CourseSmart - 9780470049242 - Microeconomics, 3rd Edition

Microeconomics, 3rd Edition

by Besanko, David, Northwestern University; Braeutigam, Ronald R., Northwestern University

Publisher: John Wiley & Sons

Publishing Date: 2007/10/26

eText ISBN-10

0-470-28291-6

eText ISBN-13

978-0-470-28291-5

Print ISBN-10

0-470-04924-3

Print ISBN-13

978-0-470-04924-2

« Back to My CourseSmart

Microeconomics, 3rd Edition

by Besanko, David, Northwestern University; Braeutigam, Ronald R., Northwestern University

eTextbook $87.50

(180 day subscription)

Compare Online & Downloadable

About the Authors, v

Preface, vi

Acknowledgments, xi

Part 1. INTRODUCTION TO M...

Part 2. CONSUMER THEORY, ...

Part 3. PRODUCTION AND CO...

Part 4. PERFECT COMPETITI...

Part 5. MARKET POWER, 412

Part 6. IMPERFECT COMPETI...

Part 7. SPECIAL TOPICS, 5...

About the Authors, v

Preface, vi

Acknowledgments, xi

Part 1. INTRODUCTION TO MICROECONOMICS, 1

Chapter 1. ANALYZING ECONOMIC PROBLEMS, 1

Microeconomics and Global Warming, 1

1.1. Why Study Microeconomics?, 3

1.2. Three Key Analytical Tools, 4

Constrained Optimization, 5

LEARNING-BY-DOING EXERCI 1.1. Constrained Optimization: The Farmer’s Fence, 6

LEARNING-BY-DOING EXERCI 1.2. Constrained Optimization: Consumer Choice, 7

Equilibrium Analysis, 11

Comparative Statics, 12

LEARNING-BY-DOING EXERCI 1.3. Comparative Statics with Market Equilibrium in the U.S. Market for Corn, 14

LEARNING-BY-DOING EXERCI 1.4. Comparative Statics with Constrained Optimization, 16

1.3. Positive and Normative Analysis, 16

Chapter 2. DEMAND AND SUPPLY ANALYSIS, 22

What Gives with the Price of Corn?, 22

2.1. Demand, Supply, and Market Equilibrium, 25

Demand Curves, 26

LEARNING-BY-DOING EXERCI 2.1. Sketching a Demand Curve, 27

Supply Curves, 28

LEARNING-BY-DOING EXERCI 2.2. Sketching a Supply Curve, 28

Market Equilibrium, 29

LEARNING-BY-DOING EXERCI 2.3. Calculating Equilibrium Price and Quantity, 30

Shifts in Supply and Demand, 31

LEARNING-BY-DOING EXERCI 2.4. Comparative Statics on the Market Equilibrium, 33

2.2. Price Elasticity of Demand, 38

LEARNING-BY-DOING EXERCI 2.5. Price Elasticity of Demand, 40

Elasticities along Specific Demand Curves, 41

LEARNING-BY-DOING EXERCI 2.6. Elasticities along Special Demand Curves, 43

Price Elasticity of Demand and Total Revenue, 43

Determinants of the Price Elasticity of Demand, 43

Market-Level versus Brand-Level Price Elasticities of Demand, 45

2.3. Other Elasticities, 46

Income Elasticity of Demand, 46

Cross-Price Elasticity of Demand, 47

Price Elasticity of Supply, 49

2.4. Elasticity in the Long Run versus the Short Run, 50

Greater Elasticity in the Long Run Than in the Short Run, 50

Greater Elasticity in the Short Run Than in the Long Run, 50

2.5. Back-of-the-Envelope Calculations, 55

Fitting Linear Demand Curves Using Quantity, Price, and Elasticity Information, 55

Identifying Supply and Demand Curves on the Back of an Envelope, 56

Identifying the Price Elasticity of Demand from Shifts in Supply, 59

Appendix: Price Elasticity of Demand along a Constant Elasticity Demand Curve, 68

