Price Theory and Applications

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Price Theory and Applications, Seventh Edition
Steven E. Landsburg VP/Editorial Director: Jack W. Calhoun Editor-in-Chief: Alex von Rosenberg Senior Acquisitions Editor: Steve Scoble Developmental Editor: Joanne Vickers Ohlinger Publishing Services Marketing Manager: Brian Joyner Marketing Communications Manager: Sarah Greber Content Project Manager: Amy Hackett Manager, Editorial Media: John Barans Technology Project Manager: Deepak Kumar Senior Manufacturing Coordinator: Sandee Milewski Production House: Pre-PressPMG Printer: Transcontinental Louiseville, QC Senior Art Director: Michelle Kunkler Internal Designer: Patti Hudepohl Cover Designer: Ramsdell Design Cover Images: ©Charles Wysocki, Inc. Licensed by Mosaic Licensing, Inc.

COPYRIGHT © 2008, 2005 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. Printed in Canada 1 2 3 4 5 10 09 08 07 Student Edition ISBN 13: 978-0-324-57993-2 Student Edition ISBN 10: 0-324-57993-4

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A B O U T

T H E

A U T H O R

Steven E. Landsburg is a Professor of Economics at the University of Rochester. His articles have appeared in the Journal of Political Economy, the Journal of Economic Theory, and many other journals of economics, mathematics, and philosophy. He is the author of six books, including More Sex is Safer Sex: The Unconventional Wisdom of Economics (Free Press/Simon and Schuster 2006). He writes regularly for Slate magazine and has written for Forbes, the New York Times, the Washington Post, and dozens of other publications.

Dedication: To the Red-Headed Snippet

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P R E F A C E

To the Student
Price theory is a challenging and rewarding subject. The student who masters price theory acquires a powerful tool for understanding a remarkable range of social phenomena. How does a sales tax affect the price of coffee? Why do people trade? What happens to ticket prices when a baseball player gets a raise? How does free agency affect the allocation of baseball players to teams? Why might the revenue of orange growers increase when there is an unexpected frost—and what may we infer about the existence of monopoly power if it does? Price theory teaches you how to solve similar puzzles. Better yet, it poses new ones. You will learn to be intrigued by phenomena you might previously have considered unremarkable. When rock concerts predictably sell out in advance, why don’t the promoters raise prices? Why are bank buildings fancier than supermarkets? Why do ski resorts sell lift tickets on a perday basis rather than a per-ride basis? Throughout this book, such questions are used to motivate a careful and rigorous development of microeconomic theory. New concepts are immediately illustrated with entertaining and informative examples, both verbal and numerical. Ideas and techniques are allowed to arise naturally in the discussion, and they are given names (like “marginal value”) only after you have discovered their usefulness. You are encouraged to develop a strong economic intuition and then to test your intuition by submitting it to rigorous graphical and verbal analysis. I think that you will find this book inviting. There are no mathematical demands nor...
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