Microeconomics with Calculus Microeconomics with Calculus

Microeconom

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EDIT

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This is a special edition of an established title widely used by colleges and universities throughout the world. Pearson published this exclusive edition for the benefi t of students outside the United States and Canada. If you purchased this book within the United States or Canada you should be aware that it has been imported without the approval of the Publisher or Author.

Pearson International Edition

GLOBALEDITION

Microeconomics with Calculus 3e uses calculus, algebra, and graphs to present microeconomic theory, and then encourages you to apply the theory to real-world, global problems.

This Global Edition has been edited to include enhancements making it more relevant to students outside the United States. The editorial team at Pearson has worked closely with educators around the globe to include:

• Updated! Revised coverage of Consumer Theory, Behavioral Economics, and Pricing

• New! Increased number of solved problems, and updated applications

• New! Many new end-of-chapter exercises, with all exercises now organized by topic

GLOBALEDITION

Microeconom

ics

Microeconomicswith CalculusTHIRD EDITION

Jeffrey M. Perloff

ThE PEarson sEriEs in Economics

Abel/Bernanke/CroushoreMacroeconomics*

Bade/ParkinFoundations of Economics*

Berck/HelfandThe Economics of the Environment

Bierman/FernandezGame Theory with Economic Applications

BlanchardMacroeconomics*

Blau/Ferber/WinklerThe Economics of Women, Men and Work

Boardman/Greenberg/Vining/WeimerCost-Benefit Analysis

BoyerPrinciples of Transportation Economics

BransonMacroeconomic Theory and Policy

Brock/AdamsThe Structure of American Industry

BrucePublic Finance and the American Economy

Carlton/PerloffModern Industrial Organization

Case/Fair/OsterPrinciples of Economics*

Caves/Frankel/JonesWorld Trade and Payments: An Introduction

ChapmanEnvironmental Economics: Theory, Application, and Policy

Cooter/UlenLaw & Economics

DownsAn Economic Theory of Democracy

Ehrenberg/SmithModern Labor Economics

FarnhamEconomics for Managers

Folland/Goodman/StanoThe Economics of Health and Health Care

FortSports Economics

FroyenMacroeconomics

FusfeldThe Age of the Economist

GerberInternational Economics*

González-RiveraForecasting for Economics and Business

GordonMacroeconomics*

GreeneEconometric Analysis

GregoryEssentials of Economics

Gregory/StuartRussian and Soviet Economic Performance and Structure

Hartwick/OlewilerThe Economics of Natural Resource Use

Heilbroner/MilbergThe Making of the Economic Society

Heyne/Boettke/PrychitkoThe Economic Way of Thinking

Hoffman/AverettWomen and the Economy: Family, Work, and Pay

HoltMarkets, Games and Strategic Behavior

Hubbard/O’BrienEconomics*

Money, Banking, and the Financial System*

Hubbard/O’Brien/RaffertyMacroeconomics*

Hughes/CainAmerican Economic History

Husted/MelvinInternational Economics

Jehle/RenyAdvanced Microeconomic Theory

Johnson-LansA Health Economics Primer

Keat/YoungManagerial Economics

KleinMathematical Methods for Economics

Krugman/Obstfeld/MelitzInternational Economics: Theory & Policy*

LaidlerThe Demand for Money

Leeds/von AllmenThe Economics of Sports

Leeds/von Allmen/SchimingEconomics*

Lipsey/Ragan/StorerEconomics*

LynnEconomic Development: Theory and Practice for a Divided World

MillerEconomics Today*

Understanding Modern Economics

Miller/BenjaminThe Economics of Macro Issues

Miller/Benjamin/NorthThe Economics of Public Issues

Mills/HamiltonUrban Economics

MishkinThe Economics of Money, Banking, and Financial Markets*

The Economics of Money, Banking, and Financial Markets, Business School Edition*

Macroeconomics: Policy and Practice*

MurrayEconometrics: A Modern Introduction

NafzigerThe Economics of Developing Countries

O’Sullivan/Sheffrin/PerezEconomics: Principles, Applications and Tools*

ParkinEconomics*

PerloffMicroeconomics*

Microeconomics: Theory and Applications with Calculus*

PhelpsHealth Economics

Pindyck/RubinfeldMicroeconomics*

Riddell/Shackelford/Stamos/SchneiderEconomics: A Tool for Critically Understanding Society

