Sei sulla pagina 1di 312

Microeconomics: Markets, Methods & Models

Douglas Curtis and Ian Irvine

Version 2014

Revision A

The content in this version is differentiated from the 2013 version solely by minor editorial adjust- ments.

Copyright

version solely by minor editorial adjust- ments. Copyright This work is licensed under a Creative Commons

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i

Contents

Part One: The Building Blocks

 

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1 Introduction to key ideas

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1.1 What’s it all about?

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1.2 Understanding through the use of models

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1.3 Opportunity cost and the market

 

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1.4 A model of exchange and specialization

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1.5 Economy-wide production possibilities

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1.6 Aggregate output, growth and business cycles

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2 Theories, models and data

 

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2.1 Observations, theories and models

 

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2.2 Variables, data and index numbers

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2.3 Testing economic models & analysis .

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2.4 Diagrams and economic analysis

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2.5 Ethics, efficiency and beliefs

 

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3 The classical marketplace – demand and supply

 

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3.1 Trading

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3.2 The market’s building blocks

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3.3 Demand and supply curves

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3.4 Other influences on demand

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3.5 Other influences on supply

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3.6 Simultaneous supply and demand impacts

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3.7 Market interventions

 

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3.8 Individual and market functions

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Part Two: Responsiveness and the Value of Markets

 

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4 Measures of response: elasticities

 

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4.1 Price responsiveness of demand

 

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4.2 Price elasticity and expenditure .

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4.3 The time horizon and inflation

 

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4.4 Cross-price elasticities

 

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4.5 The income elasticity of demand

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4.6 Elasticity of supply

 

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4.7 Elasticities and tax incidence

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4.8 Identifying demand and supply elasticities

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5 Welfare economics and externalities

 

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5.1 Equity and efficiency

 

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5.2 Consumer and producer surplus

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5.3 Efficient market outcomes

 

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5.4 Taxation, surplus and efficiency

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5.5 Market failures – externalities

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5.6 Other market failures

 

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5.7 Environmental policy and climate change

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5.8 Equity, justice, and efficiency .

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Part Three: Decision Making by Consumer and Producers

 

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6 Individual choice

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6.1 Rationality .

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6.2 Choice with measurable utility

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6.3 Choice with ordinal utility

 

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6.4 Applications of indifference analysis .

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7 Firms, investors and capital markets

 

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7.1 Business organization .

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7.2 Profit, ownership and corporate goals .

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7.3 Risk and the investor

 

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7.4 Diminishing marginal utility and risk .

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7.5 Real returns to investment

 

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7.6 Financing the risky firm: diversification

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8 Production and cost

 

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8.1 Efficient production .

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8.2 The time frame

 

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8.3 Production in the short run

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8.4 Costs in the short run

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8.5 Fixed costs and sunk costs

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8.6 Long run production and costs

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8.7 Technological change and globalization

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8.8 Clusters, learning by doing, scope economies

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Part Four: Market Structures

 

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9 Perfect competition

 

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9.1 The perfect competition paradigm

 

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9.2 Market characteristics .

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9.3 The firm’s supply decision

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9.4 Dynamics: entry and exit

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9.5 Long run industry supply

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9.6 Globalization and technological change

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9.7 Efficient resource allocation

 

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10 Monopoly

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10.1 Monopolies

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10.2 Profit maximizing behaviour

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10.3 Long run choices

 

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vi

Contents

 
 

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Output inefficiency

 

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10.5

Price discrimination .

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10.6

Cartels: acting like a monopolist

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