Son of the Morning Star: Custer and the Little Bighorn

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. Cover......Page 1 Brief Contents ......Page 11 Contents ......Page 13 Preface......Page 21 Part 1: Introduction......Page 25 1.1 Theoretical Models......Page 27 1.2 Verification Of Economic Models......Page 28 1.3 General Features Of Economic Models......Page 29 1.4 Structure Of Economic Models......Page 30 1.5 Development Of The Economic Theory Of Value......Page 33 1.6 Modern Developments......Page 42 Summary......Page 43 Suggestions For Further Reading......Page 44 2.1 Maximization Of A Function Of One Variable......Page 45 2.2 Functions Of Several Variables......Page 50 2.3 Maximization Of Functions Of Several Variables......Page 58 2.4 The Envelope Theorem......Page 60 2.5 Constrained Maximization......Page 64 2.6 Envelope Theorem In Constrained Maximization Problems......Page 69 2.7 Inequality Constraints......Page 70 2.8 Second-Order Conditions And Curvature......Page 72 2.9 Homogeneous Functions......Page 79 2.10 Integration......Page 82 2.11 Dynamic Optimization......Page 87 2.12 Mathematical Statistics......Page 91 Summary......Page 100 Problems......Page 101 Suggestions For Further Reading......Page 105 Extensions: Second-Order Conditions and Matrix Algebra......Page 106 Part 2: Choice And Demand......Page 111 3.1 Axioms Of Rational Choice......Page 113 3.2 Utility......Page 114 3.3 Trades And Substitution......Page 116 3.4 The Mathematics Of Indifference Curves......Page 123 3.5 Utility Functions For Specific Preferences......Page 126 3.6 The Many-Good Case......Page 130 Problems......Page 131 Suggestions For Further Reading......Page 134 Extensions: Special Preferences......Page 135 Chapter 4: Utility Maximization And Choice......Page 139 4.1 An Initial Survey......Page 140 4.2 The Two-Good Case: A Graphical Analysis......Page 141 4.3 The n-Good Case......Page 144 4.4 Indirect Utility Function......Page 150 4.5 The Lump Sum Principle......Page 151 4.6 Expenditure Minimization......Page 153 4.7 Properties Of Expenditure Functions......Page 156 Problems......Page 158 Suggestions For Further Reading......Page 161 Extensions: Budget Shares......Page 162 5.1 Demand Functions......Page 165 5.2 Changes In Income......Page 167 5.3 Changes In A Good’s Price......Page 169 5.4 The Individual’s Demand Curve......Page 172 5.5 Compensated (Hicksian) Demand Curves And Functions......Page 175 5.6 A Mathematical Development Of Response To Price Changes......Page 180 5.7 Demand Elasticities......Page 183 5.8 Consumer Surplus......Page 190 5.9 Revealed Preference And The Substitution Effect......Page 195 Problems......Page 197 Suggestions For Further Reading......Page 200 Extensions: Demand Concepts and the Evaluation of Price Indices......Page 202 6.1 The Two-Good Case......Page 207 6.2 Substitutes And Complements......Page 210 6.3 Net (Hicksian) Substitutes And Complements......Page 212 6.4 Substitutability With Many Goods......Page 213 6.5 Composite Commodities......Page 214 6.6 Home Production, Attributes Of Goods, And Implicit Prices......Page 217 Summary......Page 220 Problems......Page 221 Extensions: Simplifying Demand and Two-Stage Budgeting......Page 226 Part 3: Uncertainty And Strategy......Page 229 7.1 Mathematical Statistics......Page 231 7.2 Fair Gambles And The Expected Utility Hypothesis......Page 232 7.3 Expected Utility......Page 233 7.4 The Von Neumann–Morgenstern Theorem......Page 234 7.5 Risk Aversion......Page 236 7.6 Measuring Risk Aversion......Page 240 7.8 Insurance......Page 