Intermediate Microeconomics: A Tool-Building Approach

342 Pages·2014·1.74 MB·English

by  Samiran Banerjee

Intermediate Microeconomics
Intermediate Microeconomics: A tool-building approach is a clear and concise
calculus-based exposition of current microeconomic theory that is essential
forstudentspursuingdegreesineconomicsorbusiness. Thisbeautifullypre-
sentedandaccessibletextcoversalltheessentialtopicstypicallyrequiredat
the intermediate level, from consumer and producer theory to the market
structures of perfect competition, monopoly, duopoly, and oligopoly. Other
topicsincludegeneralequilibrium,risk,andgametheory,aswellaschapters
onexternalities,asymmetricinformation,andpublicgoods.
Through numerical examples as well as exercises, the book aims to teach
microeconomic theory via a process of learning-by-doing. When there is
a skill to be acquired, a list of steps outlining the procedure is provided,
followedbyanexampletoillustratehowthisprocedureiscarriedout. Once
learned,studentswillbeabletosolvesimilarproblemsandbewellontheir
waytomasteringtheskillsneededforfuturestudy.
Intermediate Microeconomics presents a large amount of material in a concise
way, without sacrificing rigor or clarity of exposition. Through use of this
text,studentswillacquireboththeanalyticaltoolkitandtheoreticalfounda-
tion necessary in order to take upper-level field courses in economics such
asindustrialorganization,internationaltrade,andpublicfinance.
Samiran Banerjee is Senior Lecturer in the Department of Economics at
EmoryUniversityinAtlanta,USA.
This(cid:2)page(cid:2)intentionally(cid:2)left(cid:2)blank
Intermediate Microeconomics
A tool-building approach
Samiran Banerjee
RO Routledge
U
TLED Taylor & Francis Group
G
E
LONDON AND NEW YORK
Firstpublished2015
byRoutledge
2ParkSquare,MiltonPark,Abingdon,OxonOX144RN
andbyRoutledge
711ThirdAvenue,NewYork,NY10017
RoutledgeisanimprintoftheTaylor&FrancisGroup,aninformabusiness
©2015SamiranBanerjee
The right of Samiran Banerjee to be identified as author of this work has been asserted in
accordancewiththeCopyright,DesignsandPatentAct1988.
Allrightsreserved. Nopartofthisbookmaybereprintedorreproducedorutilisedinany
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including photocopying and recording, or in any information storage or retrieval system,
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Trademarknotice: Productorcorporatenamesmaybetrademarksorregisteredtrademarks,
andareusedonlyforidentificationandexplanationwithoutintenttoinfringe.
BritishLibraryCataloguinginPublicationData
AcataloguerecordforthisbookisavailablefromtheBritishLibrary
LibraryofCongressCataloginginPublicationData
Banerjee,Samiran.
Intermediatemicroeconomics:atool-buildingapproach/SamiranBanerjee.
pagescm
Includesbibliographicalreferencesandindex.
1.Microeconomics.I.Title.
HB172.B262014
338.5–dc23
2014018108
Publisher’sNote
Thisbookhasbeenpreparedfromcamera-readycopyprovidedbytheauthor.
ISBN:978-0-415-87004-7(hbk)
ISBN:978-0-415-87005-4(pbk)
ISBN:978-0-203-79755-6(ebk)
TypesetinPalatino
DedicatedtothememoryofLeonidHurwiczandMarcelK.Richter
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Contents
Preface xi
Acknowledgements xv
1 Markets 1
1.1 MarketDemandandSupply 1
1.2 DeterminantsofDemandandSupply 7
1.3 MarketInterventions 7
1.4 Elasticities 14
2 Budgets 23
2.1 CommoditySpace 23
2.2 CompetitiveBudgets 24
2.3 ChangesinPricesorIncome 27
2.4 Non-CompetitiveBudgets 29
3 Preferences 35
3.1 BinaryRelations 35
3.2 PropertiesofBinaryRelations 36
3.3 UtilityRepresentationofPreferences 39
3.4 TypesofPreferences 42
3.5 TheNotionofUtility 48
3.6 Utility,PreferencesandProperties 50
◦
3.7 SpecialTopics 54
4 IndividualDemands 61
4.1 PreferenceMaximizationonBudgets 61
4.2 CalculatingIndividualDemands 63
4.3 TwoPropertiesofDemandFunctions 70
vii
viii Contents
5 ConsumerComparativeStatics 73
5.1 PriceandIncomeConsumptionCurves 73
5.2 IndividualElasticitiesofDemand 77
5.3 DecomposingPriceEffects 80
6 ExchangeEconomies 88
6.1 TheEdgeworthBox 88
6.2 PropertiesofAllocations 91
6.3 WalrasEquilibrium 97
6.4 AllowingforMoreGoodsorConsumers 102
◦
6.5 Walras’LawandtheWelfareTheorems 103
7 Technology 110
7.1 ProductionFunctionsandProductivity 110
7.2 TypesofTechnologies 112
7.3 ReturnstoScale 116
7.4 ProductionPossibilityFrontiers 118
8 Costs 124
8.1 DerivingCostFunctionsfromTechnologies 124
8.2 CostConcepts 131
8.3 ReturnstoScaleRevisited 135
◦
8.4 CostFunctionswithMultipleTechnologies 136
◦
8.5 DerivingTechnologiesUnderlyingCostFunctions 139
9 CompetitiveFirms 143
9.1 DefiningProfits 144
9.2 Short-RunProfitMaximization 145
9.3 ShiftsinaFirm’sSupply 151
9.4 PerfectCompetitionintheLongRun 153
10 Monopoly 159
10.1 UniformPricing 159
10.2 DifferentialPricing 165
10.3 PersonalizedPricing 170
10.4 GroupPricing 172
10.5 MenuPricing: Unit-demandbundling 175
ix
11 Risk 182
11.1 ExpectedUtility 182
11.2 AttitudestowardsRisk 187
◦
11.3 StochasticDominance 188
11.4 ParetoEfficientRiskSharing 194
12 GameTheory 201
12.1 StaticGames 202
12.2 SolvingStaticGames 203
12.3 DynamicGames 214
13 Oligopoly 223
13.1 StaticQuantityCompetition 223
13.2 StaticPriceCompetition 229
13.3 DynamicCompetition 234
14 Externalities 242
14.1 MarketInefficiencies 242
14.2 Three‘Solutions’ 246
15 AsymmetricInformation 257
15.1 HiddenAction 258
15.2 HiddenInformation 263
16 PublicGoods 276
16.1 TheKolmTriangle 278
16.2 LindahlEquilibrium 288
◦
16.3 VoluntaryContributionMechanism 291
MathematicalAppendix 299
A.1 Functions 299
A.2 SingleVariableCalculusReview 302
A.3 ConcaveandConvexFunctions 305
A.4 SingleVariateOptimization 308
A.5 MultivariateCalculus 311
◦
A.6 MultivariateOptimization 314
A.7 Miscellanea 315
Index 320