Microeconomics Theory and Applications

by Mansfield, Edwin; Yohe, Gary W.

• ISBN13: 9780393979183
• ISBN10: 0393979180
• Edition: 11th
• Format: Hardcover
• Copyright: 2003-08-12
• Publisher: W. W. Norton & Company

Summary

Starting with the Tenth Edition and continuing with the Eleventh,co-author Gary Yohe has thoroughly revised the text while retaining itstraditional strengths. Discussions remain accurate and clear, makinguse of engaging examples that draw on real-world applications tomotivate the presentation of theory. This revitalized classic promisesto continue to please instructors and their students.

Author Biography

Gary Yohe is professor of economics at Wesleyan University and a collaborator at the Centre for Integrated Study of the Human Dimensions of Global Change at Carnegie Mellon University.

Table of Contents

About the Authors	p. xvii
Preface	p. xix
Introduction
Microeconomics	p. 1
Introduction	p. 1
Optimal Production Decisions	p. 2
Pricing Policy	p. 3
Efficient Allocation of a Society's Resources	p. 3
Public Policy Concerning Market Structure	p. 5
Microeconomics: Problem Solving and Science	p. 6
Human Wants and Resources	p. 7
Technology	p. 8
Tasks Performed by an Economic System	p. 9
Our Mixed Capitalist System	p. 10
The Price System and Microeconomics	p. 12
Hungary's Rough Transition toward the Price System	p. 13
Model-Building and the Role of Models	p. 14
Evaluating a Model	p. 15
Summary	p. 16
Questions/Problems	p. 17
Demand and Supply	p. 20
Introduction	p. 20
Markets	p. 20
The Demand Side of the Market	p. 21
Coffee Bars Invade Manhattan	p. 26
The Supply Side of the Market	p. 31
The Price of Cotton: Highest since the Civil War	p. 33
Determinants of Price	p. 36
Price Floors and Ceilings	p. 41
Rent Control, California-Style: Mobile-Home Owners versus Park Owners	p. 43
Summary	p. 45
Questions/Problems	p. 46
Consumer Behavior and Market Demand
Tastes and Preferences of the Consumer	p. 51
Introduction	p. 51
Consumer Preferences	p. 52
Indifference Curves	p. 53
The Concept of Utility	p. 56
The Marginal Rate of Substitution	p. 57
Deciphering the Shapes of Indifference Curves	p. 59
The Budget Line	p. 61
Equilibrium of the Consumer	p. 64
Consumer Choice and the New Phone Rates	p. 66
Corner Solutions	p. 68
Corner Solutions and Diminishing Marginal Rates of Substitution	p. 69
Revealed Preference and the Measurement of Indifference Curves	p. 71
Determinants of Consumer Tastes and Preferences	p. 73
The Food Stamp Program	p. 74
Budget Allocation by New York State: An Application	p. 75
Summary	p. 77
Questions/Problems	p. 78
Ordinal and Cardinal Utility	p. 81
Consumer Behavior and Individual Demand	p. 87
Introduction	p. 87
Effects of Changes in Consumer Money Income	p. 88
Expenditures and Income	p. 94
Effects of Changes in Commodity Prices	p. 95
Substition and Income Effects	p. 98
Energy Tax and Rebate Proposal	p. 103
Consumer Surplus	p. 104
Indexes of the Cost of Living	p. 112
Household Response to Higher Energy Prices and Their Associated Losses in Consumer Surplus	p. 113
Calculating a Cost-of-Living Index	p. 119
Summary	p. 120
Questions/Problems	p. 121
Derivation of the Market Demand Curve	p. 126
Introduction	p. 126
The Price Elasticity of Demand	p. 128
Residential Demand for Water	p. 129
The Income Elasticity of Demand	p. 130
The Cross-Price Elasticity of Demand	p. 133
Fur Sales Take a Hit	p. 135
Shifting Demand Curves	p. 136
The Seller's Side of the Market and Marginal Revenue	p. 137
Demand and the Distribution of Aggregate Income	p. 138
Industry and Firm Demand Curves	p. 142
