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Microeconomics FIFTH" EDITION.JEFFREY M. PERLOFFUniversity of California, BerkeleyPEARSONAddisonWesleyBoston San Francisco New YorkLondon Toronto Sydney Tokyo Singapore MadridMexico City Munich Paris Cape Town Hong Kong Montreal
ContentsPrefacexivChapter 1 Introduction1.11Microeconomics: Allocationof Scarce ResourcesTrarlp-Offs1 idUC VJllaWho Makes the DecisionsAPPLICATION Flu Vaccine1ShortageAPPLICATION Twinkle Tax1.3ModelsAPPLICATION Incomeand ChinaThresholdAPPLICATION Mad Cow: ShiftingiZ.Prices Determine Allocations1.2Effects of a Shift in the Demand CurveEffects of a Shift in the Supply CurveSolved Problem 2.3Effects or a Shift in the Supply andDemand Curves223332.5Simplifications by AssumptionTesting TheoriesPositive Versus NormativeUses of Microeconomic ModelsAPPLICATION Putting Saturn in OrbitSummary 10445677APPLICATION Price Controls2.63.13.2Chapter 2 Supply and DemandII2.11212151717 ,Solved Problem 2.12.22.32.4VISumming Demand CurvesAPPLICATION Aggregating the Demand forBroadband ServiceSupplyThe Supply CurveThe Supply FunctionSumming Supply CurvesEffects of Government Import Policieson Supply CurvesSolved Problem 2.2Market EquilibriumUsing a Graph to Determine the EquilibriumUsing Math to Determine the EquilibriumForces That Drive the Market to EquilibriumShocking the EquilibriumQuotasPolicies That Cause Demand to Differfrom SupplyKillWhy Supply Need Not Equal DemandWhen to Use the Supply-and-Demand ModelSummary 40 a Questions 41 Q Problems 43Chapter 3 Applying the Supply-andDemand ModelPART WESupply and DemandDemandThe Demand CurveThe Demand FunctionSteel3.3181819212122232424252526How Shapes of Supply and DemandCurves MatterSensitivity of Quantity Demanded to PricePrice Elasticity of DemandAPPLICATION TurningOff the FaucetElasticity Along the Demand CurveOther Demand ElasticitiesAPPLICATION Substitution May SaveEndangered SpeciesSensitivity of Quantity Supplied to PriceElasticity of SupplyElasticity Along the Supply CurveAPPLICATION The Big Freeze3.4Long Run Versus Short RunDemand Elasticities over TimeSupply Elasticities over TimeAPPLICATION Oil Drilling in the ArcticNational Wildlife RefugeSolved Problem 3.13.527 2828Supplyand Demand CurvesSolved Problem 2.4Effects of Government InterventionsPolicies That Shift Supply CurvesSolved Problem 2.5APPLICATION AmericanModel26Effects of a Sales TaxTwo Types of Sales TaxesEquilibrium Effects of a Specific TaxTax Incidence of a Specific 6 „56575859596062
ContentsSolved Problem 3.262APPLICATION Taxing to Stop Smoking and RaiseRevenue64The Same Equilibrium No Matter Who Is Taxed 65The Similar Effects of Ad Valorem and SpecificTaxes66Solved Problem 3.367Summary 68 o Questions 69 o Problems 71Consumer TheoryChapter 4 Consumer es of Consumer Preferences7677Preference Maps80Solved Problem 4.1APPLICATION Indifference Curves BetweenFood and Clothing8384UtilityUtility Function8484Ordinal Preferences85Utility and Indifference Curves85Utility and Marginal Utility87Utility and Marginal Rates of Substitution87Budget Constraint88Slope of the Budget Constraint89Purchasing Fractional QuantitiesEffect of a Change in Price on Consumption89Effect of a Change in Income on Consumption 9091APPLICATION RationingSolved Problem 4.29192Constrained Consumer Choice92The Consumer's Optimal Bundle94Solved Problem 4.395APPLICATION U.S. Versus EU SUVsV Optimal Bundles on Convex Sections of96Indifference CurvesBuying Where