Part 2. CONSUMER THEORY, 69

Chapter 3. CONSUMER PREFERENCES AND THE CONCEPT OF UTILITY, 69

Why Do You Like What You Like?, 69

3.1. Representations of Preferences, 71

Assumptions about Consumer Preferences, 71

Ordinal and Cardinal Ranking, 72

3.2. Utility Functions, 73

Preferences with a Single Good: The Concept of Marginal Utility, 73

Preferences with Multiple Goods: Marginal Utility, Indifference Curves, and the Marginal Rate of Substitution, 77

LEARNING-BY-DOING EXERCI 3.1. Marginal Utility, 78

LEARNING-BY-DOING EXERCI 3.2. Marginal Utility That Is Not Diminishing, 79

LEARNING-BY-DOING EXERCI 3.3. Indifference Curves with Diminishing MRS_x,y, 86

LEARNING-BY-DOING EXERCI 3.4. Indifference Curves with Increasing MRS_x,y, 87

Special Utility Functions, 87

Chapter 4. CONSUMER CHOICE, 98

How Much of What You Like Should You Buy?, 98

4.1. The Budget Constraint, 100

How Does a Change in Income Affect the Budget Line?, 102

How Does a Change in Price Affect the Budget Line?, 102

LEARNING-BY-DOING EXERCI 4.1. Good News/Bad News and the Budget Line, 105

4.2. Optimal Choice, 105

Using the Tangency Condition to Understand When a Basket Is Not Optimal, 107

Finding an Optimal Consumption Basket, 108

LEARNING-BY-DOING EXERCI 4.2. Finding an Interior Optimum, 109

Two Ways of Thinking About Optimality, 109

Corner Points, 111

LEARNING-BY-DOING EXERCI 4.3. Finding a Corner Point Solution, 112

LEARNING-BY-DOING EXERCI 4.4. Corner Point Solution with Perfect Substitutes, 113

4.3. Consumer Choice with Composite Goods, 114

Application: Coupons and Cash Subsidies, 114

Application: Joining a Club, 118

Application: Borrowing and Lending, 120

Application: Quantity Discounts, 123

4.4. Revealed Preference, 125

Are Observed Choices Consistent with Utility Maximization?, 126

LEARNING-BY-DOING EXERCI 4.5. Consumer Choice That Fails to Maximize Utility, 127

LEARNING-BY-DOING EXERCI 4.6. Other Uses of Revealed Preference, 129

Appendix: The Mathematics of Consumer Choice, 135

Chapter 5. THE THEORY OF DEMAND, 136

Does It Pay to Raise Prices?, 137

5.1. Optimal Choice and Demand, 138

The Effects of a Change in Price, 138

The Effects of a Change in Income, 140

LEARNING-BY-DOING EXERCI 5.1. A Normal Good Has a Positive Income Elasticity of Demand, 144

The Effects of a Change in Price or Income: An Algebraic Approach, 145

LEARNING-BY-DOING EXERCI 5.2. Finding a Demand Curve (No Corner Points), 146

LEARNING-BY-DOING EXERCI 5.3. Finding a Demand Curve (with a Corner Point Solution), 147

5.2. Change in the Price of a Good: Substitution Effect and Income Effect, 148

The Substitution Effect, 148

The Income Effect, 150

Income and Substitution Effects When Goods Are Not Normal, 151

LEARNING-BY-DOING EXERCI 5.4. Finding Income and Substitution Effects Algebraically, 154

LEARNING-BY-DOING EXERCI 5.5. Income and Substitution Effects with a Price Increase, 156

LEARNING-BY-DOING EXERCI 5.6. Income and Substitution Effects with a Quasi-Linear Utility Function, 157

5.3. Change in the Price of a Good: The Concept of Consumer Surplus, 159

Understanding Consumer Surplus from the Demand Curve, 159

LEARNING-BY-DOING EXERCI 5.7. Consumer Surplus: Looking at the Demand Curve, 160

Understanding Consumer Surplus from the Optimal Choice Diagram: Compensating Variation and Equivalent Variation, 161

LEARNING-BY-DOING EXERCI 5.8. Compensating and Equivalent Variations with No Income Effect, 164

