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Microeconomics, 2nd Edition

Book Description

Microeconomics is intended to be a comprehensive and standard text for undergraduate students of Microeconomics. Not only does this book provide students with sufficient study material for the examination purpose, it also aims at making them understand economics.

Table of Contents

  1. Cover
  2. Title Page
  3. Contents
  4. About the Author
  5. Preface to the Second Edition
  6. Preface
  7. Part I: Introduction
    1. 1. Introduction to Microeconomics
      1. What is Economics?
        1. Economics is a Social Science
        2. Why Economizing Behaviour?
        3. Two Major Branches of Economics
      2. What is Microeconomics?
      3. Is Microeconomics a Positive or a Normative Science?
        1. Microeconomics As a Positive Science
        2. Microeconomics As a Normative Science
      4. Methodology of Positive Economics: Model Building and Theorization
      5. The Uses and Limitations of Microeconomic Theories
        1. The Uses of Microeconomic Theories
        2. Limitations of Microeconomic Theories
        3. Limitations Do Not Matter Much
          1. Review Questions and Exercises
          2. Further Readings
    2. 2. The Economy: Its Basic Problems and Working System
      1. What is an Economy?
        1. Economic Activities are Interrelated and Interdependent
        2. The Economic System Works Automatically
      2. How an Economy Works?
        1. The Circular Flow Model of a Simple Economy
      3. The Basic Problems of an Economy
        1. Problems in Maximizing Production and Optimizing Distribution
        2. Problems in Achieving Growth, Full Employment and Stability
      4. How Market Mechanism Solves the Basic Economic Problems?
      5. Drawbacks of the Free Enterprise System
      6. The Government and the Economy
        1. The Mixed Economy System is the Order of the Day
      7. The Production Possibility Frontier
        1. Some Implications of PPF
        2. Shift in PPF
          1. Review Questions and Exercises
          2. Further Readings
  8. Part II: Market Mechanism: How Markets Work
    1. 3. The Market Forces: Demand and Supply
      1. The Concept of Market
      2. The Demand Side of the Market
        1. Meaning of Demand
        2. The Law of Demand
        3. The Demand Schedule
        4. The Demand Curve
        5. The Factors Behind the Law of Demand
        6. Exceptions to the Law of Demand
        7. The Market Demand
        8. Determinants of Market Demand
        9. Demand Function
        10. Shift in Demand Curve
      3. The Supply Side of the Market
        1. Market Supply
        2. The Law of Supply
        3. The Supply Schedule and Supply Curve
        4. Shift in the Supply Curve
        5. Supply Function
      4. The Market Equilibrium: The Equilibrium of Demand and Supply
        1. Determination of Price in a Free Market
        2. The Concept of Market Equilibrium
        3. Determination of Market Price
        4. Market Mechanism: How Market Brings About Balance
        5. Graphical Illustration of Price Determination
        6. Price Determination by Demand and Supply Functions
      5. Shift in Demand and Supply Curves and Market Equilibrium
        1. Shift in Demand Curve
        2. Shift in Supply Curve
        3. Parallel Shift in Demand and Supply Curves
      6. Stability of Market Equilibrium
        1. Market Equilibrium Under Dynamic Conditions
      7. Conclusion
        1. Review Questions and Exercises
        2. Further Readings
    2. 4. Elasticity of Demand and Supply
      1. The Elasticity of Demand
      2. Price Elasticity of Demand
        1. The Arc and Point Elasticity
        2. Measuring Arc Elasticity
        3. Measuring Point Elasticity
        4. Price Elasticity Varies Along the Demand Curve
        5. The Slope of Demand Curve and Price Elasticity
      3. Determinants of Price Elasticity of Demand
      4. Measuring Price Elasticity from a Demand Function
        1. Measuring Price Elasticity from a Linear Demand Function
        2. Price Elasticity from a Non-Linear Demand Function
