Test Bank for Microeconomic Theory Basic Principles and Extensions 12th Edition by Walter Nicholson, Christopher Snyder ISBN 1305505794 978-1305505797

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ISBN 10: 1305505794
ISBN 13:  978-1305505797
Author: Walter Nicholson, Christopher Snyder 

Now you can truly understand and apply the latest economic models as you work directly with theoretical tools, real-world applications, and the popular new behavioral economics in this reader-friendly, market-leading book. MICROECONOMIC THEORY: BASIC PRINCIPLES AND EXTENSIONS, 12E takes a calculus-based approach to provide the ideal level of mathematical rigor, whether you are an upper-level undergraduate or beginning graduate student. Insightful graphic presentations help you visually grasp the connections between the calculus and the algebraic and geometric approach to the same material. End-of-chapter problems present simple numerical/mathematical exercises, which strengthen your microeconomic intuition and are followed by more analytical, theoretical, behavioral, and complex problems. Unlike other more theoretical texts, MICROECONOMIC THEORY, 12E closely connects all theory to real applications in the world today.

Microeconomic Theory Basic Principles and Extensions 12th Table of contents:

Part 1. Introduction

Chapter 1. Economic Models

1.1. Theoretical Models

1.2. Verification of Economic Models

1.2.1. The Profit-Maximization Model

1.2.2. Testing Assumptions

1.2.3. Testing Predictions

1.2.4. Importance of Empirical Analysis

1.3. General Features of Economic Models

1.3.1. The Ceteris Paribus Assumption

1.4. Structure of Economic Models

1.4.1. Optimization Assumptions

1.4.2. Positive-Normative Distinction

1.5. Development of the Economic Theory of Value

1.5.1. Early Economic Thoughts on Value

1.5.2. The Founding of Modern Economics

1.5.3. Labor Theory of Exchange Value

1.5.4. The Marginalist Revolution

1.5.5. Marshallian Supply–Demand Synthesis

1.5.6. Paradox Resolved

1.5.7. General Equilibrium Models

1.5.8. Production Possibility Frontier

1.5.9. Welfare Economics

1.6. Modern Developments

1.6.1. The Mathematical Foundations of Economic Models

1.6.2. New Tools for Studying Markets

1.6.3. The Economics of Uncertainty and Information

1.6.4. Behavioral Economics

1.6.5. Computers and Empirical Analysis

Summary

Suggestions for Further Reading

Chapter 2. Mathematics for Microeconomics

2.1. Maximization of a Function of One Variable

2.1.1. Derivatives

2.1.2. Value of the Derivative at a Point

2.1.3. First-Order Condition for a Maximum

2.1.4. Second-Order Conditions

2.1.5. Second Derivatives

2.1.6. Rules for Finding Derivatives

2.2. Functions of Several Variables

2.2.1. Partial Derivatives

2.2.2. Calculating Partial Derivatives

2.2.3. Partial Derivatives and the Ceteris Paribus Assumption

2.2.4. Partial Derivatives and Units of Measurement

2.2.5. Elasticity—A General Definition

2.2.6. Second-Order Partial Derivatives

2.2.7. Young’s Theorem

2.2.8. Uses of Second-Order Partials

2.2.9. The Chain Rule with Many Variables

2.2.10. Implicit Functions

2.2.11. A Special Case—Comparative Statics Analysis

2.3. Maximization of Functions of Several Variables

2.3.1. First-Order Conditions for a Maximum

2.3.2. Second-Order Conditions

2.4. The Envelope Theorem

2.4.1. A Specific Example

2.4.2. A Direct, Time-Consuming Approach

2.4.3. The Envelope Shortcut

2.4.4. Many-Variable Case

2.5. Constrained Maximization

2.5.1. Lagrange Multiplier Method

2.5.2. The Formal Problem

2.5.3. First-Order Conditions

2.5.4. Interpretation of the Lagrange Multiplier

2.5.5. Lagrange Multiplier as a Benefit–Cost Ratio

2.5.6. Duality

