NUST Institutions Library Catalogue

1 WHAT IS ECONOMICS? ..............................1-1 1.1.1 Normative and Positive Theories ..................1-2 1.1.2 Opportunity Cost ..........................................1-3 1.1.3 Economic Reasoning and Analysis................1-5 2 SUPPLY AND DEMAND...............................2-8 2.1 Supply and Demand.................................2-8 2.1.1 Demand and Consumer Surplus ...................2-8 2.1.2 Supply.........................................................2-13 2.2 The Market...............................................2-18 2.2.1 Market Demand and Supply .......................2-18 2.2.2 Equilibrium.................................................2-20 2.2.3 Efficiency of Equilibrium ............................2-22 2.3 Changes in Supply and Demand..........2-22 2.3.1 Changes in Demand ....................................2-22 2.3.2 Changes in Supply.......................................2-23 2.4 Elasticities................................................2-27 2.4.1 Elasticity of Demand...................................2-27 2.4.2 Elasticity of Supply .....................................2-30 2.5 Comparative Statics ...............................2-30 2.5.1 Supply and Demand Changes .....................2-30 2.6 Trade.........................................................2-32 2.6.1 Production Possibilities Frontier ................2-32 2.6.2 Comparative and Absolute Advantage ........2-36 2.6.3 Factors and Production...............................2-38 2.6.4 International Trade.....................................2-39 3 THE US ECONOMY.....................................3-41 3.1.1 Basic Demographics....................................3-41 3.1.2 Education....................................................3-47 3.1.3 Households and Consumption....................3-49 3.1.4 Production ..................................................3-56 3.1.5 Government................................................3-65 3.1.6 Trade...........................................................3-73 3.1.7 Fluctuations ................................................3-76 4 PRODUCER THEORY.................................4-79 4.1 The Competitive Firm............................4-79 4.1.1 Types of Firms ............................................4-79 4.1.2 Production Functions..................................4-81 4.1.3 Profit Maximization ....................................4-85 4.1.4 The Shadow Value.......................................4-91 4.1.5 Input Demand.............................................4-92 4.1.6 Myriad Costs ...............................................4-95 4.1.7 Dynamic Firm Behavior ..............................4-97 4.1.8 Economies of Scale and Scope ..................4-100 4.2 Perfect Competition Dynamics..........4-104 4.2.1 Long-run Equilibrium...............................4-104 4.2.2 Dynamics with Constant Costs..................4-105 4.2.3 General Long-run Dynamics.....................4-109 4.3 Investment.............................................4-114 4.3.1 Present value.............................................4-114 4.3.2 Investment................................................4-118 4.3.3 Investment Under Uncertainty .................4-120 4.3.4 Resource Extraction..................................4-125 4.3.5 A Time to Harvest .....................................4-127 4.3.6 Collectibles................................................4-130 4.3.7 Summer Wheat .........................................4-135 5 CONSUMER THEORY ............................. 5-139 5.1 Utility Maximization ........................... 5-139 5.1.1 Budget or Feasible Set .............................. 5-140 5.1.2 Isoquants ................................................. 5-143 5.1.3 Examples.................................................. 5-148 5.1.4 Substitution Effects .................................. 5-151 5.1.5 Income Effects.......................................... 5-155 5.2 Additional Considerations................. 5-158 5.2.1 Corner Solutions ...................................... 5-158 5.2.2 Labor Supply ............................................ 5-160 5.2.3 Compensating Differentials...................... 5-164 5.2.4 Urban Real Estate Prices .......................... 5-165 5.2.5 Dynamic Choice ....................................... 5-169 5.2.6 Risk .......................................................... 5-174 5.2.7 Search ...................................................... 5-178 5.2.8 Edgeworth Box......................................... 5-181 5.2.9 General Equilibrium................................. 5-188 6 MARKET IMPERFECTIONS................... 6-195 6.1 Taxes....................................................... 6-195 6.1.1 Effects of Taxes ........................................ 6-195 6.1.2 Incidence of Taxes.................................... 6-199 6.1.3 Excess Burden of Taxation ....................... 6-200 6.2 Price Floors and Ceilings ................... 6-202 6.2.1 Basic Theory............................................. 6-203 6.2.2 Long- and Short-run Effects..................... 6-207 6.2.3 Political Motivations ................................ 6-209 6.2.4 Price Supports.......................................... 6-210 6.2.5 Quantity Restrictions and Quotas ............ 6-211 6.3 Externalities ......................................... 6-213 6.3.1 Private and Social Value, Cost .................. 6-214 6.3.2 Pigouvian Taxes ....................................... 6-217 6.3.3 Quotas...................................................... 6-218 6.3.4 Tradable Permits and Auctions ................ 6-219 6.3.5 Coasian Bargaining .................................. 6-220 6.3.6 Fishing and Extinction ............................. 6-221 6.4 Public Goods......................................... 6-226 6.4.1 Examples.................................................. 6-226 6.4.2 Free-Riders .............................................. 6-227 6.4.3 Provision with Taxation ........................... 6-229 6.4.4 Local Public Goods................................... 6-230 6.5 Monopoly............................................... 6-232 6.5.1 Sources of Monopoly................................ 6-232 6.5.2 Basic Analysis........................................... 6-233 6.5.3 Effect of Taxes .......................................... 6-236 6.5.4 Price Discrimination ................................ 6-237 6.5.5 Welfare Effects ......................................... 6-240 6.5.6 Two-Part Pricing ...................................... 6-240 6.5.7 Natural Monopoly .................................... 6-241 6.5.8 Peak Load Pricing..................................... 6-242 6.6 Information .......................................... 6-245 6.6.1 Market for Lemons................................... 6-245 6.6.2 Myerson-Satterthwaite Theorem.............. 6-246 6.6.3 Signaling .................................................. 6-248 7 STRATEGIC BEHAVIOR ......................... 7-251 7.1 Games..................................................... 7-251 7.1.1 Matrix Games........................................... 7-251 7.1.2 Nash Equilibrium................... 7-255 7.1.3 Mixed Strategies. 7-257 7.1.4 Examples... 7-262 7.1.5 Two Period Games . 7-265

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