      5. Price Elasticity and Sales Revenue
        1. Price Elasticity and Marginal Revenue
        2. Relation Between MR and AR
        3. Price Elasticity and Total Revenue
      6. Price Elasticity and Consumption Expenditure
      7. Other Elasticities of Demand
        1. Cross-Elasticity of Demand
        2. Income Elasticity of Demand
      8. Application of Demand Elasticity
      9. Price Elasticity of Supply
        1. Definition and Measurement
        2. Determinants of the Price Elasticity of Supply
          1. Review Questions and Exercises
          2. Further Readings
    3. 5. Application of Market Laws and Elasticities
      1. Excise Tax: Its Effects and Incidence
        1. Lump-Sum and Ad Valorem Excise Tax
        2. The Effects of Excise Tax on Production and Price
        3. Who Bears the Tax Burden?
      2. Production Subsidy and its Effects
        1. The Effect of Production Subsidy
        2. Who Benefits from Production Subsidy?
      3. Import Tariffs and Export Subsidies
        1. Import Tariffs
        2. Export Subsidy
          1. Review Questions
          2. Further Readings
  9. Part III: Theory of Consumer Demand
    1. 6. Theory of Consumer Demand: Cardinal Utility Approach
      1. Introduction
      2. Cardinal Utility Approach to Demand Analysis
        1. The Concept of Cardinal Utility and its Measurement
        2. The Total and Marginal Utility
      3. The Law of Diminishing Marginal Utility
        1. Numerical Example
        2. Graphical Illustration
        3. Assumptions
      4. Consumers's Equilibrium: Cardinal Utility Approach
        1. Assumptions
        2. Consumer Equilibrium: A Single Commodity Case
        3. Consumer Equilibrium: The Multiple Commodity
      5. Derivation of Demand Curve
      6. Drawbacks of Cardinal Utility Approach
        1. Review Questions and Exercises
        2. Further Readings
    2. 7. Theory of Consumer Demand: Ordinal Utility Approach
      1. Ordinal Utility Concept and its Assumptions
        1. Assumptions of the Ordinal Utility Theory
      2. Indifference Curve
        1. Indifference Map
        2. The Concept of Marginal Rate of Substitution (MRS)
        3. Postulates of Diminishing MRS
        4. Why the MRS Declines
      3. Properties of Indifference Curves
        1. Indifference Curves Have a Negative Slope
        2. Indifference Curves are Convex with Reference to the Origin
        3. Indifference Curves Neither Intersect Nor are Tangential to One Another
        4. Higher Indifference Curves Represent a Higher Level of Satisfaction Than the Lower Ones
      4. Other Types of Indifference Curves
        1. Perfect Substitutes
        2. Complementary goods
      5. Goods, Bads and Neuters
        1. What are the Bads and the Neuters?
        2. Indifference Maps for Goods, Bads and Neuters
      6. Budgetary Constraint and the Budget Line
        1. What Causes Shifts in the Budget Line
        2. Slope of the Budget Line
      7. Consumer Equilibrium: The Ordinal Utility Approach
        1. Corner Solution: The Extreme Choice
        2. Composite Goods Case
      8. Changes in Income and Consumer Behaviour
        1. Income Effects on Consumer Behaviour Towards Normal Goods
        2. Inferior Goods
        3. Income and Consumption: The Engel Curve
        4. Engel and Demand Curves
        5. Engel Curve and Income Elasticity of Demand
      9. Changes in Prices and Consumer Behaviour
        1. Changes in Price and Consumer Behaviour: Case of Normal Goods
        2. Derivation of Consumer Demand Curve
        3. Graphical Derivation of Demand Curve
      10. Income and Substitution Effects of Price Change: Normal Goods Case
        1. Hicksian Approach
        2. Siutskian Approach
        3. Comparison of the Hicksian and Slutskian Methods
        4. Measurability of Income and Substitution Effects
      11. Income and Substitution Effects: Inferior Goods
        1. Effect of Rise in Money Income
        2. Income and Substitution Effects of Price Change: Case of Inferior Goods
        3. Giffen Paradox
      12. Comparison of Cardinal and Ordinal Utility Approaches
