Microeconomics: Theory & Applications

by Browning, Edgar K.; Zupan, Mark A.

• ISBN13: 9780471389163
• ISBN10: 0471389161
• Edition: 7th
• Format: Hardcover
• Copyright: 2001-07-01
• Publisher: John Wiley & Sons Inc

Summary

* Asymmetric Information and Internet Dating

Table of Contents

Preface	iii
Acknowledgments	vi
An Introduction to Microeconomics	1	(14)
The Scope of Microeconomic Theory	2	(1)
The Nature and Role of Theory	2	(1)
Positive Versus Normative Analysis	3	(1)
Market Analysis and Real Versus Nominal Prices	4	(1)
The Old Rich Versus the New Rich: A Real Comparison	5	(1)
Basic Assumptions About Market Participants	5	(1)
Opportunity Cost	6	(3)
The Rise of Mail-Order and Online Shopping	7	(1)
Never on Sunday	7	(1)
Economic Versus Accounting Costs	8	(1)
Why It Was Profitable to Demolish a Profitable Hong Kong Hotel	8	(1)
Sunk Costs	8	(1)
Measuring Economic Costs and Benefits	9	(1)
Production Possibility Frontier	9	(6)
Supply And Demand	15	(30)
Demand and Supply Curves	16	(6)
The Demand Curve	16	(1)
Shifts in the Demand Curve	17	(3)
The Effect of Traffic Schools on Speeding	20	(1)
The Supply Curve	20	(1)
Shifts in the Supply Curve	21	(1)
Determination of Equilibrium Price and Quantity	22	(2)
Is There a Parking Shortage in Major American Cities?	23	(1)
Adjustment to Changes in Demand or Supply	24	(3)
Supply, Demand, and Babysitting	25	(1)
Using the Supply-Demand Model to Explain Market Outcomes	26	(1)
Government Intervention in Markets: Price Controls	27	(5)
Rent Control	27	(2)
Who Loses, Who Benefits?	29	(2)
Why Web Surfing Can Turn into Web Crawling	31	(1)
Why the Doctor Is Not In	31	(1)
Elasticities	32	(13)
Price Elasticity of Demand	32	(2)
Calculating Price Elasticity of Demand	34	(2)
Demand Elasticity and Cable Television Pricing	36	(1)
Demand Elasticities Vary Among Goods	36	(1)
The Estimation of Demand Elasticities	37	(1)
D.C: Learns about Demand Elasticity	38	(1)
Three Other Elasticities	39	(1)
It Takes Time	40	(5)
The Theory of Consumer Choice	45	(36)
Consumer Preferences	46	(9)
Consumer Preferences Graphed as Indifference Curves	47	(2)
Curvature of Indifference Curves	49	(3)
Individuals Have Different Preferences	52	(1)
Graphing Economic Bad and Economic Neuters	52	(2)
Perfect Substitutes and Complements	54	(1)
The Budget Constraint	55	(4)
Geometry of the Budget Line	56	(1)
Shifts in Budget Lines	57	(2)
The Consumer's Choice	59	(5)
A Corner Solution	61	(1)
The Composite-Good Convention	61	(2)
Consumers' Valuation of Air Bags	63	(1)
Convex (Indifference) Curves and Cellular Charges	64	(1)
Changes in Income and Consumption Choices	64	(8)
Normal Goods	64	(2)
Inferior Goods	66	(2)
Running Towards the Border in a Recession	68	(1)
The Food Stamp Program	68	(2)
Keeping Bugs Bunny and the Back Street Boys at Bay in Canada	70	(1)
The Allocation of Commencement Tickets	71	(1)
Are People Selfish?	72	(2)
The New Philanthropy	74	(1)
The Utility Approach to Consumer Choice	74	(7)
The Consumer's Optimal Choice	75	(1)
Relationship to Indifference Curves	76	(5)
Individual and Market Demand	81	(36)
Price Changes and Consumption Choices	82	(4)
The Consumer's Demand Curve	83	(1)
Some Remarks About the Demand Curve	84	(1)
Using Price to Deter Youth Alcohol Abuse	84	(1)
Young Techies Say No to College	85	(1)
Do Demand Curves Always Slope Downward?	86	(1)
Income and Substitution Effects of a Price Change	86	(6)