Ritter/Silber/UdellPrinciples of Money, Banking & Financial Markets*

RobertsThe Choice: A Fable of Free Trade and Protection

RohlfIntroduction to Economic Reasoning

Ruffin/GregoryPrinciples of Economics

SargentRational Expectations and Inflation

Sawyer/SprinkleInternational Economics

SchererIndustry Structure, Strategy, and Public Policy

SchillerThe Economics of Poverty and Discrimination

ShermanMarket Regulation

SilberbergPrinciples of Microeconomics

Stock/WatsonIntroduction to Econometrics

StudenmundUsing Econometrics: A Practical Guide

Tietenberg/LewisEnvironmental and Natural Resource Economics

Environmental Economics and Policy

Todaro/SmithEconomic Development

WaldmanMicroeconomics

Waldman/JensenIndustrial Organization: Theory and Practice

Walters/Walters/Appel/Calla-han/Centanni/Maex/O’NeillEconversations: Today’s Students Discuss Today’s Issues

WeilEconomic Growth

WilliamsonMacroeconomics

*denotes MyEconLab titles Visit www.myeconlab.com to learn more

Microeconomics with Calculus, Global Edition

Table of Contents

Cover

Microeconomics with Calculus��

Brief Contents ��

Contents ��

Preface ��

Introduction ��Microeconomics: The Allocation of Scarce Resources

Trade-Offs

Who Makes the Decisions

��

How Prices Determine Allocations

��

Application Fat Tax

��

Models Application Income Threshold Model and China

��

Simplifications by Assumption

��

Testing Theories

��

Maximizing Subject to Constraints

��

Positive Versus Normative

��

Uses of Microeconomic Models

Summary

Supply and Demand��

Challenge Quantities and Prices of Genetically Modified Foods

Demand The Demand Function

��

Summing Demand Functions

��

Application Aggregating the Demand for Broadband Service

��

Supply

Table of Contents

The Supply Function

��

Summing Supply Functions

��

How Government Import Policies Affect Supply Curves

��

Market Equilibrium Finding the Market Equilibrium

��

Forces That Drive a Market to Equilibrium

��

Shocking the Equilibrium: Comparative Statics Comparative Statics with Discrete (Relatively Large) Changes

Comparative Statics with Small Changes

��

Solved Problem 2.1

��

Why the Shapes of Demand and Supply Curves Matter

��

Elasticities Demand Elasticity

��

Solved Problem 2.2

��

Supply Elasticity

��

Application Volcanic Eruptions and Africas Cut Flower Market

��

Solved Problem 2.3

��

Long Run Versus Short Run

��

Application Oil Drilling in the Arctic National Wildlife Refuge

��

Solved Problem 2.4

��

Effects of a Sales Tax Two Types of Sales Taxes

��

Equilibrium Effects of a Specific Tax

��

How Specific Tax Effects Depend on Elasticities

��

Solved Problem 2.5

Table of Contents

��Application Subsidizing Ethanol

��

The Same Equilibrium No Matter Who Is Taxed

��

The Similar Effects of Ad Valorem and Specific Taxes

��

Quantity Supplied Need Not Equal Quantity Demanded Price Ceiling ��

Application Price Controls Kill

��

Price Floor ��

When to Use the Supply-and-Demand Model Challenge Solution Quantities and Prices of Genetically Modified Foods

