Intermediate microeconomics : a modern approach / Hal R. Varian.

Format:

Book

Author/Creator:

Varian, Hal R.

Language:

English

Subjects (All):

Microeconomics.

Physical Description:

xxiv, 662, 39 pages : illustrations ; 24 cm

Edition:

Fifth edition.

Place of Publication:

New York : W. W. Norton & Co., 1999.

Contents:

1 The Market

Constructing a Model 1

Optimization and Equilibrium 3

The Demand Curve 3

The Supply Curve 5

Market Equilibrium 7

Comparative Statics 9

Other Ways to Allocate Apartments 11

The Discriminating Monopolist

The Ordinary Monopolist

Rent Control

Which Way Is Best? 14

Pareto Efficiency 15

Comparing Ways to Allocate Apartments 16

Equilibrium in the Long Run 17

Review Questions 19

2 Budget Constraint

The Budget Constraint 20

Two Goods Are Often Enough 21

Properties of the 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

Review Questions 32

3 Preferences

Consumer Preferences 34

Assumptions about Preferences 35

Indifference Curves 36

Examples of Preferences 37

Perfect Substitutes

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 MRS 51

Review Questions 52

4 Utility

Cardinal Utility 57

Constructing a Utility Function 58

Some Examples of Utility Functions 59

Example: Indifference Curves from Utility Perfect Substitutes

Quasilinear Preferences

Cobb-Douglas Preferences

Marginal Utility 65

Marginal Utility and MRS 66

Utility for Commuting 67

Review Questions 70

Example: Cobb-Douglas Preferences

5 Choice

Optimal Choice 73

Consumer Demand 78

Some Examples 78

Neutrals and Bads

Concave Preferences

Estimating Utility Functions 83

Implications of the MRS Condition 85

Choosing Taxes 87

Review Questions 89

Example: Cobb-Douglas Demand Functions

6 Demand

Normal and Inferior Goods 96

Income Offer Curves and Engel Curves 97

Some Examples 99

Homothetic Preferences

Ordinary Goods and Giffen Goods 104

The Price Offer Curve and the Demand Curve 106

Some Examples 107

A Discrete Good

Substitutes and Complements 111

The Inverse Demand Function 112

Review Questions 115

7 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

8 Slutsky Equation

The Substitution Effect 137

Example: Calculating the Substitution Effect The Income Effect 141

Example: Calculating the Income Effect Sign of the Substitution Effect 142

The Total Change in Demand 143

Rates of Change 144

The Law of Demand 147

Examples of Income and Substitution Effects 147

Example: Rebating a Tax Another Substitution Effect 151

Compensated Demand Curves 154

Review Questions 155

Example: Rebating a Small Tax

9 Buying and Selling

Net and Gross Demands 158

The Budget Constraint 159

Changing the Endowment 161

Price Changes 162

Offer Curves and Demand Curves 165

The Slutsky Equation Revisited 166

Use of the Slutsky Equation 170

Example: Calculating the Endowment Income Effect Labor Supply 171

The Budget Constraint

Comparative Statics of Labor Supply 172

Example: Overtime and the Supply of Labor Summary 176

Review Questions 177

10 Intertemporal Choice

The Budget Constraint 180

Preferences for Consumption 183

Comparative Statics 184

The Slutsky Equation and Intertemporal Choice 185

Inflation 187

Present Value: A Closer Look 189

Analyzing Present Value for Several Periods 191

Use of Present Value 192

Example: Valuing a Stream of Payments Example: The True Cost of a Credit Card Bonds 195

Example: Installment Loans Taxes 197

Example: Scholarships and Savings Choice of the Interest Rate 198

Review Questions 199

11 Asset Markets

Rates of Return 200

Arbitrage and Present Value 202

Adjustments for Differences among Assets 202

Assets with Consumption Returns 203

Taxation of Asset Returns 204

Applications 205

Depletable Resources

When to Cut a Forest

Example: Gasoline Prices during the Gulf War Financial Institutions 209

Review Questions 211

12 Uncertainty

Contingent Consumption 213

Utility Functions and Probabilities 217

Example: Some Examples of Utility Functions Expected Utility 218

Why Expected Utility Is Reasonable 219

Risk Aversion 221

Example: The Demand for Insurance Diversification 225

Risk Spreading 225

Role of the Stock Market 226

Review Questions 227

Example: The Effect of Taxation on Investment in Risky Assets

13 Risky Assets

Mean-Variance Utility 231

Measuring Risk 236

Equilibrium in a Market for Risky Assets 238

How Returns Adjust 239

Example: Ranking Mutual Funds Summary 243

Review Questions 243

14 Consumer's Surplus

Demand for a Discrete Good 245

Constructing Utility from Demand 246

Other Interpretations of Consumer's Surplus 247

From Consumer's Surplus to Consumers' Surplus 248

Approximating a Continuous Demand 248

Quasilinear Utility 248

Interpreting the Change in Consumer's Surplus 249

Example: The Change in Consumer's Surplus Compensating and Equivalent Variation 251

