Resources • When to Cut a Forest • Example: Gasoline Prices during the Gulf War Financial Institutions	209	(1)
Summary	210	(1)
Review Questions	211	(1)
Appendix	211	(2)
Uncertainty
Contingent Consumption	213	(4)
Utility Functions and Probabilities	217	(1)
Example: Some Examples of Utility Functions Expected Utility	218	(1)
Why Expected Utility Is Reasonable	219	(2)
Risk Aversion	221	(4)
Example: The Demand for Insurance Diversification	225	(1)
Risk Spreading	225	(1)
Role of the Stock Market	226
Summary	27	(200)
Review Questions	227	(1)
Appendix	228	(3)
Example: The Effect of Taxation on Investment in Risky Assets
Risky Assets
Mean-Variance Utility	231	(5)
Measuring Risk	236	(2)
Equilibrium in a Market for Risky Assets	238	(1)
How Returns Adjust	239	(4)
Example: Ranking Mutual Funds Summary	243	(1)
Review Questions	243	(2)
Consumer's Surplus
Demand for a Discrete Good	245	(1)
Constructing Utility from Demand	246	(1)
Other Interpretations of Consumer's Surplus	247	(1)
From Consumer's Surplus to Consumers' Surplus	248	(1)
Approximating a Continuous Demand	248	(1)
Quasilinear Utility	248	(1)
Interpreting the Change in Consumer's Surplus	249	(2)
Example: The Change in Consumer's Surplus Compensating and Equivalent Variation	251	(4)
Example: Compensating and Equivalent Variations Example: Compensating and Equivalent Variation for Quasilinear Preferences Producer's Surplus	255	(2)
Calculating Gains and Losses	257	(1)
Summary	258	(1)
Review Questions	259	(1)
Appendix	259	(3)
Example: A Few Demand Functions Example: CV, EV, and Consumer's Surplus
Market Demand
From Individual to Market Demand	262	(2)
The Inverse Demand Function	264	(1)
Example: Adding Up ``Linear'' Demand Curves Discrete Goods	265	(1)
The Extensive and the Intensive Margin	265	(1)
Elasticity	266	(2)
Example: The Elasticity of a Linear Demand Curve Elasticity and Demand	268	(1)
Elasticity and Revenue	269	(3)
Example: Strikes and Profits Constant Elasticity Demands	272	(1)
Elasticity and Marginal Revenue	273	(2)
Example: Setting a Price Marginal Revenue Curves	275	(1)
Income Elasticity	276	(1)
Summary	277	(1)
Review Questions	278	(1)
Appendix	279	(6)
Example: The Laffer Curve Example: Another Expression for Elasticity
Equilibrium
Supply	285	(1)
Market Equilibrium	285	(1)
Two Special Cases	286	(1)
Inverse Demand and Supply Curves	287	(2)
Example: Equilibrium with Linear Curves Comparative Statics	289	(1)
Example: Shifting Both Curves Taxes	290	(4)
Example: Taxation with Linear Demand and Supply Passing Along a Tax	294	(2)
The Deadweight Loss of a Tax	296	(6)
Example: The Market for Loans Example: Food Subsidies Pareto Efficiency	302	(2)
Example: Waiting in Line Summary	304	(1)
Review Questions	305	(2)
Auctions
Classification of Auctions	307	(1)
Bidding Rules • Auction Design	308	(3)
Problems with Auctions	311	(1)
The Winner's Curse	312	(1)
Summary	312	(1)
Review Questions	313	(1)
Technology
Inputs and Outputs	314	(1)
Describing Technological Constraints	315	(1)
Examples of Technology	316	(2)
Fixed Proportions • Perfect Subsititutes • Cobb-Douglas • Properties of Technology	318	(2)
The Marginal Product	320	(1)
The Technical Rate of Substitution	320	(1)
Diminishing Marginal Product	321	(1)
Diminishing Technical Rate of Substitution	321	(1)
The Long Run and the Short Run	322	(1)
Returns to Scale	322	(2)
Summary	324	(1)
Review Questions	325	(1)
Profit Maximization
Profits	326	(2)
The Organization of Firms	328	(1)
Profits and Stock Market Value	328	(2)
Fixed and Variable Factors	330	(1)
Short-Run Profit Maximization	330	(2)
Comparative Statics	332	(1)
Profit Maximization in the Long Run	333	(1)
Inverse Factor Demand Curves	334	(1)
Profit Maximization and Returns to Scale	335	(1)
Revealed Profitibility	336	(4)
Example: How Do Farmers React to Price Supports? Cost Minimization	340	(1)
Summary	340	(1)
Review Questions	341	(1)
