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• Half Title
• Pearson’s Commitment to Accessibility
• Title Page
• Copyright
• Brief Contents
• Contents
• Preface
• Chapter 1. Introduction
• 1.1 Microeconomics: The Allocation of Scarce Resources
• Trade-Offs
• Who Makes the Decisions
• Prices Determine Allocations
• Application: Twinkie Tax
• 1.2 Models
• Application: Income Threshold Model and China
• Simplifications by Assumption
• Testing Theories
• Maximizing Subject to Constraints
• Positive Versus Normative
• 1.3 Uses of Microeconomic Models in Your Life and Career
• How Individuals, Firms, and Government Agencies Use Microeconomics
• What You Will Learn
• Career Skills
• Key Terms
• Summary
• Chapter 2. Supply and Demand
• Challenge: Quantities and Prices of Genetically Modified Foods
• 2.1 Demand
• The Demand Curve
• The Demand Function
• Solved Problem 2.1
• Summing Demand Curves
• Application: Aggregating Corn Demand Curves
• 2.2 Supply
• The Supply Curve
• The Supply Function
• Summing Supply Curves
• How Government Import Policies Affect Supply Curves
• Solved Problem 2.2
• 2.3 Market Equilibrium
• Using a Graph to Determine the Equilibrium
• Using Math to Determine the Equilibrium
• Forces That Drive the Market to Equilibrium
• Application: Speed of Adjustment to New Information
• 2.4 Shocking the Equilibrium
• Effects of a Shock to the Supply Curve
• Solved Problem 2.3
• Application: The Opioid Epidemic Reduces Labor-Market Participation
• Effects of a Shock to the Demand Curve
• 2.5 Effects of Government Interventions
• Policies That Shift Supply Curves
• Application: Occupational Licensing
• Solved Problem 2.4
• Policies That Cause the Quantity Demanded to Differ from the Quantity Supplied
• Application: Venezuelan Price Ceilings and Shortages
• Solved Problem 2.5
• Why the Quantity Supplied Need Not Equal the Quantity Demanded
• 2.6 When to Use the Supply-and-Demand Model
• Challenge Solution: Quantities and Prices of Genetically Modified Foods
• Key Terms
• Summary
• Questions
• Chapter 3. Applying the Supply-and- Demand Model
• Challenge: Who Pays the Gasoline Tax?
• 3.1 How Shapes of Supply and Demand Curves Matter
• 3.2 Sensitivity of the Quantity Demanded to Price
• Price Elasticity of Demand
• Solved Problem 3.1
• Application: The Demand Elasticities for Google Play and Apple Apps
• Elasticity Along the Demand Curve
• Demand Elasticity and Revenue
• Solved Problem 3.2
• Application: Amazon Prime
• Demand Elasticities over Time
• Other Demand Elasticities
• Application: Anti-Smoking Policies May Reduce Drunk Driving
• 3.3 Sensitivity of the Quantity Supplied to Price
• Elasticity of Supply
• Elasticity Along the Supply Curve
• Supply Elasticities over Time
• Application: Oil Drilling in the Arctic National Wildlife Refuge
• Solved Problem 3.3
• 3.4 Effects of a Sales Tax
• Effects of a Specific Tax on the Equilibrium
• The Equilibrium Is the Same No Matter Whom the Government Taxes
• Solved Problem 3.4
• Firms and Customers Share the Burden of the Tax
• Application: Taxes to Prevent Obesity
• Solved Problem 3.5
• Ad Valorem and Specific Taxes Have Similar Effects
• Solved Problem 3.6
• Subsidies
• Application: Subsidizing Ethanol
• Challenge Solution: Who Pays the Gasoline Tax?
