Transcription
IntermediateMicroeconomicsandIts ApplicationWalter NicholsonAmtierst CollegeChristopher SnyderDarlmouth Collegemä\/ ,CENGAGE4#"Learning*Australia Brazil Mexico Singapore United Kingdom United States
Preface xxiiiPART 1INTRODUCTIONCHARTER 1Economic Models131-1 What Is Microeconomics? 31-2 A Few Basic Principles 41-3 Uses of Microeconomics 6Application 1.1: Economics in the Natural World? 71-4 The Basic Supply-Demand Model 8Application 1.2: Is It Worth Your Time to Be Here? 9Application 1.3: The Rise and Fall of Blockbuster 10Adam Smith and the Invisible Hand 11David Ricardo and Diminishing Returns 11Marginalism and Marshall's Model of Supply and Demand 12Market Equilibrium 13Nonequilibrium Outcomes 14Change in Market Equilibrium 141-5 How Economists Verify Theoretical Models 15Application 1.4: Supply and Demand According to Bono 16Testing Assumptions 17Testing Predictions 17The Positive-Normative Distinction 17Application 1.5: Do Economists Ever Agree on Anything? 18Summary 19Review Questions 19Problems 20Appendix to Chapter 1 Mathematics Used in Microeconomics 23Al-1 Functions of One Variable 23AI-2 Graphing Functions of One Variable 24Linear Functions: Intercepts and Slopes 25Interpreting Slopes: An Example 26Slopes and Units of Measurement 26Changes in Slope 27Nonlinear Functions 29Application 1A.1: How Does Zillow.com Do It? 30The Slope of a Nonlinear Function 31Marginal and Average Effects 31Calculus and Marginalism 32Application 1A.2: Can a "Fiat" Tax Be Progressive? 33Al-3 Functions of Two or More Variables 34Trade-Offs and Contour Lines: An Example 34Contour Lines 35
AI-4 Simultaneous Equations 36Changing Solutions for Simultaneous Equations 37Graphing Simultaneous Equations 37AI-5 Empirical Microeconomics and Econometrics 38Random Influences 38The Ceteris Paribus Assumption 39Application 1A.3: Can Supply and Demand Explain ChangingWorld Oil Prices? 40Exogenous and Endogenous Variables 42The Reduced Form 43Summary 44PART 2DEMANDCHARTER 2Utility and Choice45472-1 Utility 47Ceteris Paribus Assumption 47Utility from Consuming Two Goods 48Measuring Utility 48Application 2.1: Can Money Buy Health and Happiness? 492-2 Assumptions about Preferences 50Completeness 50Transitivity 50More Is Better: Defining an Economic "Good" 502-3 Voluntary Trades and Indifference Curves 51Application 2.2: Should Economists Care about How the Mind Works? 52Indifference Curves 53Indifference Curves and the Marginal Rate of Substitution 54Diminishing Marginal Rate of Substitution 54Balance in Consumption 552-4 Indifference Curve Maps 552-5 Illustrating Particular Preferences 56A Useless Good 57An Economic Bad 57Perfect Substitutes 57Application 2.3: Product Positioning in Marketing 58Perfect Complements 592-6 Utility Maximization: An Initial Survey 60Choices Are Constrained 60An Intuitive Illustration 602-7 Showing Utility Maximization on a Graph 61The Budget Constraint 61Budget-Constraint Algebra 62A Numerical Example 63Utility Maximization 632-8 Using the Model of Choice 65Application 2.4: Ticket Scalping 66A Few Numerical Examples 68Application 2.5: What's a Rieh Uncle's Promise Worth? 692-9 Generalizations 72Many Goods 72
ContentsComplicated Budget Constraints 72Composite Goods 73Application 2.6: Loyalty Programs 74Summary 75Review Questions 75Problems 76CHARTER 3Demand Curves793-1 Individual Demand Functions 79Homogeneity 793-2 Changes in Income 80Normal Goods 81Inferior Goods 813-3 Changes in a Good s Price 81Application 3.1: Engel's Law 82Substitution and Income Effects from a Fall in Price 83Substitution Effect 83Income Effect 85The Effects Combined: A Numerical Example 85The Importance of Substitution Effects 85Substitution and Income Effects for Inferior Goods 87Application 3.2: The Consumer Price Index and Its Biases 88Giffen's Paradox 903-4 An Application: The Lump-Sum Principle 90A Graphical Approach 90Generalizations 91Application 3.3: The Inefftciency ofln-kind Programs 923-5 Changes in the Price of Another Good 93Substitutes and Complements 943-6 Individual