Appendix	342	(2)
Cost Minimization
Cost Minimization	344	(4)
Example: Minimizing Costs for Specific Technologies Revealed Cost Minimization	348	(1)
Returns to Scale and the Cost Function	349	(2)
Long-Run and Short-Run Costs	351	(2)
Fixed and Quasi-Fixed Costs	353	(1)
Shunk Costs	353	(1)
Summary	354	(1)
Review Questions	354	(1)
Appendix	355	(3)
Cost Curves
Average Costs	358	(2)
Marginal Costs	360	(2)
Marginal Costs and Variable Costs	362	(4)
Example: Specific Cost Curves Example: Marginal Cost Curves for Two Plants Long-Run Costs	366	(2)
Discrete Levels of Plant Size	368	(2)
Long-Run Marginal Costs	370	(1)
Summary	371	(1)
Review Questions	372	(1)
Appendix	372	(2)
Firm Supply
Market Environments	374	(1)
Pure Competition	375	(2)
The Supply Decision of a Competitive Firm	377	(2)
An Exception	379	(1)
Another Exception	380	(2)
Example: Pricing Operating Systems The Inverse Supply Function	382	(1)
Profits and Producer's Surplus	382	(4)
Example: The Supply Curve for a Specific Cost Function The Long-Run Supply Curve of a Firm	386	(2)
Long-Run Constant Average Costs	388	(1)
Summary	389	(1)
Review Questions	390	(1)
Appendix	390	(2)
Industry Supply
Short-Run Industry Supply	392	(1)
Industry Equilibrium in the Short Run	393	(1)
Industry Equilibrium in the Long Run	394	(2)
The Long-Run Supply Curve	396	(4)
Example: Taxation in the Long Run and in the Short Run The Meaning of Zero Profits	400	(1)
Fixed Factors and Economic Rent	401	(2)
Example: Taxi Licenses in New York City Economic Rent	403	(2)
Rental Rates and Prices	405	(1)
Example: Liquor Licenses The Politics of Rent	406	(2)
Example: Farming the Government Energy Policy	408	(4)
Two-Tiered Oil Pricing • Price Control • The Entitlement Program • Summary	412	(1)
Review Questions	413	(2)
Monopoly
Maximizing Profits	415	(1)
Linear Demand Curve and Monopoly	416	(2)
Markup Pricing	418	(2)
Example: The Impact of Taxes on a Monopolist Inefficiency of Monopoly	420	(2)
Deadweight Loss of Monopoly	422	(3)
Example: The Optimal Life of a Patent Natural Monopoly	425	(2)
What Causes Monopolies?	427	(3)
Example: Diamonds Are Forever Example: Pooling in Auction Markets Summary	430	(1)
Review Questions	431	(1)
Appendix	432	(2)
Monopoly Behavior
Price Discrimination	434	(1)
First-Degree Price Discrimination	434	(2)
Second-Degree Price Discrimination	436	(4)
Example: Price Discrimination in Airfares Third-Degree Price Discrimination	440	(4)
Example: Linear Demand Curves Example: Calculating Optimal Price Discrimination Example: Price Discrimination in Academic Journals Bundling	444	(2)
Example: Software Suites Two-Part Tariffs	446	(2)
Monopolistic Competition	448	(3)
A Location Model of Product Differentiation	451	(2)
Product Differentiation	453	(1)
More Vendors	453	(1)
Summary	454	(1)
Review Questions	455	(1)
Factor Markets
Monopoly in the Output Market	456	(3)
Monopsony	459	(4)
Example: The Minimum Wage Upstream and Downstream Monopolies	463	(2)
Summary	465	(1)
Review Questions	466	(1)
Appendix	466	(3)
Oligopoly
Choosing a Strategy	469	(1)
Quantity Leadership	469	(6)
The Follower's Problem • The Leader's Problem • Price Leadership	475	(2)
Comparing Price Leadership and Quantity Leadership	477	(1)
Simultaneous Quantity Setting	477	(2)
An Example of Cournot Equilibrium	479	(2)
Adjustment to Equilibrium	481	(1)
Many Firms in Cournot Equilibrium	481	(1)
Simultaneous Price Setting	482	(1)
Collusion	483	(3)
Punishment Strategies	486	(3)
Example: Price Matching and Competition Example: Voluntary Export Restraints Comparison of the Solutions	489	(1)
Summary	490	(1)
Review Questions	491	(1)
Game Theory
The Payoff Matrix of a Game	492	(2)
Nash Equilibrium	494	(1)
Mixed Strategies	495	(1)
The Prisoner's Dilemma	496	(2)
Repeated Games	498	(1)
Enforcing a Cartel	499	(2)
Example: Tit for Tat in Airline Pricing Sequential Games	501	(2)
A Game of Entry Deterrence	503	(2)