Summary

Exercises

Consumer Theory ��Challenge Why Americans Buy E-Books and Germans Do Not

Preferences Properties of Consumer Preferences

��

Transitivity ��

Application You Cant Have Too Much Money

��

Preference Maps ��

Indifference Curves

��

Solved Problem 3.1

��

Utility Utility Function

��

Ordinal Preferences

��

Utility and Indifference Curves

��

Willingness to Substitute Between Goods

��

Solved Problem 3.2

��

Application MRS Between Recorded Tracks and Live Music

Curvature of Indifference Curves

Table of Contents

��Solved Problem 3.3

��

Application Indifference Curves Between Food and Clothing

��

Budget Constraint

Constrained Consumer Choice Finding an Interior Solution Using Graphs

��

Solved Problem 3.4

��

Finding an Interior Solution Using Calculus

��

Solved Problem 3.5

��

Solved Problem 3.6

��

Solved Problem 3.7

��

Application Utility Maximization for Recorded Tracks and Live Music

��

Finding Corner Solutions

��

Minimizing Expenditure

��

Solved Problem 3.8

��

Behavioral Economics Tests of Transitivity

��

Endowment Effect

��

Application How You Ask the Question Matters

��

Salience ��

Challenge Solution Why Americans Buy E-Books and Germans Do Not

Summary

Exercises

Demand ��Challenge Paying Employees to Relocate

Deriving Demand Curves System of Demand Functions

��

Table of Contents

Graphical Interpretation

��

Application Quitting Smoking

��

Effects of an Increase in Income How Income Changes Shift Demand Curves

��

Solved Problem 4.1

��

Consumer Theory and Income Elasticities

��

Application Fast-Food Engel Curve

Solved Problem 4.2

��

Effects of a Price Increase Income and Substitution Effects with a Normal Good

��

Solved Problem 4.3

��

Application Shipping the Good Stuff Away

��

Income and Substitution Effects with an Inferior Good

��

Solved Problem 4.4

��

Compensated Demand Curve

��

Solved Problem 4.5

��

Slutsky Equation

��

Cost-of-Living Adjustment Inflation Indexes

��

Effects of Inflation Adjustments

��

Application Fixing the CPI Substitution Bias

Revealed Preference Recovering Preferences

��

Substitution Effect

��

Challenge Solution Paying Employees to Relocate

Table of Contents

Summary

Exercises

Consumer Welfare and Policy Analysis��

Challenge Child-Care Subsidies

Consumer Welfare Willingness to Pay

��

Application Willingness to Pay and Consumer Surplus on eBay

Solved Problem 5.1

��

Expenditure Function and Consumer Welfare Indifference Curve Analysis

��

Application Compensating Variation and Equivalent Variation for the Internet

��

Comparing the Three Welfare Measures

��

Solved Problem 5.2

��

Market Consumer Surplus Loss of Market Consumer Surplus from a Higher Price

��

Markets in Which Consumer Surplus Losses Are Large

��

Effects of Government Policies on Consumer Welfare Quotas ��

Application Water Quota

��

Food Stamps ��

Application Food Stamps Versus Cash

��

Deriving Labor Supply Curves Labor-Leisure Choice

Solved Problem 5.3

��

Income and Substitution Effects

��

Solved Problem 5.4

��

Shape of the Labor Supply Curve

��

Table of Contents

Application Working After Winning the Lottery

��

Income Tax Rates and the Labor Supply Curve

��

Challenge Solution Child-Care Subsidies

Summary

Exercises

Firms and Production��

Challenge Labor Productivity During Recessions

The Ownership and Management of Firms Private, Public, and Nonprofit Firms

��

The Ownership of For-Profit Firms

The Management of Firms

��

What Owners Want

��

Production Production Functions

��

Time and the Variability of Inputs

��

Short-Run Production: One Variable and One Fixed Input Solved Problem 6.1

��

Interpretation of Graphs

��

Solved Problem 6.2

��

Law of Diminishing Marginal Returns

��

Application Malthus and the Green Revolution

��

Long-Run Production: Two Variable Inputs Isoquants ��

Application A Semiconductor Integrated Circuit Isoquant