Example: Compensating and Equivalent Variations Example: Compensating and Equivalent Variation for Quasilinear Preferences Producer's Surplus 255

Calculating Gains and Losses 257

Review Questions 259

Example: A Few Demand Functions Example: CV, EV, and Consumer's Surplus

15 Market Demand

From Individual to Market Demand 262

The Inverse Demand Function 264

Example: Adding Up "Linear" Demand Curves Discrete Goods 265

The Extensive and the Intensive Margin 265

Elasticity 266

Example: The Elasticity of a Linear Demand Curve Elasticity and Demand 268

Elasticity and Revenue 269

Example: Strikes and Profits Constant Elasticity Demands 272

Elasticity and Marginal Revenue 273

Example: Setting a Price Marginal Revenue Curves 275

Income Elasticity 276

Review Questions 278

Example: The Laffer Curve Example: Another Expression for Elasticity

16 Equilibrium

Supply 285

Market Equilibrium 285

Two Special Cases 286

Inverse Demand and Supply Curves 287

Example: Equilibrium with Linear Curves Comparative Statics 289

Example: Shifting Both Curves Taxes 290

Example: Taxation with Linear Demand and Supply Passing Along a Tax 294

The Deadweight Loss of a Tax 296

Example: The Market for Loans Example: Food Subsidies Pareto Efficiency 302

Example: Waiting in Line Summary 304

Review Questions 305

17 Auctions

Classification of Auctions 307

Bidding Rules

Auction Design 308

Problems with Auctions 311

The Winner's Curse 312

Review Questions 313

18 Technology

Inputs and Outputs 314

Describing Technological Constraints 315

Examples of Technology 316

Fixed Proportions

Cobb-Douglas

Properties of Technology 318

The Marginal Product 320

The Technical Rate of Substitution 320

Diminishing Marginal Product 321

Diminishing Technical Rate of Substitution 321

The Long Run and the Short Run 322

Returns to Scale 322

Review Questions 325

19 Profit Maximization

Profits 326

The Organization of Firms 328

Profits and Stock Market Value 328

Fixed and Variable Factors 330

Short-Run Profit Maximization 330

Comparative Statics 332

Profit Maximization in the Long Run 333

Inverse Factor Demand Curves 334

Profit Maximization and Returns to Scale 335

Revealed Profitability 336

Example: How Do Farmers React to Price Supports? Cost Minimization 340

Review Questions 341

20 Cost Minimization

Cost Minimization 344

Example: Minimizing Costs for Specific Technologies Revealed Cost Minimization 348

Returns to Scale and the Cost Function 349

Long-Run and Short-Run Costs 351

Fixed and Quasi-Fixed Costs 353

Sunk Costs 353

Review Questions 354

21 Cost Curves

Average Costs 358

Marginal Costs 360

Marginal Costs and Variable Costs 362

Example: Specific Cost Curves Example: Marginal Cost Curves for Two Plants Long-Run Costs 366

Discrete Levels of Plant Size 368

Long-Run Marginal Costs 370

Review Questions 372

22 Firm Supply

Market Environments 374

Pure Competition 375

The Supply Decision of a Competitive Firm 377

An Exception 379

Another Exception 380

Example: Pricing Operating Systems The Inverse Supply Function 382

Profits and Producer's Surplus 382

Example: The Supply Curve for a Specific Cost Function The Long-Run Supply Curve of a Firm 386

Long-Run Constant Average Costs 388

Review Questions 390

23 Industry Supply

Short-Run Industry Supply 392

Industry Equilibrium in the Short Run 393

Industry Equilibrium in the Long Run 394

The Long-Run Supply Curve 396

Example: Taxation in the Long Run and in the Short Run The Meaning of Zero profits 400

Fixed Factors and Economic Rent 401

Example: Taxi Licenses in New York City Economic Rent 401

Rental Rates and Prices 405

Example: Liquor Licenses The Politics of Rent 406

Example: Farming the Government Energy Policy 408

Two-Tiered Oil Pricing

Price Controls

The Entitlement Program

Review Questions 413

24 Monopoly

Maximizing Profits 415

Linear Demand Curve and Monopoly 416

Markup Pricing 418

Example: The Impact of Taxes on a Monopolist Inefficiency of Monopoly 420

Deadweight Loss of Monopoly 425

Example: The Optimal Life of a Patent Natural Monopoly 425

What Causes Monopolies? 427

Example: Diamonds Are Forever Example: Pooling in Auction Markets Summary 430

Review Questions 431

25 Monopoly Behavior

Price Discrimination 434

First-Degree Price Discrimination 434

Second-Degree Price Discrimination 436

Example: Price Discrimination in Airfares Third-Degree Price Discrimination 440

Example: Linear Demand Curves Example: Calculating Optimal Price Discrimination Example: Price Discrimination in Acade mic Journals Bundling 444

