MICROECONOMICS

S I X T H E D I T IO N

DAVID A. BESANKO
Northwestern University,
Kellogg School of Management

RONALD R. BRAEUTIGAM
Northwestern University,
Department of Economics

with Contributions from

Michael J. Gibbs
The University of Chicago,
Booth School of Business
BRIEF CONTENTS

PART 1 INTRODUCTION TO MICROECONOMICS

CHAPTER 1 Analyzing Economic Problems 1
CHAPTER 2 Demand and Supply Analysis 26
APPENDIX: Price Elasticity of Demand along a Constant Elasticity
Demand Curve 74

PART 2 CONSUMER THEORY

CHAPTER 3 Consumer Preferences and the Concept of Utility 75
CHAPTER 4 Consumer Choice 109
APPENDIX: The Time Value of Money 157
CHAPTER 5 The Theory of Demand 163

PART 3 PRODUCTION AND COST THEORY

CHAPTER 6 Inputs and Production Functions 216
APPENDIX: The Elasticity of Substitution for a Cobb–Douglas Production
Function 261
CHAPTER 7 Costs and Cost Minimization 263
APPENDIX: Advanced Topics in Cost Minimization 307
CHAPTER 8 Cost Curves 310
APPENDIX: Shephard’s Lemma and Duality 350

PART 4 PERFECT COMPETITION

CHAPTER 9 Perfectly Competitive Markets 354
APPENDIX: Profit Maximization Implies Cost Minimization 413
CHAPTER 10 Competitive Markets: Applications 415

PART 5 MARKET POWER

CHAPTER 11 Monopoly and Monopsony 468
CHAPTER 12 Capturing Surplus 515

PART 6 IMPERFECT COMPETITION AND STRATEGIC BEHAVIOR

CHAPTER 13 Market Structure and Competition 558
APPENDIX: The Cournot Equilibrium and the Inverse Elasticity Pricing Rule 600
CHAPTER 14 Game Theory and Strategic Behavior 601

PART 7 SPECIAL TOPICS

CHAPTER 15 Risk and Information 637
CHAPTER 16 General Equilibrium Theory 686
APPENDIX: Deriving the Demand and Supply Curves for General Equilibrium in
Figure 16.10 and Learning-By-Doing Exercise 16.2 730
CHAPTER 17 Externalities and Public Goods 736
Mathematical Appendix A-1
Solutions to Selected Problems S-1
Glossary G-1
Index I-1
xv
CONTENTS

PART 1 INTRODUCTION TO MICROECONOMICS

CHAPTER 1 Analyzing Economic Problems 1 Determinants of the Price Elasticity of Demand 49

Market-Level Versus Brand-Level Price Elasticities
Microeconomics and Climate Change
of Demand 51
1.1 Why Study Microeconomics? 4
2.3 Other Elasticities 53
1.2 Three Key Analytical Tools 5 Income Elasticity of Demand 53
Constrained Optimization 6 Cross-Price Elasticity of Demand 54
Equilibrium Analysis 12 Price Elasticity of Supply 56
Comparative Statics 14
2.4 Elasticity in the Long Run Versus the Short
1.3 Positive and Normative Analysis 18 Run 56
Greater Elasticity in the Long Run than in the Short Run 56
LEARNING-BY-DOING EXERCISES Greater Elasticity In the Short Run than in the Long Run 57
1.1 Constrained Optimization: The Farmer’s Fence 7
2.5 Back-of-the-Envelope Calculations 59
1.2 Constrained Optimization: Consumer Choice 8
Fitting Linear Demand Curves Using Quantity, Price, and
1.3 Comparative Statics with Market Equilibrium in the U.S.
Elasticity Information 60
Market for Corn 16
Identifying Supply and Demand Curves on the Back of an
1.4 Comparative Statics with Constrained Optimization 18
Envelope 61
Identifying the Price Elasticity of Demand from Shifts in
CHAPTER 2 Demand and Supply Analysis 26
Supply 63
What Gives with the Price of Corn? APPENDIX Price Elasticity of Demand along a Constant
2.1 Demand, Supply, and Market Equilibrium 30 Elasticity Demand Curve 74
Demand Curves 30
Supply Curves 32 LEARNING-BY-DOING EXERCISES
Market Equilibrium 34 2.1 Sketching a Demand Curve 31
Shifts in Supply and Demand 35 2.2 Sketching a Supply Curve 33
2.2 Price Elasticity of Demand 44 2.3 Calculating Equilibrium Price and Quantity 34
Elasticities Along Specific Demand Curves 46 2.4 Comparative Statics on the Market Equilibrium 37
Price Elasticity of Demand and Total Revenue 49 2.5 Price Elasticity of Demand 47
2.6 Elasticities along Special Demand Curves 49