Income and Substitution Effects Illustrated: The Normal-Good Case	87	(2)
The Income and Substitution Effects Associated with a Gasoline-Tax-Plus-Rebate Program	89	(3)
Income and Substitution Effects: Inferior Goods	92	(3)
The Giffen Good Case: How Likely?	94	(1)
Do Rats Have Downward Sloping Demand Curves?	95	(1)
From Individual to Market Demand	95	(3)
Aggregating Demand Curves for a UCLA MBA	97	(1)
Consumer Surplus	98	(5)
The Consumer Surplus Associated with Free TV	101	(1)
Consumer Surplus and Indifference Curves	102	(1)
Price Elasticity and the Price-Consumption Curve	103	(2)
The P-C Curve for a Non-P-C Good	104	(1)
Network Effects	105	(4)
The Bandwagon Effect	105	(1)
The Snob Effect	106	(2)
Getting on the Bank ATM Bandwagon	108	(1)
Network Effects the New Economy, and the Microsoft Antitrust Case	108	(1)
The Basics of Demand Estimation	109	(8)
Experimentation	109	(1)
Surveys	109	(1)
Regression Analysis	110	(3)
Demand Estimation: McDonald's Versus Burger King	113	(4)
Using Consumer Choice Theory	117	(28)
Excise Subsidies, Health Care, and Consumer Welfare	118	(4)
Why are Company Health Benefits Tax Exempt?	120	(1)
Using the Consumer Surplus Approach	121	(1)
Burning Up Resources in Moscow	122	(1)
Public Schools and the Voucher Proposal	122	(3)
Paying for Garbage	125	(3)
Does Everyone Benefit?	127	(1)
Trash Pricing and Recycling	128	(1)
The Consumer's Choice to Save or Borrow	128	(6)
A Change in Endowment	130	(2)
The New Economy and o Negative U.S. Saving Rate	132	(1)
Changes in the Interest Rate	132	(2)
Investor Choice	134	(11)
Entrepreneurs and Their Risk-Return Preferences: 49ers and e-49ers	136	(1)
Investor Preferences Toward Risk	137	(3)
Risk Aversion While Standing In Line	140	(1)
Minimizing Exposure to Risk	140	(5)
Exchange, Efficiency, and Prices	145	(20)
Two-Person Exchange	146	(5)
The Benefits of Exchange and the Growth of C2C and B2B E-Commerce	147	(1)
The Edgeworth Exchange Box Diagram	148	(1)
The Edgeworth Exchange Box Diagram with Indifference Curves	149	(2)
Efficiency in the Distribution of Goods	151	(4)
Efficiency and Equity	154	(1)
Competitive Equilibrium and Efficient Distribution	155	(4)
Water Allocation in California	158	(1)
Price and Nonprice Rationing and Efficiency	159	(6)
The Benefits and Costs of Rationing by Waiting	161	(4)
Production	165	(24)
Relating Output to Inputs	166	(1)
Production When Only One Input is Variable	167	(6)
Total, Average, and Marginal Product Curves	168	(1)
The Relationship Between Average and Marginal Product Curves	169	(1)
Marginal and Average Products in Major League Baseball	170	(1)
The Geometry of Product Curves	170	(2)
The Law of Diminishing Marginal Returns	172	(1)
The Law of Diminishing Marginal Returns and Home Horticulture	172	(1)
Production When All Inputs are Variable	173	(5)
Production Isoquants	173	(3)
MRTS and the Marginal Products of Inputs	176	(1)
Using MRTS: Speed Limits and Gasoline Consumption	176	(2)
Returns to Scale	178	(4)
Adam Smith and pin Production	178	(2)
Decreasing Returns to Scale and the Demise of People Express	180	(1)
Why Oil Shippers Are Compartmentalizing Their Firms and Fliers Are Building Their Own Planes	181	(1)
Empirical Estimation of Production Functions	182	(7)
The Cost of Production	189	(34)
The Nature of Cost	190	(1)
Short-Run Cost of Production	191	(3)