Demand Curves 94Shape of the Demand Curve 963-7 Shifts in an Individual's Demand Curve 97Be Careful in Using Terminology 983-8 Two Numerical Examples 98Perfect Complements 98Some Substitutability 993-9 Consumer Surplus 99Demand Curves and Consumer Surplus 99Consumer Surplus and Utility 1013-10 Market Demand Curves 102Construction of the Market Demand Curve 102Application 3.4: Valuing New Goods 103Shifis in the Market Demand Curve 104Numerical Examples 104A Simplified Notation 1053-11 Elasticity 105Use Percentage Changes 106Linking Percentages 1063-12 Price Elasticity of Demand 106Values of the Price Elasticity of Demand 107ix
Price Elasticity and the Substitution Effect 107Price Elasticity and Time 108Price Elasticity and Total Expenditures 108Application 3.5: Brand Loyalty 109Application 3.6: Price Volatility 1113-13 Demand Curves and Price Elasticity 112Linear Demand Curves and Price Elasticity: A NumericalExample 112A Unit Elastic Curve 1143-14 Income Elasticity of Demand 115Application 3.7: An Experiment in Health Insurance 1163-15 Cross-Price Elasticity of Demand 1173-16 Some Elasticity Estimates 117Summary 119Review Questions 119Problems 120PART 3UNCERTAINTY AND STRATEGYCHARTER 4Uncertainty 1254-1 Probability and Expected Value 1254-2 Risk Aversion 126Diminishing Marginal Utility 126Application 4.1: Blackjack Systems 127A Graphical Analysis of Risk Aversion 128Willingness to Pay to Avoid Risk 1294-3 Methods for Reducing Risk and Uncertainty 129Insurance 130Application 4.2: Deductibles in Insurance 132Diversification 133Application 4.3: Mutual Funds 135Flexibility 136Application 4.4: Puts, Calls, and Black-Scholes 139Information 140Information Differences among Economic Actors 142Application 4.5: The Energy Paradox 1444-4 Pricing of Risk in Financial Assets 145Investors' Market Options 145Choices by Individual Investors 146Application 4.6: The Equity Premium Puzzle 147Summary 148Review Questions 148Problems 149Appendix to Chapter 4 Two-State Model of Uncertainty 152A4-1 Model 152A4-2 Risk Aversion 153A4-3 Insurance 154A4-4 Diversification 156A4-5 Option Value 157Summary 158123
CHARTERSGame Theory 1595-1 Background 1595-2 Basic Concepts 160Players 160Strategies 160Payoffs 160Information 1605-3 Equilibrium 161Application 5.1: A Beautiful Mind 1625-4 Illustrating Basic Concepts 163The Prisoners' Dilemma 163The Game in Normal Form 163The Game in Extensive Form 163Solving for the Nash Equilibrium 164Dominant Strategies 165The Dilemma 167Mixed Strategies 167Matching Pennies 167Solving for a Mixed-Strategy Nash Equilibrium 168Interpretation of Random Strategies 1695-5 Multiple Equilibria 169Application 5.2: Mixed Strategies in Sports 170Battie of the Sexes 171Computing Mixed Strategies in the Battie of the Sexes 172The Problem of Multiple Equilibria 1745-6 Sequential Games 174Application 5.3: High-Definition Standards War 175The Sequential Battie of the Sexes 176Subgame-Perfect Equilibrium 178Backward Induction 180Repeated Games 182Defmite Time Horizon 182Indefinite Time Horizon 182Application 5.4: Laboratory Experiments 1835-7 Continuous Actions 185Tragedy of the Commons 185Shifting Equilibria 1865-8 N-Player Games 1875-9 Incomplete Information 187Application 5.5: Terrorism 188Summary 189Review Questions 189Problems 190PART 4PRODUCTION, COSTS, AND SUPPLYCHARTER 6Production 1956-1 Production Functions 195Two-Input Production Function 1966-2 Marginal Product 196193
xiiContentsDiminishing Marginal Product 196Application 6.1: Every Household Is a Firm 197Marginal Product Curve 198Average Product 198Appraising the Marginal Product Concept 1996-3 Isoquant Maps 199Application 6.2: What Did U.S. Automakers Learn from the Japanese? 