(Test Bank) Intermediate Microeconomics A Modern Approach

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9th Edition

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Test Bank for Intermediate Microeconomics A Modern Approach, The downloadable file consists of 825 pages, and the total size of the file is 6.0 MB. Purchase now only for highly discounted price.

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Intermediate Microeconomics A Modern Approach Ninth EditionIntermediate Microeconomics A Modern Approach Ninth Edition Hal R. Varian University of California at Berkeley W. W. Norton & Company •New York •LondonW. W. Norton & Company has been independent since its founding in 1923,when William Warder Norton and Mary D. Herter Norton first published lec-tures delivered at the People’s Institute, the adult education division of NewYork City’s Cooper Union. The firm soon expanded its program beyond the In-stitute, publishing books by celebrated academics from America and abroad. Bymid-century, the two major pillars of Norton’s publishing program—trade booksand college texts—were firmly established. In the 1950s, the Norton family trans-ferred control of the company to its employees, and today—with a staff of fourhundred and a comparable number of trade, college, and professional titles pub-lished each year—W. W. Norton & Company stands as the largest and oldestpublishing house owned wholly by its employees. Copyright c/circlecopyrt2014, 2010, 2006, 2003, 1999, 1996, 1993, 1990, 1987 by Hal R. VarianAll rights reservedPrinted in the United States of AmericaNINTH EDITIONEditor: Jack RepcheckSenior project editor: Thom FoleyProduction manager: Andy EnsorEditorial assistant: Theresia KowaraTEXnician: Hal Varian ISBN 978-0-393- - W. W. Norton & Company, Inc., 500 Fifth Avenue, New York, N.Y. 10110W.W.Norton&Company, Ltd.,CastleHouse,75/76WellsStreet,LondonW1T3QT www.wwnorton.com 123456789098 3216To CarolCONTENTS Preface xix 1 The Market Constructing a Model 1Optimization and Equilibrium 3The De- mand Curve 3The Supply Curve 5Market Equilibrium 7Com- parative Statics 9Other Ways to Allocate Apartments 11The Dis- criminating Monopolist •The Ordinary Monopolist •Rent Control • Which Way Is Best? 14Pareto Efficiency 15Comparing Ways to Al- locate Apartments 16Equilibrium in the Long Run 17Summary 18 Review Questions 19 2 Budget Constraint The Budget Constraint 20Two Goods Are Often Enough 21Prop- erties of the Budget Set 22How the Budget Line Changes 24The Numeraire 26Taxes, Subsidies, and Rationing 26Example: The Food Stamp Program Budget Line Changes 31Summary 31Review Questions 32VIII CONTENTS 3 Preferences Consumer Preferences 34Assumptions about Preferences 35Indif- ference Curves 36Examples of Preferences 37Perfect Substitutes •Perfect Complements •Bads •Neutrals •Satiation •Discrete Goods •Well-Behaved Preferences 44The Marginal Rate of Substitu- tion 48Other Interpretations of the MRS 50Behavior of the MRS 51Summary 52Review Questions 52 4 Utility Cardinal Utility 57Constructing a Utility Function 58Some Exam- ples of Utility Functions 59Example: Indifference Curves from Utility Perfect Substitutes •Perfect Complements •Quasilinear Preferences •Cobb-Douglas Preferences •Marginal Utility 65Marginal Utility and MRS 66Utility for Commuting 67Summary 69Review Questions 70Appendix 70Example: Cobb-Douglas Preferences 5 Choice Optimal Choice 73Consumer Demand 78Some Examples 78 Perfect Substitutes •Perfect Complements •Neutrals and Bads • Discrete Goods •Concave Preferences •Cobb-Douglas Preferences • Estimating Utility Functions 83Implications of the MRS Condition 85 Choosing Taxes 87Summary 89Review Questions 89Appen- dix 90Example: Cobb-Douglas Demand Functions 6 Demand Normal and Inferior Goods 96Income Offer Curves and Engel Curves 97Some Examples 99Perfect Substitutes •Perfect Complements •Cobb-Douglas Preferences •Homothetic Preferences •Quasilinear Preferences •Ordinary Goods and Giffen Goods 104The Price Offer Curve and the Demand Curve 106Some Examples 107Perfect Substitutes •Perfect Complements •A Discrete Good •Substitutes and Complements 111The Inverse Demand Function 112Summary 114Review Questions 115Appendix 115CONTENTS IX 7 Revealed Preference The Idea of Revealed Preference 119From Revealed Preference to Pref- erence 120Recovering Preferences 122The Weak Axiom of Re- vealed Preference 124Checking WARP 125The Strong Axiom of Revealed Preference 128How to Check SARP 129Index