,This page intentionally left blank
,Intermediate Microeconomics
A Modern Approach
Eighth Edition
,W. 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 New
York City’s Cooper Union. The firm soon expanded its program beyond the In-
stitute, publishing books by celebrated academics from America and abroad. By
mid-century, the two major pillars of Norton’s publishing program—trade books
and 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 four
hundred and a comparable number of trade, college, and professional titles pub-
lished each year—W. W. Norton & Company stands as the largest and oldest
publishing house owned wholly by its employees.
Copyright
c 2010, 2006, 2003, 1999, 1996, 1993, 1990, 1987 by Hal R. Varian
All rights reserved
Printed in the United States of America
EIGHTH EDITION
Editor: Jack Repcheck
Production Manager: Eric Pier–Hocking
Editorial Assistant: Jason Spears
TEXnician: Hal Varian
ISBN 978-0-393-93424-3
W. W. Norton & Company, Inc., 500 Fifth Avenue, New York, N.Y. 10110
W. W. Norton & Company, Ltd., Castle House, 75/76 Wells Street, London W1T 3QT
www.wwnorton.com
1234567890
, Intermediate
Microeconomics
A Modern Approach
Eighth Edition
Hal R. Varian
University of California at Berkeley
W. W. Norton & Company • New York • London
,This page intentionally left blank
,To Carol
,This page intentionally left blank
, CONTENTS
Preface xix
1 The Market
Constructing a Model 1 Optimization and Equilibrium 3 The De-
mand Curve 3 The Supply Curve 5 Market Equilibrium 7 Com-
parative Statics 9 Other Ways to Allocate Apartments 11 The Dis-
criminating Monopolist • The Ordinary Monopolist • Rent Control •
Which Way Is Best? 14 Pareto Efficiency 15 Comparing Ways to Al-
locate Apartments 16 Equilibrium in the Long Run 17 Summary 18
Review Questions 19
2 Budget Constraint
The Budget Constraint 20 Two Goods Are Often Enough 21 Prop-
erties of the Budget Set 22 How the Budget Line Changes 24 The
Numeraire 26 Taxes, Subsidies, and Rationing 26 Example: The
Food Stamp Program Budget Line Changes 31 Summary 31 Review
Questions 32
, VIII CONTENTS
3 Preferences
Consumer Preferences 34 Assumptions about Preferences 35 Indif-
ference Curves 36 Examples of Preferences 37 Perfect Substitutes
• Perfect Complements • Bads • Neutrals • Satiation • Discrete
Goods • Well-Behaved Preferences 44 The Marginal Rate of Substitu-
tion 48 Other Interpretations of the MRS 50 Behavior of the MRS
51 Summary 52 Review Questions 52
4 Utility
Cardinal Utility 57 Constructing a Utility Function 58 Some Exam-
ples of Utility Functions 59 Example: Indifference Curves from Utility
Perfect Substitutes • Perfect Complements • Quasilinear Preferences
• Cobb-Douglas Preferences • Marginal Utility 65 Marginal Utility
and MRS 66 Utility for Commuting 67 Summary 69 Review
Questions 70 Appendix 70 Example: Cobb-Douglas Preferences
5 Choice
Optimal Choice 73 Consumer Demand 78 Some Examples 78
Perfect Substitutes • Perfect Complements • Neutrals and Bads •
Discrete Goods • Concave Preferences • Cobb-Douglas Preferences •
Estimating Utility Functions 83 Implications of the MRS Condition 85
Choosing Taxes 87 Summary 89 Review Questions 89 Appen-
dix 90 Example: Cobb-Douglas Demand Functions
6 Demand
Normal and Inferior Goods 96 Income Offer Curves and Engel Curves
97 Some Examples 99 Perfect Substitutes • Perfect Complements
• Cobb-Douglas Preferences • Homothetic Preferences • Quasilinear
Preferences • Ordinary Goods and Giffen Goods 104 The Price Offer
Curve and the Demand Curve 106 Some Examples 107 Perfect
Substitutes • Perfect Complements • A Discrete Good • Substitutes
and Complements 111 The Inverse Demand Function 112 Summary
114 Review Questions 115 Appendix 115
,Intermediate Microeconomics
A Modern Approach
Eighth Edition
,W. 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 New
York City’s Cooper Union. The firm soon expanded its program beyond the In-
stitute, publishing books by celebrated academics from America and abroad. By
mid-century, the two major pillars of Norton’s publishing program—trade books
and 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 four
hundred and a comparable number of trade, college, and professional titles pub-
lished each year—W. W. Norton & Company stands as the largest and oldest
publishing house owned wholly by its employees.
