Price Theory and Applications: Decisions, Markets, and Information,9780521523424

Price Theory and Applications: Decisions, Markets, and Information

by
Edition: 7th
ISBN13: 9780521523424
ISBN10: 0521523427
Format: Paperback
Pub. Date: 2005-09-12
Publisher(s): Cambridge University Press
List Price: $85.00

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Summary

This new seventh edition of the book offers extensive discussion of information, uncertainty, and game theory. It contains over a hundred examples illustrating the applicability of economic analysis not only to mainline economic topics but also issues in politics, history, biology, the family, and many other areas. These discussions generally describe recent research published in scholarly books and articles, giving students a good idea of the scientific work done by professional economists. In addition, at appropriate places the text provides 'applications' representing more extended discussions of selected topics including rationing in wartime (Chapter 5), import quotas (Chapter 7), alleged monopolistic suppression of inventions (Chapter 9), minimum wage laws (Chapter 11), the effects of Social Security upon saving (Chapter 15), fair division of disrupted property (Chapter 16) and whether individuals should pay ransom to a kidnapper (Chapter 17).

Table of Contents

Preface xiii
PART ONE. INTRODUCTION
The Nature and Scope of Economics
3(24)
Economics as a Social Science
4(5)
``Economic Man''
9(7)
Rationality
9(3)
Human Goals -- The Self-Interest Assumption
12(4)
Ignorance and Uncertainty
16(1)
Market and Nonmarket Interactions
16(2)
Allocation by Prices -- The Market System
18(2)
Behavior within Organizations
20(1)
Positive and Normative Analysis: ``Is'' versus ``Ought''
20(1)
Elements of the Economic System
21(2)
Decision-Making Agents in the Economy
21(1)
Scarcity, Objects of Choice, and Economic Activities
22(1)
Microeconomics and Macroeconomics
23(4)
Summary
23(1)
Questions
24(3)
Working Tools
27(42)
Equilibrium: Supply-Demand Analysis
28(21)
Balancing Supply and Demand
28(2)
How Changes in Supply and Demand Affect Equilibrium
30(6)
Algebra of Supply-Demand Analysis
36(2)
An Application: Introducing a New Supply Source
38(1)
Taxes on Transactions
39(4)
An Application: Interdicting Supply
43(3)
Price Ceilings and Price Floors
46(3)
Finding an Optimum
49(20)
The Logic of Total, Average, and Marginal Concepts
50(4)
How Total, Average, and Marginal Magnitudes Are Related
54(5)
An Application: Foraging -- When Is It Time to Pack Up and Leave?
59(2)
Summary
61(1)
Questions
62(7)
PART TWO. PREFERENCE, CONSUMPTION, AND DEMAND
Utility and Preference
69(24)
The Laws of Preference
70(2)
Utility and Preference
72(7)
Cardinal versus Ordinal Utility
73(4)
Utility of Commodity Baskets
77(2)
Characteristics of Indifference Curves
79(4)
More on Goods and Bads
83(3)
An Application: Charity
85(1)
The Sources and Content of Preferences
86(7)
Summary
90(1)
Questions
90(3)
Consumption and Demand
93(34)
The Optimum of the Consumer
94(10)
The Geometry of Consumer Choice
94(3)
Optimum of the Consumer (Cardinal Utility)
97(3)
Optimum of the Consumer (Ordinal Utility)
100(4)
Complements and Substitutes
104(3)
The Consumer's Response to Changing Opportunities
107(8)
The Income Expansion Path
107(3)
The Engel Curve
110(2)
Price Expansion Path and Demand Curve
112(3)
Income and Substitution Effects of a Price Change
115(3)
An Application: How Can the Giffen Case Come About? How Likely Is It?
117(1)
From Individual Demand to Market Demand
118(2)
An Application: Subsidy versus Voucher
120(7)
Summary
122(2)
Questions
124(3)
Applications and Extensions of Demand Theory
127(30)
The Engel Curve and the Income Elasticity of Demand
128(4)
The Demand Curve and the Price Elasticity of Demand
132(4)
The Cross-Elasticity of Demand
136(1)
Fitting a Demand Curve
137(5)
Constant Slope versus Constant Elasticity
138(1)
General Demand Functions
139(3)
Determinants of Responsiveness of Demand to Price
142(2)