Measures of Short-Run Cost	191	(1)
Behind Cost Relationships	192	(2)
Short-Run Cost Curves	194	(3)
Marginal Cost	195	(1)
Average Cost	196	(1)
Marginal-Average Relationships	196	(1)
The Geometry of Cost Curves	197	(1)
Long-Run Cost of Production	197	(7)
Isocost Lines	197	(2)
Least Costly Input Combinations	199	(1)
Interpreting the Tangency Points	200	(1)
American Airlines and Cost Minimization	201	(1)
The Expansion Path	202	(1)
Is Production Cost Minimized?	202	(1)
The Cost of Public Versus Private Provision	203	(1)
Input Price Changes and Cost Curves	204	(3)
The Economics of Raising and Razing Buildings	205	(1)
Why the Necks Are Thicker in New Haven	206	(1)
Long-Run Cost Curves	207	(3)
Economies of Scale and the ``Network Society''	208	(1)
The Long Run and Short Run Revisited	209	(1)
Importance of Cost Curves to Market Structure	210	(3)
Minimum Efficient Scales in Suds, Suits and Soft Drinks	212	(1)
Using Cost Curves: Controlling Pollution	213	(3)
The Cost of Dealing With Global Warming	215	(1)
Economies of Scope	216	(1)
Economies of Scope and the Marriage of AOL and Time Warner	217	(1)
Estimating Cost	217	(6)
Profit Maximization in Perfectly Competitive Markets	223	(36)
The Assumptions of Perfect Competition	224	(1)
Profit Maximization	225	(2)
Are American Executives Underpaid?	227	(1)
The Demand Curve Facing the Competitive Firm	227	(2)
Short-Run Profit Maximization	229	(5)
Short-Run Profit Maximization Using Per-Unit Curves	231	(1)
Continental Airlines MR, and MC	232	(1)
Operating at a Loss in the Short Run	232	(2)
Continental Airlines, AR ATC, and AVC	234	(1)
The Perfectly Competitive Firm's Short-Run Supply Curve	234	(3)
The Competitive Firm's Supply Curve in the Very Short Run	236	(1)
Output Response to a Change in Input Prices	236	(1)
The Short-Run Industry Supply Curve	237	(4)
Price and Output Determination in the Short Run	238	(1)
Why Electric Bills in California Increased After Deregulation	239	(2)
Long-Run Competitive Equilibrium	241	(4)
Zero Profit When Firms' Cost Curves Differ?	244	(1)
The Long-Run Industry Supply Curve	245	(8)
Constant-Cost Industry	245	(2)
Increasing-Cost Industry	247	(2)
Increasing Input Costs in the Information Technology Industry	249	(1)
Decreasing-Cost Industry	249	(2)
The Bidding War for MIS and Finance Professors	251	(1)
Comments on the Long-Run Supply Curve	251	(2)
When Does the Competitive Model Apply?	253	(6)
Using the Competitive Model	259	(36)
The Evaluation of Gains and Losses	260	(6)
Producer Surplus	260	(2)
The Allocation of Producer Surplus in Trucking	262	(1)
Consumer Surplus, Producer Surplus, and Efficient Output	262	(2)
The Deadweight Loss of a Price Ceiling	264	(2)
Excise Taxation	266	(8)
Who Bears the Burden of the Tax?	269	(2)
Why Cigarette Company Profits Did Not Get Smoked by a Recent Punitive-Damages Award	271	(1)
The Deadweight Loss of Excise Taxation	271	(2)
The Long and the Short (Run) of the Deadweight Loss of Rent Control	273	(1)
Airline Regulation and Deregulation	274	(5)
What Happened to the Profits?	275	(1)
After Deregulation	276	(1)
The Contestability of Airline Markets	277	(1)
The Push for Reregulation	278	(1)
City Taxicab Markets	279	(4)
The Illegal Market	281	(1)
Gypsy Vans and Super Shuttles	282	(1)
Consumer and Producer Surplus, and the Net Gains from Trade	283	(5)
The Gains from International Trade	285	(1)