Substituting Inputs

��

Solved Problem 6.3

��

Diminishing Marginal Rates of Technical Substitution

Table of Contents

��The Elasticity of Substitution

��

Solved Problem 6.4

��

Returns to Scale Constant, Increasing, and Decreasing Returns to Scale

��

Solved Problem 6.5

��

Application Returns to Scale in U.S. Manufacturing

Varying Returns to Scale

��

Productivity and Technical Change Relative Productivity

��

Application U.S. Electric Generation Efficiency

Innovations ��

Application Tata Nanos Technical and Organizational Innovations

��

Challenge Solution Labor Productivity During Recessions

Summary

Exercises

Costs ��Challenge Technology Choice at Home Versus Abroad

Measuring Costs Opportunity Costs

��

Application the Opportunity Cost of an MBA

Solved Problem 7.1

��

Capital Costs ��

Sunk Costs ��

Short-Run Costs Short-Run Cost Measures

Solved Problem 7.2

��

Short-Run Cost Curves

Production Functions and the Shape of Cost Curves

��

Application Short-Run Cost Curves for a Japanese Beer Manufacturer

Effects of Taxes on Costs

Table of Contents

��Short-Run Cost Summary

Long-Run Costs Input Choice ��

Solved Problem 7.3

��

Solved Problem 7.4

��

How Long-Run Cost Varies with Output

Solved Problem 7.5

Solved Problem 7.6

The Shape of Long-Run Cost Curves

Application Small Is Beautiful

��

Estimating Cost Curves Versus Introspection

��

Lower Costs in the Long Run Long-Run Average Cost as the Envelope of Short-Run Average Cost Curves

Application Choosing an Inkjet or Laser Printer

��

Short-Run and Long-Run Expansion Paths

How Learning by Doing Lowers Costs

��

Application Learning by Drilling

��

Cost of Producing Multiple Goods Application Economies of Scope

��

Challenge Solution Technology Choice at Home Versus Abroad

Summary

Exercises

Competitive Firms and Markets��

Challenge The Rising Cost of Keeping On Truckin

Perfect Competition Price Taking ��

Why a Firms Demand Curve Is Horizontal

��

Perfect Competition in the Chicago Commodity Exchange

��

Deviations from Perfect Competition

��

Table of Contents

Derivation of a Competitive Firms Demand Curve

��

Why Perfect Competition Is Important

��

Profit Maximization Profit ��

Two Steps to Maximizing Profit

��

Competition in the Short Run Short-Run Competitive Profit Maximization

Solved Problem 8.1

��

Application Oil, Oil Sands, and Oil Shale Shutdowns

��

Short-Run Firm Supply Curve

Solved Problem 8.2

Short-Run Market Supply Curve

Short-Run Competitive Equilibrium

Solved Problem 8.3

��

Competition in the Long Run Long-Run Competitive Profit Maximization

Long-Run Firm Supply Curve

Application The Size of Ethanol Processing Plants

Long-Run Market Supply Curve

Application Fast-Food Firms Entry in Russia

Application Upward-Sloping Long-Run Supply Curve for Cotton

Application Reformulated Gasoline Supply Curves

Solved Problem 8.4

��

Long-Run Competitive Equilibrium

Challenge Solution The Rising Cost of Keeping On Truckin

Summary

Exercises

Applications of the Competitive Model��

Challenge Licensing Taxis

Zero Profit for Competitive Firms in the Long RunZero Long-Run Profit with Free Entry

Zero Long-Run Profit When Entry Is Limited

Application Tiger Woods Rents

Table of Contents

��The Need to Maximize Profit

��

Producer Surplus Measuring Producer Surplus Using a Supply Curve

��

Using Producer Surplus

��

Solved Problem 9.1

��

Competition Maximizes Welfare Measuring Welfare

��

Why Producing Less Than the Competitive Output Lowers Welfare

��

Why Producing More Than the Competitive Output Lowers Welfare

��

Application The Deadweight Loss of Christmas Presents

Policies That Shift Supply Curves

Policies That Create a Wedge Between Supply and Demand CurvesWelfare Effects of a Sales Tax

��

Welfare Effects of a Price Floor

��

Solved Problem 9.2

��

Application How Big Are Farm Subsidies and Who Gets Them?