PART 2 CONSUMER THEORY

CHAPTER 3 Consumer Preferences and the Perfect Complements 96

Concept of Utility 75 The Cobb–Douglas Utility Function 97
Quasilinear Utility Functions 98
Why Do You Like What You Like?
3.4 Behavioral Aspects of Choice 100
3.1 Representations of Preferences 77
Assumptions About Consumer Preferences 77
LEARNING-BY-DOING EXERCISES
Ordinal and Cardinal Ranking 80
3.1 Marginal Utility 86
3.2 Utility Functions 80 3.2 Marginal Utility That Is Not Diminishing 86
Preferences with a Single Good: The Concept of 3.3 Indifference Curves with Diminishing MRSx,Y 93
Marginal Utility 80 3.4 Indifference Curves with Increasing MRSx,Y 94
Preferences with Multiple Goods: Marginal Utility,
Indifference Curves, and the Marginal Rate of CHAPTER 4 Consumer Choice 109
Substitution 84
How Much of What You Like Should You Buy?
3.3 Special Preferences 95
4.1 The Budget Constraint 111
Perfect Substitutes 95
How Does a Change in Income Affect the Budget Line? 113

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 C O N T E N T S xvii

How Does a Change in Price Affect the Budget Line? 113 5.2 Change in the Price of a Good: Substitution Effect
4.2 Optimal Choice 116 and Income Effect 175
Using the Tangency Condition to Understand When a Basket The Substitution Effect 176
is Not Optimal 120 The Income Effect 176
Finding an Optimal Consumption Basket 121 Income and Substitution Effects When Goods Are Not
Two Ways of Thinking About Optimality 122 Normal 178
Corner Points 124 5.3 Change in the Price of a Good: The Concept of
4.3 Consumer Choice with Composite Goods 127 Consumer Surplus 186
Application: Coupons and Cash Subsidies 127 Understanding Consumer Surplus from the Demand
Application: Joining a Club 131 Curve 186
Application: Borrowing and Lending 132 Understanding Consumer Surplus from the Optimal Choice
Application: Quantity Discounts 137 Diagram: Compensating Variation and Equivalent
Variation 188
4.4 Revealed Preference 138
Are Observed Choices Consistent with Utility 5.4 Market Demand 195
Maximization? 139 Market Demand with Network Externalities 197

4.5 Maximizing Utility Using Lagrange 5.5 The Choice of Labor and Leisure 200
Multipliers 144 As Wages Rise, Leisure First Decreases, then Increases 200
APPENDIX The Time Value of Money 157 The Backward-Bending Supply of Labor 202
5.6 Consumer Price Indices 206
LEARNING-BY-DOING EXERCISES
4.1 Good News/Bad News and the Budget Line 116 LEARNING-BY-DOING EXERCISES
4.2 Finding an Interior Optimum 121 5.1 A Normal Good Has a Positive Income Elasticity
4.3 Finding a Corner Point Solution 125 of Demand 172
4.4 Corner Point Solution with Perfect Substitutes 126 5.2 Finding a Demand Curve (No Corner Points) 173
4.5 Consumer Choice That Fails to Maximize Utility 140 5.3 Finding a Demand Curve (with a Corner Point
4.6 Other Uses of Revealed Preference 142 Solution) 174
4.7 Finding an Interior Optimum Using the Method of 5.4 Finding Income and Substitution Effects
Lagrange 148 Algebraically 181
4.8 Finding a Corner Point Solution Using the Method 5.5 Income and Substitution Effects with a Price
of Lagrange 149 Increase 183
5.6 Income and Substitution Effects with a Quasilinear
CHAPTER 5 The Theory of Demand 163 Utility Function 184
Why Understanding the Demand for Cigarettes 5.7 Consumer Surplus: Looking at the Demand Curve 187
Is Important for Public Policy 5.8 Compensating and Equivalent Variations with No Income
Effect 191
5.1 Optimal Choice and Demand 165
5.9 Compensating and Equivalent Variations with an Income
The Effects of a Change in Price 165
Effect 193
The Effects of a Change in Income 168
5.10 The Demand for Leisure and the Supply of Labor 204
The Effects of a Change in Price or Income: An Algebraic
Approach 173

