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MICROECONOMICSSEVENTHEDITIONGLOBAL EDITIONJEFFREYM. PERLOFFUniversity of California, Berkeley„«PEARSONBoston Columbus Indianapolis New York San Francisco HobokenAmsterdam Cape Town Dubai London Madrid Milan Munich Paris* Montreal TorontoDelhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singaporef Taipei Tokyo

ContentsPreface14Chapter 1 Introduction251.11.2?.3Microeconomics: The Allocation of ScarceResourcesTrade-OffsWho Makes the DecisionsPrices Determine AllocationsModelsAPPLICATION Income Threshold Modeland ChinaSimplifications by AssumptionTesting TheoriesPositive Versus NormativeUses of Microeconomic ModelsSwMzmary 3 3Chapter 2 Supply and Demand2.12.22.32.46CHALLENGE Quantities and Pricesof Genetically Modified FoodsDemandThe Demand CurveAPPLICATION Calorie Counting at StarbucksThe Demand FunctionSolved Problem 2.1Summing Demand CurvesAPPLICATION Aggregating ComDemand CurvesSupplyThe Supply CurveThe Supply FunctionSumming Supply CurvesEffects of Government ImportPolicies on Supply CurvesSolved Problem 2.2Market EquilibriumUsing a Graph to Determinethe EquilibriumUsing Math to Determine the EquilibriumForces That Drive the Market to EquilibriumShocking the EquilibriumEffects of a Shift in the Demand CurveSolved Problem 2.3Effects of a Shift in the Supply 4444546464647484849502.52.6Equilibrium Effects of GovernmentInterventionsPolicies That Shift Supply CurvesAPPLICATION Occupational LicensingSolved Problem 2.4Policies That Cause Demand to Differfrom SupplyAPPLICATION Price Controls KillSolved Problem 2.5Why Supply Need Not Equal DemandWhen to Use the Supply-and-Demand ModelCHALLENGE SOLUTION Quantities andPrices of Genetically Modified FoodsSummary 60 Questions 6150515152535557575859Chapter 3 Applying the Supply-and-Demand66ModelCHALLENGE Who Pays the Gasoline TaxfHow Shapes of Supply and DemandCurves Matter3.2 Sensitivity of the Quantity Demanded to PricePrice Elasticity of DemandSolved Problem 3.1Elasticity Along the Demand CurveDemand Elasticity and RevenueSolved Problem 3.2APPLICATION Do Farmers Benefitfrom a Major Drought?Demand Elasticities over TimeOther Demand Elasticities3.3 Sensitivity of the Quantity Supplied to PriceElasticity of SupplyElasticity Along the Supply CurveSupply Elasticities over TimeAPPLICATION Oil Drilling in the ArcticNational Wildlife RefugeSolved Problem 3.33.4 Effects of a Sales TaxEquilibrium Effects of a Specific TaxThe Equilibrium Is the Same No MatterWho Is TaxedSolved Problem 3.4Firms and Customers Share the Bürdenof the TaxAPPLICATION Taxes to Prevent 848J86

ContentsSolved Problem 3.5Ad Valorem and Specific Taxes Have SimilarEffectsSolved Problem 3.6SubsidiesAPPLICATION The Ethanol SubsidyCHALLENGE SOLUTION Who Pays theGasoline Tax?Swmnwzry 91 * ßwes&oMJ 92Chapter 4 Consumer ChoiceCHALLENGE Why Americans BuyMore E-Books Than Do Germans4.1 PreferencesProperties of Consumer PreferencesAPPLICATION You Can't Have TooMuch MoneyPreference MapsSolved Problem 4.1APPLICATION Indifference CurvesBetween Food and Clothing4.2 UtilityUtility FunctionOrdinal PreferencesUtility and Indifference CurvesMarginal UtilityUtility and Marginal Rates of Substitution4.3 Budget ConstraintSlope of the Budget ConstraintSolved Problem 4.2Effect of a Change in Price on theOpportunity SetEffect of a Change in Income on theOpportunity SetSolved Problem 4.34.4 Constrained Consumer ChoiceThe Consumer's Optimal BündleAPPLICATION Suhstituting Alcoholfor MarijuanaSolved Problem 4.4* Optimal Bundles on Convex Sectionsof Indifference CurvesBuying Where More Is BetterFood StampsAPPLICATION