Hill Manuscript Microeconomics

Elements of Microeconomics

N.D. Hill May 22, 2005

ELEMENTS OF MICROECONOMICS. Copyright c 2004 by Nicholas Hill. All rights reserved. No part of this book may be used or reproduced without the permission of the author.

For Bruce Hamilton, who taught me

Contents

Introduction vi Equity and Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . vii Layout of the Book . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . viii 1 Producers 1.1 The Production Possibilities Frontier 1.2 Profit Maximization and Prices . . . 1.3 The Supply Curve . . . . . . . . . . 1.4 Problems . . . . . . . . . . . . . . . . 1.5 Solutions . . . . . . . . . . . . . . . . 2 Efficiency in Consumption 2.1 The Budget Constraint . . . . . . . . 2.2 Indifference Curves . . . . . . . . . . 2.2.1 Three Restrictions . . . . . . 2.2.2 Complements and Substitutes 2.3 The Demand Curve . . . . . . . . . . 2.4 Efficiency . . . . . . . . . . . . . . . 2.5 Problems . . . . . . . . . . . . . . . . 2.6 Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 4 6 7 9 16 16 18 19 22 23 26 29 31 37 37 38 39 42 44

3 Equilibrium and Efficiency 3.1 Producer Revenue and Consumer Income 3.2 Aggregating Consumers . . . . . . . . . 3.3 Equilibrium in One Market . . . . . . . . 3.4 Equilibrium in Two Markets . . . . . . . 3.5 Efficiency . . . . . . . . . . . . . . . . . iv

CONTENTS 3.6 3.7 4 The 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9

v

Problems . . . . . . . . ....