LEARNING-BY-DOING EXERCI 5.9. Compensating and Equivalent Variations with an Income Effect, 166

5.4. Market Demand, 168

5.5. Network Externalities, 170

5.6. The Choice of Labor and Leisure, 173

As Wages Rise, Leisure First Decreases, Then Increases, 173

The Backward-Bending Supply of Labor, 175

LEARNING-BY-DOING EXERCI 5.10. The Demand for Leisure and the Supply of Labor, 177

5.7. Consumer Price Indices, 178

Part 3. PRODUCTION AND COST THEORY, 185

Chapter 6. INPUTS AND PRODUCTION FUNCTIONS, 185

Can They Do It Better and Cheaper?, 186

6.1. Introduction to Inputs and Production Functions, 187

6.2. Production Functions with a Single Input, 189

Total Product Functions, 189

Marginal and Average Product, 190

Relationship Between Marginal and Average Product, 194

6.3. Production Functions with More Than One Input, 194

Total Product and Marginal Product with Two Inputs, 194

Isoquants, 196

LEARNING-BY-DOING EXERCI 6.1. Deriving the Equation of an Isoquant, 200

Economic and Uneconomic Regions of Production, 200

Marginal Rate of Technical Substitution, 201

LEARNING-BY-DOING EXERCI 6.2. Relating the Marginal Rate of Technical Substitution to Marginal Products, 203

6.4. Substitutability among Inputs, 203

Describing a Firm’s Input Substitution Opportunities Graphically, 204

Elasticity of Substitution, 206

Special Production Functions, 208

6.5. Returns to Scale, 212

Definitions, 212

LEARNING-BY-DOING EXERCI 6.3. Returns to Scale for a Cobb–Douglas Production Function, 213

Returns to Scale versus Diminishing Marginal Returns, 214

6.6. Technological Progress, 216

LEARNING-BY-DOING EXERCI 6.4. Technological Progress, 217

Appendix: The Elasticity of Substitution for a Cobb–Douglas Production Function, 223

Chapter 7. COSTS AND COST MINIMIZATION, 225

What’s Behind the Self-Service Revolution?, 225

7.1. Cost Concepts for Decision Making, 227

Opportunity Cost, 227

Economic versus Accounting Costs, 230

Sunk (Unavoidable) versus Nonsunk (Avoidable) Costs, 231

LEARNING-BY-DOING EXERCI 7.1. Using the Cost Concepts for a College Campus Business, 232

7.2. The Cost-Minimization Problem, 233

Long Run versus Short Run, 234

The Long-Run Cost-Minimization Problem, 234

Isocost Lines, 235

Graphical Characterization of the Solution to the Long-Run Cost-Minimization Problem, 235

LEARNING-BY-DOING EXERCI 7.2. Finding an Interior Cost-Minimization Optimum, 237

Corner Point Solutions, 238

LEARNING-BY-DOING EXERCI 7.3. Finding a Corner Point Solution with Perfect Substitutes, 239

7.3. Comparative Statics Analysis of the Cost-Minimization Problem, 240

Comparative Statics Analysis of Changes in Input Prices, 240

Comparative Statics Analysis of Changes in Output, 243

Summarizing the Comparative Statics Analysis: The Input Demand Curves, 246

LEARNING-BY-DOING EXERCI 7.4. Deriving the Input Demand Curves from a Production Function, 247

The Price Elasticity of Demand for Inputs, 247

7.4. Short-Run Cost Minimization, 250

Characterizing Costs in the Short Run, 250

Cost Minimization in the Short Run, 252

Comparative Statics: Short-Run Input Demand versus Long-Run Input Demand, 253

LEARNING-BY-DOING EXERCI 7.5. Short-Run Cost Minimization with One Fixed Input, 253

More Than One Variable Input in the Short Run, 254

LEARNING-BY-DOING EXERCI 7.6. Short-Run Cost Minimization with Two Variable Inputs, 254