Multiple Constraints -- Rationing
144(13)
Coupon Rationing
144(2)
Point Rationing
146(5)
Summary
151(1)
Questions
152(5)
PART THREE. THE FIRM AND THE INDUSTRY
The Business Firm
157(34)
Why Firms? Entrepreneur, Owner, Manager
158(7)
Economic Profit versus Accounting Profit
160(1)
The Separation of Ownership and Control
160(5)
The Optimum of the Firm in Pure Competition
165(11)
The Shutdown Decision
172(2)
An Application: Division of Output among Plants
174(2)
Cost Functions
176(6)
Short Run versus Long Run
176(4)
Rising Costs and Diminishing Returns
180(2)
An Application: Peak versus Off-Peak Operation
182(9)
Summary
186(1)
Questions
187(4)
Equilibrium in the Product Market -- Competitive Industry
191(30)
The Supply Function
192(9)
From Firm Supply to Market Supply: The Short Run
192(3)
Long-Run and Short-Run Supply
195(4)
External Economies and Diseconomies
199(2)
Firm Survival and the Zero-Profit Theorem
201(2)
The Benefits of Exchange: Consumer Surplus and Producer Surplus
203(4)
An Application: The Water-Diamond Paradox
205(1)
An Application: Benefits of an Innovation
206(1)
Transaction Taxes and Other Hindrances to Trade
207(14)
Transaction Taxes
208(1)
Supply Quotas
209(1)
An Application: Import Quotas
210(3)
Price Ceilings and ``Shortages''
213(4)
Summary
217(1)
Questions
218(3)
Monopolies, Cartels, and Networks
221(36)
The Monopolist's Profit-Maximizing Optimum
222(9)
Price-Quantity Solution
222(4)
Monopoly versus Competitive Solutions
226(2)
An Application: Author versus Publisher
228(3)
An Application: Monopolist with Competitive Fringe
231(1)
Monopoly and Economic Efficiency
231(3)
Regulation of Monopoly
234(4)
Monopolistic Price Discrimination
238(6)
Market Segmentation
238(3)
Block Pricing
241(2)
Perfect Discrimination
243(1)
Cartels
244(4)
Network Externalities
248(9)
Demand for a Network Good
248(2)
Monopoly or Competition?
250(1)
The Lock-in Issue
250(3)
Summary
253(1)
Questions
254(3)
Product Quality and Product Variety
257(22)
Quality
258(8)
Quality under Competition and Monopoly
259(4)
An Application: Suppression of Inventions
263(2)
Cartels and Quality
265(1)
Variety
266(13)
Product Variety under Monopoly
268(2)
Blending Monopoly and Competition -- Monopolistic Competition
270(5)
Summary
275(1)
Questions
276(3)
Competition Among the Few: Oligopoly and Strategic Behavior
279(28)
Strategic Behavior: The Theory of Games
280(8)
Patterns of Payoffs
280(2)
An Application: Public Goods -- Two-Person versus Multiperson Prisoners' Dilemma
282(1)
Pure Strategies
283(3)
Mixed Strategies
286(2)
Duopoly -- Identical Products
288(9)
Quantity Competition
289(4)
Price Competition
293(2)
An Application: ``Most-Favored-Customer'' Clause
295(2)
Duopoly -- Differentiated Products
297(3)
Quantity Competition
297(1)
Price Competition
298(2)
Oligopoly, Collusion, and Numbers
300(7)
An Application: The ``Kinked'' Demand Curve
300(2)
Oligopoly and Numbers
302(2)
Summary
304(1)
Questions
304(3)
Dealing with Uncertainty -- The Economics of Risk and Information
307(32)
Decisions under Uncertainty
308(8)
Expected Gain versus Expected Utility
308(1)
Risk Aversion
309(3)
Risk-Bearing and Insurance
312(4)
The Value of Information
316(1)
Asymmetric Information
317(8)
Adverse Selection -- The Lemons Problem
317(4)
Conveying Quality through Reputation
321(2)
Do Prices Signal Quality? Information as a Public Good
323(2)
Conveying Information -- Advertising
325(1)
Herd Behavior and Informational Cascades
325(3)
Copyright, Patents, and Intellectual Property Rights
328(11)
Summary
332(2)
Questions
334(5)
PART FOUR. FACTOR MARKETS AND INCOME DISTRIBUTION
The Demand for Factor Services
339(36)
Production and Factor Employment with a Single Variable Input
340(9)
The Production Function
340(1)
Diminishing Returns
340(3)
From Production Function to Cost Function
343(2)
The Firm's Demand for a Single Variable Input
345(4)
Production and Factor Employment with Several Variable Inputs
349(13)
The Production Function
350(5)
Factor Balance and Factor Employment
355(3)
The Firm's Demand for Inputs