2.6. Envelope Theorem in Constrained Maximization Problems

2.7. Inequality Constraints

2.7.1. A Two-Variable Example

2.7.2. Slack Variables

2.7.3. Solution Using Lagrange Multipliers

2.7.4. Complementary Slackness

2.8. Second-Order Conditions and Curvature

2.8.1. Functions of One Variable

2.8.2. Functions of Two Variables

2.8.3. An Intuitive Argument

2.8.4. A Formal Analysis

2.8.5. Concave Functions

2.8.6. Constrained Maximization

2.8.7. Quasi-Concave Functions

2.9. Homogeneous Functions

2.9.1. Homogeneity and Derivatives

2.9.2. Euler’s Theorem

2.9.3. Homothetic Functions

2.10. Integration

2.10.1. Antiderivatives

2.10.2. Calculating Antiderivatives

2.10.3. Definite Integrals

2.10.4. Fundamental Theorem of Calculus

2.10.5. Differentiating a Definite Integral

2.11. Dynamic Optimization

2.11.1. The Optimal Control Problem

2.11.2. The Maximum Principle

2.12. Mathematical Statistics

2.12.1. Random Variables and Probability Density Functions

2.12.2. Discrete and Continuous Random Variables

2.12.3. Probability Density Functions

2.12.4. A Few Important PDFs

2.12.5. Expected Value

2.12.6. Variance and Standard Deviation

2.12.7. Covariance

Summary

Problems

Suggestions for Further Reading

Extensions. Second-Order Conditions and Matrix Algebra

Part 2. Choice and Demand

Chapter 3. Preferences and Utility

3.1. Axioms of Rational Choice

3.2. Utility

3.2.1. Nonuniqueness of Utility Measures

3.2.2. The Ceteris Paribus Assumption

3.2.3. Utility from Consumption of Goods

3.2.4. Arguments of Utility Functions

3.2.5. Economic Goods

3.3. Trades and Substitution

3.3.1. Indifference Curves and the Marginal Rate of Substitution

3.3.2. Indifference Curve Map

3.3.3. Indifference Curves and Transitivity

3.3.4. Convexity of Indifference Curves

3.3.5. Convexity and Balance in Consumption

3.4. The Mathematics of Indifference Curves

3.4.1. The Marginal Rate of Substitution

3.4.2. Convexity of Indifference Curves

3.5. Utility Functions for Specific Preferences

3.5.1. Cobb–Douglas Utility

3.5.2. Perfect Substitutes

3.5.3. Perfect Complements

3.5.4. CES Utility

3.6. The Many-Good Case

3.6.1. The MRS with Many Goods

Summary

Problems

Suggestions for Further Reading

Extensions. Special Preferences

Chapter 4. Utility Maximization and Choice

4.1. An Initial Survey

4.1.1. A Numerical Illustration

4.2. The Two-Good Case: A Graphical Analysis

4.2.1. Budget Constraint

4.2.2. First-Order Conditions for a Maximum

4.2.3. Second-Order Conditions for a Maximum

4.2.4. Corner Solutions

4.3. The n-Good Case

4.3.1. First-Order Conditions

4.3.2. Implications of First-Order Conditions

4.3.3. Interpreting the Lagrange Multiplier

4.3.4. Corner Solutions

4.4. Indirect Utility Function

4.5. The Lump Sum Principle

4.6. Expenditure Minimization

4.6.1. A Mathematical Statement

4.7. Properties of Expenditure Functions

Summary

Problems

Suggestions for Further Reading

Extensions. Budget Shares

Chapter 5. Income and Substitution Effects

5.1. Demand Functions

5.1.1. Homogeneity

5.2. Changes in Income

5.2.1. Normal and Inferior Goods

5.3. Changes in a Good’s Price

5.3.1. Graphical Analysis of a Decrease in Price

5.3.2. Graphical Analysis of an Increase in Price

5.3.3. Effects of Price Changes for Inferior Goods

5.3.4. Giffen’s Paradox

5.3.5. A Summary

5.4. The Individual’s Demand Curve

5.4.1. Shifts in the Demand Curve

5.5. Compensated (Hicksian) Demand Curves and Functions

5.5.1. Shephard’s Lemma

5.5.2. Relationship between Compensated and Uncompensated Demand Curves

5.6. A Mathematical Development of Response to Price Changes

5.6.1. Direct Approach

5.6.2. Indirect Approach

5.6.3. The Substitution Effect

5.6.4. The Income Effect