Appendix: Advanced Topics in Cost Minimization, 260

Chapter 8. COST CURVES, 263

How Can HiSense Get a Handle on Costs?, 263

8.1. Long-Run Cost Curves, 265

Long-Run Total Cost Curve, 265

LEARNING-BY-DOING EXERCI 8.1. Finding the Long-Run Total Cost Curve from a Production Function, 266

How Does the Long-Run Total Cost Curve Shift When Input Prices Change?, 267

Long-Run Average and Marginal Cost Curves, 270

LEARNING-BY-DOING EXERCI 8.2. Deriving Long-Run Average and Marginal Cost Curves from a Long-Run Total Cost Curve, 271

8.2. Short-Run Cost Curves, 279

Short-Run Total Cost Curve, 279

LEARNING-BY-DOING EXERCI 8.3. Deriving a Short-Run Total Cost Curve, 280

Relationship Between the Long-Run and the Short-Run Total Cost Curves, 281

Short-Run Average and Marginal Cost Curves, 282

Relationships Between the Long-Run and the Short-Run Average and Marginal Cost Curves, 283

LEARNING-BY-DOING EXERCI 8.4. The Relationship Between Short-Run and Long-Run Average Cost Curves, 285

8.3. Special Topics in Cost, 288

Economies of Scope, 288

Economies of Experience: The Experience Curve, 290

8.4. Estimating Cost Functions, 293

Constant Elasticity Cost Function, 293

Translog Cost Function, 294

Appendix: Shephard’s Lemma and Duality, 301

Part 4. PERFECT COMPETITION, 304

Chapter 9. PERFECTLY COMPETITIVE MARKETS, 304

How Many Roses Should a Rose Grower Grow?, 305

9.1. What Is Perfect Competition?, 306

9.2. Profit Maximization by a Price-Taking Firm, 307

Economic Profit versus Accounting Profit, 307

The Profit-Maximizing Output Choice for a Price-Taking Firm, 309

9.3. How the Market Price Is Determined: Short-Run Equilibrium, 312

The Price-Taking Firm’s Short-Run Cost Structure, 312

Short-Run Supply Curve for a Price-Taking Firm When All Fixed Costs Are Sunk, 314

LEARNING-BY-DOING EXERCI 9.1. Deriving the Short-Run Supply Curve for a Price-Taking Firm, 316

Short-Run Supply Curve for a Price-Taking Firm When Some Fixed Costs Are Sunk and Some Are Nonsunk, 316

LEARNING-BY-DOING EXERCI 9.2. Deriving the Short-Run Supply Curve for a Price-Taking Firm with Some Nonsunk Fixed Costs, 318

Short-Run Market Supply Curve, 319

Short-Run Perfectly Competitive Equilibrium, 324

LEARNING-BY-DOING EXERCI 9.3. Short-Run Market Equilibrium, 324

Comparative Statics Analysis of the Short-Run Equilibrium, 325

9.4. How the Market Price Is Determined: Long-Run Equilibrium, 329

Long-Run Output and Plant-Size Adjustments by Established Firms, 329

The Firm’s Long-Run Supply Curve, 330

Free Entry and Long-Run Perfectly Competitive Equilibrium, 331

LEARNING-BY-DOING EXERCI 9.4. Calculating a Long-Run Equilibrium, 332

Long-Run Market Supply Curve, 332

Constant-Cost, Increasing-Cost, and Decreasing-Cost Industries, 335

What Does Perfect Competition Teach Us?, 341

9.5. Economic Rent and Producer Surplus, 341

Economic Rent, 342

Producer Surplus, 345

LEARNING-BY-DOING EXERCI 9.5. Calculating Producer Surplus, 350

Economic Profit, Producer Surplus, Economic Rent, 351

Appendix: Profit Maximization Implies Cost Minimization, 358

Chapter 10. COMPETITIVE MARKETS: APPLICATIONS, 360

Is Support a Good Thing?, 361

10.1. Introduction, 362

10.2. The Invisible Hand, 363

10.3. Excise Taxes, 364

LEARNING-BY-DOING EXERCI 10.1. Impact of an Excise Tax, 368

Incidence of a Tax, 368

10.4. Subsidies, 372

LEARNING-BY-DOING EXERCI 10.2. Impact of a Subsidy, 374

10.5. Price Ceilings (Maximum Price Regulation), 374

LEARNING-BY-DOING EXERCI 10.3. Impact of a Price Ceiling, 381

10.6. Price Floors (Minimum Price Regulation), 382

LEARNING-BY-DOING EXERCI 10.4. Impact of a Price Floor, 387

10.7. Production Quotas, 389

LEARNING-BY-DOING EXERCI 10.5. Comparing the Impact of an Excise Tax, a Price Floor, and a Production Quota, 392