358(4)
The Industry's Demand for Inputs
362(2)
Monopsony in the Factor Market
364(2)
An Application: Minimum-Wage Laws
366(9)
Summary
371(2)
Questions
373(2)
Resource Supply and Factor-Market Equilibrium
375(34)
The Optimum of the Resource-Owner
376(9)
An Application: The Incentive Effects of ``Welfare'' and Social Security
382(3)
Personnel Economics: Managerial Applications of Employment Theory
385(5)
The Principal-Agent Problem
385(1)
Paying by the Piece
386(3)
Signalling
389(1)
Factor-Market Equilibrium
390(5)
From Individual Supply to Market Supply
390(1)
Demand and Supply Together
391(1)
An Application: Sources of Growing Wage Inequality
392(3)
Monopolies and Cartels in Factor Supply
395(2)
The ``Functional'' Distribution of Income
397(5)
The Traditional Classification: Land, Labor, and Capital
397(1)
Capital, Rate of Return, and Interest
398(4)
Economic Rent
402(7)
Summary
403(1)
Questions
404(5)
PART FIVE. EXCHANGE
Exchange, Transaction Costs, and Money
409(46)
Pure Exchange: The Edgeworth Box
410(6)
Supply and Demand in Pure Exchange
416(7)
An Application: Market Experiments in Economics
420(3)
Exchange and Production
423(7)
Imperfect Markets: Costs of Exchange
430(10)
How Perfect Are Markets?
430(3)
Proportional Transaction Costs
433(4)
Lump-Sum Transaction Costs
437(3)
The Role of Money
440(3)
Money as Medium of Exchange
440(2)
Money as Temporary Store of Value
442(1)
An Application: Auctions
443(12)
The English Auction
445(1)
Sealed-Bid Second-Price Auction
445(1)
Sealed-Bid First-Price Auction
445(1)
The Dutch Auction
446(2)
Summary
448(1)
Questions
449(6)
PART SIX. ECONOMICS AND TIME
The Economics of Time
455(42)
Present versus Future
456(3)
Consumption Choices over Time: Pure Exchange
459(5)
Borrowing-Lending Equilibrium with Zero Net Investment
459(2)
An Application: Double Taxation of Saving?
461(3)
Production and Consumption over Time: Saving and Investment
464(4)
Investment Decisions and Project Analysis
468(11)
The Separation Theorem
468(1)
The Present-Value Rule
469(6)
The Rate of Return (ROR) Rule
475(4)
Real Interest and Monetary Interest: Allowing for Inflation
479(3)
The Multiplicity of Interest Rates
482(4)
An Application: The Discount Rate for Project Analysis
485(1)
The Fundamentals of Investment, Saving, and Interest
486(11)
Summary
490(1)
Questions
491(6)
PART SEVEN. POLITICAL ECONOMY
Welfare Economics: The Market and the State
497(40)
Goals of Economic Policy
498(8)
Efficiency versus Equity
498(2)
Utilitarianism
500(1)
Efficiency as the Sum of Consumer Surplus and Producer Surplus
500(1)
Efficient Allocations in the Edgeworth Box
501(1)
``Equity'' Reconsidered
502(2)
An Application: How to Divide a Cake
504(2)
The Theorem of the Invisible Hand: The Role of Prices
506(2)
Efficient Consumption
506(1)
Efficient Production
506(1)
Efficient Balance between Production and Consumption
507(1)
``Market Failures''
508(7)
Monopoly
508(1)
Externalities
508(5)
The Coase Theorem
513(2)
The Commons: The Consequences of Unrestricted Access
515(3)
Public Goods
518(11)
Efficient Production and Consumption of Public Goods
518(3)
Voluntary Provision of Nonexcludable Public Goods -- Free-Riding
521(4)
An Extension: Weakest-Link versus Best-Shot Models of Public Goods
525(4)
Appropriative Activity and Rent-Seeking
529(8)
Summary
533(1)
Questions
534(3)
Government, Politics, and Conflict
537(30)
The Other Side of the Coin: Government Failures
538(5)
Corruption as Government Failure
538(1)
Political Competition and Its Limits
539(2)
Politics and Special Interests
541(2)
Voting as an Instrument of Control
543(7)
Majority and Minority -- ``Log-Rolling''
544(1)
The Cycling Paradox
545(1)
The Median-Voter Theorem
546(4)
Conflict and Cooperation
550(17)
Sources of Cooperation and Conflict
550(7)
Conflict and Game Theory
557(4)
An Application: Should You Pay Ransom?
561(2)
Summary
563(1)
Questions
564(3)
Answers to Selected Questions 567(30)
Name Index 597(4)
Subject Index 601

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