Benefiting front Food Stamps4.5 Behavioral Economic:Tests of TransitivityEndowment EffectAPPLICATION Opt In Versus Opt OutSalience and Bounded RationalityAPPLICATION Unaivare of TaxesCHALLENGE SOLUTION Why AmericansBuy More E-Books Than Do GermansSwfMMMry 126 # gM&s&ofK 12787Chapter 5 Applying Consumer Theory87888990CHALLENGE Per-Hour Versus Lump-SumChildcare Subsidies5.1 Deriving Demand CurvesIndifference Curves and a RotatingBudget LinePrice-Consumption CurveAPPLICATION Smoking Versus Eatingand PhoningThe Demand Curve Corresponds to thePrice-Consumption CurveSolved Problem 5.15.2 How Changes in Income ShiftDemand CurvesEffects of a Rise in IncomeSolved Problem 5.2Consumer Theory and Income ElasticitiesAPPLICATION Fast-Food Engel Curve5.3 Effects of a Price ChangeIncome and Substitution Effects with aNormal GoodSolved Problem 5.3Solved Problem 5.4APPLICATION Shipping the GoodStuff AwayIncome and Substitution Effects withan Inferior GoodSolved Problem 5.5 k Compensating Variation and EquivalentVariationAPPLICATION What's the Value of Using theInternet?5.4 Cost-of-Living AdjustmentsInflation IndexesEffects of Inflation AdjustmentsAPPLICATION Paying Employees to Relocate5.5 Deriving Labor Supply CurvesLabor-Leisure ChoiceIncome and Substitution EffectsSolved Problem 5.6* Shape of the Labor Supply CurveAPPLICATION Working After Winningthe LotteryIncome Tax Rates and Labor SupplyCHALLENGE SOLUTION Per-Hour VersusLump-Sum Childcare SubsidiesSwmfMdry 166 * ßweshow 25125Chapter 6 Firms and Production6.1CHALLENGE Labor ProductivityDüring RecessionsThe Ownership and Management of FirnisPrivate, Public, and Nonprofit 62163165171171172172

8ContentsAPPLICATION Chinese State-OwnedEnterprisesThe Ownership of For-Profit FirmsThe Management of FirmsWhat Owners Want6.2 Production Function6.3 Short-Run ProductionTotal ProductMarginal Product of LaborSolved Problem 6.1Average Product of LaborGraphing the Product CurvesLaw of Diminishing Marginal ReturnsAPPLICATION Malthus and the GreenRevolution6.4 Long-Run ProductionIsoquantsAPPLICATION A Semiconductor IntegratedCircuit IsoquantSubstituting InputsSolved Problem 6.26.5 Returns to ScaleConstant, Increasing, and DecreasingReturns to ScaleSolved Problem 6.3APPLICATION Returns to Scale in VariousIndustriesVarying Returns to Scale6.6 Productivity and Technical ChangeRelative ProductivityAPPLICATION A Good Boss RaisesProductivityInnovationsAPPLICATION Tata Nano's Technical andOrganizational InnovationsCHALLENGE SOLUTION Labor ProductivityDüring RecessionsSummary 199Questions 199Chapter 7 CostsCHALLENGE Technology Choiceat Home Versus Abroad7.1 The Nature of CostsOpportunity CostsAPPLICATION The Opportunity Costof an MBASolved Problem 71Costs of Durable InputsSunk Costs7.2 Short-Run CostsShort-Run Cost MeasuresShort-Run Cost CurvesProduction Functions and the Shapeof Cost CurvesAPPLICATION Short-Run Cost Curvesfor a Beer Manufacturer195195Effects of Taxes on CostsSolved Problem 7.2Short-Run Cost SummaryLong-Run CostsAll Costs Are Avoidable in the Long RunMinimizing CostIsocost LineCombining Cost and Production InformationSolved Problem 7.3Factor Price ChangesSolved Problem 7.4The Long-Run Expansion Path andthe Long-Run Cost FunctionSolved Problem 7.5The Shape of Long-Run Cost CurvesAPPLICATION Hconomies of Scale in NuclearPower PlantsEstimating Cost Curves Versus IntrospectionLower Costs in the Long RunLong-Run Average Cost as the Envelopeof Short-Run Average Cost CurvesAPPLICATION Long-Run Cost Curves in BeerManufacturingAPPLICATION Choosing an Inkjet or a LaserPrinterShort-Run and Long-Run Expansion PathsThe