Example: Software Suites Two-Part Tariffs 446

Monopolistic Competition 448

A Location Model of Product Differentiation 451

Product Differentiation 453

More Vendors 453

Review Questions 455

26 Factor Markets

Monopoly in the Output Market 456

Monopsony 459

Example: The Minimum Wage Upstream and Downstream Monopolies 463

Review Questions 466

27 Oligopoly

Choosing a Strategy 469

Quantity Leadership 469

The Follower's Problem

The Leader's Problem

Price Leadership 475

Comparing Price Leadership and Quantity Leadership 477

Simultaneous Quantity Setting 477

An Example of Cournot Equilibrium 479

Adjustment to Equilibrium 481

Many Firms in Cournot Equilibrium 481

Simultaneous Price Setting 482

Collusion 483

Punishment Strategies 486

Example: Price Matching and Competition Example: Voluntary Export RestraintsComparison of the Solutions 489

Review Questions 491

28 Game Theory

The Payoff Matrix of a Game 492

Nash Equilibrium 494

Mixed Strategies 495

The Prisoner's Dilemma 496

Repeated Games 498

Enforcing a Cartel 499

Example: Tit for Tat in Airline Pricing Sequential Games 501

A Game of Entry Deterrence 503

Review Questions 505

29 Exchange

The Edgeworth Box 508

Trade 510

Pareto Efficient Allocations 511

Market Trade 513

The Algebra of Equilibrium 515

Walras' Law 517

Relative Prices 518

Example: An Algebraic Example of Equilibrium The Existence of Equilibrium 520

Equilibrium and Efficiency 521

The Algebra of Efficiency 522

Example: Monopoly in the Edgeworth Box Efficiency and Equilibrium 525

Implications of the First Welfare Theorem 527

Implications of the Second Welfare Theorem 529

Review Questions 532

30 Production

The Robinson Crusoe Economy 534

Crusoe, Inc. 536

The Firm 537

Robinson's Problem 538

Putting Them Together 538

Different Technologies 540

Production and the First Welfare Theorem 542

Production and the Second Welfare Theorem 543

Production Possibilities 543

Comparative Advantage 545

Pareto Efficiency 547

Castaways, Inc. 549

Robinson and Friday as Consumers 551

Decentralized Resource Allocation 552

Review Questions 553

31 Welfare

Aggregation of Preferences 557

Social Welfare Functions 559

Welfare Maximization 561

Individualistic Social Welfare Functions 563

Fair Allocations 564

Envy and Equity 565

Review Questions 567

32 Externalities

Smokers and Nonsmokers 570

Quasilinear Preferences and the Coase Theorem 573

Production Externalities 575

Example: Pollution Vouchers Interpretation of the Conditions 580

Market Signals 583

The Tragedy of the Commons 583

Example: Overfishing Automobile Pollution 587

Review Questions 589

33 Law and Economics

Crime and Punishment 590

Qualifications 593

Liability Law 598

Bilateral Accidents 596

Treble Damages in Antitrust Law 598

Seeking to Be Damaged

Which Model Is Right? 601

Review Questions 601

34 Information Technology

Systems Competition 603

Lock-In 603

A Model of Competition with Switching Costs

Network Externalities 606

Markets with Network Externalities 606

Market Dynamics 608

Example: Network Externalities in Computer Software Implications of Network Externalities 611

Rights Management 612

Example: Video Rental Sharing Intellectual Property 614

Review Questions 616

35 Public Goods

When to Provide a Public Good? 618

Private Provision of the Public Good 622

Free Riding 622

Different Levels of the Public Good 624

Quasilinear Preferences and Public Goods 626

Example: Pollution Revisited The Free Rider Problem 628

Comparison to Private Goods 630

Voting 631

Example: Agenda Manipulation Demand Revelation 634

Example: An Example of the Clarke Tax Problems with the Clarke Tax 638

Review Questions 639

36 Asymmetric Information

The Market for Lemons 642

Quality Choice 643

Choosing the Quality

Adverse Selection 645

Moral Hazard 647

Moral Hazard and Adverse Selection 648

Signaling 649

Example: The Sheepskin Effect Incentives 653

Example: Voting Rights in the Corporation Example: Chinese Economic Reforms Asymmetric Information 658

Example: Monitoring Costs Example: The Grameen Bank Summary 661

Review Questions 662

Mathematical Appendix

Functions 1

Graphs 2

Properties of Functions 2

Inverse Functions 3

Equations and Identities 3

Linear Functions 4

Changes and Rates of Change 4

Slopes and Intercepts 5

Absolute Values and Logarithms 6

Derivatives 6

Second Derivatives 7

The Product Rule and the Chain Rule 8

Partial Derivatives 8

Optimization 9

Constrained Optimization 10

Answers 11.

Notes:

Includes bibliographical references and index.

ISBN:

0393973700

OCLC:

40545474