• Key Terms
• Summary
• Questions
• Chapter 4. Consumer Choice
• Challenge: Why Americans Buy More Ebooks Than Do Germans
• 4.1 Preferences
• Application: Testosterone and Luxury Goods
• Properties of Consumer Preferences
• Preference Maps
• Solved Problem 4.1
• Application: Indifference Curves Between Food and Clothing
• 4.2 Utility
• Utility Function
• Ordinal Preferences
• Utility and Indifference Curves
• Marginal Utility
• Utility and Marginal Rates of Substitution
• 4.3 Budget Constraint
• Slope of the Budget Constraint
• Application: Droughts
• Solved Problem 4.2
• Effect of a Change in Price on the Opportunity Set
• Effect of a Change in Income on the Opportunity Set
• Solved Problem 4.3
• 4.4 Constrained Consumer Choice
• The Consumer’s Optimal Bundle
• Application: The Trade-Off Between Alcohol and Marijuana
• Solved Problem 4.4
• Solved Problem 4.5
• Optimal Bundles on Convex Sections of Indifference Curves
• Buying Where More Is Better
• Application: Can Money Buy Happiness?
• Food Stamps
• Application: Benefiting from Food Stamps
• 4.5 Behavioral Economics
• Tests of Transitivity
• Endowment Effect
• Application: How You Ask a Question Matters
• Salience and Bounded Rationality
• Application: Unaware of Taxes
• Challenge Solution: Why Americans Buy More Ebooks Than Do Germans
• Key Terms
• Summary
• Questions
• Chapter 5. Applying Consumer Theory
• Challenge: Per-Hour Versus Lump-Sum Childcare Subsidies
• 5.1 Deriving Demand Curves
• Indifference Curves and a Rotating Budget Line
• Price-Consumption Curve
• Application: Cigarettes Versus E-Cigarettes
• The Demand Curve Corresponds to the Price-Consumption Curve
• Solved Problem 5.1
• 5.2 How Changes in Income Shift Demand Curves
• Effects of a Rise in Income
• Solved Problem 5.2
• Consumer Theory and Income Elasticities
• Application: Fast-Food Engel Curve
• 5.3 Effects of a Price Change
• Income and Substitution Effects with a Normal Good
• Solved Problem 5.3
• Solved Problem 5.4
• Income and Substitution Effects with an Inferior Good
• Solved Problem 5.5
• Compensating Variation and Equivalent Variation
• Application: Compensating Variation and Equivalent Variation for Smartphones and Facebook
• 5.4 Cost-of-Living Adjustments
• Inflation Indexes
• Effects of Inflation Adjustments
• Application: Paying Employees to Relocate
• 5.5 Deriving Labor Supply Curves
• Labor-Leisure Choice
• Income and Substitution Effects
• Solved Problem 5.6
• Application: Fracking Causes Students to Drop Out
• Solved Problem 5.7
• The Shape of the Labor Supply Curve
• Application: Working After Winning the Lottery
• Income Tax Rates and Labor Supply
• Challenge Solution: Per-Hour Versus Lump-Sum Childcare Subsidies
• Key Terms
• Summary
• Questions
• Chapter 6. Firms and Production
• Challenge: More Productive Workers During Downturns
• 6.1 The Ownership and Management of Firms
• Private, Public, and Nonprofit Firms
• Application: Chinese State-Owned Enterprises
• The Ownership of For-Profit Firms
• The Management of Firms
• What Owners Want
• 6.2 Production
• Production Functions
• Time and the Variability of Inputs
• 6.3 Short-Run Production
• Total Product
• Marginal Product of Labor
• Solved Problem 6.1
• Average Product of Labor
• Graphing the Product Curves
• Law of Diminishing Marginal Returns
• Application: Malthus and the Green Revolution
• 6.4 Long-Run Production
• Isoquants
• Application: Self-Driving Trucks
• Substituting Inputs
• Solved Problem 6.2
• 6.5 Returns to Scale
• Constant, Increasing, and Decreasing Returns to Scale
• Solved Problem 6.3
• Application: Returns to Scale in Various Industries
• Varying Returns to Scale
• 6.6 Productivity and Technical Change
• Relative Productivity
• Innovations
• Application: Restaurant Robots
• Application: A Good Boss Raises Productivity
• Challenge Solution: More Productive Workers During Downturns
• Key Terms
• Summary
• Questions
• Chapter 7. Costs
• Challenge: Technology Choice at Home Versus Abroad
• 7.1 The Nature of Costs
• Opportunity Costs
• Application: The Opportunity Cost of an MBA
• Solved Problem 7.1
• Opportunity Cost of Capital
• Sunk Costs
• 7.2 Short-Run Costs
• Short-Run Cost Measures
• Application: The Sharing Economy and the Short Run
• Short-Run Cost Curves
• Production Functions and the Shape of Cost Curves
• Application: A Beer Manufacturer’s Short-Run Cost Curves
• Effects of Taxes on Costs
• Solved Problem 7.2
• Short-Run Cost Summary
• 7.3 Long-Run Costs
• All Costs Are Avoidable in the Long Run
• Minimizing Cost
• Isocost Line
• Combining Cost and Production Information
• Solved Problem 7.3
• Factor Price Changes
• Solved Problem 7.4
• The Long-Run Expansion Path and the Long-Run Cost Function
• Solved Problem 7.5
• The Shape of Long-Run Cost Curves
• Application: 3D Printing
• Estimating Cost Curves Versus Introspection
• 7.4 Lower Costs in the Long Run
• Long-Run Average Cost as the Envelope of Short-Run Average Cost Curves
• Application: A Beer Manufacturer’s Long-Run Cost Curves
• Application: Should You Buy an Inkjet or a Laser Printer?