PART 3 PRODUCTION AND COST THEORY

CHAPTER 6 Inputs and Production Relationship Between Marginal and Average Product 226
Functions 216 6.3 Production Functions with More Than One
Can They Do It Better and Cheaper? Input 227
Total Product and Marginal Product with Two Inputs 227
6.1 Introduction to Inputs and Production
Isoquants 229
Functions 218
Economic and Uneconomic Regions of Production 233
6.2 Production Functions with a Single Input 220 Marginal Rate of Technical Substitution 233
Total Product Functions 221
6.4 Substitutability Among Inputs 236
Marginal and Average Product 222
xviii C O N T E N T S

Describing a Firm’s Input Substitution Opportunities LEARNING-BY-DOING EXERCISES

Graphically 237 7.1 Using the Cost Concepts for a College Campus
Elasticity of Substitution 239 Business 270
Special Production Functions 242 7.2 Finding an Interior Cost-Minimization Optimum 276
6.5 Returns to Scale 248 7.3 Finding a Corner Point Solution with Perfect
Definitions 248 Substitutes 277
Returns to Scale Versus Diminishing Marginal Returns 251 7.4 Deriving the Input Demand Curves from a Production
Function 285
6.6 Technological Progress 251
7.5 Short-Run Cost Minimization with One Fixed
APPENDIX The Elasticity of Substitution for a
Input 293
Cobb–Douglas Production Function 261
7.6 Short-Run Cost Minimization with Two Variable
Inputs 294
LEARNING-BY-DOING EXERCISES
7.7 Finding an Interior Optimum Using the Method
6.1 Deriving the Equation of an Isoquant 232
of Lagrange 299
6.2 Relating the Marginal Rate of Technical Substitution
7.8 Finding a Corner Point Solution Using the Method
to Marginal Products 236
of Lagrange 300
6.3 Calculating the Elasticity of Substitution from a
Production Function 240
6.4 Returns to Scale for a Cobb–Douglas Production CHAPTER 8 Cost Curves 310
Function 250 How Can Hisense Get a Handle on Costs?
6.5 Technological Progress 253
8.1 Long-Run Cost Curves 312
CHAPTER 7 Costs and Cost Minimization 263 Long-Run Total Cost Curve 312
How Does the Long-Run Total Cost Curve Shift When Input
What’s Behind the Self-Service Revolution? Prices Change? 314
7.1 Cost Concepts for Decision Making 265 Long-Run Average and Marginal Cost Curves 316
Opportunity Cost 266 8.2 Short-Run Cost Curves 328
Economic versus Accounting Costs 269 Short-Run Total Cost Curve 328
Sunk (Unavoidable) versus Nonsunk (Avoidable) Costs 269 Relationship Between the Long-Run and the Short-Run
7.2 The Cost-Minimization Problem 272 Total Cost Curves 328
Long Run versus Short Run 272 Short-Run Average and Marginal Cost Curves 331
The Long-Run Cost-Minimization Problem 272 Relationships Between the Long-Run and the Short-Run
Isocost Lines 273 Average and Marginal Cost Curves 332
Graphical Characterization of the Solution to the Long-Run When Are Long-Run and Short-Run Average
Cost-Minimization Problem 274 and Marginal Costs Equal, and When Are
Corner Point Solutions 277 They Not? 333
7.3 Comparative Statics Analysis of the 8.3 Special Topics in Cost 336
Cost-Minimization Problem 278 Economies of Scope 336
Comparative Statics Analysis of Changes in Input Prices 278 Economies of Experience: The Experience Curve 340
Comparative Statics Analysis of Changes in Output 282 8.4 Estimating Cost Functions 343
Summarizing the Comparative Statics Analysis: The Input Constant Elasticity Cost Function 343
Demand Curves 283 Translog Cost Function 343
The Price Elasticity of Demand for Inputs 285 APPENDIX Shephard’s Lemma and Duality 350
7.4 Short-Run Cost Minimization 289
Characterizing Costs in the Short Run 289 LEARNING-BY-DOING EXERCISES
Cost Minimization in the Short Run 291 8.1 Finding the Long-Run Total Cost Curve from
Comparative Statics: Short-Run Input Demand versus a Production Function 314
Long-Run Input Demand 292 8.2 Deriving Long-Run Average and Marginal Cost Curves
More Than One Variable Input in the Short Run 293 from a Long-Run Total Cost Curve 319
7.5 Minimizing Long-Run Costs Using Lagrange 8.3 Deriving a Short-Run Total Cost Curve 329
Multipliers 295 8.4 The Relationship between Short-Run and Long-Run
APPENDIX Advanced Topics in Cost Minimization 307 Average Cost Curves 334
 C O N T E N T S xix