Should Imports of Sunlight Be Banned?	286	(1)
The Link Between Imports and Exports	287	(1)
Government Intervention in Markets: Quantity Controls	288	(7)
Sugar Policy: A Sweet Deal	288	(3)
Evading Quantity Restrictions: Virgin Atlantic's Interest in the Airbus A380	291	(4)
Monopoly	295	(30)
The Monopolist's Demand and Marginal Revenue Curves	296	(2)
Profit-Maximizing Output of a Monopoly	298	(6)
Graphical Analysis	299	(2)
The Monopoly Price and Its Relationship to Elasticity of Demand	301	(3)
Demand Elasticity and Home Video Prices	304	(1)
Further Implications of Monopoly Analysis	304	(4)
Life Is Not Always a Box of Chocolates	307	(1)
The Measurement and Sources of Monopoly Power	308	(5)
Measuring Monopoly Power	309	(1)
The Sources of Monopoly Power	309	(1)
Barriers to Entry	310	(1)
Regulatory Barriers in the Philippines	311	(1)
Strategic Behavior by Firms: Incumbents and Potential Entrants	312	(1)
The Efficiency Effects of Monopoly	313	(4)
A Dynamic View of Monopoly and Its Efficiency Implications	315	(2)
The Dynamics of Developing on AIDS Vaccine	317	(1)
Public Policy Toward Monopoly	317	(8)
What Not to Say to a Rival on the Telephone	318	(1)
Static Versus Dynamic Views of Monopoly and the Microsoft Antitrust Case	319	(1)
Regulation of Price	320	(5)
Product Pricing With Monopoly Power	325	(26)
Price Discrimination	326	(4)
Other Degrees of Price Discrimination	328	(1)
Giving Frequent Shoppers the Second Degree	329	(1)
The Third Degree by Car Dealers	330	(1)
Three Necessary Conditions for Price Discrimination	330	(1)
Arbitrage in the International Phone Calling Market	331	(1)
Price and Output Determination with Price Discrimination	331	(4)
Why Hotel and Apartment Building Owners Get Cable Television Service for a Lower price	334	(1)
The Cost of Being Earnest When It Comes to Applying to Colleges	335	(1)
Two-Part Tariffs	335	(5)
Many Consumers, Different Demands	337	(3)
The Costs of Engaging in Price Discrimination	340	(1)
Intertemporal Price Discrimination and Peak-Load Pricing	340	(11)
Yield Management by Airlines	342	(1)
Priceline.com, Project Purple Demon and Online Intertemporal Price Discrimination	343	(1)
Peak-Load Pricing	343	(3)
Peak-Load Pricing Goes to College	346	(5)
Monopolistic Competition and Oligopoly	351	(32)
Price and Output Under Monopolistic Competition	352	(6)
Determination of Market Equilibrium	352	(3)
Monopolistic Competition and Efficiency	355	(2)
Ready-to-Regulate Ready-to-Eat	357	(1)
Monopolistic Competition Is in the Eye of the Beholder	357	(1)
Oligopoly and the Cournot Model	358	(5)
The Cournot Model	359	(3)
Evaluation of the Cournot Model	362	(1)
Strategic Interaction on Duopoly Air Routes	362	(1)
Other Oligopoly Models	363	(5)
The Stackelberg Model	363	(2)
The Dominant Firm Model	365	(2)
The Elasticity of the Dominant Firm's Demand Curve	367	(1)
The Dynamics of the Dominant Firm Model in Pharmaceutical Markets	368	(1)
Cartels and Collusion	368	(15)
Cartelization of a Competitive Industry	369	(1)
Will the Internet promote Competition or Cartelization?	370	(1)
Why Cartels Fail	371	(2)
The Difficulty of Controlling Cheating	373	(1)
The Rolex ``Cartel''	373	(1)
Oligopolies and Collusion	374	(1)
firm Count, Market Concentration and Successful Collusion	375	(1)
The Case of OPEC	375	(8)
Game Theory and the Economics of Information	383	(28)
Game Theory	384	(4)
Determination of Equilibrium	384	(2)