• Short-Run and Long-Run Expansion Paths
• The Learning Curve
• Application: Solar Power Learning Curves
• 7.5 Cost of Producing Multiple Goods
• Challenge Solution: Technology Choice at Home Versus Abroad
• Key Terms
• Summary
• Questions
• Chapter 8. Competitive Firms and Markets
• Challenge: The Rising Cost of Keeping On Truckin’
• 8.1 Perfect Competition
• Price Taking
• Why the Firm’s Demand Curve Is Horizontal
• Deviations from Perfect Competition
• Derivation of a Competitive Firm’s Demand Curve
• Solved Problem 8.1
• Why We Study Perfect Competition
• 8.2 Profit Maximization
• Profit
• Two Decisions for Maximizing Profit
• 8.3 Competition in the Short Run
• Short-Run Output Decision
• Solved Problem 8.2
• Short-Run Shutdown Decision
• Application: Fracking and Shutdowns
• Solved Problem 8.3
• Short-Run Firm Supply Curve
• Short-Run Market Supply Curve
• Short-Run Competitive Equilibrium
• Solved Problem 8.4
• 8.4 Competition in the Long Run
• Long-Run Competitive Profit Maximization
• Long-Run Firm Supply Curve
• Application: The Size of Ethanol Processing Plants
• Long-Run Market Supply Curve
• Application: Industries with High Entry and Exit Rates
• Application: Upward-Sloping Long-Run Supply Curve for Cotton
• Application: Reformulated Gasoline Supply Curves
• Solved Problem 8.5
• Long-Run Competitive Equilibrium
• Challenge Solution: The Rising Cost of Keeping On Truckin’
• Key Terms
• Summary
• Questions
• Chapter 9. Applying the Competitive Model
• Challenge: Liquor Licenses
• 9.1 Zero Profit for Competitive Firms in the Long Run
• Zero Long-Run Profit with Free Entry
• Zero Long-Run Profit When Entry Is Limited
• Application: The Value of a Celebrity’s Name
• The Need to Maximize Profit
• 9.2 Consumer Welfare
• Measuring Consumer Welfare Using a Demand Curve
• Application: Willingness to Pay on eBay
• Effect of a Price Change on Consumer Surplus
• Application: Goods with a Large Consumer Surplus Loss from Price Increases
• Solved Problem 9.1
• 9.3 Producer Welfare
• Measuring Producer Surplus Using a Supply Curve
• Using Producer Surplus
• Solved Problem 9.2
• 9.4 Competition Maximizes Welfare
• Measuring Welfare
• Why Producing Less Than the Competitive Output Lowers Welfare
• Solved Problem 9.3
• Application: Deadweight Loss of Christmas Presents
• 9.5 Policies That Shift Supply and Demand Curves
• Entry Barrier
• Application: Welfare Effects of Allowing Fracking
• 9.6 Policies That Create a Wedge Between Supply and Demand Curves
• Welfare Effects of a Sales Tax
• Application: The Deadweight Loss from Gas Taxes
• Solved Problem 9.4
• Welfare Effects of a Subsidy
• Solved Problem 9.5
• Welfare Effects of a Price Floor
• Solved Problem 9.6
• Application: Who Gets Farm Subsidies?