        1. Similarity Between the two Approaches
        2. Superiority of the Indifference Curve Approach
      13. Drawbacks of Indifference Curve Approach
        1. Appendix
        2. Review Questions and Exercises
        3. Further Readings
    3. 8. Application of Indifference Curve Analysis
      1. Introduction
      2. Measuring Welfare Effects of Income and Excise Taxes
        1. Choice Between Taxes
      3. Measuring Effects of Excise and Income Subsidies
        1. Measuring the Financial Cost of Excise Subsidy
        2. Measuring the Financial Cost of Lump-Sum Income Subsidy
        3. Making Choice of Policy
      4. Measuring Welfare Effect of Commodity Exchange Between Individuals
      5. Derivation of Labour Supply Curve
        1. Income–Leisure Choice
        2. Wage–Labour Offer Curve and Labour Supply Curve
      6. Evaluating Rationing of Consumer Good
        1. Rationing of One Commodity
        2. Rationing of More Commodities
          1. Review Questions and Exercises
          2. Further Readings
    4. 9. Revealed Preference Theory
      1. Introduction
      2. Revealed Preference: Assumptions and Axioms
        1. Assumptions
        2. Revealed Preference Axiom
      3. Decomposition of Substitution and Income Effects and Derivation of Demand Curve
      4. Derivation of Indifference Curve
      5. Appraisal of Revealed Preference Theory
        1. Review Questions and Exercises
        2. Further Readings
    5. 10. Consumer Surplus
      1. Introduction
      2. Marshallian Concept of Consumer Surplus and its Measurement
        1. Assumptions
        2. Critical Appraisal
      3. Hicksian Method of Measuring Consumer Surplus
        1. Measuring Consumer Surplus Under Constant MU of Money
        2. Measuring Consumer Surplus Under Variable MU of Money
      4. Extentions of Hicksian Approach to Consumer Surplus
        1. Hicks' Four Concepts of Consumer Surplus
      5. Application of Consumer Surplus
        1. The Deadweight Loss of Commodity Taxation
        2. Deadweight Loss from Sales Tax: Tax on Consumers
        3. Measuring Gains of Subsidy
        4. Deadweight Loss of Price Control
        5. Deadweight Loss of Trade Barriers
          1. Review Questions
          2. Further Readings
  10. Part IV: Theory of Production and Analysis of Cost
    1. 11. Theory of Production: Laws of Returns to a Variable Input
      1. Introduction
      2. Some Basic Concepts
        1. Meaning of Production
        2. Input and Output
        3. Short Run and Long Run
      3. Production Function
        1. Short-Run and Long-Run Production Function
        2. Assumptions
      4. Production with One Variable Input: The Short-Run Laws of Production
        1. The Laws of Returns to Variable Input (Labour)
        2. Assumptions
        3. Marginal Productivity of Labour
        4. Average Productivity of Labour
        5. The Three Stages in the Law of Diminishing Returns
        6. Factors Behind the Laws of Returns
        7. Applicability of the Law of Diminishing Returns
      5. Graphical Derivation of Marginal and Average Product Curves
        1. Derivation of Marginal Product Curve (MPL)
        2. Derivation of Average Product Curve (APL)
      6. The Three Stages of Production
      7. The Three Stages of Production and Production Decisions
        1. What About Stage II?
          1. Review Questions and Exercises
          2. Further Readings
    2. 12. Theory of Production: Laws of Returns to two Variable Inputs
      1. Introduction
      2. The Isoquant Curve
      3. Derivation of Isoquant Curve
        1. Assumptions
      4. Properties of Isoquant Curves
        1. Isoquants Have a Negative Slope
        2. Isoquants are Convex to the Origin
        3. Isoquants do not Intersect or are Tangent to Each Other
        4. Upper Isoquants Represent a Higher Level of Output
      5. Marginal Rate of Technical Substitution (MRTS)
      6. Isoquant Map and Economic Region of Production
        1. Isoquant Map
        2. Economic Region of Production
      7. Other Forms of Isoquants