Dominant Strategies in Baseball	386	(2)
The Prisoner's Dilemma Game	388	(5)
The Congressional prisoner's Dilemma	389	(1)
The Prisoner's Dilemma and Cheating by Cartel Members	390	(2)
A Prisoner's Dilemma Game You May Play	392	(1)
Repeated Games	393	(4)
Cooperation in the Trenches of World War I	395	(1)
Do Oligopolistic Firms Always Collude?	395	(1)
Game Theory and Oligopoly: A Summary	396	(1)
Asymmetric Information	397	(3)
The ``Lemons'' Model	397	(1)
Market Responses to Asymmetric Information	398	(1)
Is There a Lemons Problem in Used Car Markets?	399	(1)
Adverse Selection and Moral Hazard	400	(4)
Adverse Selection	400	(2)
Adverse Selection and the American Red Cross	402	(1)
Moral Hazard	402	(1)
Moral Hazard in the S&L Industry	403	(1)
Moral Hazard on the Road and at the Plate	404	(1)
Limited Price Information	404	(1)
Advertising	405	(6)
Advertising as Information	406	(2)
A Newspaper Strike's Effect on Food Prices	408	(3)
Using Noncompetitive Market Models	411	(24)
The Size of the Deadweight Loss of Monopoly	412	(4)
Other Possible Deadweight Losses of Monopoly	414	(1)
Software and Soft-Money Political Contributions	415	(1)
Do Monopolies Suppress Inventions?	416	(3)
Hollywood and Home Videos	418	(1)
Natural Monopoly	419	(4)
Regulation of Natural Monopoly	420	(1)
Regulation of Natural Monopoly in Practice	421	(1)
Regulating Natural Monopoly Through Public Ownership: The Case of USPS	422	(1)
Government-Established Cartels: The Case of the British Columbia Egg Marketing Board	423	(5)
Estimating the Deadweight Loss: The First Round	424	(1)
Estimating the Deadweight Loss The Second Round	425	(2)
The International Air Cartel	427	(1)
More on Game Theory: Iterated Dominance and Commitment	428	(7)
Iterated Dominance	428	(2)
Commitment	430	(2)
Why It May Be Wise to Burn the Bridges Behind You	432	(3)
Employment and Pricing of Inputs	435	(24)
The Input Demand Curve of a Competitive Firm	436	(5)
The Firm's Demand Curve: One Variable Input	436	(2)
The Firm's Demand Curve: All Inputs Variable	438	(1)
The Firm's Demand Curve: An Alternative Approach	439	(2)
Industry and Market Demand Curves for an Input	441	(3)
A Competitive Industry's Demand Curve For an Input	441	(2)
The Elasticity of an Industry's Demand Curve for an Input	443	(1)
Explaining Sky-High Pilot Salaries Under Airline Regulation	444	(1)
The Market Demand Curve for an Input	444	(1)
The Supply of Inputs	444	(2)
Industry Determination of Price and Employment of Inputs	446	(4)
Process of Input Price Equalization Across Industries	447	(2)
The Net Benefits of High-Tech Immigrants	449	(1)
Input Price Determination in a Multi-Industry Market	450	(2)
Input Demand and Employment by an Output Market Monopoly	452	(2)
Monopsony in Input Markets	454	(5)
Major League Monopsony	455	(4)
Wages, Rent, Interest, and Profit	459	(32)
The Income-Leisure Choice of the Worker	460	(2)
Is This Model Plausible?	461	(1)
The Supply of Hours of Work	462	(3)
Is a Backward-Bending Labor Supply Curve Possible?	463	(2)
The Market Supply Curve	465	(1)
The General Level of Wage Rates	465	(3)
The Malaise of the 1970s	467	(1)
Why Wages Differ	468	(4)
Compensating Wage Differentials	469	(1)
Twelve Hours' Pay for Ten Minutes' Work	470	(1)
Differences in Human Capital Investment	470	(1)
The Returns to Investing in a BA and an MBA	471	(1)
Differences in Ability	471	(1)