245 7.9 Diversification......Page 246 7.10 Flexibility......Page 247 7.11 Information......Page 254 7.12 The State-Preference Approach To Choice Under Uncertainty......Page 255 Summary......Page 261 Problems......Page 262 Suggestions For Further Reading......Page 265 Extensions: The Portfolio Problem......Page 266 8.1 Basic Concepts......Page 271 8.2 Prisoners’ Dilemma......Page 272 8.3 Nash Equilibrium......Page 274 8.4 Mixed Strategies......Page 280 8.5 Existence Of Equilibrium......Page 284 8.6 Continuum Of Actions......Page 285 8.7 Sequential Games......Page 287 8.8 Repeated Games......Page 294 8.10 Simultaneous Bayesian Games......Page 297 8.11 Signaling Games......Page 302 8.12 Experimental Games......Page 308 8.13 Evolutionary Games And Learning......Page 310 Problems......Page 311 Suggestions For Further Reading......Page 314 Extensions: Existence of Nash Equilibrium......Page 315 Part 4: Production And Supply......Page 319 9.1 Marginal Productivity......Page 321 9.2 Isoquant Maps And The Rate Of Technical Substitution......Page 324 9.3 Returns To Scale......Page 328 9.4 The Elasticity Of Substitution......Page 331 9.5 Four Simple Production Functions......Page 334 9.6 Technical Progress......Page 338 Summary......Page 342 Problems......Page 343 Suggestions For Further Reading......Page 345 Extensions: Many-Input Production Functions......Page 346 10.1 Definitions Of Costs......Page 349 10.2 Relationship Between Profit Maximization And Cost Minimization......Page 351 10.3 Cost-Minimizing Input Choices......Page 352 10.4 Cost Functions......Page 357 10.5 Shifts In Cost Curves......Page 361 10.6 Short-Run, Long-Run Distinction......Page 372 Summary......Page 380 Problems......Page 381 Extensions: The Translog Cost Function......Page 384 11.1 The Nature And Behavior Of Firms......Page 387 11.2 Profit Maximization......Page 389 11.3 Marginal Revenue......Page 391 11.4 Short-Run Supply By A Price-Taking Firm......Page 396 11.5 Profit Functions......Page 400 11.6 Profit Maximization And Input Demand......Page 405 Problems......Page 412 Suggestions For Further Reading......Page 416 Extensions: Boundaries of the Firm......Page 417 Part 5: Competitive Markets......Page 423 12.1 Market Demand......Page 425 12.3 Pricing In The Very Short Run......Page 429 12.4 Short-Run Price Determination......Page 431 12.5 Shifts In Supply And Demand Curves: A Graphical Analysis......Page 436 12.6 A Comparative Statics Model Of Market Equilibrium......Page 438 12.7 Long-Run Analysis......Page 442 12.8 Long-Run Equilibrium: Constant Cost Case......Page 443 12.9 Shape Of The Long-Run Supply Curve......Page 445 12.11 Comparative Statics Analysis Of Long-Run Equilibrium......Page 448 12.12 Producer Surplus In The Long Run......Page 452 12.13 Economic Efficiency And Applied Welfare Analysis......Page 455 12.14 Price Controls And Shortages......Page 458 12.15 Tax Incidence Analysis......Page 459 Problems......Page 464 Suggestions For Further Reading......Page 468 Extensions: Demand Aggregation and Estimation......Page 469 13.1 Perfectly Competitive Price System......Page 473 13.2 A Graphical Model Of General Equilibrium With Two Goods......Page 474 13.3 Comparative Statics Analysis......Page 484 13.4 General Equilibrium Modeling And Factor Prices......Page 486 13.5 A Mathematical Model Of Exchange......Page 488 13.6 A Mathematical Model Of Production And Exchange......Page 499 13.7 Computable General Equilibrium Models......Page 502 Summary......Page 506 Problems......Page 507 Suggestions For Further Reading......Page 510 Extensions: Computable General Equilibrium Models......Page 511 Part 6: Market Power......Page 513 14.1 Barriers To Entry......Page 515 14.2 Profit Maximization And Output Choice......Page 517 14.3 Misallocated Resources Under Monopoly......Page 522 14.4 Comparative Statics Analysis Of Monopoly......Page 525 14.5 Monopoly Product Quality......Page 526 14.6 Price Discrimination......Page 528 14.7 Price Discrimination Through Non-Uniform Schedules......Page 534 14.8 Regulation Of Monopoly......Page 537 14.9 Dynamic Views Of Monopoly......Page 540 Problems......Page 542 Suggestions For Further Reading......Page 546 Extensions: Optimal Linear Two-Part Tariffs......Page 547 15.1 Short-Run Decisions: Pricing And Output......Page 549 15.2 Bertrand Model......Page 551 15.3 Cournot Model......Page 552 15.4 Capacity Constraints......Page 558 15.5 Product Differentiation......Page 559 15.6 Tacit Collusion......Page 565 15.7 Longer-Run Decisions: Investment, Entry, And Exit......Page 569 15.8 Strategic Entry Deterrence......Page 574 15.9 Signaling......Page 576 15.10 How Many Firms Enter?......Page 579 15.11 Innovation......Page 583 Summary......Page 585 Problems......Page 586 Suggestions For Further Reading......Page 589 Extensions: Strategic Substitutes and Complements......Page 591 Part 7: Pricing In Input Markets......Page 597 16.1 Allocation Of Time......Page 599 16.2 A Mathematical Analysis Of Labor Supply......Page 602 16.3 Market Supply Curve For Labor......Page 606 16.4 Labor Market Equilibrium......Page 607 16.5 Wage Variation......Page 609 16.6 Monopsony In The Labor Market......Page 613 16.7 Labor Unions......Page 616 Problems......Page 619 Suggestions For Further Reading......Page 622 17.1 Capital And The Rate Of Return......Page 623 17.2 Determining The Rate Of Return......Page 625 17.3 Pricing Of Risky Assets......Page 632 17.4 The Firm’s Demand For Capital......Page 634 17.5 Present Discounted Value Criterion......Page 637 17.6 Natural Resource Pricing......Page 641 Problems......Page 644 Suggestions For Further Reading......Page 647 17a.1 Present Discounted Value......Page 649 17a.2 Continuous Time......Page 651 Part 8: Market Failure......Page 655 18.1 Complex Contracts As A Response To Asymmetric Information......Page 657 18.2 Principal-Agent Model......Page 659 18.3 Hidden Actions......Page 661 18.4 Owner-Manager Relationship......Page 662 18.5 Moral Hazard In Insurance......Page 666 18.6 Hidden Types......Page 671 18.7 Nonlinear Pricing......Page 672 18.8 Adverse Selection In Insurance......Page 682 18.9 Market Signaling......Page 689 18.10 Auctions......Page 691 Problems......Page 695 Suggestions For Further Reading......Page 698 Extensions: Using Experiments to Measure Asymmetric-Information Problems......Page 699 19.1 Defining Externalities......Page 707 19.2 Externalities And Allocative Inefficiency......Page 709 19.3 Partial-Equilibrium Model Of Externalities......Page 713 19.4 Solutions To Negative Externality Problems......Page 715 19.5 Attributes Of Public Goods......Page 719 19.6 Public Goods And Resource Allocation......Page 721 19.7 Lindahl Pricing Of Public Goods......Page 725 19.8 Voting And Resource Allocation......Page 728 19.9 A Simple Political Model......Page 730 19.10 Voting Mechanisms......Page 733 Summary......Page 734 Problems......Page 735 Suggestions For Further Reading......Page 737 Extensions: Pollution Abatement......Page 739 Brief Answers to Queries......Page 741 Solutions to Odd-Numbered Problems......Page 751 Glossary of Frequently Used Terms......Page 765 Index......Page 773