5.6.5. The Slutsky Equation

5.6.6. Final Form of the Slutsky Equation

5.7. Demand Elasticities

5.7.1. Marshallian Demand Elasticities

5.7.2. Price Elasticity of Demand

5.7.3. Price Elasticity and Total Spending

5.7.4. Compensated Price Elasticities

5.7.5. Relationships Among Demand Elasticities

5.8. Consumer Surplus

5.8.1. Consumer Welfare and the Expenditure Function

5.8.2. Using the Compensated Demand Curve to Show CV

5.8.3. The Consumer Surplus Concept

5.8.4. Welfare Changes and the Marshallian Demand Curve

5.9. Revealed Preference and the Substitution Effect

5.9.1. Graphical Approach

5.9.2. Revealed Preference and the Negativity of the Substitution Effect

Summary

Problems

Suggestions for Further Reading

Extensions. Demand Concepts and the Evaluation of Price Indices

Chapter 6. Demand Relationships among Goods

6.1. The Two-Good Case

6.1.1. A Mathematical Treatment

6.2. Substitutes and Complements

6.2.1. Gross (Marshallian) Substitutes and Complements

6.2.2. Asymmetry of the Gross Definitions

6.3. Net (Hicksian) Substitutes and Complements

6.4. Substitutability with Many Goods

6.5. Composite Commodities

6.5.1. Composite Commodity Theorem

6.5.2. Generalizations and Limitations

6.6. Home Production, Attributes of Goods, and Implicit Prices

6.6.1. Household Production Model

6.6.2. The Linear Attributes Model

6.6.3. Illustrating the Budget Constraints

6.6.4. Corner Solutions

Summary

Problems

Suggestions for Further Reading

Extensions. Simplifying Demand and Two-Stage Budgeting

Part 3. Uncertainty and Strategy

Chapter 7. Uncertainty

7.1. Mathematical Statistics

7.2. Fair Gambles and the Expected Utility Hypothesis

7.2.1. St. Petersburg Paradox

7.3. Expected Utility

7.4. The Von Neumann–Morgenstern Theorem

7.4.1. The von Neumann–Morgenstern Utility Index

7.4.2. Expected Utility Maximization

7.5. Risk Aversion

7.5.1. Risk Aversion and Fair Gambles

7.5.2. Risk Aversion and Insurance

7.6. Measuring Risk Aversion

7.6.1. Risk Aversion and Insurance Premiums

7.6.2. Risk Aversion and Wealth

7.6.3. Relative Risk Aversion

7.7. Methods for Reducing Uncertainty and Risk

7.8. Insurance

7.9. Diversification

7.10. Flexibility

7.10.1. Types of Options

7.10.2. Model of Real Options

7.10.3. More Options Are Better (Typically)

7.10.4. Computing Option Value

7.10.5. Option Value of Delay

7.10.6. Implications for Cost–Benefit Analysis

7.11. Information

7.11.1. Information as a Good

7.11.2. Quantifying the Value of Information

7.12. The State-Preference Approach to Choice under Uncertainty

7.12.1. States of the World and Contingent Commodities

7.12.2. Utility Analysis

7.12.3. Prices of Contingent Commodities

7.12.4. Fair Markets for Contingent Goods

7.12.5. Risk Aversion

7.12.6. A Graphic Analysis

7.12.7. Risk Aversion and Risk Premiums

7.13. Asymmetry of Information

Summary

Problems

Suggestions for Further Reading

Extensions. The Portfolio Problem

Chapter 8. Game Theory

8.1. Basic Concepts

8.1.1. Players

8.1.2. Strategies

8.1.3. Payoffs

8.2. Prisoners’ Dilemma

8.2.1. Normal Form

8.2.2. Thinking Strategically about the Prisoners’ Dilemma

8.3. Nash Equilibrium

8.3.1. A Formal Definition

8.3.2. Nash Equilibrium in the Prisoners’ Dilemma

8.3.3. Underlining Best-Response Payoffs

8.3.4. Dominant Strategies

8.3.5. Battle of the Sexes

8.4. Mixed Strategies

8.4.1. Formal Definitions

8.4.2. Computing Mixed-Strategy Equilibria

8.5. Existence of Equilibrium

8.6. Continuum of Actions

8.6.1. Tragedy of the Commons

8.7. Sequential Games

8.7.1. Sequential Battle of the Sexes

8.7.2. Extensive Form

8.7.3. Nash Equilibria

8.7.4. Subgame-Perfect Equilibrium

8.7.5. Backward Induction

