Daniel l. Rubinfeld

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Preface XXlll PART 1 Introduction: Markets and Prices 1 1 1.1 TIle TI1emes of Microeconomics 4 Theories alld Models 5 Positive I'CrSUS NOnlwtiI'e Allalysis 6 1.2 Wllat Is a Market 7 Competitive versus NOllcompetitive lvlarkets 8 Market Price 8 Market Definitioll-The Extellt of a Market 9 1.3 Real versus Nominal Prices 11 1.4 Why Study Microeconomics 15 Corporate Decision Making: Ford's Sport Wility Vehicles 15 Pllblic Policy Desigll: Automobile Emission Standards for the Twentyfirst Century 16 Summary 17 Questions for Review 17 Exercises 18 2 2.1 S·upply and Demand 20 The Supply ClLI"I'C 20 The Demand Curve 21 2.2 TI1e Market Mechanism 23 2.3 Changes in Market Equilibrium 24 2.4 Elasticities of Supply and Demand 30 2.5 Short-Rim versus long-Run Elasticities 35 Demalld 35 Supply 40 *2.6 Understanding and Predicting the Effects of Changing Market Conditions 44 2.7 Effects of Government Intervention-Price Controls 53 Summary 55 Questions for Review 56 Exercises 57 ix
x Contents Contents xi 2 Producers g Consumers g and Competitive Markets 59 3 4 Consumei' Behavior 61 3.1 Consumer Preferences 62 Market Baskets 62 Some Basic Assumptions About Preferences 63 Indifference Curves 64 Indifference Maps 66 The Shapes of Ind!fference Curves 67 The Marginal Rate of Substitution 68 Pelfeet Substitutes nIld Pelfeet Complements 69 3.2 Budget Constraints 75 The Budget Line 75 The £.ffects of Changes in Income and Prices 77 3.3 Consumer Choice 79 Comer Solutions 84 3.4 Revealed Preference 86 3.5 Marginal Utility and Consumer Choice 89 *3.6 Cost-of-Living Indexes 92 Ideal Cost-of-Living Index 93 Laspeyres Index 94 Paasche Index 95 Chain-Weighted Indexes 96 Summary 98 Questions for Review 99 Exercises 99 4.1 Individual Demand 102 Price Changes 102 The Individllal Demand Curve 102 Income Changes 104 NOn/wI versus Inferior Goods 106 Engel Curves 106 Substitutes and Complements 109 4.2 Income and Substitution Effects 110 Substitution Effect 111 Income Effect 112 A Special Case: The G!ffen Good 113 4.3 Market Demand 116 From Individual to Market Demand 116 Elasticity of Demand 117 4.4 Consumer Surplus 123 Consumer Surplus and Demand 123 4.5 Nehvork Externalities 127 The Ba/ldwago/l Effect 127 The Sl10b Effect 129 *4.6 Empirical Estimation of Demand 131 Illtervie1L' aild Experimelltal Approaches to Demalld Determinatioll 131 The Statistical Approach to Demalld Estimation 132 The Form of the Demand Relationship 133 Summary 135 Questions for Review 136 Exercises 136 Appendix to Chapter 4: Demand Theory-A Mathematical Treatment 139 Utility Maximization 139 The Method of Lagrange Multipliers 140 TIle Equal Marginal Principle 141 lvIarginal Rate of Substitutioll 141 Marginal Utility ~f Income 142 An Example 143 Duality ill COllsumer Theory 144 Illcome and Sllbstitution Effects 145 Exercises 147 5 Uncertainty 149 5.1 Describing Risk 150 Probability 150 Expected Value 150 Variability 151 Decision Making 153 5.2 Preferences TO'ward Risk 155 D!fferent Preferences Toward Risk 157 5.3 Reducing Risk 161 Diversification 161 Insurance 162 The Value ~f Information 164 *5.4 The Demand for Risky Assets 166 Assets 166 Risky and Riskless Assets 166 Asset Retllrns 167 The Trade-Off Between Risk and Return 168 The Investor's Choice Probleln 169 Summary 174 Questions for Review 175 Exercises 175 6 177 6.1 The Teclmology of Production 178 The Production Function 178 6.2 Isoquants 179 Input Flexibility 180 Tile Short Run versus the Long RUil 180 6.3 Production with One Variable Input (Labor) 181 Auernge and Marginal Products 182
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F PART 3 examines a broad range of
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Price Dollars per 7 I Unit of Outpu
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Daniel l. Rubinfeld

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