��

Welfare Effects of a Price Ceiling

��

Solved Problem 9.3

��

Application The Social Cost of a Natural Gas Price Ceiling

Comparing Both Types of Policies: TradeFree Trade Versus a Ban on Imports

��

Solved Problem 9.4

��

Free Trade Versus a Tariff

��

Solved Problem 9.5

��

Free Trade Versus a Quota

Table of Contents

��Rent Seeking ��

Challenge Solution Licensing Taxis

Summary

Exercises

General Equilibrium and Economic Welfare��

Challenge Anti-Price Gouging Laws

General Equilibrium Competitive Equilibrium in Two Interrelated Markets

��

Application Partial-Equilibrium Versus Multimarket-Equilibrium Analysis in Corn

and Soybean Markets

Minimum Wages with Incomplete Coverage

��

Solved Problem 10.1

��

Application Urban Flight

��

Trading Between Two People Endowments ��

Mutually Beneficial Trades

��

Solved Problem 10.2

��

Deriving the Contract Curve

��

Solved Problem 10.3

��

Bargaining Ability

��

Competitive Exchange Competitive Equilibrium

��

Solved Problem 10.4

��

The Efficiency of Competition

��

Obtaining Any Efficient Allocation Using Competition

��

Production and Trading Comparative Advantage

Table of Contents


��

Efficient Product Mix

��

Competition ��

Efficiency and Equity Role of the Government

��

Application The Wealth and Income of the 1%

Efficiency ��

Equity ��

Efficiency Versus Equity

��

Theory of the Second Best

��

Challenge Solution Anti-Price Gouging Laws

Summary

Exercises

Monopoly and Monopsony Challenge Pricing Apples iPad

Monopoly Profit Maximization The Necessary Condition for Profit Maximization

��

Marginal Revenue and the Demand Curves

��

Solved Problem 11.1

��

Marginal Revenue Curve and the Price Elasticity of Demand

��

An Example of Monopoly Profit Maximization

��

Application Chinas New Monopolies

��

Choosing Price or Quantity

��

Effects of a Shift of the Demand Curve

��

Market Power and Welfare Market Power and the Shape of the Demand Curve

��

The Lerner Index

��

Table of Contents

Solved Problem 11.2

��

Sources of Market Power

��

Effect of Market Power on Welfare

��

Taxes and Monopoly Effects of a Specific Tax

��

Solved Problem 11.3

��

Welfare Effects of Ad Valorem Versus Specific Taxes

��

Causes of Monopolies Cost Advantages ��

Solved Problem 11.4

��

Government Actions That Create Monopolies

��

Application Botox Patent Monopoly

��

Government Actions That Reduce Market Power Regulating Monopolies

��

Solved Problem 11.5

��

Application Natural Gas Regulation

��

Increasing Competition

��

Monopoly Decisions over Time and Behavioral Economics Network Externalities

��

Network Externalities as an Explanation for Monopolies

��

Application Critical Mass and eBay

Introductory Prices: A Two-Period Monopoly Model

Monopsony Monopsony Profit Maximization

��

Solved Problem 11.6

��

Welfare Effects of Monopsony

Table of Contents

��Challenge Solution Pricing Apples iPad

Summary

Exercises

Pricing and Advertising Challenge Sale Price

Conditions for Price Discrimination Why Price Discrimination Pays

��

Which Firms Can Price Discriminate

��

Application Disneyland Pricing

��

Preventing Resale

��

Application Preventing Resale of Designer Bags

��

Not All Price Differences Are Price Discrimination

��

Types of Price Discrimination

��

Perfect Price Discrimination How a Firm Perfectly Price Discriminates

��

Graphical Analysis

��

Calculus Analysis

��

Solved Problem 12.1

��

Perfect Price Discrimination Is Efficient but Harms Some Consumers

��

Application Botox Revisited

��

Transaction Costs and Perfect Price Discrimination

��

Application Google Uses Bidding for Ads to Price Discriminate

��

Group Price Discrimination Group Price Discrimination with Two Groups