10.8. Price Supports in the Agricultural Sector, 392

Acreage Limitation Programs, 393

Government Purchase Programs, 393

10.9. Import Quotas and Tariffs, 396

Quotas, 396

Tariffs, 400

LEARNING-BY-DOING EXERCI 10.6. Effects of an Import Tariff, 403

Part 5. MARKET POWER, 412

Chapter 11. MONOPOLY AND MONOPSONY, 412

How Do Firms Play Monopoly?, 413

11.1. Profit Maximization by a Monopolist, 414

The Profit-Maximization Condition, 414

A Closer Look at Marginal Revenue: Marginal Units and Inframarginal Units, 417

Average Revenue and Marginal Revenue, 418

LEARNING-BY-DOING EXERCI 11.1. Marginal and Average Revenue for a Linear Demand Curve, 420

The Profit-Maximization Condition Shown Graphically, 420

LEARNING-BY-DOING EXERCI 11.2. Applying the Monopolist’s Profit-Maximization Condition, 422

A Monopolist Does Not Have a Supply Curve, 422

11.2. The Importance of Price Elasticity of Demand, 423

Price Elasticity of Demand and the Profit-Maximizing Price, 423

Marginal Revenue and Price Elasticity of Demand, 424

Marginal Cost and Price Elasticity of Demand: The Inverse Elasticity Pricing Rule, 425

LEARNING-BY-DOING EXERCI 11.3. Computing the Optimal Monopoly Price for a Constant Elasticity Demand Curve, 426

LEARNING-BY-DOING EXERCI 11.4. Computing the Optimal Monopoly Price for a Linear Demand Curve, 426

The Monopolist Always Produces on the Elastic Region of the Market Demand Curve, 427

The IEPR Applies Not Only to Monopolists, 428

Quantifying Market Power: The Lerner Index, 430

11.3. Comparative Statics for Monopolists, 430

Shifts in Market Demand, 430

LEARNING-BY-DOING EXERCI 11.5. Computing the Optimal Price Using the Monopoly Midpoint Rule, 432

Shifts in Marginal Cost, 432

11.4. Monopoly with Multiple Plants and Markets, 435

Output Choice with Two Plants, 435

LEARNING-BY-DOING EXERCI 11.6. Determining the Optimal Output, Price, and Division of Production for a Multiplant Monopolist, 437

Output Choice with Two Markets, 437

LEARNING-BY-DOING EXERCI 11.7. Determining the Optimal Output and Price for a Monopolist Serving Two Markets, 438

Profit Maximization by a Cartel, 438

11.5. The Welfare Economics of Monopoly, 440

The Monopoly Equilibrium Differs from the Perfectly Competitive Equilibrium, 440

Monopoly Deadweight Loss, 441

Rent-Seeking Activities, 442

11.6. Why Do Monopoly Markets Exist?, 442

Natural Monopoly, 442

Barriers to Entry, 444

11.7. Monopsony, 445

The Monopsonist’s Profit-Maximization Condition, 446

LEARNING-BY-DOING EXERCI 11.8. Applying the Monopsonist’s Profit-Maximization Condition, 447

An Inverse Elasticity Pricing Rule for Monopsony, 448

Monopsony Deadweight Loss, 449

Chapter 12. CAPTURING SURPLUS, 455

Why Did Your Ticket Cost So Much Less Than Mine?, 455

12.1. Capturing Surplus, 457

12.2. First-Degree Price Discrimination: Making the Most from Each Consumer, 459

LEARNING-BY-DOING EXERCI 12.1. Capturing Surplus: Uniform Pricing versus First-Degree Price Discrimination, 461

