THE PEARSON SERIES IN ECONOMICSAbel/Bernanke/Croushore Macroeconomics*Bade/Parkin Foundations of Economics*Berck/Helfand The Economics of the EnvironmentBierman/Fernandez Game Theory with Economic ApplicationsBlanchard Macroeconomics*Blau/Ferber/Winkler The Economics of Women, Men and WorkBoardman/Greenberg/Vining/ Weimer Cost-Benefit AnalysisBoyer Principles of Transportation EconomicsBranson Macroeconomic Theory and PolicyBrock/Adams The Structure of American IndustryBruce Public Finance and the American EconomyCarlton/Perloff Modern Industrial OrganizationCase/Fair/Oster Principles of Economics*Caves/Frankel/Jones World Trade and Payments: An IntroductionChapman Environmental Economics: Theory, Application, and PolicyCooter/Ulen Law blocks by Vasa Supplements Editor: Alison EusdenSenior Manufacturing Buyer: Carol Melville Director of Media: Susan Schoenberg Senior Media Producer: Melissa Honig MyEconLab Content Lead: Noel Lotz Senior Author Support/Technology Specialist: Joe Vetere Image Manager/Image Asset Services: Rachel Youdelman Photo Researcher: Diane Austin Copyeditor: Rebecca Greenberg Proofreader: Holly McLean-Aldis Indexer: Jack Lewis Illustrations: Donna Ellison Production Coordination, Text Design, and Composition: Gillian Hall, The Aardvark GroupCredits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within the text and on page A-78.Many of the designations by manufacturers and seller to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trade- mark claim, the designations have been printed in initial caps or all caps.Library of Congress Cataloging-in-Publication DataPerloff, Jeffrey M. Microeconomics / Jeffrey Perloff.6th ed. p. cm. Includes bibliographical references and index. ISBN 978-0-13-139263-2 (alk. paper) 1. Microeconomics. I. Title. HB172.P39 2012 338.5dc22 2010050602Copyright 2012, 2009, 2006, 2003, 2000 Pearson Education, Inc., publishing as Addison- Wesley, 75 Arlington Street, Boston, MA 02116. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmis- sion in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Rights and Contracts Department, 501 Boylston Street, Suite 900, Boston, MA 02116, fax your request to 617-671-3447, or e-mail at www.pearsoned.com/legal/ permissions.htm.ISBN-13: 978-0-13-139263-2 ISBN-10: 0-13-139263-8www.pearsonhighered.com 1 2 3 4 5 6 7 8 9 10DOW14 13 12 11 10Addison-WesleyBoston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei TokyoMicroeconomicsSIXTH EDITIONJEFFREY M. PERLOFFUniversity of California, BerkeleyThis page intentionally left blank vBrief ContentsPrefacexiv Chapter 1Introduction1 Chapter 2Supply and Demand9 Chapter 3Applying the Supply-and-Demand Model42 Chapter 4Consumer Choice73 Chapter 5Applying Consumer Theory111 Chapter 6Firms and Production151 Chapter 7Costs184 Chapter 8Competitive Firms and Markets226 Chapter 9Applying the Competitive Model270 Chapter 10General Equilibrium and Economic Welfare316 Chapter 11Monopoly353 Chapter 12Pricing and Advertising394 Chapter 13Oligopoly and Monopolistic Competition436 Chapter 14Game Theory482 Chapter 15Factor Markets517 Chapter 16Interest Rates, Investments, and Capital Markets542 Chapter 17Uncertainty573 Chapter 18Externalities, Open-Access, and Public Goods605 Chapter 19Asymmetric Information637 Chapter 20Contracts and Moral Hazards666 Chapter AppendixesA-1Answers to Selected Questions and ProblemsA-28Sources for ApplicationsA-44ReferencesA-52IndexA-60CreditsA-78ContentsPrefacexivChapter 1Introduction11.1Microeconomics: The Allocation of Scarce Resources1 Trade-Offs2 Who Makes the Decisions2 APPLICATIONFlu Vaccine Shortage2 Prices Determine Allocations3 APPLICATIONTwinkie Tax3 1.2Models3 APPLICATIONIncome Threshold Model and China4 Simplifications by Assumption4 Testing Theories5 Positive Versus Normative6 1.3Uses of Microeconomic Models7 Summary 8Chapter 2Supply and Demand9CHALLENGEQuantities and Prices of Genetically Modified Foods9 2.1Demand10 The Demand Curve11 APPLICATIONCalorie Counting at Starbucks14 The Demand Function14 Solved Problem 2.116 Summing Demand Curves16 APPLICATIONAggregating the Demand for Broadband Service17 2.2Supply17 The Supply Curve18 The Supply Function19 Summing Supply Curves20 Effects of Government Import Policies on Supply Curves20