200Rate of Technical Substitution 201RTS and Marginal Products 202Diminishing RTS 202Application 6.3: Engineering and Economics 2036-4 Returns to Scale 204Adam Smith on Returns to Scale 204A Precise Definition 204Graphic Illustrations 204Application 6.4: Returns to Scale in Beer and Wine 2066-5 Input Substitution 207Fixed-Proportions Production Function 207Relevance of Input Substitutability 2086-6 Changes in Technology 209Technical Progress versus Input Substitution 210Multifactor Productivity 210Application 6.5: Finding the Computer Revolution 2116-7 A Numerical Example of Production 212The Production Function 212Average and Marginal Productivities 212The Isoquant Map 212Rate of Technical Substitution 213Technical Progress 214Summary 215Review Questions 215Problems 216CHARTER 7Costs 2197-1 Basic Cost Concepts 219Economic versus Accounting Costs 219Economic versus Opportunity Costs 221Labor Costs 221Capital Costs 222Entrepreneurial Costs 222Application 7.1: Stranded Costs and Deregulation 223The Two-Input Case 224Economic Profits and Cost Minimization 2247-2 Cost-Minimizing Input Choice 224Graphic Presentation 225An Alternative Interpretation 226Application 7.2: Is Social Responsibility Costly? 227The Firm's Expansion Path 2287-3 Cost Curves 228
ContentsAverage and Marginal Costs 230Marginal Cost Curves 230Average Cost Curves 232Application 7.3: Findings on Firms' Average Costs 233Economies of Scale 2347-4 Distinction between the Short Run and the Long Run 234Holding Capital Input Constant 235Types of Short-Run Costs 235Input Inflexibility and Cost Minimization 2367-5 Per-Unit Short-Run Cost Curves 237Application 7.4: Congestion Costs 2387-6 Shifts in Cost Curves 239Changes in Input Prices 239Technological Innovation 239Economies of Scope 2407-7 A Numerical Example 240Application 7.5: Are Economies of Scope in Banking a Bad Thing? 241Long-Run Cost Curves 242Short-Run Costs 243Summary 244Review Questions 245Problems 246CHARTER 8Profit Maximization and Supply2498-1 The Nature of Firms 249Why Firms Exist 249Contracts within Firms 250Contract Incentives 250Firms' Goals and Profit Maximization 2518-2 Profit Maximization 251Marginalism 251Application 8.1: Corporate Profits Taxes and Firms' FinancingDecisions 252The Output Decision 253The Marginal Revenue/Marginal Cost Rule 254Marginalism in Input Choices 2548-3 Marginal Revenue 255Marginal Revenue for a Downward-Sloping Demand Curve 255A Numerical Example 255Marginal Revenue and Price Elasticity 2578-4 Marginal Revenue Curve 259Numerical Example Revisited 259Application 8.2: Maximizing Profits from Bagels and Catalog Sales 260Shifts in Demand and Marginal Revenue Curves 2628-5 Supply Decisions of a Price-Taking Firm 262Price-Taking Behavior 262Application 8.3: Evolving Airline Pricing Strategies 263A Numerical Example Showing Price-Taking Behavior 264Short-Run Profit Maximization 264xiii
Application 8.4: Price-Taking Behavior 265Showing Profits 266The Firm's Short-Run Supply Curve 267Negative Profits and the Shutdown Decision 267A Numerical Illustration 268Application 8.5: Boom and Bust in the Oil Patch 269Summary 270Review Questions 271Problems 272PART 5PERFECT COMPETITIONCHARTER 9Perfect Competition in a Single Market2752779-1 Timing of a Supply Response 2779-2 Pricing in the Very Short Run 277Shifts in Demand: Price as a Rationing Device 278Applicability of the Very Short-Run Model 278Application 9.1: Internet Auctions 2799-3 Short-Run Supply 280Construction of a Short-Run Supply Curve 2809-4 Short-Run Price Determination 281Functions of the Equilibrium Price 281Effect of an Increase in Market Demand 2829-5 Shifts in Supply and Demand Curves 283Short-Run Supply Elasticity 283Shifts in Supply Curves and the Importance of the Shape of theDemand Curve 284Shifts in Demand Curves and the Importance of the Shape of theSupply Curve 285Application 9.2: Ethanol Subsidies in the United States and Brazil 286A Numerical Illustration 287Algebra is Easier 2889-6 The Long Run 289Equilibrium Conditions 289Profit Maximization 289Entry and Exit 289Long-Run Equilibrium 2909-7 Long-Run Supply: The Constant Cost Gase 290Market Equilibrium 290A Shift in Demand 291Long-Run Supply Curve 2919-8 Shape of the Long-Run Supply Curve 292The Increasing Cost Case 292Long-Run Supply Elasticity 293Estimating Long-Run Elasticities of Supply 293Can Supply Curves Be Negatively Sloped? 294Application 9.3: How Do Network Externalities Affect Supply Curves? 2959-9 Consumer and Producer Surplus 296Short-Run Producer Surplus 297Long-Run Producer Surplus 297