LEARNING-BY-DOING EXERCI 12.2. Where Is the Marginal Revenue Curve with First-Degree Price Discrimination?, 462

12.3. Second-Degree Price Discrimination: Quantity Discounts, 463

Block Pricing, 464

LEARNING-BY-DOING EXERCI 12.3. Increasing Profits with a Block Tariff, 466

Subscription and Usage Charges, 469

12.4. Third-Degree Price Discrimination: Different Prices for Different Market Segments, 470

Two Different Segments, Two Different Prices, 470

LEARNING-BY-DOING EXERCI 12.4. Third-Degree Price Discrimination in Railroad Transport, 472

Screening, 473

LEARNING-BY-DOING EXERCI 12.5. Third-Degree Price Discrimination for Airline Tickets, 474

Third-Degree Price Discrimination with Capacity Constraints, 475

LEARNING-BY-DOING EXERCI 12.6. Price Discrimination Subject to Capacity Constraints, 476

Implementing the Scheme of Price Discrimination: Building “Fences”, 477

12.5. Tying (Tie-In Sales), 481

Bundling, 482

Mixed Bundling, 484

12.6. Advertising, 486

LEARNING-BY-DOING EXERCI 12.7. Markup and Advertising-to-Sales Ratio, 488

Part 6. IMPERFECT COMPETITION AND STRATEGIC BEHAVIOR, 495

Chapter 13. MARKET STRUCTURE AND COMPETITION, 495

Is Competition Always the Same? If Not, Why Not?, 495

13.1. Types of Market Structures, 497

13.2. Oligopoly with Homogeneous Products, 498

The Cournot Model of Oligopoly, 498

LEARNING-BY-DOING EXERCI 13.1. Computing a Cournot Equilibrium, 501

LEARNING-BY-DOING EXERCI 13.2. Computing the Cournot Equilibrium for Two or More Firms with Linear Demand, 505

The Bertrand Model of Oligopoly, 506

Why Are the Cournot and Bertrand Equilibria Different?, 508

The Stackelberg Model of Oligopoly, 509

13.3. Dominant Firm Markets, 511

LEARNING-BY-DOING EXERCI 13.3. Computing the Equilibrium in the Document Firm Model, 513

13.4. Oligopoly with Horizontally Differentiated Products, 514

What Is Product Differentiation?, 514

Bertrand Price Competition with Horizontally Differentiated Products, 518

LEARNING-BY-DOING EXERCI 13.4. Computing a Bertrand Equilibrium with Horizontally Differentiated Products, 521

13.5. Monopolistic Competition, 523

Short-Run and Long-Run Equilibrium in Monopolistically Competitive Markets, 524

Price Elasticity of Demand, Margins, and Number of Firms in the Market, 525

Do Prices Fall When More Firms Enter?, 526

Appendix: The Cournot Equilibrium and the Inverse Elasticity Pricing Rule, 535

Chapter 14. GAME THEORY AND STRATEGIC BEHAVIOR, 536

What’s in a Game?, 536

14.1. The Concept of Nash Equilibrium, 538

A Simple Game, 538

The Nash Equilibrium, 539

The Prisoners’ Dilemma, 539

Dominant and Dominated Strategies, 540

LEARNING-BY-DOING EXERCI 14.1. Finding the Nash Equilibrium: Coke versus Pepsi, 543

Games with More Than One Nash Equilibrium, 544

LEARNING-BY-DOING EXERCI 14.2. Finding All of the Nash Equilibria in a Game, 546

Mixed Strategies, 547

Summary: How to Find All the Nash Equilibria in a Simultaneous-Move Game with Two Players, 548

