Test Bank for Microeconomics A

Modern Approach, 1st Edition

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 • ISBN-10 : 9780393919677
• ISBN-13 : 978-0393919677
Table contents:
1. The Market
Constructing a Model
Optimization and Equilibrium
The Demand Curve
The Supply Curve
Market Equilibrium
Comparative Statics
Other Ways to Allocate Apartments
The Discriminating Monopolist
The Ordinary Monopolist
Rent Control
Which Way Is Best?
Pareto Efficiency
Comparing Ways to Allocate Apartments
Equilibrium in the Long Run
Summary
Review Questions
2. Budget Constraint
The Budget Constraint
Two Goods Are Often Enough
Properties of the Budget Set
How the Budget Line Changes
The Numeraire
Taxes, Subsidies, and Rationing
Example: The Food Stamp Program
Budget Line Changes
Summary
Review Questions
3. Preferences
Consumer Preferences
Assumptions about Preferences
Indifference Curves
Examples of Preferences
Perfect Substitutes
Perfect Complements
Bads
Neutrals
Satiation
Discrete Goods
Well-Behaved Preferences
The Marginal Rate of Substitution
Other Interpretations of the MRS
Behavior of the MRS
Summary
Review Questions
4. Utility
Cardinal Utility
Constructing a Utility Function
Some Examples of Utility Functions
Example: Indifference Curves from Utility
Perfect Substitutes
Perfect Complements
Quasilinear Preferences
Cobb-Douglas Preferences
Marginal Utility
Marginal Utility and MRS
Example: Cobb-Douglas Preferences
Utility for Commuting
Summary
Review Questions
5. Choice
Optimal Choice
Consumer Demand
Some Examples
Perfect Substitutes
Perfect Complements
Neutrals and Bads
Discrete Goods
Concave Preferences
Solving the Preference Maximization Problem
Cobb-Douglas Preferences
Estimating Utility Functions
Implications of the MRS Condition
Choosing Taxes
Summary
Review Questions
6. Demand
Normal and Inferior Goods
Income Offer Curves and Engel Curves
Some Examples
Perfect Substitutes
Perfect Complements
Cobb-Douglas Preferences
Homothetic Preferences
Quasilinear Preferences
Ordinary Goods and Giffen Goods
The Price Offer Curve and the Demand Curve
Some Examples
Perfect Substitutes
Perfect Complements
A Discrete Good
Substitutes and Complements
The Inverse Demand Function
Summary
Review Questions
7. Revealed Preference
The Idea of Revealed Preference
From Revealed Preference to Preference
Recovering Preferences
The Weak Axiom of Revealed Preference
Checking WARP
The Strong Axiom of Revealed Preference
How to Check SARP
Index Numbers
Price Indices
Example: Indexing Social Security Payments
Summary
Review Questions
8. Slutsky Equation
The Substitution Effect
Example: Calculating the Substitution Effect
The Income Effect
Example: Calculating the Income Effect
Sign of the Substitution Effect
The Total Change in Demand
Rates of Change
The Law of Demand
Examples of Income and Substitution Effects
Example: Rebating a Tax
Example: Voluntary Real Time Pricing
Another Substitution Effect
Compensated Demand Curves
Summary
Review Questions
Appendix
Example: Rebating a Small Tax
9. Buying and Selling
Net and Gross Demands
The Budget Constraint
Changing the Endowment
Price Changes
Offer Curves and Demand Curves
The Slutsky Equation Revisited
Use of the Slutsky Equation
Example: Calculating the Endowment Income Effect
Labor Supply
The Budget Constraint
Comparative Statics of Labor Supply
Example: Overtime and the Supply of Labor
Summary
Review Questions
10. Intertemporal Choice
The Budget Constraint
Preferences for Consumption
Comparative Statics
The Slutsky Equation and Intertemporal Choice
Inflation
Present Value: A Closer Look
Analyzing Present Value for Several Periods
Present Value in Continuous Time
Use of Present Value
Example: Valuing a Stream of Payments
Example: The True Cost of a Credit Card
Example: Extending Copyright
Bonds
Example: Installment Loans
Taxes
Example: Scholarships and Savings
Choice of the Interest Rate
Summary
Review Questions
11. Asset Markets
Rates of Return
Arbitrage and Present Value
Adjustments for Differences among Assets
Assets with Consumption Returns