Summary	505	(1)
Review Questions	505	(3)
Exchange
The Edgeworth Box	508	(2)
Trade	510	(1)
Pareto Efficient Allocations	511	(2)
Market Trade	513	(2)
The Algebra of Equilibrium	515	(2)
Walras' Law	517	(1)
Relative Prices	518	(2)
Example: An Algebraic Example of Equilibrium The Existence of Equilibrium	520	(1)
Equilibrium and Efficiency	521	(1)
The Algebra of Efficiency	522	(3)
Example: Monopoly in the Edgeworth Box Efficiency and Equilibrium	525	(2)
Implications of the First Welfare Theorem	527	(2)
Implications of the Second Welfare Theorem	529	(2)
Summary	531	(1)
Review Questions	532	(1)
Appendix	532	(2)
Production
The Robinson Crusoe Economy	534	(2)
Crusoe, Inc.	536	(1)
The Firm	537	(1)
Robinson's Problem	538	(1)
Putting Them Together	538	(2)
Different Technologies	540	(2)
Production and the First Welfare Theorem	542	(1)
Production and the Second Welfare Theorem	543	(1)
Production Possibilities	543	(2)
Comparative Advantage	545	(2)
Pareto Efficiency	547	(2)
Castaways, Inc.	549	(2)
Robinson and Friday as Consumers	551	(1)
Decentralized Resource Allocation	552	(1)
Summary	553	(1)
Review Questions	553	(1)
Appendix	554	(3)
Welfare
Aggregation of Preferences	557	(2)
Social Welfare Functions	559	(2)
Welfare Maximization	561	(2)
Individualistic Social Welfare Functions	563	(1)
Fair Allocations	564	(1)
Envy and Equity	565	(2)
Summary	567	(1)
Review Questions	567	(1)
Appendix	568	(2)
Externalities
Smokers and Nonsmokers	570	(3)
Quasilinear Preferences and the Coase Theorem	573	(2)
Production Externalities	575	(5)
Example: Pollution Vouchers Interpretation of the Conditions	580	(3)
Market Signals	583	(1)
The Tragedy of the Commons	583	(4)
Example: Overfishing Automobile Pollution	587	(1)
Summary	588	(1)
Review Questions	589	(1)
Law and Economics
Crime and Punishment	590	(3)
Qualifications	593	(1)
Liability Law	594	(2)
Bilateral Accidents	596	(2)
Treble Damages in Antitrust Law	598	(3)
Seeking to Be Damaged • Which Model Is Right?	601	(1)
Summary	601	(1)
Review Questions	601	(2)
Information Technology
Systems Competition	603	(1)
Lock-In	603	(3)
A Model of Competition with Switching Costs • Network Externalities	606	(1)
Markets with Network Externalities	606	(2)
Market Dynamics	608	(3)
Example: Network Externalities in Computer Software Implications of Network Externalities	611	(1)
Rights Management	612	(2)
Example: Video Rental Sharing Intellectual Property	614	(2)
Summary	616	(1)
Review Questions	616	(2)
Public Goods
When to Provide a Public Good?	618	(4)
Private Provision of the Public Good	622	(1)
Free Riding	622	(2)
Different Levels of the Public Good	624	(2)
Quasilinear Preferences and Public Goods	626	(2)
Example: Pollution Revisited The Free Rider Problem	628	(2)
Comparison to Private Goods	630	(1)
Voting	631	(3)
Example: Agenda Manipulation Demand Revelation	634	(4)
Example: An Example of the Clarke Tax Problems with the Clarke Tax	638	(1)
Summary	639	(1)
Review Questions	639	(1)
Appendix	640	(2)
Asymmetric Information
The Market for Lemons	642	(1)
Quality Choice	643	(2)
Choosing the Quality • Adverse Selection	645	(2)
Moral Hazard	647	(1)
Moral Hazard and Adverse Selection	648	(1)
Signaling	649	(4)
Example: The Sheepskin Effect Incentives	653	(5)
Example: Voting Rights in the Corporation Example: Chinese Economic Reforms Asymmetric Information	658	(3)
Example: Monitoring Costs Example: The Grameen Bank Summary	661	(1)
Review Questions	662
Mathematical Appendix
Functions	1	(1)
Graphs	2	(1)
Properties of Functions	2	(1)
Inverse Functions	3	(1)
Equations and Identities	3	(1)
Linear Functions	4	(1)
Changes and Rates of Change	4	(1)
Slopes and Intercepts	5	(1)
Absolute Values and Logarithms	6	(1)
Derivatives	6	(1)
Second Derivatives	7	(1)
The Product Rule and the Chain Rule	8	(1)
Partial Derivatives	8	(1)
Optimization	9	(1)
Constrained Optimization	10	(1)
Answers	11	(20)
Index	31