8.8. Repeated Games

8.8.1. Finitely Repeated Games

8.8.2. Infinitely Repeated Games

8.9. Incomplete Information

8.10. Simultaneous Bayesian Games

8.10.1. Player Types and Beliefs

8.10.2. Bayesian–Nash Equilibrium

8.11. Signaling Games

8.11.1. Job-Market Signaling

8.11.2. Bayes’ Rule

8.11.3. Perfect Bayesian Equilibrium

8.12. Experimental Games

8.12.1. Experiments with the Prisoners’ Dilemma

8.12.2. Experiments with the Ultimatum Game

8.12.3. Experiments with the Dictator Game

8.13. Evolutionary Games and Learning

Summary

Problems

Suggestions for Further Reading

Extensions. Existence of Nash Equilibrium

Part 4. Production and Supply

Chapter 9. Production Functions

9.1. Marginal Productivity

9.1.1. Marginal Physical Product

9.1.2. Diminishing Marginal Productivity

9.1.3. Average Physical Productivity

9.2. Isoquant Maps and the Rate of Technical Substitution

9.2.1. The Marginal Rate of Technical Substitution (RTS)

9.2.2. RTS and Marginal Productivities

9.2.3. Reasons for a Diminishing RTS

9.2.4. Importance of Cross-Productivity Effects

9.3. Returns to Scale

9.3.1. Constant Returns to Scale

9.3.2. Homothetic Production Functions

9.3.3. The n-Input Case

9.4. The Elasticity of Substitution

9.4.1. The n-Input Case

9.5. Four Simple Production Functions

9.5.1. Case 1: Linear ( σ = ∞ )

9.5.2. Case 2: Fixed Proportions ( σ = 0 )

9.5.3. Case 3: Cobb–Douglas ( σ = 1 )

9.5.4. Case 4: CES Production Function

9.6. Technical Progress

9.6.1. Measuring Technical Progress

9.6.2. Growth Accounting

Summary

Problems

Suggestions for Further Reading

Extensions. Many-Input Production Functions

Chapter 10. Cost Functions

10.1. Definitions of Costs

10.1.1. Labor Costs

10.1.2. Capital Costs

10.1.3. Costs of Entrepreneurial Services

10.1.4. Economic Costs

10.1.5. Simplifying Assumptions

10.2. Relationship between Profit Maximization and Cost Minimization

10.3. Cost-Minimizing Input Choices

10.3.1. Mathematical Analysis

10.3.2. Further Interpretations

10.3.3. Graphical Analysis

10.3.4. Contingent Demand for Inputs

10.3.5. Firm’s Expansion Path

10.4. Cost Functions

10.4.1. Average and Marginal Cost Functions

10.4.2. Graphical Analysis of Total Costs

10.4.3. Graphical Analysis of Average and Marginal Costs

10.5. Shifts in Cost Curves

10.5.1. Properties of Cost Functions

10.5.2. Input Substitution

10.5.3. Substitution with Many Inputs

10.5.4. Quantitative Size of Shifts in Cost Curves

10.5.5. Technical Change

10.5.6. Contingent Demand for Inputs and Shephard’s Lemma

10.5.7. Shephard’s Lemma and the Elasticity of Substitution

10.6. Short-Run, Long-Run Distinction

10.6.1. Short-Run Total Costs

10.6.2. Fixed and Variable Costs

10.6.3. Nonoptimality of Short-Run Costs

10.6.4. Short-Run Marginal and Average Costs

10.6.5. Relationship between Short-Run and Long-Run Cost Curves

10.6.6. Graphs of Per-Unit Cost Curves

10.6.7. Practical Examples of Fixed Costs

Summary

Problems

Suggestions for Further Reading

Extensions. The Translog Cost Function

Chapter 11. Profit Maximization

11.1. The Nature and Behavior of Firms

11.1.1. Simple Model of a Firm

11.1.2. Complicating Factors

11.1.3. Relationship to Consumer Theory

11.2. Profit Maximization

11.2.1. Profit Maximization and Marginalism

11.2.2. Output Choice

11.2.3. Second-Order Conditions

11.2.4. Graphical Analysis

11.3. Marginal Revenue

11.3.1. Marginal Revenue and Elasticity

11.3.2. Price–Marginal Cost Markup

11.3.3. Marginal Revenue Curve

11.4. Short-Run Supply by a Price-Taking Firm

11.4.1. Profit-Maximizing Decision

11.4.2. The Firm’s Short-Run Supply Curve

11.5. Profit Functions

11.5.1. Properties of the Profit Function

11.5.2. Envelope Results