Taxation of Asset Returns
Market Bubbles
Applications
Depletable Resources
When to Cut a Forest
Example: Gasoline Prices during the Gulf War
Financial Institutions
Summary
Review Questions
Appendix
12. Uncertainty
Contingent Consumption
Example: Catastrophe Bonds
Utility Functions and Probabilities
Example: Some Examples of Utility Functions
Expected Utility
Why Expected Utility Is Reasonable
Risk Aversion
Example: The Demand for Insurance
Example: The Effect of Taxation on Investment in Risky Assets
Diversification
Risk Spreading
Role of the Stock Market
Summary
Review Questions
13. Risky Assets
Mean-Variance Utility
Measuring Risk
Counterparty Risk
Equilibrium in a Market for Risky Assets
How Returns Adjust
Example: Value at Risk
Example: Ranking Mutual Funds
Summary
Review Questions
14. Consumer’s Surplus
Demand for a Discrete Good
Constructing Utility from Demand
Other Interpretations of Consumer’s Surplus
From Consumer’s Surplus to Consumers’ Surplus
Approximating a Continuous Demand
Quasilinear Utility
Interpreting the Change in Consumer’s Surplus
Example: The Change in Consumer’s Surplus
Compensating and Equivalent Variation
Example: Compensating and Equivalent Variations
Example: Compensating and Equivalent Variation for Quasilinear Preferences
Producer’s Surplus
Benefit-Cost Analysis
Rationing
Calculating Gains and Losses
Summary
Review Questions
Appendix
Example: A Few Demand Functions
Example: CV, EV, and Consumer's Surplus
15. Market Demand
From Individual to Market Demand
The Inverse Demand Function
Example: Adding Up “Linear” Demand Curves
Discrete Goods
The Extensive and the Intensive Margin
Elasticity
Example: The Elasticity of a Linear Demand Curve
Elasticity and Demand
Elasticity and Revenue
Example: Strikes and Profits
Constant Elasticity Demands
Elasticity and Marginal Revenue
Example: Setting a Price
Marginal Revenue Curves
Income Elasticity
Summary
Review Questions
Appendix
Example: The Laffer Curve
Example: Another Expression for Elasticity
16. Equilibrium
Supply
Market Equilibrium
Two Special Cases
Inverse Demand and Supply Curves
Example: Equilibrium with Linear Curves
Comparative Statics
Example: Shifting Both Curves
Taxes
Example: Taxation with Linear Demand and Supply
Passing Along a Tax
The Deadweight Loss of a Tax
Example: The Market for Loans
Example: Food Subsidies
Example: Subsidies in Iraq
Pareto Efficiency
Example: Waiting in Line
Summary
Review Questions
17. Measurement
Summarize data
Example: Simpson’s paradox
Test
Estimating demand using experimental data
Effect of treatment
Estimating demand using observational data
Functional form
Statistical model
Estimation
Identification
What can go wrong?
Policy evaluation
Example: Crime and police
Summary
Review Questions
18. Auctions
Classification of Auctions
Bidding Rules
Auction Design
Example: Goethe’s auction
Other Auction Forms
Example: Late Bidding on eBay
Position Auctions
Two Bidders
More Than Two Bidders
Quality Scores
Should you advertise on your brand?
Auction revenue and number of bidders
Problems with Auctions
Example: Taking Bids Off the Wall
The Winner’s Curse
Stable Marriage Problem
Mechanism Design
Summary
Review Questions
19. Technology
Inputs and Outputs
Describing Technological Constraints
Examples of Technology
Fixed Proportions
Perfect Substitutes
Cobb-Douglas
Properties of Technology
The Marginal Product
The Technical Rate of Substitution
Diminishing Marginal Product
Diminishing Technical Rate of Substitution
The Long Run and the Short Run
Returns to Scale
Example: Datacenters
Example: Copy Exactly!
Summary
Review Questions
20. Profit Maximization
Profits
The Organization of Firms
Profits and Stock Market Value
The Boundaries of the Firm
Fixed and Variable Factors
Short-Run Profit Maximization
Comparative Statics
Profit Maximization in the Long Run
Example: Profit Maximization with Cobb-Douglas Production
Inverse Factor Demand Curves
Profit Maximization and Returns to Scale
Revealed Profitability
Example: How Do Farmers React to Price Supports?