• Welfare Effects of a Price Ceiling
• Solved Problem 9.7
• Application: The Social Cost of a Natural Gas Price Ceiling
• 9.7 Comparing Both Types of Policies: Imports
• Free Trade Versus a Ban on Imports
• Application: Russian Food Ban
• Free Trade Versus a Tariff
• A Tariff Versus a Quota
• Rent Seeking
• Challenge Solution: Liquor Licenses
• Key Terms
• Summary
• Questions
• Chapter 10. General Equilibrium and Economic Welfare
• Challenge: Natural Disasters and Anti-Price Gouging Laws
• 10.1 General Equilibrium
• Feedback Between Competitive Markets
• Solved Problem 10.1
• Minimum Wages with Incomplete Coverage
• Solved Problem 10.2
• Application: Urban Flight
• 10.2 Trading Between Two People
• Endowments
• Mutually Beneficial Trades
• Solved Problem 10.3
• Bargaining Ability
• 10.3 Competitive Exchange
• Competitive Equilibrium
• The Efficiency of Competition
• Obtaining Any Efficient Allocation Using Competition
• 10.4 Production and Trading
• Comparative Advantage
• Solved Problem 10.4
• Efficient Product Mix
• Competition
• 10.5 Efficiency and Equity
• Role of the Government
• Application: Extremely Unequal Wealth
• Efficiency
• Equity
• Application: How You Vote Matters
• Efficiency Versus Equity
• Challenge Solution Natural Disasters and Anti-Price Gouging Laws
• Key Terms
• Summary
• Questions
• Chapter 11. Monopoly
• Challenge: Brand-Name and Generic Drugs
• 11.1 Monopoly Profit Maximization
• Marginal Revenue
• Solved Problem 11.1
• Choosing Price or Quantity
• Graphical Approach
• Application: Taylor Swift Concert Pricing
• Solved Problem 11.2
• Mathematical Approach
• Application: Apple’s iPad
• Solved Problem 11.3
• Effects of a Shift of the Demand Curve
• 11.2 Market Power
• Market Power and the Shape of the Demand Curve
• Application: Cable Cars and Profit Maximization
• Lerner Index
• Solved Problem 11.4
• Sources of Market Power
• 11.3 Market Failure Due to Monopoly Pricing
• Solved Problem 11.5
• 11.4 Causes of Monopoly
• Cost-Based Monopoly
• Solved Problem 11.6
• Government Creation of a Monopoly
• Application: Botox Patent Monopoly
• 11.5 Government Actions That Reduce Market Power
• Regulating Monopolies
• Solved Problem 11.7
• Application: Natural Gas Regulation
• Increasing Competition
• Application: Movie Studios Attacked by 3D Printers!