PART 4 PERFECT COMPETITION

CHAPTER 9 Perfectly Competitive Markets 354 LEARNING-BY-DOING EXERCISES

9.1 Deriving the Short-Run Supply Curve for a Price-Taking
A Rose Is a Rose Is a Rose
Firm 368
9.1 What is Perfect Competition? 357 9.2 Deriving the Short-Run Supply Curve for a Price-Taking
9.2 Profit Maximization by a Price-Taking Firm 359 Firm with Some Nonsunk Fixed Costs 370
Economic Profit versus Accounting Profit 359 9.3 Short-Run Market Equilibrium 376
The Profit-Maximizing Output Choice for a Price-Taking 9.4 Calculating a Long-Run Equilibrium 385
Firm 361 9.5 Calculating Producer Surplus 404
9.3 How the Market Price Is Determined: Short-Run
Equilibrium 364 CHAPTER 10 Competitive Markets:
The Price-Taking Firm’s Short-Run Cost Structure 364 Applications 415
Short-Run Supply Curve for a Price-Taking Firm When All Is Support a Good Thing?
Fixed Costs Are Sunk 366
10.1 The Invisible Hand, Excise Taxes, and
Short-Run Supply Curve for a Price-Taking Firm When Some
Subsidies 417
Fixed Costs Are Sunk and Some Are Nonsunk 368 The Invisible Hand 418
Short-Run Market Supply Curve 372 Excise Taxes 419
Short-Run Perfectly Competitive Equilibrium 375 Incidence of a Tax 423
Comparative Statics Analysis of the Short-Run Subsidies 427
Equilibrium 376
10.2 Price Ceilings and Floors 429
9.4 How the Market Price is Determined: Long-Run Price Ceilings 430
Equilibrium 382 Price Floors 438
Long-Run Output and Plant-Size Adjustments by Established
Firms 382 10.3 Production Quotas 443
The Firm’s Long-Run Supply Curve 383 10.4 Price Supports in the Agricultural Sector 447
Free Entry and Long-Run Perfectly Competitive Acreage Limitation Programs 447
Equilibrium 384 Government Purchase Programs 449
Long-Run Market Supply Curve 386 10.5 Import Quotas and Tariffs 451
Constant-Cost, Increasing-Cost, and Decreasing-Cost Quotas 451
Industries 387 Tariffs 455
What Does the Theory of Perfect Competition
Teach Us? 395 LEARNING-BY-DOING EXERCISES
9.5 Economic Rent and Producer Surplus 396 10.1 Impact of an Excise Tax 422
Economic Rent 396 10.2 Impact of a Subsidy 429
Producer Surplus 399 10.3 Impact of a Price Ceiling 436
Economic Profit, Producer Surplus, 10.4 Impact of a Price Floor 441
Economic Rent 405 10.5 Comparing the Impact of an Excise Tax, a Price Floor,
APPENDIX Profit Maximization Implies Cost and a Production Quota 446
Minimization 413 10.6 Effects of an Import Tariff 458

PART 5 MARKET POWER

CHAPTER 11 Monopoly and Monopsony 468 The Profit-Maximization Condition Shown

Graphically 477
Why Do Firms Play Monopoly?
A Monopolist Does Not Have A Supply Curve 479
11.1 Profit Maximization by a Monopolist 470
11.2 The Importance of Price Elasticity of
The Profit-Maximization Condition 470
Demand 480
A Closer Look at Marginal Revenue: Marginal Units and
Price Elasticity of Demand and the Profit-Maximizing
Inframarginal Units 474
Price 480
Average Revenue and Marginal Revenue 475
xx C O N T E N T S