Copyright
c 2010, 2006, 2003, 1999, 1996, 1993, 1990, 1987 by Hal R. Varian
All rights reserved
Printed in the United States of America
EIGHTH EDITION
Editor: Jack Repcheck
Production Manager: Eric Pier–Hocking
Editorial Assistant: Jason Spears
TEXnician: Hal Varian
ISBN 978-0-393-93424-3
W. W. Norton & Company, Inc., 500 Fifth Avenue, New York, N.Y. 10110
W. W. Norton & Company, Ltd., Castle House, 75/76 Wells Street, London W1T 3QT
www.wwnorton.com
1234567890
, Intermediate
Microeconomics
A Modern Approach
Eighth Edition
Hal R. Varian
University of California at Berkeley
W. W. Norton & Company • New York • London
,This page intentionally left blank
,To Carol
,This page intentionally left blank
, CONTENTS
Preface xix
1 The Market
Constructing a Model 1 Optimization and Equilibrium 3 The De-
mand Curve 3 The Supply Curve 5 Market Equilibrium 7 Com-
parative Statics 9 Other Ways to Allocate Apartments 11 The Dis-
criminating Monopolist • The Ordinary Monopolist • Rent Control •
Which Way Is Best? 14 Pareto Efficiency 15 Comparing Ways to Al-
locate Apartments 16 Equilibrium in the Long Run 17 Summary 18
Review Questions 19
2 Budget Constraint
The Budget Constraint 20 Two Goods Are Often Enough 21 Prop-
erties of the Budget Set 22 How the Budget Line Changes 24 The
Numeraire 26 Taxes, Subsidies, and Rationing 26 Example: The
Food Stamp Program Budget Line Changes 31 Summary 31 Review
Questions 32
, VIII CONTENTS
3 Preferences
Consumer Preferences 34 Assumptions about Preferences 35 Indif-
ference Curves 36 Examples of Preferences 37 Perfect Substitutes
• Perfect Complements • Bads • Neutrals • Satiation • Discrete
Goods • Well-Behaved Preferences 44 The Marginal Rate of Substitu-
tion 48 Other Interpretations of the MRS 50 Behavior of the MRS
51 Summary 52 Review Questions 52
4 Utility
Cardinal Utility 57 Constructing a Utility Function 58 Some Exam-
ples of Utility Functions 59 Example: Indifference Curves from Utility
Perfect Substitutes • Perfect Complements • Quasilinear Preferences
• Cobb-Douglas Preferences • Marginal Utility 65 Marginal Utility
and MRS 66 Utility for Commuting 67 Summary 69 Review
Questions 70 Appendix 70 Example: Cobb-Douglas Preferences
5 Choice
Optimal Choice 73 Consumer Demand 78 Some Examples 78
Perfect Substitutes • Perfect Complements • Neutrals and Bads •
Discrete Goods • Concave Preferences • Cobb-Douglas Preferences •
Estimating Utility Functions 83 Implications of the MRS Condition 85
Choosing Taxes 87 Summary 89 Review Questions 89 Appen-
dix 90 Example: Cobb-Douglas Demand Functions
6 Demand
Normal and Inferior Goods 96 Income Offer Curves and Engel Curves
97 Some Examples 99 Perfect Substitutes • Perfect Complements
• Cobb-Douglas Preferences • Homothetic Preferences • Quasilinear
Preferences • Ordinary Goods and Giffen Goods 104 The Price Offer
Curve and the Demand Curve 106 Some Examples 107 Perfect
Substitutes • Perfect Complements • A Discrete Good • Substitutes
and Complements 111 The Inverse Demand Function 112 Summary
114 Review Questions 115 Appendix 115