ContentsRicardian Rent 297Economic Efficiency 299A Numerical Illustration 299Application 9.4: Does Buying Things on the Internet Improve Weifare? 3009-10 Some Supply-Demand Applications 301Tax lncidence 302Long-Run lncidence with Increasing Costs 303Application 9.5: The Tobacco "Settlement" Is Just a Tax 305A Numerical Illustration 306Trade Restrictions 307Application 9.6: The Saga of Steel Tariffs 309Sum mary 310Review Questions 311Problems 312CHARTER 10General Equilibrium and Weifare31510-1 A Perfectly Competitive Price System 31510-2 Why Is General Equilibrium Necessary? 316Disturbing the Equilibrium 317Reestablishing Equilibrium 31710-3 A Simple General Equilibrium Model 317Application 10.1: Modeling Excess Bürden with a Computer 31810-4 The Economic Efficiency of Perfect Competition 320Some Numerical Examples 322Prices, Efficiency, and Laissez-Faire Economics 32410-5 Why Markets Fail to Achieve Economic Efficiency 325Imperfect Competition 325Externalities 325Public Goods 325Application 10.2: Gains from Free Trade and Free Trade Agreements 326Imperfect Information 32810-6 Efficiency and Equity 328Defining and Achieving Equity 328Equity and Competitive Markets 32910-7 The Edgeworth Box Diagram for Exchange 329Mutually Beneficial Trades 329Efficiency in Exchange 331Contract Curve 331Efficiency and Equity 331Equity and Efficiency with Production 332Application 10.3: The Second Theorem of Weifare Economics 33310-8 Money in General Equilibrium Models 334Nature and Function of Money 334Money as the Accounting Standard 334Commodity Money 335Fiat Money and the Monetary Veil 335Application 10.4: Commodity Money 336Summary 337Review Questions 338Problems 338xv
xviContentsPART 6MARKET POWERCHARTER 11Monopoly 34534311-1 Causes of Monopoly 345Technical Barriers to Entry 345Legal Barriers to Entry 34611-2 Profit Maximization 346A Graphic Treatment 346Application 11.1: Should You Need a License to Shampoo a Dog? 347Monopoly Supply Curve? 348Monopoly Profits 34911-3 What's Wrong with Monopoly? 350Deadweight Loss 351Redistribution from Consumers to the Firm 351Application 11.2: Who Makes Money at Casinos? 352A Numerical Illustration of Deadweight Loss 353Buying a Monopoly Position 35411-4 Price Discrimination 355Perfect Price Discrimination 355Application 11.3: Financial Aid at Private Colleges 357Market Separation 358Nonlinear Pricing 359Application 11.4: Mickey Mouse Monopoly 362Durability 364Application 11.5: Bundling of Cable and Satellite Television Ojferings 36511-5 Natural Monopolies 366Marginal Cost Pricing and the Natural Monopoly Dilemma 367Two-Tier Pricing Systems 367Application 11.6: Does Anyone JJnderstand Telephone Pricing? 368Rate of Return Regulation 369Summary 369Review Questions 370Problems 370CHARTER 12Imperfect Competition37412-1 Overview: Pricing of Homogeneous Goods 374Competitive Outcome 374Perfect Cartel Outcome 375Other Possibilities 37612-2 Cournot Model 376Nash Equilibrium in the Cournot Model 377Application 12.1: Measuring Oligopoly Power 378Comparisons and Antitrust Considerations 380Generalizations 381Bertrand Model 381Application 12.2: Cournot in California 382Nash Equilibrium in the Bertrand Model 383Bertrand Paradox 384Capacity Choice and Cournot Equilibrium 384Comparing the Bertrand and Cournot Results 385