14.2. The Repeated Prisoners’ Dilemma, 549

14.3. Sequential-Move Games and Strategic Moves, 554

Analyzing Sequential-Move Games, 555

LEARNING-BY-DOING EXERCI 14.3. An Entry Game, 556

The Strategic Value of Limiting One’s Options, 557

Part 7. SPECIAL TOPICS, 568

Chapter 15. RISK AND INFORMATION, 568

What Are My Chances of Winning?, 568

15.1. Describing Risky Outcomes, 570

Lotteries and Probabilities, 570

Expected Value, 571

Variance, 572

15.2. Evaluating Risky Outcomes, 574

Utility Functions and Risk Preferences, 574

LEARNING-BY-DOING EXERCI 15.1. Computing the Expected Utility for Two Lotteries for a Risk-Averse Decision Maker, 576

Risk-Neutral and Risk-Loving Preferences, 577

LEARNING-BY-DOING EXERCI 15.2. Computing the Expected Utility for Two Lotteries: Risk-Neutral and Risk-Loving Decision Makers, 578

15.3. Bearing and Eliminating Risk, 579

Risk Premium, 579

LEARNING-BY-DOING EXERCI 15.3. Computing the Risk Premium from a Utility Function, 581

When Would a Risk-Averse Person Choose to Eliminate Risk? The Demand for Insurance, 582

LEARNING-BY-DOING EXERCI 15.4. The Willingness to Pay for Insurance, 583

Asymmetric Information in Insurance Markets: Moral Hazard and Adverse Selection, 583

15.4. Analyzing Risky Decisions, 586

Decision Tree Basics, 586

Decision Trees with a Sequence of Decisions, 588

The Value of Information, 591

15.5. Auctions, 593

Types of Auctions and Bidding Environments, 593

Auctions When Bidders Have Private Values, 594

LEARNING-BY-DOING EXERCI 15.5. Verifying the Nash Equilibrium in a First-Price Sealed-Bid Auction with Private Values, 596

Auctions When Bidders Have Common Values: The Winner’s Curse, 598

Chapter 16. GENERAL EQUILIBRIUM THEORY, 607

How Do Gasoline Taxes Affect the Economy?, 607

16.1. General Equilibrium Analysis: Two Markets, 610

LEARNING-BY-DOING EXERCI 16.1. Finding the Prices at a General Equilibrium with Two Markets, 613

16.2. General Equilibrium Analysis: Many Markets, 613

The Origins of Supply and Demand in a Simple Economy, 613

The General Equilibrium in Our Simple Economy, 619

LEARNING-BY-DOING EXERCI 16.2. Finding the Conditions for a General Equilibrium with Four Markets, 621

Walras’ Law, 622

16.3. General Equilibrium Analysis: Comparative Statics, 623

16.4. The Efficiency of Competitive Markets, 628

What Is Economic Efficiency?, 628

Exchange Efficiency, 629

LEARNING-BY-DOING EXERCI 16.3. Checking the Conditions for Exchange Efficiency, 632

Input Efficiency, 634

Substitution Efficiency, 636

Pulling the Analysis Together: The Fundamental Theorems of Welfare Economics, 638

16.5. Gains from Free Trade, 640

Free Trade Is Mutually Beneficial, 640

Comparative Advantage, 643

Appendix: Deriving the Demand and Supply Curves for General Equilibrium in Figure 16.9 and Learning-by-Doing Exercise 16.2, 649

Chapter 17. EXTERNALITIES AND PUBLIC GOODS, 655

When Does the Invisible Hand Fail?, 655

17.1. Introduction, 657

17.2. Externalities, 657

Negative Externalities and Economic Efficiency, 658

LEARNING-BY-DOING EXERCI 17.1. The Efficient Amount of Pollution, 661

LEARNING-BY-DOING EXERCI 17.2. Emissions Fee, 664

Positive Externalities and Economic Efficiency, 670

Property Rights and the Coase Theorem, 672

LEARNING-BY-DOING EXERCI 17.3. The Coase Theorem, 674

17.3. Public Goods, 675

Efficient Provision of a Public Good, 676

LEARNING-BY-DOING EXERCI 17.4. Optimal Provision of a Public Good, 678

The Free Rider Problem, 678

Mathematical Appendix, 686

Solutions to Selected Problems, 705

Glossary, G-1

Index, I-1

Please use the Print button in the CourseSmart Reader header.

Table of Contents