��

Application Smuggling Prescription Drugs into the United States

��

Table of Contents

Solved Problem 12.2

��

Identifying Groups

��

Application Buying Discounts

��

Solved Problem 12.3

��

Welfare Effects of Group Price Discrimination

��

Group Price Discrimination Versus Competition

��

Group Price Discrimination Versus Single-Price Monopoly

Nonlinear Price Discrimination

Two-Part PricingTwo-Part Pricing with Identical Consumers

Two-Part Pricing with Differing Consumers

Application Pricing iTunes

Tie-In SalesRequirement Tie-In Sales

Application IBM

Bundling ��

AdvertisingDeciding Whether to Advertise

��

How Much to Advertise

��

Solved Problem 12.4

��

Application Super Bowl Commercials

Challenge Solution Sale Price

Summary

Exercises

Game Theory ��Challenge Intel and AMDs Advertising Strategies

Static Games Normal-Form Games

Failure to Maximize Joint Profits

��

Application Strategic Advertising

��

Multiple Equilibria

Table of Contents


��

Mixed Strategies

��

Application Parasites, Boomerangs, and Other Youths

��

Solved Problem 13.2

��

Dynamic GamesRepeated Game ��

Sequential Game ��

Solved Problem 13.3

��

Application First Mover Advantages and Disadvantages

��

AuctionsElements of Auctions

��

Bidding Strategies in Private-Value Auctions

Winners Curse ��

Application Bidders Curse

Behavioral Game TheoryApplication GMs Ultimatum

Challenge Solution Intel and AMDs Advertising Strategies

Summary

Exercises

Oligopoly ��Challenge Government Aircraft Subsidies

Market Structures

CartelsWhy Cartels Succeed or Fail

��

Application Catwalk Cartel

��

Maintaining Cartels

��

Application Market Power Versus Efficiency in Hospital Mergers

��

Cournot Oligopoly ModelThe Duopoly Nash-Cournot Equilibrium

The Cournot Model with Many Firms

Table of Contents

��The Cournot Model with Nonidentical Firms

��

Solved Problem 14.1

��

Application Air Ticket Prices and Rivalry

��

Solved Problem 14.2

��

Application Bottled Water

��

Stackelberg Oligopoly ModelCalculus Solution

��

Graphical Solution

��

Why Moving Sequentially Is Essential

��

Strategic Trade Policy: An Application of the Stackelberg Model

Solved Problem 14.3

��

Comparison of Collusive, Nash-Cournot, Stackelberg, and Competitive Equilibria

Application Deadweight Losses in the Food and Tobacco Industries

Bertrand Oligopoly Model Nash-Bertrand Equilibrium with Identical Products

Nash-Bertrand Equilibrium with Differentiated Products

Application Welfare Gain from Greater Toilet Paper Variety

��

Monopolistic Competition Monopolistically Competitive Equilibrium

��

Fixed Costs and the Number of Firms

��

Solved Problem 14.4

��

Application Zoning Laws as a Barrier to Entry by Hotel Chains

��

Challenge Solution Government Aircraft Subsidies

Summary

Exercises

Factor Markets ��Challenge Should You Go to College?

Factor Markets

Table of Contents

A Firms Short-Run Factor Demand Curve

Solved Problem 15.1

��

A Firms Long-Run Factor Demand Curves

Competitive Factor Markets

��

Application Black Death Raises Wages

Solved Problem 15.2

Capital Markets and Investing Interest Rates ��

Discount Rate ��

Stream of Payments

��

Application Saving for Retirement

��

Investing ��

Solved Problem 15.3

��

Solved Problem 15.4

��

Durability ��

Application Durability of Telephone Poles

��

Time-Varying Discounting

Application Falling Discount Rates and Self-Control

Capital Markets, Interest Rates, and Investments

��

Solved Problem 15.5

��

Exhaustible Resources When to Sell an Exhaustible Resource

��

Price of a Scarce Exhaustible Resource

��

Application Redwood Trees

Why Price Might Not Rise

��

Challenge Solution Should You Go to College?