        1. Perfect Substitutes and Linear Isoquants
        2. The Fixed Factor Technology and L-Shaped Lsoquant
        3. The Kinked or Linear Programming Isoquants
      8. Elasticity of Technical Substitution
      9. The Laws of Returns to Scale
        1. Three Laws of Return to Scale
        2. The Law of Increasing Returns to Scale
        3. The Law of Constant Returns to Scale
        4. The Law of Decreasing Returns to Scale
      10. Production Function and Returns to Scale
        1. Cobb–Douglas Production Function and Returns to Scale
      11. Laws of Variable Proportions and Returns to Scale Compared
        1. Graphic Comparison
        2. Are the Laws of Returns Compatible?
        3. Can the two Kinds of Laws Operate Simultaneously?
          1. Appendix
          2. Review Questions and Exercises
          3. Further Readings
    3. 13. Optimum Combination of Inputs
      1. Introduction
      2. Derivation of Isocost
      3. The Least Cost Criteria of Optimum Input Combination
        1. Criterion in Value Terms
      4. Choice of Optimal Expansion Path
      5. Effects of Change in Input Prices
        1. Change in Input Prices and Isocosts
        2. Change in Input Prices and Expansion Path
        3. Change in Relative Price of Inputs
      6. Substitution and Resource Effects of Change in Input Prices
        1. Review Questions and Exercises
        2. Further Readings
    4. 14. Theory of Cost
      1. Introduction
      2. Cost Concepts
        1. Accounting Cost Concepts
        2. Analytical Cost Concepts
        3. Policy Related Cost Concepts: Private and Social Costs
      3. Theory of Cost: An Overview
      4. Theory of Short-Run Cost
        1. Short-Run Cost Measures
        2. The Short-Run Cost–Output Relationship
      5. Short-Run Cost Function and Cost Curves
        1. Numerical Example
        2. Derivation of Behavioural Cost Equations
      6. Long-Run Cost–Output Relationship
        1. Derivation of Total Long-Run Cost (LTC) Curve
        2. Derivation of Long-Run Average Cost (LAC) Curve
        3. Derivation of Long-Run Marginal Cost (LMC) Curve
        4. Optimum Size of the Firm in the Long Run
      7. Economies and Diseconomies of Scale: Factors Behind Cost Behaviour
        1. The Economies of Scale: Factors Causing Decrease in LAC
        2. Diseconomies of Scale: Why LAC Increases
      8. Modern Approach to the Theory of Cost
        1. Modern Approach to Short-Run Cost Behaviour
        2. What Happens to the Average Variable Cost (AVC)?
        3. The SAVC and SMC Curves
        4. The Short-Run Average Cost (SAC) Curves
        5. Modern Approach to Long-Run Cost Behaviour: The L-shaped Scale Curve
        6. Derivation of the LAC Curve
          1. Review Questions and Exercises
          2. Further Readings
  11. Part V: Theory of Firm: Determination of Price and Output
    1. 15. The Objectives of Business Firms and Their Market Powers
      1. The Objectives of Business Firms
        1. Profit Maximization as Business Objective
        2. Profit-Maximization Conditions
        3. Numerical Illustration
        4. Graphical Instruction
        5. Controversy on Profit-Maximization Objective
        6. Alternative Objectives of Business Firms
        7. Conclusion
      2. The Market Structure and Power of Firms
        1. Perfect Competition
        2. Imperfect Competition
        3. Monopoly
      3. A Prelude to the Theory of Firm
        1. Review Questions and Exercises
        2. Further Readings
    2. 16. Price and Output Determination Under Perfect Competition
      1. Characteristics of Perfect Competition
        1. Perfect Versus Pure Competition
      2. Role of a Firm in a Perfectly Competitive Market
        1. What are the Firm's Options
      3. Short-Run Equilibrium of the Firm
        1. Assumptions
        2. Does a Firm Always Make Profit in the Short-Run?
        3. Shut-Down or Close-Down Point
      4. Derivation of Supply Curve: A Digression
        1. Derivation of Firm's Supply Curve
        2. Derivation of Industry Supply Curve
      5. Short-Run Equilibrium of Industry and Firm
