MICROECONOMICS A global text Judy A. Whitehead C 259875 Routledge Taylor &. Francis Group LONDON AND NEW YORK
Contents Preface x Acknowledgements xii List of Figures xiv List of Tables xix List ofboxed Examples xx Chapter 1 Introduction to Microeconomics 1 1.1 Scenario 1 1.2 Definition of microeconomics 2 1.3 Tools, gadgets and gizmos 3 1.4 The methodology of microeconomic theory 14 1.5 The methodological controversy - scientific validity 20 Review questions for Chapter 1 25 Recommended reading for Chapter 1 26 Chapter 2 Theory of the Consumer 27 2.1 The individual consumer and utility maximization 27 2.2 The Cardinal utility theory 28 2.3 The Ordinal utility theory (indifference curves) 33 2.4 The Revealed Preference (RP) theory 51 Review questions for Chapter 2 56 Recommended reading for Chapter 2 57 Chapter 3 Market Demand and Elasticity 58 3.1 From individual demand to market demand 58 3.2 The price elasticity of demand 60
3.3 The income elasticity of demand 77 3.4 Cross price elasticity of demand 85 Review questions for Chapter 3 87 Recommended reading for Chapter 3 88 Chapter 4 Topics in Demand Analysis 89 4.1 Consumer and producer surplus 89 4.2 Price indices 94 4.3 The characteristics approach to demand theory. 98 4.4 Price and rent controls ^ _ 102 4.5 External effects on demand 108 4.6 The Neumann-Morgenstern (NM) utility index 112 4.7 Empirical demand functions 117 Review questions for Chapter 4 119 Recommended reading for Chapter 4 121 Chapter 5 The Producer and Optimal Production Choices 123 5.1 Technology and the production function 123 5.2 Optimizing behaviour in the short-run 125 5.3 Optimizing behaviour of the producer in the long-run 132 5.4 The multi-product firm 149 Review questions for Chapter 5 160 Recommended reading for Chapter 5 161 Chapter 6 Costs and Scale 162 6.1 Traditional cost theory - the short-run 162 6.2 Long-run costs in the traditional theory 169 6.3 The modern theory of cost 174 6.4 Economies of scale 179 6.5 Cobb-Douglas production and cost functions 186 Review questions for Chapter 6 201 Recommended reading for Chapter 6 202 Chapter 7 Linear and Dynamic Programming and X-efficiency 203 7.1 Linear programming 203 7.2 Dynamic programming for multi-stage processes 216 7.3 The concept of X-efficiency 224 Review questions for Chapter 7, 232 Recommended reading for Chapter 7 233 Chapter 8 Equilibrium in an Isolated Market 235 8.1 Existence of market equilibrium 235 8.2 Uniqueness of market equilibrium 238 8.3 The stability of equilibrium - static stability 240 VI
8.4 Dynamic stability and the Cobweb model 249 8.5 Application of dynamic stability conditions 259 Review questions for Chapter 8 260 Recommended reading for Chapter 8 261 Chapter 9 The Perfectly Competitive Market 262 9.1 Assumptions and fundamentals of the model 262 9.2 Short-run equilibrium 264 9.3 Long-run equilibrium, 270 9.4 Predictions of the model ^ 271 Review questions for Chapter 9 280 Recommended reading for Chapter 9 281 Chapter 10 Monopoly 282 10.1 Assumptions and behavioural conditions 282 10.2 Short-ran equilibrium of the firm/industry 285 10.3 Long-run equilibrium 294 10.4 Predictions - the dynamics of the model 296 10.5 Multi-plant monopoly 299 10.6 Price discrimination 302 10.7 Bilateral monopoly 310 10.8 Regulation of monopoly 312 Review questions for Chapter 10 314 Recommended reading for Chapter 10 315 Chapter 11 Monopolistic Competition 316 11.1 Basic features and assumptions of the monopolistic competition model 317 11.2 Demand and costs 318 11.3 Equilibrium in the short-run 320 11.4 Equilibrium in the long-run 322 11.5 Monopolistic competition and excess capacity 326 11.6 Reflections on the model 329 Review questions for Chapter 11 331 Recommended reading for Chapter 11 331 Chapter 12 Oligopoly 333 12.1 Assumptions, definitions and summary of models 333 12.2 The Cournot model 335 12.3 The Bertrand/Edgeworth duopoly model 339 12.4 Chamberlin and stability in duopoly 340 12.5 The kinked demand model 342 12.6 The Stackleberg sophisticated duopolist model 343 12.7 The cartel 350 VII
12.8 The price leadership model 354 12.9 Game theory and oligopoly 359 Review questions for Chapter 12 361 Recommended reading for Chapter 12 362 Chapter 13 Alternative Theories of the Firm 363 13.1 Major issues and alternatives 363 13.2 Baumol's sales revenue maximization model 370 13.3 The mark-up pricing model of;the firm 379 13.4 The behavioural theories v. 388 13.5 The economics of information 390 Review questions for Chapter 13 392 Recommended reading for Chapter 13 392 Chapter 14 The Factor Market 394 14.1 Introduction to distribution theory 394 14.2 Short-run factor demand under marginal productivity theory 395 14.3 Long-run factor demand under marginal productivity theory 404 14.4 Market demand for a single input 411 14.5 The supply curve of labour 414 14.6 Factor market equilibrium under the marginal productivity theory 417 14.7 Monopsony in the factor market 418 14.8 The labour unions, exploitation and unemployment 422 14.9 Product exhaustion theorems and distribution 426 Review questions for Chapter 14 428 Recommended reading for Chapter 14 429 Appendix - The marginal expenditure of input curve 429 Chapter 15 General Equilibrium and Welfare Maximization 431 15.1 The nature and tools of general equilibrium 431 15.2 General equilibrium of exchange or consumption - efficiency in distribution of the product 434 15.3 General equilibrium of production - efficiency in the allocation of factors 436 15.4 Efficiency of the product mix -joint efficiency in production and consumption 438 15.5 Features of the equilibrium position 443 15.6 Welfare maximization, 448 15.7 Factors affecting a welfare maximum 453 15.8 Postscript 459 Review questions for Chapter 15 459 Recommended reading for Chapter 15 460 Appendix - MRPT and marginal costs 461 viii
Chapter 16 Investment Criteria 463 16.1 Definition of a project 464 16.2 Cash flow analysis 464 16.3 Discounted cash flow analysis 467 16.4 Investment criteria choices 471 16.5 Choice of investment criteria 488 Review questions for Chapter 16 489 Recommended reading for Chapter 16 490 Index V - 491 ix