Summary

Exercises

Uncertainty ��Challenge Flight Insurance

Table of Contents

Assessing Risk Probability ��

Expected Value ��

Solved Problem 16.1

��

Variance and Standard Deviation

��

Attitudes Toward Risk Expected Utility Theory

��

Risk Aversion ��

Solved Problem 16.2

��

Solved Problem 16.3

��

Risk Neutrality ��

Risk Preference ��

Application Gambling

��

Degree of Risk Aversion

��

Solved Problem 16.4

��

Reducing Risk Just Say No ��

Application Harry Potters Magic

��

Obtaining Information

��

Application Weathering Bad Sales

��

Diversification ��

Application Employees Failure to Diversify

��

Insurance ��

Solved Problem 16.5

Application Limited Insurance for Natural Disasters

��

Investing Under UncertaintyHow Investing Depends on Attitudes Toward Risk

��

Investing with Uncertainty and Discounting

��

Table of Contents

Solved Problem 16.6

��

Behavioral Economics and Uncertainty Biased Assessment of Probabilities

��

Application Biased Estimates

��

Violations of Expected Utility Theory

��

Prospect Theory ��

Challenge Solution Flight Insurance

Summary

Exercises

Externalities and Public Goods��

Challenge Trade and Pollution

Externalities Application Spam: A Negative Externality

The Inefficiency of Competition with ExternalitiesSupply-and-Demand Analysis

Cost-Benefit Analysis

Regulating ExternalitiesEmissions Standard

��

Application Reducing Pulp and Paper Mill Pollution

��

Emissions Fee ��

Solved Problem 17.1

��

Application Why Tax Drivers

��

Benefits Versus Costs from Controlling Pollution

��

Application Protecting Babies

��

Emissions Fees Versus Standards Under Uncertainty

��

Market Structure and ExternalitiesMonopoly and Externalities

��

Monopoly Versus Competitive Welfare with Externalities

��

Table of Contents

Solved Problem 17.2

��

Taxing Externalities in Noncompetitive Markets

��

Allocating Property Rights to Reduce ExternalitiesCoase Theorem ��

Application Buying a Town

��

Markets for Pollution

��

Application European Cap-and-Trade Policy

Rivalry and ExclusionOpen-Access Common Property

Application for Whom the Bridge Tolls

��

Club Goods ��

Public Goods ��

Application Radioheads Public Good Experiment

Solved Problem 17.3

��

Reducing Free Riding

��

Valuing Public Goods

��

Application Whats Their Beef?

��

Challenge Solution Trade and Pollution

Summary

Exercises

Information ��Challenge Dying to Work

Problems Due to Asymmetric Information

Responses to Adverse SelectionControlling Opportunistic Behavior Through Universal Coverage

��

Equalizing Information

��

Application Risky Hobbies

How Ignorance About Quality Drives Out High-Quality GoodsLemons Market with Fixed Quality

��

Solved Problem 18.1

Table of Contents

��Lemons Market with Variable Quality

��

Solved Problem 18.2

��

Limiting Lemons ��

Application Changing a Firms Name

Application Adverse Selection on eBay Motors

Market Power from Price Ignorance Tourist-Trap Model

Solved Problem 18.3

��

Advertising and Prices

��

Problems Arising from Ignorance When HiringCheap Talk ��

Education as a Signal

��

Solved Problem 18.4

��

Screening in Hiring

��

Challenge Solution Dying to Work

Summary

Exercises

Contract Theory ��Challenge Health Insurance

Principal-Agent ProblemA Model ��

Types of Contracts

��

Efficiency ��

Application Selfless or Selfish Doctors?

��

Production EfficiencyEfficient Contract

��

Full Information

��

Solved Problem 19.1

Asymmetric Information

��

Table of Contents

Application Contracts and Productivity in Agriculture

��

Trade-Off Between Efficiency in Production and in Risk BearingContracts and Efficiency

��

Solved Problem 19.2

Choosing the Best Contract

��

Application Music Contracts: Changing Their Tunes

��

Monitoring to Reduce Moral HazardBonding ��

Solved Problem 19.3

��

Deferred Payments

��

Efficiency Wages

��

After-the-Fact Monitoring

Application The Mortgage Market Meltdown

Solved Problem 19.4

��

Contract Choice

Checks on Principals Application Layoffs Versus Pay Cuts

��

Challenge Solution Health Insurance

Summary

Exercises

Calculus Appendix��

Functions

Properties of Functions

Derivatives

Maximum and Minimum

Finding the Extrema of a Function

Maximizing with Equality Constraints

Maximizing with Inequality Constraints

Duality

Regression Appendix

Table of Contents

��Answers to Selected Problems��

Definitions ��

References ��

Sources for Applications and Challenges��

Index ��

Credits ��

Microeconomics with Calculus Microeconomics with Calculus

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