        1. Link Between Short-Run Equilibrium of the Industry and the Firm
      6. Long-Run Equilibrium of the Firm and Industry
        1. Equilibrium of the Firm in the Long-Run
        2. Equilibrium of Industry
      7. Long-Run Supply Curve of a Competitive Industry
        1. Constant Cost Industry
        2. Increasing Cost Industry
        3. Decreasing Cost Industry
        4. Whether Decreasing Cost
      8. Conclusion
        1. Review Questions and Exercises
        2. Further Readings
    3. 17. Price and Output Determination Under Monopoly
      1. Introduction
      2. Monopoly and Sources of Monopoly Power
        1. Definition and Features
        2. Sources and Kinds of Monopolies
      3. Cost and Revenue Curves Under Monopoly
        1. AR and MR Curves Under Monopoly
      4. Short-Run Equilibrium of the Monopoly: Price and Output Determination
        1. Monopoly Equilibrium by Total Revenue–Total Cost Approach
        2. Monopoly Equilibrium by MR–MC Approach
        3. Algebra of Profit Maximization: A Numerical Illustration
        4. Does a Monopoly Firm always Make Pure Profit?
        5. Profit Maximization by Using MC and Price Elasticity
      5. No Supply Curve Under Monopoly: A Digression
      6. Monopoly Equilibrium in the Long Run
      7. Capacity Utilization Under Monopoly
      8. Equilibrium of a Multi-Plant Monopoly
        1. The Long-Run Adjustments
      9. Price Discrimination Under Monopoly
        1. Price Discrimination
        2. Necessary Conditions for Price Discrimination
        3. Degrees of Price Discrimination
        4. Is Price Discrimination Desirable?
        5. The Gain to Monopolist from Price Discrimination
      10. Monopoly Vs. Perfect Competition
        1. Comparison of Long-Run Price and Output
        2. The Deadweight Loss Under Monopoly
      11. Some Other Monopoly-Related Issues
        1. Incidence of Taxes and Effect of Subsidy Under Monopoly
        2. Peak-Load Pricing by a Monopoly
      12. Government Regulation of Monopoly Prices
      13. Measures of Monopoly Power
        1. Measures of Monopoly Power
          1. Appendix
          2. Review Questions and Exercises
          3. Further Readings
    4. 18. Price and Output Determination Under Monopolistic Competition
      1. Introduction
      2. Monopolistic Competition: Definition and Characteristics
        1. Definition of Monopolistic Competition
        2. Characteristics of Monopolistic Competition
      3. Chamberlin's Theory of Monopolistic Competition
        1. Basic Elements of Chamberlin's Theory
        2. Product Differentiation and Firm's Perceived Demand Curve
        3. Selling Costs and Firm's Cost Structure
        4. Concept of Industry and Product Groups
      4. Firm's Equilibrium Under Monopolistic Competition
        1. Assumptions
        2. Short-Run Equilibrium of the Firm
        3. Long-Run Equilibrium of the Firm
      5. Excess Capacity Under Monopolistic Competition
        1. Ideal Output and Excess Capacity
        2. Non-Price Competition and Excess Capacity
      6. Selling Cost and Firm's Equilibrium: Non-Price Competition
        1. Individual Equilibrium with Selling Cost
        2. Group Equilibrium
      7. Monopolistic Competition Versus Perfect Competition: A Comparison
      8. Criticism of Chamberlin's Theory of Monopolistic Competition
        1. Appendix
        2. Review Questions and Exercises
        3. Further Readings
    5. 19. Price and Output Determine Oligopoly
      1. Introduction
      2. Oligopoly: A Market of Few Sellers
        1. Definition of Oligopoly
        2. Factors Causing Oligopoly
        3. Features of Oligopoly
      3. The Oligopoly Models: An Overview
        1. Duopoly Models of Oligopoly
          1. Cournot's Duopoly Model
          2. Bertrand's Duopoly Model
          3. Edgeworth's Duopoly Model
          4. Stackelberg's Leadership Model
        2. Oligopoly Models
          1. Non-Collusive Models of Oligopoly
          2. Sweezy's Model of Oligopoly: Kinked-Demand Curve Model
        3. Collusive Model of Oligopoly
          1. What is a Cartel Form of Collusion?
          2. Price Leadership Models