More Is Better9798Solved Problem 4.499Food StampsAPPLICATION Effects of Food Stamps101102Behavioral Economics102Tests of TransitivityAPPLICATION Should Youths Be Allowedto Drink?103103Endowment EffectAPPLICATION How You Ask the Question104Matters104SalienceSummary 106 a Questions 107 a Problems 109Chapter 5 Applying Consumer Theory1115.1112Deriving Demand Curves5.25.5vnHow Changes in Income Shift Demand Curves 114Effects of a Rise in Income115Solved Problem 5.1117Consumer Theory and Income Elasticities118APPLICATION Going Up in Smoke120Effects of a Price Change122Income and Substitution Effects witha Normal Good122Income and Substitution Effects withan Inferior Good125Solved Problem 5.2126APPLICATION Shipping the Good Stuff Away 127Cost-of-Living Adjustments127Inflation Indexes128Effects of Inflation Adjustments130APPLICATION Fixing the CPI Substitution Bias 133Deriving Labor Supply Curves134Labor-Leisure Choice134Income and Substitution Effects136Solved Problem 5.3137APPLICATION Leisure-Income Choicesof Textile Workers138Shape of the Labor Supply Curve139APPLICATION Winning the Good Life141Income Tax Rates and Labor Supply141APPLICATION Effect of a Tax Cuton Tax Revenue143Summary 144 Q Questions 144 a Problems 147Cross-Chapter AnalysisChild-Care Subsidies148PARTTHIrlEETheory of the FirmChapter 6 Firms and Production1526.11531531541541551551566.26.36.4The Ownership and Management of FirmsThe Ownership of FirmsThe Management of FirmsWhat Owners WantProductionProduction FunctionsTime and the Variability of InputsShort-Run Production: One Variableand One Fixed InputTotal ProductMarginal Product of LaborAverage Product of LaborGraphing the Product CurvesLaw of Diminishing Marginal ReturnsAPPLICATION Malthus and the GreenRevolutionLong-Run Production: Two Variable InputsIsoquants157157158158159161162163164
Vlll6.5ContentsAPPLICATION A Semiconductor IntegratedCircuit IsoquantSubstituting InputsSolved Problem 6.1Returns to ScaleConstant, Increasing, and DecreasingReturns to ScaleSolved Problem 6.26.6APPLICATION Returns to Scale in U.S.ManufacturingVarying Returns to ScaleProductivity and Technical ChangeRelative ProductivityInnovationsAPPLICATION Dell Computer'sOrganizational InnovationsSummary 178 o Questions 179 a Problems167168170171173174174175176218Chapter 8 Competitive Firmsand Markets8.11831837.4APPLICATION ScopePART FOURPerfect Competition1771817.17.32162171721827.2214Summary 219 o Questions 219 a Problems 222171Chapter 7 CostsMeasuring CostsEconomic CostAPPLICATION Opportunity Cost of Goingto ChurchCapital CostsAPPLICATION Swarthmore College's Costof CapitalShort-Run CostsShort-Run Cost MeasuresShort-Run Cost CurvesProduction Functions and the Shape of CostCurvesAPPLICATION Short-Run Cost Curves for aFurniture ManufacturerEffects of Taxes on CostsSolved Problem 7.1Short-Run Cost SummaryLong-Run CostsInput ChoiceAPPLICATION The Internet and OutsourcingSolved Problem 7.2Solved Problem 7.3How Long-Run Cost Varies with OutputSolved Problem 7.4The Shape of Long-Run Cost CurvesAPPLICATION Innovations and Economiesof ScaleEstimating Cost Curves Versus IntrospectionLower Costs in the Long RunLong-Run Average Cost as the Envelopeof Short-Run Average Cost CurvesAPPLICATION Long-Run Cost Curvesin Furniture Manufacturing andOil PipelinesAPPLICATION Choosing an Ink-Jetor a Laser PrinterShort-Run and Long-Run Expansion Paths7.5How Learning by Doing Lowers CostsAPPLICATION Learning by Doingin Computer ChipsCost