Marginal Revenue and Price Elasticity of Demand 481 11.8 Applying the Monopsonist’s Profit-Maximization
Marginal Cost and Price Elasticity of Demand: The Inverse Condition 507
Elasticity Pricing Rule 483 11.9 Applying the Inverse Elasticity Rule for
The Monopolist Always Produces on the Elastic Region a Monopsonist 508
of the Market Demand Curve 484
The IEPR Applies not Only to Monopolists 486 CHAPTER 12 Capturing Surplus 515
Quantifying Market Power: The Lerner Index 487 Why Did Your Carpet or Your Airline Ticket Cost
11.3 Comparative Statics for Monopolists 488 So Much Less Than Mine?
Shifts in Market Demand 488 12.1 Capturing Surplus 517
Shifts in Marginal Cost 491
12.2 First-Degree Price Discrimination: Making the
11.4 Monopoly with Multiple Plants and Most from Each Consumer 520
Markets 493
12.3 Second-Degree Price Discrimination: Quantity
Output Choice with two Plants 494
Discounts 525
Output Choice with two Markets 495
Block Pricing 525
Profit Maximization by a Cartel 496
Subscription and Usage Charges 528
11.5 The Welfare Economics of Monopoly 499
12.4 Third-Degree Price Discrimination: Different
The Monopoly Equilibrium Differs from the Perfectly
Prices for Different Market Segments 531
Competitive Equilibrium 499
Two Different Segments, Two Different Prices 531
Monopoly Deadweight Loss 501
Screening 534
Rent-Seeking Activities 501
Third-Degree Price Discrimination with Capacity
11.6 Why Do Monopoly Markets Exist? 501 Constraints 536
Natural Monopoly 502 Implementing the Scheme of Price Discrimination: Building
Barriers to Entry 503 “Fences” 538
11.7 Monopsony 505 12.5 Tying (Tie-In Sales) 543
The Monopsonist’s Profit-Maximization Condition 505 Bundling 544
An Inverse Elasticity Pricing Rule for Monopsony 507 Mixed Bundling 546
Monopsony Deadweight Loss 508
12.6 Advertising 548
LEARNING-BY-DOING EXERCISES
LEARNING-BY-DOING EXERCISES
11.1 Marginal and Average Revenue for a Linear Demand
12.1 Capturing Surplus: Uniform Pricing versus First-Degree
Curve 477
Price Discrimination 522
11.2 Applying the Monopolist’s Profit-Maximization
12.2 Where Is the Marginal Revenue Curve with First-Degree
Condition 479
Price Discrimination? 523
11.3 Computing the Optimal Monopoly Price for a Constant
12.3 Increasing Profits with a Block Tariff 527
Elasticity Demand Curve 483
12.4 Third-Degree Price Discrimination in Railroad
11.4 Computing the Optimal Monopoly Price for a Linear
Transport 533
Demand Curve 484
12.5 Third-Degree Price Discrimination for Airline
11.5 Computing the Optimal Price Using the Monopoly
Tickets 535
Midpoint Rule 490
12.6 Price Discrimination Subject to Capacity
11.6 Determining the Optimal Output, Price, and Division
Constraints 537
of Production for a Multiplant Monopolist 495
12.7 Markup and Advertising-to-Sales Ratio 551
11.7 Determining the Optimal Output and Price for
a Monopolist Serving Two Markets 496

PART 6 IMPERFECT COMPETITION AND STRATEGIC BEHAVIOR

CHAPTER 13 Market Structure and 13.2 Oligopoly with Homogeneous Products 563
Competition 558 The Cournot Model of Oligopoly 563
Cournot Equilibrium and the IEPR 571
Is Competition Always the Same? If Not, Why Not?
The Bertrand Model of Oligopoly 571
13.1 Describing and Measuring Market Structure 560 Why are the Cournot and Bertrand Equilibria Different? 573
 C O N T E N T S xxi