The Measurement of Demand Curves	p. 144
Attracting Quality Students with Partial Scholarships	p. 147
Summary	p. 148
Questions/Problems	p. 149
Choices Involving Risk	p. 153
Introduction	p. 153
Probability	p. 153
Expected Monetary Value	p. 155
Investing in an Oil Venture: A Case Study	p. 156
The Expected Value of Perfect Information	p. 157
How Much Are Accurate Weather Forecasts Worth to Raisin Producers? A Case Study	p. 158
The Expected Value of Partial Information	p. 159
Should a Person Maximize Expected Monetary Value?	p. 161
Maximizing Expected Utility	p. 162
Should the Company Really Invest in the Oil Venture?	p. 163
Preferences Regarding Risk	p. 164
Hospitals and the Health Insurance Bind	p. 167
Why People Buy Insurance	p. 169
How Much Insurance Should an Individual Buy?	p. 170
Are Two Consultants Better Than One?	p. 171
Revisiting the Value of Information When People Are Averse to Risk	p. 176
Behavior in the Face of Risk	p. 178
The Precautionary Principle	p. 179
The Cost of Exposure Limits That Have Been Set by Applying the Precautionary Principle	p. 181
Summary	p. 182
Questions/Problems	p. 183
Demand for Airline Travel and the Pricing of Tickets	p. 186
The Firm: Its Technology and Costs
The Firm and Its Technology	p. 191
Introduction	p. 191
Firm Owners and Managers: A Principal-Agent Problem	p. 193
Technology and Inputs	p. 195
The Short Run and the Long Run	p. 195
Is a CEO Really Worth Half a Billion Dollars per Year?	p. 196
The Production Function	p. 198
The Law of Diminishing Marginal Returns and the Geometry of Average and Marginal Product Curves	p. 202
The Production Function: Two Variable Inputs	p. 204
Isoquants	p. 205
Substitution among Inputs	p. 207
The Long Run and Returns to Scale	p. 209
The Measurement of Production Functions	p. 211
Should Two Kansas Wheat Farms Merge?	p. 213
Summary	p. 216
Questions/Problems	p. 217
Optimal Input Combination and Cost Functions	p. 220
Introduction	p. 220
Optimal Combination of Inputs	p. 221
Production of Wheat: An Application	p. 225
Costs	p. 226
Rice-Milling in Indonesia	p. 228
Pollution Control: An Application	p. 229
Social Costs versus Private Costs	p. 231
Explicit Costs versus Implicit Costs	p. 231
Proper Comparison of Alternatives	p. 231
Cost Functions in the Short Run	p. 232
Least-Cost Reductions of Carbon Emissions	p. 241
Cost Functions in the Long Run	p. 243
Economies of Scope	p. 250
The Measurement of Cost Functions	p. 250
The Shape of the Short-Run Marginal Cost Curve	p. 255
Summary	p. 256
Questions/Problems	p. 257
Production and Cost Theory at Work: The Cost of Climate Policy	p. 261
Market Structure, Price, and Output
Perfect Competition	p. 269
Introduction	p. 269
Perfect Competition	p. 270
Price Determination in the Short Run	p. 271
Auctions and Experimental Economics	p. 278
Price Determination in the Long Run	p. 280
What Would Be the Effects of National Dental Insurance?	p. 284
The Market for Sulfur Emissions Permits	p. 291
Agricultural Prices and Output: An Application	p. 293
Summary	p. 295
Questions/Problems	p. 295
Applying the Competitive Model	p. 300
Introduction	p. 300
Producer Surplus and Total Surplus	p. 300
Perfect Competition and the Maximization of Total Surplus	p. 303
The Effect of a Price Ceiling	p. 305
A Price Ceiling for Gasoline	p. 306
New York Apartments: A Case Study	p. 308
The Effect of a Price Floor	p. 310
Agricultural Price Supports: Another Case Study	p. 311
Protecting Domestic Producers: Tariffs and Quotas	p. 312
Restrictions on U.S. Imports of Japanese Autos: A Third Case Study	p. 314
