To our daughters,
Maya, Talia, and Shira
Sarah and Rachel
ABOUT THE AUTHORS
The authors, back again for a
new edition, reflect on their
years of successful textbook
collaboration. Pindyck is on the
right and Rubinfeld on the left.
R
evising a textbook every three or four years is hard work, and the last
edition was well-liked by students. “So why is our publisher pushing
for a new edition?” the authors wondered. “Were some of the examples
becoming stale? Or might it have something to do with the used book market?”
Could be both. In any case, here they are again, with a new edition that has sub-
stantial improvements and lots of new examples.
Robert S. Pindyck is the Bank of Tokyo-Mitsubishi Ltd. Professor of Economics
and Finance in the Sloan School of Management at M.I.T. Daniel L. Rubinfeld
is the Robert L. Bridges Professor of Law and Professor of Economics Emeritus
at the University of California, Berkeley, and Professor of Law at NYU. Both
received their Ph.Ds from M.I.T., Pindyck in 1971 and Rubinfeld in 1972. Professor
Pindyck’s research and writing have covered a variety of topics in microeconom-
ics, including the effects of uncertainty on firm behavior and market structure;
the behavior of natural resource, commodity, and financial markets; environmen-
tal economics; and criteria for investment decisions. Professor Rubinfeld, who
served as chief economist at the Department of Justice in 1997 and 1998, is the
author of a variety of articles relating to antitrust, competition policy, law and
economics, law and statistics, and public economics.
Pindyck and Rubinfeld are also co-authors of Econometric Models and Economic
Forecasts, another best-selling textbook that makes a perfect gift (birthdays,
weddings, bar mitzvahs, you name it) for the man or woman who has every-
thing. (Buy several—bulk pricing is available.) These two authors are always
looking for ways to earn some extra spending money, so they enrolled as human
subjects in a double-blind test of a new hair restoration medication. Rubinfeld
strongly suspects that he is being given the placebo.
This is probably more than you want to know about these authors, but for
further information, see their Web sites: http://web.mit.edu/rpindyck/www
vi and http://www.law.berkeley.edu/faculty/rubinfeldd.
BRIEF CONTENTS
• PART ONE
Introduction: Markets and Prices 1
1 Preliminaries 3
2 The Basics of Supply and Demand 21
• PART TWO
Producers, Consumers, and Competitive Markets 65
3 Consumer Behavior 67
4 Individual and Market Demand 111
5 Uncertainty and Consumer Behavior 159
6 Production 201
7 The Cost of Production 229
8 Profit Maximization and Competitive Supply 279
9 The Analysis of Competitive Markets 317
• PART THREE
Market Structure and Competitive Strategy 355
10 Market Power: Monopoly and Monopsony 357
11 Pricing with Market Power 399
12 Monopolistic Competition and Oligopoly 451
13 Game Theory and Competitive Strategy 487
14 Markets for Factor Inputs 529
15 Investment, Time, and Capital Markets 559
• PART FOUR
Information, Market Failure, and the Role
of Government 593
16 General Equilibrium and Economic Efficiency 595
17 Markets with Asymmetric Information 631
18 Externalities and Public Goods 661
Appendix: The Basics of Regression 700
Glossary 708
Answers to Selected Exercises 718
Photo Credits 731
Index 732
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CONTENTS
Preface xvii
• P A RT ONE Summary 60
Introduction: Markets and Prices 1 Questions for Review 61
Exercises 62
1 Preliminaries 3
1.1 The Themes of Microeconomics 4
Trade-Offs 4 • P A R T TWO
Prices and Markets 5 Producers, Consumers, and
Theories and Models 5 Competitive Markets 65
Positive versus Normative Analysis 6
1.2 What Is a Market? 7 3 Consumer Behavior 67
Competitive versus Noncompetitive Markets 8
Consumer Behavior 67
Market Price 8
3.1 Consumer Preferences 69
Market Definition—The Extent of a Market 9
Market Baskets 69
1.3 Real versus Nominal Prices 12
Some Basic Assumptions about Preferences 70
1.4 Why Study Microeconomics? 16
Indifference Curves 71
Corporate Decision Making: The Toyota Prius 16
Indifference Maps 72
Public Policy Design: Fuel Efficiency Standards for
The Shape of Indifference Curves 73
the Twenty-First Century 17
The Marginal Rate of Substitution 74
Summary 18
Perfect Substitutes and Perfect
Questions for Review 19
Complements 75
Exercises 19
3.2 Budget Constraints 82
The Budget Line 82
2 The Basics of Supply and The Effects of Changes in Income
Demand 21 and Prices 84
2.1 Supply and Demand 22 3.3 Consumer Choice 86
The Supply Curve 22 Corner Solutions 89
The Demand Curve 23 3.4 Revealed Preference 92
2.2 The Market Mechanism 25 3.5 Marginal Utility and Consumer Choice 95
2.3 Changes in Market Equilibrium 26 Rationing 98
2.4 Elasticities of Supply and Demand 33 *3.6 Cost-of-Living Indexes 100
Point versus Arc Elasticities 36 Ideal Cost-of-Living Index 101
2.5 Short-Run versus Long-Run Elasticities 39 Laspeyres Index 102
Demand 40 Paasche Index 103
Supply 45 Price Indexes in the United Statics: Chain
*2.6 Understanding and Predicting the Effects of Weighting 104
Changing Market Conditions 48 Summary 105
2.7 Effects of Government Intervention—Price Questions for Review 106
Controls 58 Exercises 107
ix