          3. Price Leadership by a Low-Cost Firm
          4. Price Leadership by the Dominant Firm
          5. The Barometric Price Leadership
        4. Baumou's Theory of Sales Maximization: An Alternative Theory
          1. Baumol's Model Without Advertising
          2. Baumol's Model With Advertising
        5. The Game Theory
          1. The Nature of the Problem: Prisoners' Dilemma
          2. Application of Game Theory to Oligopolistic Strategy
        6. Concluding Remarks
          1. Review Questions and Exercises
          2. Further Readings
  12. Part VI: Factor Market and Factor Pricing
    1. 20. The Factor Market: Factor Demand and Supply
      1. Introduction
      2. The Theory of Distribution and Factor Pricing: An Overview
        1. Peculiarities of Factor Demand and Supply
        2. Development of Theories of Factor Pricing
      3. Factor Demand: Why a Factor is Demanded
        1. Factor Demand is a Derived Demand
        2. Marginal Revenue Productivity: The Basic Determinant of Factor Demand
      4. Marginal Productivity and Factor Demand
      5. Factor Supply: Supply of Labour
        1. Derivation of Individual Labour Supply Curve
        2. Market Labour Supply Curve
      6. Determination of Market Wage Rate: A Simple Theory
        1. Shift in Factor Market Equilibrium and its Stability
          1. Review Questions and Exercises
          2. Further Readings
    2. 21. Wage Determination Under Perfect Competition
      1. Introduction
      2. Wage Determination in a Perfectly Competitive Market
        1. Derivation of Labour Demand Curve
        2. Derivation of Labour Demand Curve with two Variable Inputs
        3. Industry Demand Curve for a Variable Factor: Labour
        4. Determination of Market Wage Rate
      3. Non-Homogeneous Labour and Wage Differentials
        1. Dynamic Wage Differentials
        2. Static Wage Differentials
        3. Wage Differentials Due to Heterogeneity of Labour
        4. The Nature and Causes of Persisting Wage Differentials
      4. Summary
        1. Review Questions and Exercises
        2. Further Readings
    3. 22. Wage and Employment Determination Under Imperfect Competition
      1. Introduction
      2. Wage Determination Under Product Monopoly and Perfect Competition in Labour Market
        1. Derivation of MRPL Curve Under Product Monopoly
        2. Exploitation of Labour by Monopoly
      3. Wage Determination Under Product Monopoly and Factor Monopsony
        1. Marginal Cost of a Variable Factor (Labour)
        2. Wages and Employment Under Monopsony: Single Variable Factor (Labour)
        3. Factor Price and Employment Under Monopsony: Two Variable Factors Case
      4. Perfect Competition in Commodity Market and Monopoly in Labour Market: The Case of Labour Union
      5. Wage Determination Under Bilateral Monopoly: The Case of Collective Bargaining
        1. Equilibrium Under Bilateral Monopoly is Indeterminate
        2. Indeterminateness of Bilateral Monopoly
        3. Labour Union and Monopsonistic Exploitation
      6. Application of the Wage Determination Theory
        1. Effects of Minimum Wage Laws in Perfectly Competitive Markets
        2. Why is Minimum Wage Law Justified?
        3. Minimum Wage Laws, Monopsony and Trade Unions
          1. Review Questions and Problems
          2. Further Readings
    4. 23. Theory of Rent
      1. Introduction
      2. Land as a Factor of Production
      3. Historical Background of Rent Theory
      4. The Ricardian Theory of Rent
        1. Ricardian Definition of Rent
        2. The Ricardian Theory of Rent
        3. Criticism
      5. Transfer Earning and Economic Rent: The Modern Approach
        1. Elasticity of Factor Supply and Economic Rent
      6. Quasi-Rent: The Short-Term Earning of Fixed Factors
        1. Graphical Illustration of Quasi-Rent
      7. Is Rent Price Determined or Price is Rent Determined?
        1. A Classical Controversy
        2. Modern View
      8. Rent Controls: An Application of Rent Theory
        1. Does This Happen in Reality?
        2. ‘Who Loses and Who Benefits?’