Learning CurveAPPLICATION Learning by DrillingCost of Producing Multiple GoodsAPPLICATION Economies of ScopeCHALLENGE SOLUTION Technology Choiceat Home Versus AbroadSummary 239 Questions 240197Chapter 8 Competitive Firms and Markets 244197CHALLENGE The Rising Cost of KeepingOn Truckin'8.1 Perfect CompetitionPrice TakingWhy the Firm's Demand Curve Is HorizontalDeviations from Perfect CompetitionDerivation of a Competitive Firm'sDemand CurveSolved Problem 8.1Why We Study Perfect Competition8.2 Profit MaximizationProfitTwo Steps to Maximizing Profit8.3 Competition in the Short RunShort-Run Output DecisionSolved Problem 8.2Short-Run Shutdown DecisionAPPLICATION Oil, Oil Sands, and Oil ShaleShutdownsSolved Problem 8.3Short-Run Firm Supply 8260261261

ContentsShort-Run Market Supply CurveShort-Run Competitive EquilibriumSolved Problem 8.48.4 Competition in the Long RunLong-Run Competitive Profit MaximizationLong-Run Firm Supply CurveAPPLICATION The Size of EthanolProcessing PlantsLong-Run Market Supply CurveAPPLICATION Fast-Food Firms' Entryin RussiaAPPLICATION Upward-Sloping Long-RunSupply Curve for CottonAPPLICATION Reformulated GasolineSupply CurvesSolved Problem 8.5Long-Run Competitive EquilibriumCHALLENGE SOLUTION The Rising CostofKeeping On Truckin'Summary 280 Questions er 9 Applying the Competitive Model 2869.19.29.39.59.6CHALLENGE "Big Dry" Water RestrictionsZero Profit for Competitive Firmsin the Long RunZero Long-Run Profit with Free EntryZero Long-Run Profit When Entry Is LimitedAPPLICATION Tiger Woods' RentThe Need to Maximize ProfitConsumer WeifareMeasuring Consumer Weifare Usinga Demand CurveAPPLICATION Willingness to Payand Consumer Surplus on eBayEffect of a Price Change on ConsumerSurplusAPPLICATION Goods with a Large ConsumerSurplus Loss from Price IncreasesSolved Problem 9.1Producer WeifareMeasuring Producer Surplus Usinga Supply CurveUsing Producer SurplusSolved Problem 9.2Competition Maximizes WeifareSolved Problem 9.3APPLICATION Deadweight Lossof Christmas PresentsPolicies That Shift Supply and DemandCurvesRestricting the Number of FirmsAPPLICATION Licensing CabsRaising Entry and Exit CostsPolicies That Create a Wedge BetweenSupply and DemandWeifare Effects of a Sales Tax9.7APPLICATION The Deadweight Costof Raising Gasoline Tax RevenueSolved Problem 9.4Weifare Effects of a SubsidySolved Problem 9.5Weifare Effects of a Price FloorSolved Problem 9.6APPLICATION How Big Are Farm Subsidiesand Who Gets ThemfWeifare Effects of a Price CeilingSolved Problem 9.7APPLICATION The Social Cost of aNatural Gas Price CeilingComparing Both Types of Policies: ImportsFree Trade Versus a Ban on ImportsFree Trade Versus a TariffFree Trade Versus a QuotaAPPLICATION The Chicken Tax Trade WarRent SeekingCHALLENGE SOLUTION "Big Dry" WaterRestrictionsSummary 327 Questions 299300302303304305307308309309Chapter 10 General Equilibriumand Economic WeifareCHALLENGE Anti-Price Gouging Laws10.1 General EquilibriumFeedback Between Competitive MarketsSolved Problem 10.1Minimum Wages with Incomplete CoverageSolved Problem 10.2APPLICATION Urban Flight10.2 Trading Between Two PeopleEndowmentsMutually Beneficial TradesSolved Problem 10.3Bargaining Ability10.3 Competitive ExchangeCompetitive EquilibriumThe Efficiency of CompetitionObtaining Any Efficient Allocation UsingCompetition10.4 Production and TradingComparative AdvantageSolved Problem 10.4Efficient Product MixCompetition10.5 Efficiency and EquityRole of the GovernmentAPPLICATION The Wealth and Incomeofthe 1%EfficiencyEquityAPPLICATION Flow You Vote MattersEfficiency Versus 6347347348348350352352354354355356358360362