• Solved Problem 11.8
• 11.6 Internet Monopolies: Network Effects, Behavioral Economics, and Economies of Scale
• Network Externalities
• Application: Critical Mass and eBay
• Introductory Prices: A Two-Period Monopoly Model
• Two-Sided Markets
• Economies of Scale on the Internet
• Disruptive Technologies
• Challenge Solution Brand-Name and Generic Drugs
• Key Terms
• Summary
• Questions
• Chapter 12. Pricing and Advertising
• Challenge: Sale Prices
• 12.1 Conditions for Price Discrimination
• Why Price Discrimination Pays
• Application: Disneyland Pricing
• Which Firms Can Price Discriminate
• Preventing Resale
• Application: Preventing Resale of Designer Bags
• Not All Price Differences Are Price Discrimination
• Types of Price Discrimination
• 12.2 Perfect Price Discrimination
• How a Firm Perfectly Price Discriminates
• Perfect Price Discrimination Is Efficient but Harms Some Consumers
• Application: Botox and Price Discrimination
• Solved Problem 12.1
• Application: Google Uses Bidding for Ads to Price Discriminate
• Transaction Costs and Perfect Price Discrimination
• 12.3 Group Price Discrimination
• Application: Tesla Price Discriminates
• Solved Problem 12.2
• Prices and Elasticities
• Solved Problem 12.3
• Preventing Resale
• Application: Age Discrimination
• Solved Problem 12.4
• Identifying Groups
• Application: Buying Discounts
• Welfare Effects of Group Price Discrimination
• 12.4 Nonlinear Price Discrimination
• 12.5 Two-Part Pricing
• Two-Part Pricing with Identical Customers
• Two-Part Pricing with Nonidentical Consumers
• Application: iTunes for a Song
• 12.6 Tie-In Sales
• Requirement Tie-In Sale
• Application: Ties That Bind
• Bundling
• Solved Problem 12.5
• 12.7 Advertising
• The Decision Whether to Advertise
• How Much to Advertise
• Application: Super Bowl Commercials
• Challenge Solution: Sale Prices
• Key Terms
• Summary
• Questions
• Chapter 13. Oligopoly and Monopolistic Competition
• Challenge: Government Aircraft Subsidies
• 13.1 Market Structures
• 13.2 Cartels
• Why Cartels Form
• Why Cartels Fail
• Laws Against Cartels
• Application: Signaling Drug Price Increases
• Maintaining Cartels
• Application: The Apple-Google-Intel-Adobe- Intuit-Lucasfilm-Pixar Wage Cartel
• Mergers
• Application: Airline Mergers
• 13.3 Cournot Oligopoly
• The Duopoly Nash-Cournot Equilibrium
• Equilibrium, Elasticity, and the Number of Firms
• Application: Mobile Number Portability
• Nonidentical Firms
• Solved Problem 13.1
• Application: How Do Costs, Price Markups, and Profits Vary Across Airlines?
• Solved Problem 13.2
• Application: Rising Market Power
• 13.4 Stackelberg Oligopoly
• Graphical Model
• Solved Problem 13.3
• Why Moving Sequentially Is Essential
• Comparison of Competitive, Stackelberg, Cournot, and Collusive Equilibria
• 13.5 Bertrand Oligopoly
• Identical Products
• Differentiated Products
• Application: Differentiating Bottled Water Through Marketing
• 13.6 Monopolistic Competition
• Application: Monopolistically Competitive Food Truck Market
• Equilibrium
• Solved Problem 13.4
• Fixed Costs and the Number of Firms
• Solved Problem 13.5
• Application: Entry Cost and the Number of Dentists
• Challenge Solution: Government Aircraft Subsidies
• Key Terms
• Summary
• Questions
• Chapter 14. Game Theory
• Challenge: Intel’s and AMD’s Advertising Strategies
• 14.1 Static Games
• Normal-Form Games
• Failure to Maximize Joint Profits
• Application: Strategic Advertising
• Multiple Equilibria
• Solved Problem 14.1
• Mixed Strategies
• Application: Boomerang Generation
• Solved Problem 14.2
• 14.2 Repeated Dynamic Games
• Strategies and Actions in Dynamic Games
• Cooperation in a Repeated Prisoners’ Dilemma Game
• Solved Problem 14.3
• 14.3 Sequential Dynamic Games
• Game Tree
• Subgame Perfect Nash Equilibrium
• Credibility
• Dynamic Entry Game
• Solved Problem 14.4
• Application: Keeping Out Casinos
• Solved Problem 14.5
• Disadvantages of Moving First
• Application: Venezuelan Nationalization
• Too-Early Product Innovation
• Application: Advantages and Disadvantages of Moving First
• 14.4 Auctions
• Elements of Auctions
• Bidding Strategies in Private-Value Auctions
• Winner’s Curse
• 14.5 Behavioral Game Theory
• Application: GM’s Ultimatum
• An Experiment
• Reciprocity
• Challenge Solution: Intel’s and AMD’s Advertising Strategies
• Key Terms
• Summary
• Questions
• Chapter 15. Factor Markets
• Challenge: Athletes’ Salaries and Ticket Prices
• 15.1 Competitive Factor Market
• Short-Run Factor Demand of a Firm
• Solved Problem 15.1
• Solved Problem 15.2
• Application: The Black Death Increased Wages
• Long-Run Factor Demand
• Factor Market Demand
• Competitive Factor Market Equilibrium
• 15.2 Effects of Monopolies on Factor Markets
• Market Structure and Factor Demands
• A Model of Market Power in Input and Output Markets
• Solved Problem 15.3
• 15.3 Monopsony
• Monopsony Profit Maximization
• Application: Monopsony in U.S. Labor Markets
• Welfare Effects of Monopsony
• Solved Problem 15.4
• Challenge Solution: Athletes’ Salaries and Ticket Prices
• Key Terms
• Summary
• Questions
• Chapter 16. Interest Rates, Investments, and Capital Markets
• Challenge: Does Going to College Pay?