Contents12-3 Product Differentiation 385Market Definition 386Bertrand Model with Differentiated Products 386Application 12.3: Competition on the Beach 387Product Selection 388Search Costs 389Advertising 390Application 12.4: Searching the Internet 39112-4 Tacit Collusion 392Finite Time Horizon 392Application 12.5: The Great Electrical Equipment ConspiracyIndefinite Time Horizon 394Generalizations and Limitations 39512-5 Entry and Exit 396Sunk Costs and Commitment 396First-Mover Advantages 396Entry Deterrence 398A Numerical Example 398Limit Pricing 399Asymmetrie Information 400Predatory Pricing 401Application 12.6: The Standard Oil Legend 40212-6 Other Models of Imperfect Competition 403Price Leadership 403Monopolistic Competition 40412-7 Barriers to Entry 405Summary 406Review Questions 407Problems 407PART 7INPUT MARKETSCHARTER 13Pricing in Input Markets 41339313-1 Marginal Productivity Theory of Input Demand 413Profit-Maximizing Behavior and the Hiring oflnputs 413Price-Taking Behavior 414Marginal Revenue Product 414A Special Case—Marginal Value Product 41413-2 Responses to Changes in Input Prices 415Single Variable Input Case 415Application 13.1: Jet Fuel and Hybrid Seeds 416A Numerical Example 417Two-Variable Input Case 418Substitution Effect 418Output Effect 418Summary ofFirm's Demand for Labor 41913-3 Responsiveness of Input Demand to Input PriceChanges 420Ease of Substitution 420Costs and the Output Effect 42013-4 Input Supply 421411xvii
xviiiContentsApplication 13.2: Controversy over the Minimum Wage 422Labor Supply and Wages 42313-5 Equilibrium Input Price Determination 423Shifts in Demand and Supply 42313-6 Monopsony 425Marginal Expense 425A Numerical Illustration 425Application 13.3: Why Is Wage lnequality Increasing? 426Monopsonist's Input Choice 428A Graphical Demonstration 428Numerical Example Revisited 428Monopsonists and Resource Allocation 430Causes of Monopsony 430Application 13.4: Monopsony in the Market for Sports Stars 431Bilateral Monopoly 432Application 13.5: Superstars 433Summary 434Review Questions 434Problems 435Appendix to Chapter 13 Labor Supply 438A13-1 Allocation of Time 438A Simple Model of Time Use 438The Opportunity Cost of Leisure 439Application 13A.1: The Opportunity Cost of Time 440Utility Maximization 441A13-2 Income and Substitution Effects of a Change in the RealWage Rate 441A Graphical Analysis 442AI3-3 Market Supply Curve for Labor 442Application 13A.2: The Earned Income Tax Credit 444Summary 445CHAPTER 14Capital and Time44614-1 Time Periods and the Flow of Economic Transactions14-2 Individual Savings—The Supply of Loans 447Two-Period Model of Saving 447A Graphical Analysis 447A Numerical Example 448Substitution and Income Effects of a Change in r 44914-3 Firms' Demand for Capital and Loans 449Application 14.1: Do We Need Tax Breaks for Savers? 450Rental Rates and Interest Rates 451Ownership of Capital Equipment 45214-4 Determination of the Real Interest Rate 452Application 14.2: Do Taxes Affect Investment? 453Application 14.3: Usury 454Changes in the Real Interest Rate 45514-5 Present Discounted Value 455Application 14.4: The Real Interest Rate Paradox 456Single-Period Discounting 457446
Multiperiod Discounting 457Present Value and Economic Decisions 45814-6 Pricing of Exhaustible Resources 458Scarcity Costs 458Application 14.5: Discounting Cash Flows and Derivative Securities 459The Size of Scarcity Costs 460Application 14.6: Are Any Resources Scarce? 461Time Pattern of Resource Prices 462Summary 462Review Questions 463Problems 464Appendix to Chapter 14 Compound Interest 466A14-1 Interest 466A14-2 Compound Interest 466Interest for One Year 466Interest for Two Years 467Interest for Three Years 467A General Formula 467Compounding with Any Dollar Amount 468Application 14A.1: Compound Interest Gone Berserk 469A14-3 Present Discounted Value 469An Algebraic Definition 470General PDV Formulas 470A14-4 Discounting Payment Streams 471Application 14A.2: Zero-Coupon Bonds 472An Algebraic Presentation 473Perpetual Payments 474Varying Payment Streams 475Calculating Yields 475Reading Bond Tables 475A14-5 Frequency of Compounding 476Semiannual Compounding 476A General Treatment 477Real versus Nominal Interest Rates 477Application 14A.3: Continuous Compounding 478A14-6 The Present Discounted Value Approach to InvestmentDecisions 479Present Discounted Value and the Rental Rate 480Summary 480PART 8MARKET FAILURESCHAPTER 15Asymmetrie Information48348515-1 Principal-Agent Model 48515-2 Worker Moral Hazard 486Application 15.1: Principals and Agents in Franchising and Medicine 487Füll Information about Effort 488Unobservable Effort 489Problems with High-Powered Incentives 491Substitutes for High-Powered Incentives 492