Numbers 130Price Indices 132Example: Indexing Social Security Payments Summary 135Review Questions 135 8 Slutsky Equation The Substitution Effect 137Example: Calculating the Substitution Ef- fectThe Income Effect 141Example: Calculating the Income Effect Sign of the Substitution Effect 142The Total Change in Demand 143 Rates of Change 144The Law of Demand 147Examples of Income and Substitution Effects 147Example: Rebating a Tax Example: Voluntary Real Time Pricing Another Substitution Effect 153Com- pensated Demand Curves 155Summary 156Review Questions 157 Appendix 157Example: Rebating a Small Tax 9 Buying and Selling Net and Gross Demands 160The Budget Constraint 161Changing the Endowment 163Price Changes 164Offer Curves and Demand Curves 167The Slutsky Equation Revisited 168Use of the Slut- sky Equation 172Example: Calculating the Endowment Income Effect Labor Supply 173The Budget Constraint •Comparative Statics of Labor Supply 174Example: Overtime and the Supply of Labor Sum- mary 178Review Questions 179Appendix 179XCONTENTS 10 Intertemporal Choice The Budget Constraint 182Preferences for Consumption 185Com- parative Statics 186The Slutsky Equation and Intertemporal Choice 187Inflation 189Present Value: A Closer Look 191Analyz- ing Present Value for Several Periods 193Use of Present Value 194 Example: Valuing a Stream of Payments Example: The True Cost of a Credit Card Example: Extending Copyright Bonds 198Exam- ple: Installment Loans Taxes 200Example: Scholarships and Sav- ingsChoice of the Interest Rate 201Summary 202Review Ques- tions 202 11 Asset Markets Rates of Return 203Arbitrage and Present Value 205Adjustments for Differences among Assets 205Assets with Consumption Returns 206Taxation of Asset Returns 207Market Bubbles 208Applica- tions 209Depletable Resources •When to Cut a Forest •Example: Gasoline Prices during the Gulf War Financial Institutions 213Sum- mary 214Review Questions 215Appendix 215 12 Uncertainty Contingent Consumption 217Example: Catastrophe Bonds Utility Functions and Probabilities 222Example: Some Examples of Utility Functions Expected Utility 223Why Expected Utility Is Reasonable 224Risk Aversion 226Example: The Demand for Insurance Di- versification 230Risk Spreading 230Role of the Stock Market 231 Summary 232Review Questions 232Appendix 233Example: The Effect of Taxation on Investment in Risky Assets 13 Risky Assets Mean-Variance Utility 236Measuring Risk 241Counterparty Risk 243Equilibrium in a Market for Risky Assets 243How Returns Adjust 245Example: Value at Risk Example: Ranking Mutual Funds Summary 249Review Questions 250CONTENTS XI 14 Consumer’s Surplus Demand for a Discrete Good 252Constructing Utility from Demand 253Other Interpretations of Consumer’s Surplus 254From Con- sumer’s Surplus to Consumers’ Surplus 255Approximating a Continu- ous Demand 255Quasilinear Utility 255Interpreting the Change in Consumer’s Surplus 256Example: The Change in Consumer’s Surplus Compensating and Equivalent Variation 258Example: Compensating and Equivalent Variations Example: Compensating and Equivalent Vari-ation for Quasilinear Preferences Producer’s Surplus 262Benefit-Cost Analysis 264Rationing •Calculating Gains and Losses 266Sum- mary 267Review Questions 267Appendix 268Example: A Few Demand Functions Example: CV, EV, and Consumer’s Surplus 15 Market Demand From Individual to Market Demand 270The Inverse Demand Function 272Example: Adding Up “Linear” Demand Curves Discrete Goods 273The Extensive and the Intensive Margin 273Elasticity 274 Example: The Elasticity of a Linear Demand Curve Elasticity and De- mand 276Elasticity and Revenue 277Example: Strikes and Profits Constant Elasticity Demands 280Elasticity andMarginalRevenue 281 Example: Setting a Price Marginal Revenue Curves 283Income Elas- ticity 284Summary 285Review Questions 286Appendix 287 Example: The Laffer Curve Example: Another Expression for Elasticity 16 Equilibrium Supply 293Market Equilibrium 293Two Special Cases 294In- verse Demand and Supply Curves 295Example: Equilibrium with Lin- ear Curves Comparative Statics 297Example: Shifting Both Curves Taxes 298Example: Taxation with Linear Demand and Supply Pass- ing Along a Tax 302The Deadweight Loss of a Tax 304Example: The Market for Loans Example: Food Subsidies Example: Subsidies inIraqPareto Efficiency 310Example: Waiting in Line Summary 313 Review Questions 313XII CONTENTS 17 Measurement Summarize data 316Example: Simpson’s paradox Test 320Esti- mating demand using experimental data 320Effect of treatment 321 Estimating demand using observational data 322Functional form • Statistical model •Estimation •Identification 324What can go wrong? 