11.5.3. Producer Surplus in the Short Run

11.6. Profit Maximization and Input Demand

11.6.1. Second-Order Conditions

11.6.2. Input Demand Functions

11.6.3. Single-Input Case

11.6.4. Two-Input Case

11.6.5. Substitution Effect

11.6.6. Output Effect

11.6.7. Cross-Price Effects

11.6.8. A Summary of Substitution and Output Effects

11.6.9. A Mathematical Development

Summary

Problems

Suggestions for Further Reading

Extensions. Boundaries of the Firm

Part 5. Competitive Markets

Chapter 12. The Partial Equilibrium Competitive Model

12.1. Market Demand

12.1.1. The Market Demand Curve

12.1.2. Shifts in the Market Demand Curve

12.1.3. Generalizations

12.1.4. A Simplified Notation

12.1.5. Elasticity of Market Demand

12.2. Timing of the Supply Response

12.3. Pricing in the Very Short Run

12.4. Short-Run Price Determination

12.4.1. Short-Run Market Supply Curve

12.4.2. Short-Run Market Supply

12.4.3. Short-Run Supply Elasticity

12.4.4. Equilibrium Price Determination

12.4.5. Market Reaction to a Shift in Demand

12.5. Shifts in Supply and Demand Curves: A Graphical Analysis

12.5.1. Shifts in Supply Curves: Importance of the Shape of the Demand Curve

12.5.2. Shifts in Demand Curves: Importance of the Shape of the Supply Curve

12.6. A Comparative Statics Model of Market Equilibrium

12.6.1. An Elasticity Interpretation

12.7. Long-Run Analysis

12.7.1. Equilibrium Conditions

12.8. Long-Run Equilibrium: Constant Cost Case

12.8.1. Initial Equilibrium

12.8.2. Responses to an Increase in Demand

12.8.3. Infinitely Elastic Supply

12.9. Shape of the Long-Run Supply Curve

12.9.1. Increasing Cost Industry

12.9.2. Decreasing Cost Industry

12.9.3. Classification of Long-Run Supply Curves

12.10. Long-Run Elasticity of Supply

12.10.1. Empirical Estimates

12.11. Comparative Statics Analysis of Long-Run Equilibrium

12.11.1. Industry Structure

12.11.2. Shifts in Demand

12.11.3. Changes in Input Costs

12.12. Producer Surplus in the Long Run

12.12.1. Ricardian Rent

12.12.2. Capitalization of Rents

12.12.3. Input Supply and Long-Run Producer Surplus

12.13. Economic Efficiency and Applied Welfare Analysis

12.13.1. A Graphic Proof

12.13.2. A Mathematical Proof

12.13.3. Applied Welfare Analysis

12.14. Price Controls and Shortages

12.14.1. Welfare Evaluation

12.14.2. Disequilibrium Behavior

12.15. Tax Incidence Analysis

12.15.1. A Comparative Statics Model of Tax Incidence

12.15.2. A Welfare Analysis

12.15.3. Deadweight Loss and Elasticity

12.15.4. Transaction Costs

12.15.5. Effects on the Attributes of Transactions

Summary

Problems

Suggestions for Further Reading

Extensions. Demand Aggregation and Estimation

Chapter 13. General Equilibrium and Welfare

13.1. Perfectly Competitive Price System

13.1.1. The Law of One Price

13.1.2. Behavioral Assumptions

13.2. A Graphical Model of General Equilibrium with Two Goods

13.2.1. General Equilibrium Demand

13.2.2. General Equilibrium Supply

13.2.3. Edgeworth Box Diagram for Production

13.2.4. Efficient Allocations

13.2.5. Production Possibility Frontier

13.2.6. Rate of Product Transformation

13.2.7. A Mathematical Derivation

13.2.8. Opportunity Cost and Supply

13.2.9. Determination of Equilibrium Prices

13.3. Comparative Statics Analysis

13.4. General Equilibrium Modeling and Factor Prices

13.4.1. The Corn Laws Debate

13.4.2. Trade and Factor Prices

13.4.3. Political Support for Trade Policies

13.5. A Mathematical Model of Exchange

13.5.1. Vector Notation

13.5.2. Utility, Initial Endowments, and Budget Constraints

13.5.3. Demand Functions and Homogeneity

13.5.4. Equilibrium and Walras’ Law

13.5.5. Existence of Equilibrium in the Exchange Model