xxContentsA Numerical Example 493Executives in the Firm 494Summing Up 495Application 15.2: The Good and Bad Effects of Stock Options 496Application 15.3: Moral Hazard in the Financial Crisis 49715-3 Private Information about Consumer Type 498One Consumer Type 498Two Consumer Types, Füll Information 499Two Consumer Types: Asymmetrie Information 499Examples 501Inefficiency with Hidden Types 503Adverse Selection in Warranties and Insurance 50415-4 Asymmetrie Information in Competitive Markets 504Moral Hazard with Several Agents 504Application 15.4: Adverse Selection in Insurance 505Auctions 506The Market for Lemons 50815-5 Signaling 509Spence Education Model 509Application 15.5: Looking for Lemons 510Separating Equilibrium 512Pooling Equilibria 513Predatory Pricing and Other Signaling Games 514Inefficiency in Signaling Games 514Summary 515Review Questions 515Problems 516CHARTER 16Externalities and Public Goods 51916-1 Defining Externalities 519Externalities between Firms 519Externalities between Firms and People 520Externalities between People 520Reciprocal Nature of Externalities 52016-2 Externalities and Allocational Efficiency 521A Graphical Demonstration 521Application 16.1: Secondhand Smoke 52216-3 Property Rights, Bargaining, and the Coase TheoremCostless Bargaining and Competitive Markets 524Ownership by the Polluting Firm 524Ownership by the Injured Firm 524The Coase Theorem 525Distributional Effects 525The Role of Transactions Costs 525Application 16.2: Property Rights and Nature 52616-4 Externalities with High Transactions Costs 527Legal Redress 527Taxation 527Application 16.3: Product Liability 528523
ContentsRegulation of Externalities 529Optimal Regulation 530Fees, Permits, and Direct Controls 53016-5 Public Goods 531Attributes of Public Goods 531Application 16.4: Power Plant Emissions and the Global WarmingDebate 532Nonexclusivity 534Nonrivalry 534Categories of Public Goods 53416-6 Public Goods and Market Failure 535A Graphical Demonstration 535Application 16.5: Ideas as Public Goods 53616-7 Solutions to the Public Goods Problem 538Nash Equilibrium and Underproduction 538Compulsory Taxation 538The Lindahl Equilibrium 53916-8 Revealing the Demand for Public Goods 540Local Public Goods 54016-9 Voting for Public Goods 540Application 16.6: Fund Raising on Public Broadcasting 541Majority Rule 542The Paradox of Voting 542Single-Peaked Preferences and the Median Voter Theorem 543Voting and Efficient Resource Allocation 544Representative Government and Bureaucracies 544Application 16.7: Referenda on Limiting Public Spending 545Summary 546Review Questions 546Problems 547CHARTER 17Behavioral Economics 55017-1 Should We Abandon Neoclassical Economics? 55017-2 Limits to Human Decision Making: An Overview 55117-3 Limited Cognitive Power 552Uncertainty 553Application 17.1: Household Finance 554Prospect Theory 556Framing 558Paradox of Choice 558Multiple Steps in Reasoning 559Evolution and Learning 561Application 17.2: Cold Movie Openings 562Self-Awareness 56317-4 Limited Willpower 563Application 17.3: Going for It on Fourth Down 564Application 17.4: Let's Make a Deal 565Flyperbolic Discounting 566Numerical Example 566xxi
xxiiContentsFurther Applications 568Commitment Strategies 569Application 17.5: "Put a Contract Out on Yourself" 57017-5 Limited Self-Interest 571Altruism 571Fairness 572Market versus Personal Dealings 57417-6 Policy Implications 575Borrowing and Savings Decisions 575Application 17.6: Late for Daycare Pickup 576Other Goods and Services 577Market Solutions 577"Nudging" the Market 578Summary 578Review Questions 579Problems 579Glossary583Solutions 588Brief Answers 608Index616
1 -3 Uses of Microeconomics 6 Application 1.1: Economics in the Natural World? 7 1-4 The Basic Supply-Demand Model 8 Application 1.2: Is It Worth Your Time to Be Here? 9 Application 1.3: The Rise and Fall of Blockbuster 10 Adam Smith and the Invisible Hand 11 David Ricardo and Diminishing Returns 11