326Policy evaluation 327Example: Crime and police Summary 328Review Questions 329 18 Auctions Classification of Auctions 331Bidding Rules •Auction Design 332 Example: Goethe’s auction Other Auction Forms 336Example: Late Bidding on eBay Position Auctions 338Two Bidders •More Than Two Bidders •Quality Scores •Should you advertise on your brand? 341Auction revenue and number of bidders 342Problems with Auc- tions 343Example: Taking Bids Off the Wall The Winner’s Curse 344Stable Marriage Problem 345Mechanism Design 346Sum- mary 348Review Questions 349 19 Technology Inputs and Outputs 350Describing Technological Constraints 351 Examples of Technology 352Fixed Proportions •Perfect Substi- tutes •Cobb-Douglas •Properties of Technology 354The Marginal Product 356The Technical Rate of Substitution 356Diminishing Marginal Product 357Diminishing Technical Rate of Substitution 357 The Long Run and the Short Run 358Returns to Scale 358Ex- ample: Datacenters Example: Copy Exactly! Summary 361Review Questions 362CONTENTS XIII 20 Profit Maximization Profits 363The Organization of Firms 365Profits and Stock Market Value 365The Boundaries of the Firm 367Fixed and Variable Fac- tors 368Short-Run Profit Maximization 368Comparative Statics 370ProfitMaximizationintheLongRun 371InverseFactorDemand Curves 372Profit Maximization and Returns to Scale 373Revealed Profitability 374Example: How Do Farmers React to Price Supports? Cost Minimization 378Summary 378Review Questions 379Ap- pendix 380 21 Cost Minimization Cost Minimization 382Example: Minimizing Costs for Specific Tech- nologies Revealed Cost Minimization 386Returns to Scale and the Cost Function 387Long-Run and Short-Run Costs 389Fixed and Quasi-Fixed Costs 391Sunk Costs 391Summary 392Review Questions 392Appendix 393 22 Cost Curves Average Costs 396Marginal Costs 398Marginal Costs and Variable Costs 400Example: Specific Cost Curves Example: Marginal Cost Curves for Two Plants Cost Curves for Online Auctions 404Long-Run Costs 405DiscreteLevelsofPlantSize 407Long-RunMarginalCosts 408Summary 409Review Questions 410Appendix 411 23 Firm Supply Market Environments 413Pure Competition 414The Supply Deci- sionofaCompetitiveFirm 416AnException 418AnotherException 419Example: Pricing Operating Systems The Inverse Supply Func- tion 421Profits and Producer’s Surplus 421Example: The Supply Curve for a Specific Cost Function The Long-Run Supply Curve of a Firm 425Long-Run Constant Average Costs 427Summary 428Review Questions 429Appendix 429XIV CONTENTS 24 Industry Supply Short-Run Industry Supply 431Industry Equilibrium in the Short Run 432IndustryEquilibriumintheLongRun 433TheLong-RunSupply Curve 435Example: Taxation in the Long Run and in the Short Run The Meaning of Zero Profits 439Fixed Factors and Economic Rent 440Example: Taxi Licenses in New York City Economic Rent 442 Rental Rates and Prices 444Example: Liquor Licenses The Politics of Rent 445Example: Farming the Government Energy Policy 447 Two-Tiered Oil Pricing •Price Controls •The Entitlement Program •Carbon Tax Versus Cap and Trade 451Optimal Production of Emis- sions •A Carbon Tax •Cap and Trade •Summary 455Review Questions 455 25 Monopoly Maximizing Profits 458Linear Demand Curve and Monopoly 459 Markup Pricing 461Example: The Impact of Taxes on a Monopo- listInefficiency of Monopoly 463Deadweight Loss of Monopoly 465 Example: The Optimal Life of a Patent Example: Patent Thickets Ex- ample: Managing the Supply of Potatoes Natural Monopoly 469What Causes Monopolies? 472Example: Diamonds Are Forever Example: Pooling in Auction Markets Example: Price Fixing in Computer Memory Markets Summary 476Review Questions 476Appendix 477 26 Monopoly Behavior PriceDiscrimination 480First-DegreePriceDiscrimination 480Ex- ample: First-degree Price Discrimination in Practice Second-Degree Price Discrimination 483Example: Price Discrimination in Airfares Ex- ample: Prescription Drug Prices Third-Degree Price Discrimination 487 Example: Linear Demand Curves Example: Calculating Optimal Price Discrimination Example: Price Discrimination in Academic Journals Bundling 492Example: Software Suites Two-Part Tariffs 493Mo- nopolisticCompetition 494ALocationModelofProductDifferentiation 498ProductDifferentiation 500MoreVendors 501Summary 502 Review Questions 502