What's on the Outside Also Counts	472	(1)
Economic Rent	472	(2)
The Bay Area Real Estate Frenzy: Economic Rents at Ground Zero	474	(1)
Monopoly Power in Input Markets: The Case of Unions	474	(4)
The Decline and Rise of Unions	477	(1)
Borrowing, Lending, and the Interest Rate	478	(1)
Investment and the Marginal Productivity of Capital	479	(2)
The Investment Demand Curve	480	(1)
Saving, Investment, and the Interest Rate	481	(3)
Equalization of Rates of Return	483	(1)
Why Interest Rates Differ	484	(1)
Valuing Investment Projects	485	(6)
Why Lottery Winners May Not Be ``Millionaires''	487	(4)
Using Input Market Analysis	491	(22)
The Minimum Wage Law	492	(5)
Further Considerations	493	(1)
How Large Are The Effects of the Minimum Wage?	494	(1)
The Disemployment Effect of the 1990-1991 Minimum Wage Hike	495	(1)
The Minimum Wage: An Example of an Efficient Wage?	496	(1)
Who Really Pays for Social Security?	497	(3)
But Do Workers Bear All the Burden?	498	(2)
Mandated Retirement Benefits and Corporate America's Increasing Reliance on ``Permatemps''	500	(1)
The NCAA Cartel	500	(5)
An Input Buyers' Cartel	500	(2)
The NCAA as a Cartel of Buyers	502	(1)
Eliminate the Cartel Restrictions on Pay?	503	(2)
``The Collusion Era'' in Major League Baseball	505	(1)
Discrimination in Employment	505	(8)
What Causes Average Wage Rates to Differ?	508	(1)
Male Versus Female Earnings Among Self Employed Workers	509	(4)
General Equilibrium Analysis and Economic Efficiency	513	(24)
Partial and General Equilibrium Analysis Compared	514	(3)
The Mutual Interdependence of Markets Illustrated	514	(2)
When Should General Equilibrium Analysis Be Used?	516	(1)
Economic Efficiency	517	(2)
Efficiency as a Goal for Economic Performance	518	(1)
Conditions for Economic Efficiency	519	(1)
Efficiency in Production	520	(3)
The Edgeworth Production Box	520	(2)
The Production Contract Curve and Efficiency in Production	522	(1)
General Equilibrium in Competitive Input Markets	522	(1)
The Production Possibility Frontier and Efficiency in Output	523	(6)
Efficiency in Output	525	(1)
An Economy's PPF arid the Gains from International Trade	526	(2)
The Effects of Trade Restrictions on an Economy's Consumption and Production Possibilities	528	(1)
Competitive Markets and Economic Efficiency	529	(3)
The Role of Information	530	(1)
Can Centralized Planning Promote Efficiency?	531	(1)
The Causes of Economic Inefficiency	532	(5)
Market Power	532	(1)
Imperfect Information	533	(1)
Deterring Cigarette Smoking	533	(1)
Externalities/Public Goods	534	(3)
Public Goods and Externalities	537	(24)
What Are Public Goods?	538	(3)
The Free-Rider Problem	539	(1)
Paying for NATO	540	(1)
An Online Horror Tale	540	(1)
Efficiency in the Provision of a Public Good	541	(4)
Promoting Truthful Revelation in China	542	(1)
Efficiency in Production and Distribution	543	(1)
Patents	543	(1)
Napster: Nipping or Nudging Economic Efficiency?	544	(1)
Externalities	545	(5)
External Costs	546	(1)
Cures for Traffic Externalities	547	(1)
External Benefits	548	(2)
Externalities and Property Rights	550	(3)
Radio Waves and Property Rights	551	(1)
The Coasean Theorem	551	(1)
Coasean Bargaining in Movie Making	552	(1)
Controlling Pollution, Revisited	553	(8)
The Market for Los Angeles Smog	555	(6)
Mathematical Appendix	561	(10)
Answers to Selected Problems	571	(10)
Index	581