Cost Minimization
Summary
Review Questions
21. Cost Minimization
Cost Minimization
Example: Minimizing Costs for Specific Technologies
Revealed Cost Minimization
Returns to Scale and the Cost Function
Long-Run and Short-Run Costs
Fixed and Quasi-Fixed Costs
Sunk Costs
Summary
Review Questions
22. Cost Curves
Average Costs
Marginal Costs
Marginal Costs and Variable Costs
Example: Specific Cost Curves
Example: Marginal Cost Curves for Two Plants
Cost Curves for Online Auctions
Long-Run Costs
Discrete Levels of Plant Size
Long-Run Marginal Costs
Summary
Review Questions
23. Firm Supply
Market Environments
Pure Competition
The Supply Decision of a Competitive Firm
An Exception
Another Exception
Example: Pricing Operating Systems
The Inverse Supply Function
Profits and Producer’s Surplus
Example: The Supply Curve for a Specific Cost Function
The Long-Run Supply Curve of a Firm
Long-Run Constant Average Costs
Summary
Review Questions
24. Industry Supply
Short-Run Industry Supply
Industry Equilibrium in the Short Run
Industry Equilibrium in the Long Run
The Long-Run Supply Curve
Example: Taxation in the Long Run and in the Short Run
The Meaning of Zero Profits
Fixed Factors and Economic Rent
Example: Taxi Licenses in New York City
Economic Rent
Rental Rates and Prices
Example: Liquor Licenses
The Politics of Rent
Example: Farming the Government
Energy Policy
Two-Tiered Oil Pricing
Price Controls
The Entitlement Program
Carbon Tax Versus Cap and Trade
Optimal Production of Emissions
A Carbon Tax
Cap and Trade
Summary
Review Questions
25. Monopoly
Maximizing Profits
Linear Demand Curve and Monopoly
Markup Pricing
Example: The Impact of Taxes on a Monopolist
Inefficiency of Monopoly
Deadweight Loss of Monopoly
Example: The Optimal Life of a Patent
Example: Patent Thickets
Example: Managing the Supply of Potatoes
Natural Monopoly
What Causes Monopolies?
Example: Diamonds Are Forever
Example: Pooling in Auction Markets
Example: Price Fixing in Computer Memory Markets
Summary
Review Questions
26. Monopoly Behavior
Price Discrimination
First-Degree Price Discrimination
Example: First-degree Price Discrimination in Practice
Second-Degree Price Discrimination
Example: Price Discrimination in Airfares
Example: Prescription Drug Prices
Third-Degree Price Discrimination
Example: Linear Demand Curves
Example: Calculating Optimal Price Discrimination
Example: Price Discrimination in Academic Journals
Bundling
Example: Software Suites
Two-Part Tariffs
Monopolistic Competition
A Location Model of Product Differentiation
Product Differentiation
More Vendors
Summary
Review Questions
27. Factor Markets
Monopoly in the Output Market
Monopsony
Example: The Minimum Wage
Upstream and Downstream Monopolies
Summary
Review Questions
28. Oligopoly
Choosing a Strategy
Example: Pricing Matching
Quantity Leadership
The Follower’s Problem
The Leader’s Problem
Price Leadership
Comparing Price Leadership and Quantity Leadership
Simultaneous Quantity Setting
An Example of Cournot Equilibrium
Adjustment to Equilibrium
Many Firms in Cournot Equilibrium
Simultaneous Price Setting
Collusion
Punishment Strategies
Example: Price Matching and Competition
Example: Voluntary Export Restraints
Comparison of the Solutions
Summary
Review Questions
29. Game Theory
The Payoff Matrix of a Game
Nash Equilibrium
Mixed Strategies
Example: Rock Paper Scissors
The Prisoner’s Dilemma
Repeated Games
Enforcing a Cartel
Example: Tit for Tat in Airline Pricing
Sequential Games
A Game of Entry Deterrence
Summary
Review Questions
30. Game Applications
Best Response Curves
Mixed Strategies
Games of Coordination
Battle of the Sexes
Prisoner’s Dilemma
Assurance Games
Chicken
How to Coordinate
Games of Competition
Games of Coexistence
Games of Commitment
The Frog and the Scorpion
The Kindly Kidnapper