13.5.6. First Theorem of Welfare Economics

13.5.7. A Graphic Illustration of the First Theorem

13.5.8. Second Theorem of Welfare Economics

13.5.9. Social Welfare Functions

13.6. A Mathematical Model of Production and Exchange

13.6.1. Budget Constraints and Walras’ Law

13.6.2. Walrasian Equilibrium

13.6.3. Welfare Economics in the Walrasian Model with Production

13.7. Computable General Equilibrium Models

13.7.1. Structure of General Equilibrium Models

13.7.2. Solving General Equilibrium Models

13.7.3. Economic Insights from General Equilibrium Models

Summary

Problems

Suggestions for Further Reading

Extensions. Computable General Equilibrium Models

Part 6. Market Power

Chapter 14. Monopoly

14.1. Barriers to Entry

14.1.1. Technical Barriers

14.1.2. Legal Barriers

14.1.3. Barriers Erected by the Monopolist

14.2. Profit Maximization and Output Choice

14.2.1. The Inverse Elasticity Rule, Again

14.2.2. Monopoly Profits

14.2.3. There Is No Monopoly Supply Curve

14.3. Misallocated Resources under Monopoly

14.3.1. Basis of Comparison

14.3.2. A Graphical Analysis

14.4. Comparative Statics Analysis of Monopoly

14.5. Monopoly Product Quality

14.5.1. A Formal Treatment of Quality

14.5.2. Product Durability

14.6. Price Discrimination

14.6.1. Perfect Price Discrimination

14.6.2. Price Discrimination across Segmented Markets

14.7. Price Discrimination through Non-Uniform Schedules

14.7.1. Two-Part Tariffs

14.7.2. Dynamic Price Discrimination and the Coase Conjecture

14.8. Regulation of Monopoly

14.8.1. Marginal Cost Pricing and the Natural Monopoly Dilemma

14.8.2. Two-Tier Pricing Systems

14.8.3. Rate of Return Regulation

14.8.4. A Formal Model

14.9. Dynamic Views of Monopoly

Summary

Problems

Suggestions for Further Reading

Extensions. Optimal Linear Two-Part Tariffs

Chapter 15. Imperfect Competition

15.1. Short-Run Decisions: Pricing and Output

15.2. Bertrand Model

15.2.1. Nash Equilibrium of the Bertrand Game

15.2.2. Bertrand Paradox

15.3. Cournot Model

15.3.1. Nash Equilibrium of the Cournot Game

15.3.2. Varying the Number of Cournot Firms

15.3.3. Prices or Quantities?

15.4. Capacity Constraints

15.5. Product Differentiation

15.5.1. Meaning of “the Market”

15.5.2. Bertrand Competition with Differentiated Products

15.5.3. Consumer Search and Price Dispersion

15.6. Tacit Collusion

15.6.1. Finitely Repeated Game

15.6.2. Infinitely Repeated Game

15.7. Longer-Run Decisions: Investment, Entry, and Exit

15.7.1. Flexibility versus Commitment

15.7.2. Sunk Costs

15.7.3. First-Mover Advantage in the Stackelberg Model

15.7.4. Contrast with Price Leadership

15.8. Strategic Entry Deterrence

15.9. Signaling

15.9.1. Entry-Deterrence Model

15.9.2. Separating Equilibrium

15.9.3. Pooling Equilibrium

15.9.4. Predatory Pricing

15.10. How Many Firms Enter?

15.10.1. Barriers to Entry

15.10.2. Long-Run Equilibrium

15.10.3. Feedback Effect

15.11. Innovation

15.11.1. Monopoly on Innovation

15.11.2. Competition for Innovation

Summary

Problems

Suggestions for Further Reading

Extensions. Strategic Substitutes and Complements

Part 7. Pricing in Input Markets

Chapter 16. Labor Markets

16.1. Allocation of Time

16.1.1. Simple Two-Good Model

16.1.2. Utility Maximization

16.1.3. Income and Substitution Effects of a Change In w

16.1.4. A Graphical Analysis

16.2. A Mathematical Analysis of Labor Supply

16.2.1. Dual to the Labor Supply Problem

16.2.2. Slutsky Equation for Labor Supply

16.3. Market Supply Curve for Labor

16.4. Labor Market Equilibrium

16.5. Wage Variation

16.5.1. Human Capital

16.5.2. Compensating Wage Differentials

16.5.3. Job Search

16.6. Monopsony in the Labor Market

16.6.1. Graphical Analysis