• 16.1 Comparing Money Today to Money in the Future
• Interest Rates
• Using Interest Rates to Connect the Present and Future
• Application: Power of Compounding
• Stream of Payments
• Solved Problem 16.1
• Application: Saving for Retirement
• Inflation and Discounting
• Application: Winning the Lottery
• 16.2 Choices over Time
• Investing
• Solved Problem 16.2
• Solved Problem 16.3
• Rate of Return on Bonds
• Behavioral Economics: Time-Varying Discounting
• Application: Falling Discount Rates and Self-Control
• 16.3 Exhaustible Resources
• When to Sell an Exhaustible Resource
• Price of a Scarce Exhaustible Resource
• Application: Redwood Trees
• Why Price May Be Constant or Fall
• 16.4 Capital Markets, Interest Rates, and Investments
• Solved Problem 16.4
• Challenge Solution: Does Going to College Pay?
• Key Terms
• Summary
• Questions
• Chapter 17. Uncertainty
• Challenge BP and Limited Liability
• 17.1 Assessing Risk
• Probability
• Application: Risk of a Cyberattack
• Expected Value
• Solved Problem 17.1
• Variance and Standard Deviation
• 17.2 Attitudes Toward Risk
• Expected Utility
• Risk Aversion
• Solved Problem 17.2
• Application: Stocks’ Risk Premium
• Risk Neutrality
• Risk Preference
• Application: Gambling
• 17.3 Reducing Risk
• Just Say No
• Obtain and Use Information
• Diversify
• Application: Failing to Diversify
• Buy Insurance
• Solved Problem 17.3
• Application: Flight Insurance
• Application: Flooded by Insurance Claims
• 17.4 Investing Under Uncertainty
• Risk-Neutral Investing
• Risk-Averse Investing
• Solved Problem 17.4
• 17.5 Behavioral Economics of Uncertainty
• Biased Assessment of Probabilities
• Application: Biased Estimates
• Violations of Expected Utility Theory
• Prospect Theory
• Application: Loss Aversion Contracts
• Challenge Solution: BP and Limited Liability
• Key Terms
• Summary
• Questions
• Chapter 18. Externalities, Open-Access, and Public Goods
• Challenge: Trade and Pollution
• 18.1 Externalities
• Application: Negative Externalities from Spam
• 18.2 The Inefficiency of Competition with Externalities
• Application: Global Warming
• 18.3 Regulating Externalities
• Emissions Standard
• Emissions Fee
• Solved Problem 18.1
• Application: Taxing Driving
• Benefits Versus Costs from Controlling Pollution
• Application: Protecting Babies and Grandparents
• 18.4 Market Structure and Externalities
• Monopoly and Externalities
• Monopoly Versus Competitive Welfare with Externalities
• Taxing Externalities in Noncompetitive Markets
• Solved Problem 18.2
• 18.5 Allocating Property Rights to Reduce Externalities
• Coase Theorem
• Application: Buying a Town
• Markets for Pollution
• Application: Acid Rain Cap-and-Trade Program
• Markets for Positive Externalities
• 18.6 Rivalry and Exclusion
• Open-Access Common Property
• Application: Road Congestion
• Club Goods
• Application: Software Piracy
• Public Goods
• Solved Problem 18.3
• Application: Free Riding on Measles and COVID-19 Vaccinations
• Application: Ending Disney’s Positive Externality
• Challenge Solution: Trade and Pollution
• Key Terms
• Summary
• Questions
• Chapter 19. Asymmetric Information
• Challenge: Dying to Work
• 19.1 Adverse Selection
• Insurance Markets