When Strength Is Weakness
Savings and Social Security
Example: Dynamic inefficiency of price discrimination
Hold Up
Bargaining
The Ultimatum Game
Summary
Review Questions
31. Behavioral Economics
Framing Effects in Consumer Choice
The Disease Dilemma
Anchoring Effects
Bracketing
Too Much Choice
Constructed Preferences
Uncertainty
Law of Small Numbers
Asset Integration and Loss Aversion
Time
Discounting
Self-control
Example: Overconfidence
Strategic Interaction and Social Norms
Ultimatum Game
Fairness
Assessment of Behavioral Economics
Summary
Review Questions
32. Exchange
The Edgeworth Box
Trade
Pareto Efficient Allocations
Market Trade
The Algebra of Equilibrium
Walras’ Law
Relative Prices
Example: An Algebraic Example of Equilibrium
The Existence of Equilibrium
Equilibrium and Efficiency
The Algebra of Efficiency
Example: Monopoly in the Edgeworth Box
Efficiency and Equilibrium
Implications of the First Welfare Theorem
Implications of the Second Welfare Theorem
Summary
Review Questions
33. Production
The Robinson Crusoe Economy
Crusoe, Inc.
The Firm
Robinson’s Problem
Putting Them Together
Different Technologies
Production and the First Welfare Theorem
Production and the Second Welfare Theorem
Production Possibilities
Comparative Advantage
Pareto Efficiency
Castaways, Inc.
Robinson and Friday as Consumers
Decentralized Resource Allocation
Summary
Review Questions
34. Welfare
Aggregation of Preferences
Social Welfare Functions
Welfare Maximization
Individualistic Social Welfare Functions
Fair Allocations
Envy and Equity
Summary
Review Questions
35. Externalities
Smokers and Nonsmokers
Quasilinear Preferences and the Coase Theorem
Production Externalities
Example: Pollution Vouchers
Interpretation of the Conditions
Market Signals
Example: Bees and Almonds
The Tragedy of the Commons
Example: Overfishing
Example: New England Lobsters
Automobile Pollution
Summary
Review Questions
36. Information Technology
Systems Competition
The Problem of Complements
Relationships among Complementors
Example: Apple’s iPod and iTunes
Example: Who Makes an iPod?
Example: AdWords and AdSense
Lock-In
A Model of Competition with Switching Costs
Example: Online Bill Payment
Example: Number Portability on Cell Phones
Network Externalities
Markets with Network Externalities
Market Dynamics
Example: Network Externalities in Computer Software
Implications of Network Externalities
Example: The Yellow Pages
Example: Radio Ads
Two-sided Markets
A Model of Two-sided Markets
Rights Management
Example: Video Rental
Sharing Intellectual Property
Example: Online Two-sided Markets
Summary
Review Questions
37. Public Goods
When to Provide a Public Good?
Private Provision of the Public Good
Free Riding
Different Levels of the Public Good
Quasilinear Preferences and Public Goods
Example: Pollution Revisited
The Free Rider Problem
Comparison to Private Goods
Voting
Example: Agenda Manipulation
The Vickrey-Clarke-Groves Mechanism
Groves Mechanism
The VCG Mechanism
Examples of VCG
Vickrey Auction
Clarke-Groves Mechanism
Problems with the VCG
Summary
Review Questions
38. Asymmetric Information
The Market for Lemons
Quality Choice
Choosing the Quality
Adverse Selection
Moral Hazard
Moral Hazard and Adverse Selection
Signaling
Example: The Sheepskin Effect
Incentives
Example: Voting Rights in the Corporation
Example: Chinese Economic Reforms
Asymmetric Information
Example: Monitoring Costs
Example: The Grameen Bank
Summary
Review Questions
Mathematical Appendix
Functions
Graphs
Properties of Functions
Inverse Functions
Equations and Identities
Linear Functions
Changes and Rates of Change
Slopes and Intercepts
Absolute Values and Logarithms
Derivatives
Second Derivatives
The Product Rule and the Chain Rule
Partial Derivatives
Optimization
Constrained Optimization
Answers
Index