of Producing Multiple titionPrice TakingWhy the Firm's Demand Curve Is HorizontalDerivation of a Competitive Firm'sDemand CurveWhy We Study Perfect CompetitionProfit MaximizationProfitAPPLICATION Breaking Even onChristmas TreesTwo Steps to Maximizing ProfitCompetition in the Short RunShort-Run Competitive Profit MaximizationSolved Problem 8.1Solved Problem 8.2APPLICATION Oil, Oil Sands, and Oil ShaleShutdownsShort-Run Firm Supply CurveShort-Run Market Supply CurveShort-Run Competitive EquilibriumSolved Problem 8.3Competition in the Long RunLong-Run Competitive Profit MaximizationLong-Run Firm Supply CurveLong-Run Market Supply CurveAPPLICATION Enter the Dragon: MassesProducing Art for the MassesAPPLICATION Upward-Sloping Long-RunSupply Curve for CottonAPPLICATION Special Blends and GasolineSupply CurvesSolved Problem 8.4Long-Run Competitive EquilibriumSolved Problem 8.5Zero Profit for Competitive Firmsin the Long RunZero Long-Run Profit with Free EntryAPPLICATION Abortion MarketZero Long-Run Profit When Entry Is LimitedThe Need to Maximize ProfitSummary 263 a Questions 264 a 0260261263268
ContentsChapter 9 Applying theCompetitive Model9.1Consumer WelfareMeasuring Consumer Welfare Usinga Demand CurveAPPLICATION Willingness to Pay on eBayAPPLICATION Consumer Surplusfrom TelevisionEffect of a Price Change on ConsumerSurplusAPPLICATION Bruce Springsteen's Giftto His FansSolved Problem 9.19.2 Producer WelfareMeasuring Producer Surplus Usinga Supply CurveUsing Producer SurplusSolved Problem 9.29.3 Competition Maximizes WelfareWhy Producing Less than the CompetitiveOutput Lowers WelfareWhy Producing More than the CompetitiveOutput Lowers WelfareAPPLICATION Deadweight Lossof Christmas Presents9.4 Policies That Shift Supply CurvesRestricting the Number of FirmsAPPLICATION Cab FareRaising Entry and Exit Costs9.5 Policies That Create a Wedge BetweenSupply and DemandWelfare Effects of a Sales Tax'APPLICATION Deadweight Loss fromWireless TaxesSolved Problem 9.3Welfare Effects of a Price FloorSolved Problem 9.4'APPLICATION Farmer SubsidiesWelfare Effects of a Price CeilingSolved Problem 9.59.6 Comparing Both Types of Policies: ImportsFree Trade Versus a Ban on ImportsFree Trade Versus a TariffFree Trade Versus a QuotaRent SeekingSummary 304 a Questions 305 a ProblemsChapter 10 General Equilibriumand Economic Welfare10.1 General EquilibriumFeedback Between Competitive MarketsMinimum Wages with Incomplete CoverageSolved Problem 10.1APPLICATION Urban Flight28210.2 Trading Between Two PeopleEndowmentsMutually Beneficial TradesSolved Problem 10.2Bargaining Ability10.3 Competitive ExchangeCompetitive EquilibriumThe Efficiency of CompetitionObtaining Any Efficient Allocation UsingCompetition10.4 Production and TradingComparative AdvantageSolved Problem 10.3Efficient Product MixCompetition10.5 Efficiency and EquityRole of the GovernmentAPPLICATION Wealth Distribution inthe United StatesEfficiencyEquityAPPLICATION An Unequal WorldAPPLICATION How You Vote MattersEfficiency Versus Equity283284285287288Cross-Chapter AnalysisOutsourcing and the World 3308309310311314316317IX344PART FIVEMarket Power and Market StructureChapter 11 Monopoly11.1 Monopoly Profit MaximizationMarginal RevenueChoosing Price or QuantityGraphical ApproachMathematical Approach 11.2 Effects of a Shift of the Demand Curve11.3 Market PowerMarket Power and the Shape of theDemand CurveAPPLICATION Cable Cars and ProfitMaximizationLernerIndexSolved Problem 11.1APPLICATION Apple's iPodSources of Market Power11.4 Welfare Effects of MonopolyGraphing the Welfare LossSolved Problem 11.2 AT Welfare Effects of Ad ValoremVersus Specific 363365366