Gains and Losses from Steel Import Quotas	p. 316
Effects on Price of an Excise Tax	p. 318
Deadweight Loss from an Excise Tax	p. 320
Should the Gasoline Tax Be Raised?	p. 322
Postcript	p. 323
Summary	p. 324
Questions/Problems	p. 324
Monopoly	p. 329
Introduction	p. 329
Short-Run Equilibrium Price and Output	p. 333
Long-Run Equilibrium Price and Output	p. 338
Playing the Slots at Foxwoods	p. 339
Multiplant Monopoly	p. 341
A Comparison of Monopoly with Perfect Competition	p. 343
Monopoly Power	p. 345
Price Discrimination	p. 346
The Microsoft Finding and the Value of Startup Software Companies	p. 347
Two-Part Tariffs and Tying	p. 353
Two-Part Tariffs in the National Football League	p. 354
Bundling: Another Pricing Technique	p. 356
Public Regulation of Monopoly	p. 358
Case Studies	p. 360
Summary	p. 362
Questions/Problems	p. 364
Monopolistic Competition and Oligopoly	p. 369
Introduction	p. 369
Monopolistic Competition	p. 369
Equilibrium Price and Output in the Short and Long Runs	p. 371
Excess Capacity and Product Diversity	p. 373
Markup Pricing	p. 374
Comparisons with Perfect Competition and Monopoly	p. 376
Advertising Expenditures: A Simple Model	p. 377
Optimal Advertising Expenditures: A Graphical Analysis	p. 379
The Social Value of Advertising	p. 380
Advertising, Spectacles, and the FTC	p. 382
Oligopoly	p. 383
The Nash Equilibrium	p. 384
An Example of a Nash Equilibrium: The Cournot Model	p. 385
The Stackelberg Model	p. 389
The Bertrand Model	p. 392
Collusion and Cartels	p. 393
The Retail Market for Tires	p. 397
The Instability of Cartels	p. 398
The OPEC Oil Cartel: An Application	p. 399
The International Supply of Crude Oil	p. 400
Price Leadership	p. 402
Entry and Contestable Markets	p. 404
Summary	p. 406
Questions/Problems	p. 407
Game Theory and Strategic Behavior	p. 410
Introduction	p. 410
The Theory of Games	p. 411
Game Trees	p. 412
Nash Equilibria: Further Discussion	p. 414
Maximin Strategies	p. 416
Should Amherst Buy All Its Steel from Duquesne?	p. 417
The Prisoners' Dilemma	p. 418
Cheating on a Cartel Agreement	p. 420
The Repeated Prisoners' Dilemma and the Tit-for-Tat Strategy	p. 421
Strategic Moves	p. 423
The Role of Incentives and Contracts	p. 424
Threats: Empty and Credible	p. 426
Deterrence of Entry	p. 428
Limit Pricing	p. 430
First-Mover Advantages	p. 430
How Governments Can Tilt the Outcome of Oligopoly	p. 432
Capacity Expansion and Preemption	p. 434
Nonprice Competition	p. 435
The Effects of Oligopoly	p. 436
Summary	p. 437
Questions/Problems	p. 438
Shaking the Tree of Global Telecommunications Markets	p. 442
Markets for Inputs
Price and Employment of Inputs	p. 445
Introduction	p. 445
Profit Maximization and Input Employment	p. 446
The Firm's Demand Curve: The Case of One Variable Input	p. 448
The Firm's Demand Curve: The Case of Several Variable Inputs	p. 450
The Market Demand Curve	p. 452
Determinants of the Price Elasticity of Demand for an Input	p. 453
The Market Supply Curve	p. 455
Income and Substitution Effects in the Supply of Labor	p. 458
Equilibrium Price and Employment of an Input	p. 459
Rent	p. 462
Imperfectly Competitive Output Markets	p. 464
Does Immigration Benefit the United States?	p. 467
Monopsony	p. 468
Effects of Increasing the Minimum Wage	p. 474
Summary	p. 480
Questions/Problems	p. 481
Investment Decisions	p. 486
Introduction	p. 486
Intertemporal Choice: Consumption and Saving	p. 487
Interest Rates and Investment	p. 490
The Equilibrium Level of Interest Rates	p. 492
Present Value	p. 493
Valuing a Stream of Payments	p. 495