The Stackelberg Model of Oligopoly 574 Expected Value 641

13.3 Dominant Firm Markets 576 Variance 641

13.4 Oligopoly with Horizontally Differentiated 15.2 Evaluating Risky Outcomes 644
Products 579 Utility Functions and Risk Preferences 644
What is Product Differentiation? 579 Risk-Neutral and Risk-Loving Preferences 647
Bertrand Price Competition with Horizontally Differentiated 15.3 Bearing and Eliminating Risk 650
Products 582 Risk Premium 650
13.5 Monopolistic Competition 588 When Would a Risk-Averse Person Choose to Eliminate Risk?
Short-Run and Long-Run Equilibrium in Monopolistically the Demand for Insurance 653
Competitive Markets 588 Asymmetric Information: Moral Hazard and Adverse
Price Elasticity of Demand, Margins, and Number Selection 656
of Firms in the Market 590 Prospect Theory and Loss Aversion: An Alternative to
Do Prices Fall When More Firms Enter? 590 Expected Utility Theory 662
APPENDIX The Cournot Equilibrium and the Inverse 15.4 Analyzing Risky Decisions 665
Elasticity Pricing Rule 600 Decision Tree Basics 665
Decision Trees with a Sequence of Decisions 668
LEARNING-BY-DOING EXERCISES The Value of Information 670
13.1 Computing a Cournot Equilibrium 566 15.5 Auctions 672
13.2 Computing the Cournot Equilibrium for Two or More Types of Auctions and Bidding Environments 672
Firms with Linear Demand 570 Auctions When Bidders Have Private Values 673
13.3 Computing the Equilibrium in the Dominant Firm Auctions When Bidders Have Common Values: The Winner’s
Model 578 Curse 677
13.4 Computing a Bertrand Equilibrium with Horizontally
Differentiated Products 586 LEARNING-BY-DOING EXERCISES
15.1 Computing the Expected Utility for Two Lotteries
CHAPTER 14 Game Theory and Strategic for a Risk-Averse Decision Maker 647
Behavior 601 15.2 Computing the Expected Utility for Two Lotteries:
What’s in a Game? Risk-Neutral and Risk-Loving Decision Makers 649
15.3 Computing the Risk Premium from a Utility
14.1 The Concept of Nash Equilibrium 603
Function 653
A Simple Game 603
15.4 The Willingness to Pay for Insurance 654
The Nash Equilibrium 604
15.5 Verifying the Nash Equilibrium in a First-Price Sealed-Bid
The Prisoners’ Dilemma 604
Auction with Private Values 675
Dominant and Dominated Strategies 605
Games with more Than One Nash Equilibrium 609
CHAPTER 16 General Equilibrium Theory 686
Mixed Strategies 615
Summary: How to Find All the Nash Equilibria in a How Do Gasoline Taxes Affect the Economy?
Simultaneous-Move Game with Two Players 616 16.1 General Equilibrium Analysis: Two
14.2 The Repeated Prisoners’ Dilemma 617 Markets 688
14.3 Sequential-Move Games and Strategic 16.2 General Equilibrium Analysis: Many
Moves 622 Markets 692
Analyzing Sequential-Move Games 623 The Origins of Supply and Demand in a Simple
The Strategic Value of Limiting One’s Options 624 Economy 692
The General Equilibrium in Our Simple Economy 698
LEARNING-BY-DOING EXERCISES Walras’ Law 702
14.1 Finding the Nash Equilibrium: Coke versus Pepsi 608 16.3 General Equilibrium Analysis: Comparative
14.2 Finding All of the Nash Equilibria in a Game 612 Statics 703
14.3 An Entry Game 625
16.4 The Efficiency of Competitive Markets 707
What Is Economic Efficiency? 707
CHAPTER 15 Risk and Information 637
Exchange Efficiency 708
Risky Business? Input Efficiency 714
15.1 Describing Risky Outcomes 639 Substitution Efficiency 716
Lotteries and Probabilities 639
xxii C O N T E N T S

Does the General Competitive Equilibrium Satisfy CHAPTER 17 Externalities and Public
Substitution Efficiency? 717 Goods 736
Pulling the Analysis Together: The Fundamental Theorems of
When Does the Invisible Hand Fail?
Welfare Economics 719
16.5 Gains From Free Trade 720 17.1 Introduction 738
Free Trade Is Mutually Beneficial 720 17.2 Externalities 740
Comparative Advantage 724 Negative Externalities and Economic Efficiency 742
APPENDIX Deriving the Demand and Supply Positive Externalities and Economic Efficiency 756
Curves for the General Equilibrium in Property Rights and the Coase Theorem 760
Figure 16.10 and Learning-By-Doing 17.3 Public Goods 762
Exercises 16.2 730 Efficient Provision of a Public Good 763
The Free-Rider Problem 766
LEARNING-BY-DOING EXERCISES
16.1 Finding the Prices at a General Equilibrium with Two LEARNING-BY-DOING EXERCISES
Markets 692 17.1 The Efficient Amount of Pollution 745
16.2 Finding the Conditions for a General Equilibrium 17.2 Emissions Fee 748
with Four Markets 701 17.3 The Coase Theorem 761
16.3 Checking the Conditions for Exchange Efficiency 712 17.4 Optimal Provision of a Public Good 765

Mathematical Appendix A-1

Solutions to Selected Problems S-1
Glossary G-1
Index I-1