Contents11.5 Cost Advantages That Create MonopoliesSources of Cost AdvantagesNatural MonopolySolved Problem 11.3APPLICATION Electric Power Utilities11.6 Government Actions That Create MonopoliesBarriers to EntryAPPLICATION Carlos Slim and the MexicanMonopoliesPatentsAPPLICATION Botox Patent MonopolyAPPLICATION Property Rights and Piracy11.7 Government Actions That ReduceMarket PowerRegulating MonopoliesSolved Problem 11.4Increasing Competition11.8 Network Externalities, BehavioralEconomics, and Monopoly Decisionsover TimeNetwork ExternalitiesNetwork Externalities as an Explanation forMonopoliesA Two-Period Monopoly ModelSummary 384 Questions 384 a ProblemsChapter 12 Pricing and Advertising12.1 Why and How Firms Price DiscriminateWhy Price Discrimination PaysWho Can Price DiscriminateAPPLICATION Disneyland PricingPreventing ResalesAPPLICATION Preventing Resaleof Designer BagsNot All Price Differences Are PriceDiscriminationTypes of Price Discrimination12.2 Perfect Price DiscriminationHow a Firm Perfectly Price DiscriminatesAPPLICATION Amazon Is Watching YouPerfect Price Discrimination: EfficientBut Hurts ConsumersAPPLICATION Botox RevisitedSolved Problem 12.1Transaction Costs and Perfect PriceDiscriminationSolved Problem 12.2APPLICATION Unions That Have It All12.3 Quantity Discrimination12.4 Multimarket Price DiscriminationMultimarket Price Discriminationwith Two GroupsAPPLICATION Smuggling Prescription Drugsinto the United StatesSolved Problem 398400401402402403404404405408409Identifying Groups411APPLICATION Consumers Pay for Lower Prices 411Welfare Effects of Multimarket PriceDiscrimination41212.5 Two-Part Tariffs413A Two-Part Tariff with Identical Consumers 414A Two-Part Tariff with NonidenticalConsumers 41512.6 Tie-In Sales416Requirement Tie-in Sales416APPLICATION IBM417Bundling41741912.7 Advertising419The Decision Whether to Advertise420How Much to AdvertiseAPPLICATION O. /. Trial Effect421Summary 422 Questions 422 a Problems 425Cross-Chapter AnalysisMagazine Subscriptions427Chapter 13 Oligopoly andMonopolistic Competition43013.1 Market Structures13.2 CartelsWhy Cartels FormLaws Against CartelsAPPLICATION Catwalk CartelWhy Cartels FailMaintaining CartelsAPPLICATION Bail BondsMergersAPPLICATION Airline Mergers: MarketPower Versus Flight Frequency13.3 Noncooperative Oligopoly13.4 Cournot ModelCournot Model of an Airlines Market.The Cournot Equilibrium and the Numberof FirmsAPPLICATION Air Ticket Prices and Rivalry * The Cournot Model with Nonidentical FirmsSolved Problem 13.1Solved Problem 13.2APPLICATION Bottled Water13.5 Stackelberg ModelStackelberg Graphical ModelSolved Problem 13.3Why Moving Sequentially Is Essential* Strategic Trade PolicyAPPLICATION Government Aircraft SubsidiesSolved Problem 13.413.6 Comparison of Collusive, Cournot,Stackelberg, and Competitive EquilibriaAPPLICATION Deadweight Losses inthe Food and Tobacco Industries43143343343
Microeconomics FIFTH" EDITION. JEFFREY M. PERLOFF University of California, Berkeley PEARSON Addison Wesley Boston San Francisco New York London Toronto Sydney Tokyo Singapore Madrid Mexico City Munich Paris Cape Town Hong Kong Montreal. Contents Preface Chapter 1 Introduction 1.1 Microeconomics: Allocation of Scarce Resources Trarlp-Off1 idUC VJlls a Who Makes