          1. Review Questions and Exercises
          2. Further Readings
    5. 24. Theories of Interest and Investment Decisions
      1. Introduction
      2. Capital as a Factor of Production
      3. Some Early Thoughts on Interest Theory
      4. Theories of Interest
        1. Bohm-Bawerk's Theory of Interest
        2. Fisher's Theory of Interest: The Time Preference Theory
        3. Criticism
        4. The Classical Theory of Interest
        5. Keynes' Criticism of Classical Theory
        6. The Loanable Fund Theory of Interest
        7. Classical vs Neo-Classical Theory of Interest
        8. Criticism
      5. Interest and Investment Decisions
        1. The Time Value of Money
        2. Present Value and Investment Decisions
        3. NPV and Investment Decision
        4. IRR and Investment Decision
        5. IRRs Vs Present Value
      6. Risk, Uncertainty and Investment Decisions
        1. Risk-Adjusted Discount Rate Approach
        2. Properties
        3. The Mean–Standard Deviation Method
        4. The Finite-Horizon Method
        5. Drawback
        6. The Probability Theory Approach
          1. Review Questions and Exercises
          2. Further Readings
    6. 25. Theories of Profit
      1. Introduction
      2. Meaning of Pure Profit
      3. Profit Theories: What are the Sources of Profits?
        1. Walker's Theory of Profit: Profit is Rent of Ability
        2. Clark's Theory of Profit: Profit is Reward for Dynamic Entrepreneurship
        3. Hawley's Risk Theory of Profit: Profit is Reward for Risk Bearing
        4. Knight's Theory of Profit: Profit is a Return to Uncertainty Bearing
        5. Schumpeter's Innovation Theory of Profit: Profit is Reward for Innovations
      4. Does Profit Enter the Cost of Production?
        1. Review Questions and Exercises
        2. Further Readings
    7. 26. Product Exhaustion Theorem
      1. Introduction
      2. The Adding-Up Problem
      3. Euler's Theorem
      4. The Clark–Wicksteed–Walras Theorem
      5. Change in Relative Factor Shares and Income Distribution
        1. The Elasticity of Factor Substitution and Relative Factor Shares
      6. Technological Progress and Income Distribution
        1. Neutral Technological Progress
        2. Capital Deepening
        3. Labour Deepening
          1. Review Questions and Exercises
          2. Further Readings
  13. Part VII: General Equilibrium and Welfare Economics
    1. 27. General Equilibrium Analysis
      1. Introduction
      2. Interrelationship and Interdependence of Markets
        1. Interrelationship Between the Markets
        2. Interdependence of Markets
      3. The Conditions of Static General Equilibrium
        1. The Condition for Consumers' General Equilibrium
        2. The Condition for Production General Equilibrium
        3. The Condition for Producers' General Equilibrium
        4. The Condition for Factor Owners' General Equilibrium
      4. General Equilibrium in Exchange
        1. Edgeworth Box Diagram
        2. The Condition for General Equilibrium in Exchange
        3. Efficient Allocation of Goods
      5. General Equilibrium in Production
        1. The Condition for General Equilibrium in Production
        2. Producer's Equilibrium in a Competitive Input Market
      6. The Production Possibility Frontier
        1. The Slope of PPF and Marginal Rate of Transformation (MRT)
      7. General Equilibrium in Competitive Product Market
        1. Review Questions and Exercises