The Net Present Value Rule for Investment Decisions	p. 497
Neil Simon Goes Off-Broadway	p. 499
The Investment Decision: An Example	p. 500
Real versus Nominal Interest Rates	p. 502
Risk and Diversification	p. 503
Diversifiable and Nondiversifiable Risk	p. 504
The Capital-Asset Pricing Model	p. 506
Including Risk in Net Present Value Calculations: Some Examples	p. 507
The Stock Market: The Efficient Markets Hypothesis	p. 508
Internal Rates of Return and Bond Yields	p. 509
How Much Is a Bond Worth?	p. 511
Game Theory in Action: Investment as a Strategic Decision	p. 513
Pricing Exhaustible Resources	p. 514
Game Theory in Action: A Tit-for-Tat Time Horizon	p. 518
Summary	p. 520
Questions/Problems	p. 521
Sex Discrimination and Comparable Worth	p. 526
Information, Efficiency, and Government
General Equilibrium Analysis and Resource Allocation	p. 531
Introduction	p. 531
Partial Equilibrium Analysis versus General Equilibrium Analysis	p. 532
The Existence of General Equilibrium	p. 533
A Simple Model of General Equilibrium	p. 534
Deregulation of Railroads and Trucks	p. 538
Resource Allocation and the Edgeworth Box Diagram	p. 539
Exchange	p. 542
Production	p. 544
Allocation of Fissionable Material	p. 546
The Production Possibilities Curve	p. 547
Production and Exchange	p. 548
Summary	p. 552
Questions/Problems	p. 553
The Promotion of Economic Efficiency	p. 556
Introduction	p. 556
A Definition of Economic Efficiency	p. 557
Marginal Conditions for Economic Efficiency	p. 558
The Utility Possibilities Curve	p. 561
Equity Considerations	p. 563
John Rawls on Social Justice	p. 564
Perfect Competition and Economic Efficiency	p. 565
External Economies and Diseconomies	p. 567
External Diseconomies on the Highways	p. 571
Increasing Returns, Public Goods, and Imperfect Information	p. 573
Static Efficiency and Economic Progress	p. 574
Fairness, Equity, and Efficiency	p. 577
Summary	p. 579
Questions/Problems	p. 579
Economic Benefits from Free Trade	p. 582
The Prevalence of Asymmetric Information	p. 585
Introduction	p. 585
Used Cars: An Example of Asymmetric Information	p. 586
A Graphical Analysis of the Market for Used Cars	p. 586
Asymmetric Information in the Fixture Market	p. 589
Asymmetric Information and Market Failure	p. 589
Adverse Selection: A Problem of Hidden Information	p. 590
Consequences of Adverse Selection	p. 591
Market Signaling	p. 593
Dawat, McDonald's, and the Importance of Reputation	p. 594
Moral Hazard: A Problem of Hidden Action	p. 596
Principal-Agent Problems	p. 598
Game Theory in Action: Superior Knowledge as a Deterrent to Entry	p. 601
Efficiency Wage Theory	p. 603
Summary	p. 605
Questions/Problems	p. 606
Public Goods, Externalities, and the Role of Government	p. 609
Introduction	p. 609
Characteristics of a Public Good	p. 609
Efficient Output of a Public Good	p. 610
Provision of Public Goods	p. 612
The Effect of Voting Rules	p. 614
Externalities: The Case of Environmental Pollution	p. 615
Game Theory in Action: The Tragedy of the Commons from a Strategic Perspective	p. 620
Property Rights and Coase's Theorem	p. 623
Government Intervention and Benefit-Cost Analysis	p. 624
Economic Efficiency and Global Policy to Combat Climate Change	p. 628
Anemia Reduction in Indonesia, Kenya, and Mexico: An Application	p. 630
Limitations of Government Effectiveness	p. 631
Summary	p. 634
Questions/Problems	p. 635
The FCC and the "Biggest Auction in the Known Universe"	p. 639
Glossary of Terms	p. 1
Brief Answers to Odd Numbered Questions	p. 13
Index	p. 33
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