• Products of Unknown Quality
• Solved Problem 19.1
• Solved Problem 19.2
• 19.2 Reducing Adverse Selection
• Equalizing Information
• Application: Discounts for Data
• Application: Adverse Selection and Remanufactured Goods
• Restricting Opportunistic Behavior
• 19.3 Price Discrimination Due to False Beliefs About Quality
• Application: Reducing Consumers’ Information
• 19.4 Market Power from Price Ignorance
• Tourist-Trap Model
• Solved Problem 19.3
• Advertising and Prices
• 19.5 Problems Arising from Ignorance When Hiring
• Cheap Talk
• Application: Cheap Talk in eBay’s Best Offer Market
• Education as a Signal
• Solved Problem 19.4
• Screening in Hiring
• Challenge Solution: Dying to Work
• Key Terms
• Summary
• Questions
• Chapter 20. Contracts and Moral Hazards
• Challenge: Clawing Back Bonuses
• 20.1 The Principal-Agent Problem
• Efficiency
• Symmetric Information
• Asymmetric Information
• Solved Problem 20.1
• Application: Honest Cabbie?
• 20.2 Using Contracts to Reduce Moral Hazard
• Fixed-Fee Contracts
• Contingent Contracts
• Application: Health Insurance and Moral Hazard
• Solved Problem 20.2
• Solved Problem 20.3
• Application: Sing for Your Supper
• Solved Problem 20.4
• Choosing the Best Contract
• 20.3 Monitoring to Reduce Moral Hazard
• Bonding
• Solved Problem 20.5
• Application: Capping Oil and Gas Bankruptcies
• Deferred Payments
• Efficiency Wages
• Application: Walmart’s Efficiency Wages
• Monitoring Outcomes
• 20.4 Checks on Principals
• Application: Layoffs Versus Pay Cuts
• 20.5 Contract Choice
• Challenge Solution: Clawing Back Bonuses
• Key Terms
• Summary
• Questions
• Chapter Appendixes
• Appendix 2A: Regressions
• Appendix 3A: Effects of a Specific Tax on Equilibrium
• Appendix 4A: Utility and Indifference Curves
• Appendix 4B: Maximizing Utility
• Appendix 5A: The Slutsky Equation
• Appendix 5B: Labor-Leisure Model
• Appendix 6A: Properties of Marginal and Average Product Curves
• Appendix 6B: The Slope of an Isoquant
• Appendix 6C: Cobb-Douglas Production Function
• Appendix 7A: Minimum of the Average Cost Curve
• Appendix 7B: Japanese Beer Manufacturer’s Short-Run Cost Curves
• Appendix 7C: Minimizing Cost
• Appendix 8A: The Elasticity of the Residual Demand Curve
• Appendix 8B: Profit Maximization
• Appendix 9A: Demand Elasticities and Surplus
• Appendix 11A: Relationship Between a Linear Demand Curve and Its Marginal Revenue Curve
• Appendix 11B: Incidence of a Specific Tax on a Monopoly
• Appendix 12A: Perfect Price Discrimination
• Appendix 12B: Group Price Discrimination
• Appendix 12C: Block Pricing
• Appendix 12D: Two-Part Pricing
• Appendix 12E: Profit-Maximizing Advertising and Production
• Appendix 13A: Nash-Cournot Equilibrium
• Appendix 13B: Nash-Stackelberg Equilibrium
• Appendix 13C: Nash-Bertrand Equilibrium
• Appendix 15A: Factor Demands
• Appendix 15B: Monopsony
• Appendix 16A: The Present Value of Payments over Time
• Appendix 18A: Welfare Effects of Pollution in a Competitive Market
• Appendix 20A: Nonshirking Condition
• Answers to Selected Questions and Problems
• Sources for Challenges and Applications
• References
• Definitions
• Index
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• Credits
• Symbols Used in This Book