        2. Further Readings
    2. 28. Welfare Economics: Pareto Optimality
      1. Introduction
      2. Definitions and Nature of Welfare Economics
        1. Definition of Welfare Economics
        2. Is Welfare Economics a Positive or a Normative Science?
      3. The Concept and Measurement of Social Welfare
        1. Some Early Concepts of Welfare
        2. Pareto's Concept of Welfare
      4. Pareto's Welfare Economics
        1. Pareto Optimum: Definition
        2. Pareto Optimality Conditions
        3. Assumptions
        4. Pareto Optimality in Exchange
        5. Pareto Optimality in Production: Optimum Allocation of Factor Inputs
        6. Optimum Distribution of Goods Between Firms: Optimum Specialization of Firms
        7. Summary of Pareto Optimally Conditions
        8. Some Additional Conditions of Pareto Optimality
        9. Total Conditions of Pareto Optimality
      5. Perfect Competition and Pareto Optimality
        1. Efficiency in Exchange
        2. Efficiency in Production
        3. Efficiency in Production and Exchange
        4. Some Exceptions
      6. Externalities and Pareto Optimality
        1. Externalities in Production
        2. External Economies in Production
        3. External Diseconomies in Production
        4. Externalities in Consumption
        5. External Economies in Consumption
        6. External Diseconomies in Consumption
        7. Externalities of Public Goods
        8. Indivisibility and Pareto Optimality
      7. Conclusion
        1. Review Questions and Exercises
        2. Further Readings
    3. 29. New Welfare Economics
      1. Introduction
      2. The Kaldor–Hicks Compensation Criterion
        1. Shortcomings of Kaldor–Hicks Criterion
      3. The Scitovsky Double Criteria
      4. The Bergson Criterion: The Social Welfare Function
        1. Weakness of Bergson Criterion
      5. Arrow's Theorem of Democratic Group Decision
        1. Problems in Arrow's Theorem
      6. Grand Utility Possibility Frontier and Welfare Maximization
        1. Derivation of Grand Utility Possibility Frontier
        2. Determination of the Point of Bliss: The Point of Maximum Social Welfare
      7. The Theory of Second Best
        1. Lipsey–Lancaster Refute the Second Best Theory
      8. Conclusion
        1. Review Questions and Problems
    4. 30. Market Failures and Public Goods
      1. Introduction
      2. Growth of Monopoly Power and Market Failure
      3. Imperfect Market Information
      4. Existence of Public Goods
        1. What are Public Goods?
        2. Characteristics of Pure Public Goods
        3. Public Goods and Market Failures
      5. Externalities and Market Failure
      6. Public Provision of Public Goods
      7. Externalities and Their Correction
        1. Treatment of External Costs
        2. Treatment of External Benefits
          1. Review Questions and Exercises
          2. Further Readings
  14. Endnotes
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 4
    5. Chapter 5
    6. Chapter 6
    7. Chapter 7
    8. Chapter 8
    9. Chapter 9
    10. Chapter 10
    11. Chapter 11
    12. Chapter 12
    13. Chapter 14
    14. Chapter 15
    15. Chapter 16
    16. Chapter 17
    17. Chapter 18
    18. Chapter 19
    19. Chapter 20
    20. Chapter 21
    21. Chapter 22
    22. Chapter 23
    23. Chapter 24
    24. Chapter 25
    25. Chapter 26
    26. Chapter 27
    27. Chapter 28
    28. Chapter 29
    29. Chapter 30
  15. Copyright