16.7. Labor Unions

16.7.1. Unions’ Goals

Summary

Problems

Suggestions for Further Reading

Chapter 17. Capital and Time

17.1. Capital and the Rate of Return

17.1.1. Rate of Return

17.2. Determining the Rate of Return

17.2.1. Rate of Return and Price of Future Goods

17.2.2. Demand for Future Goods

17.2.3. Utility Maximization

17.2.4. Effects of Changes in r

17.2.5. Supply of Future Goods

17.2.6. Equilibrium Price of Future Goods

17.2.7. The Equilibrium Rate of Return

17.2.8. Rate of Return, Real Interest Rates, and Nominal Interest Rates

17.3. Pricing of Risky Assets

17.3.1. Risk-Free Rate of Return

17.3.2. Systematic and Idiosyncratic Risk

17.4. The Firm’s Demand for Capital

17.4.1. Determinants of Market Rental Rates

17.4.2. Nondepreciating Machines

17.4.3. Ownership of Machines

17.4.4. Theory of Investment

17.5. Present Discounted Value Criterion

17.5.1. A Simple Case

17.6. Natural Resource Pricing

17.6.1. Profit-Maximizing Pricing and Output

17.6.2. Generalizing the Model

Summary

Problems

Suggestions for Further Reading

Appendix to Chapter Seventeen. The Mathematics of Compound Interest

Part 8. Market Failure

Chapter 18. Asymmetric Information

18.1. Complex Contracts as a Response to Asymmetric Information

18.1.1. Asymmetric Information

18.1.2. The Value of Contracts

18.2. Principal-Agent Model

18.2.1. Two Leading Models

18.2.2. First, Second, and Third Best

18.3. Hidden Actions

18.4. Owner-Manager Relationship

18.4.1. First Best (Full-Information Case)

18.4.2. Second Best (Hidden-Action Case)

18.4.3. Comparison to Standard Model of the Firm

18.5. Moral Hazard in Insurance

18.5.1. Mathematical Model

18.5.2. First-Best Insurance Contract

18.5.3. Second-Best Insurance Contract

18.5.4. Competitive Insurance Market

18.6. Hidden Types

18.7. Nonlinear Pricing

18.7.1. Mathematical Model

18.7.2. First-Best Nonlinear Pricing

18.7.3. Second-Best Nonlinear Pricing

18.7.4. Continuum of Types

18.8. Adverse Selection in Insurance

18.8.1. First Best

18.8.2. Second Best

18.8.3. Competitive Insurance Market

18.9. Market Signaling

18.9.1. Signaling in Competitive Insurance Markets

18.9.2. Market for Lemons

18.10. Auctions

Summary

Problems

Suggestions for Further Reading

Extensions. Using Experiments to Measure Asymmetric-Information Problems

Chapter 19. Externalities and Public Goods

19.1. Defining Externalities

19.1.1. Externalities in Production

19.1.2. Beneficial Externalities

19.1.3. Externalities in Consumption

19.1.4. Externalities from Public Goods

19.2. Externalities and Allocative Inefficiency

19.2.1. Finding the Efficient Allocation

19.2.2. Inefficiency of the Competitive Allocation

19.3. Partial-Equilibrium Model of Externalities

19.4. Solutions to Negative Externality Problems

19.4.1. Pigovian Tax

19.4.2. Taxation in the General-Equilibrium Model

19.4.3. Pollution Rights

19.4.4. The Coase Theorem

19.5. Attributes of Public Goods

19.5.1. Nonexclusivity

19.5.2. Nonrivalry

19.5.3. Typology of Public Goods

19.6. Public Goods and Resource Allocation

19.6.1. Failure of a Competitive Market

19.6.2. Inefficiency of a Nash Equilibrium

19.7. Lindahl Pricing of Public Goods

19.7.1. Shortcomings of the Lindahl Solution

19.7.2. Local Public Goods

19.8. Voting and Resource Allocation

19.8.1. Majority Rule

19.8.2. The Paradox of Voting

19.8.3. Single-Peaked Preferences and the Median Voter Theorem

19.9. A Simple Political Model

19.9.1. The Median Voter Equilibrium

19.9.2. Optimality of the Median Voter Result

19.10. Voting Mechanisms

19.10.1. The Groves Mechanism

19.10.2. The Clarke Mechanism

19.10.3. Generalizations

Summary

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