14.121 Reading List, Fall 1998
Choosing a Text
For your primary text, you may choose between Kreps, MasCollel-Whinston-Green
(M-W-G), and Varian. I would recommend purchasing two of the three, which
should serve you through the core micro sequence and after. Kreps is the
most intuitive, M-W-G the most comprehensive and mathematically detailed,
and Varian is the most concise. Students vary as to which approach works
for them; you may find you like different books for different topics. Nicholson
is an intermediate undergraduate text, which I use for 14.03; if your economics
background is weak, you may find Nicholson easier going for getting the
main ideas without as much mathematical detail. However, the level of detail
in Nicholson will not be sufficient for this course. Lecture notes will
serve as a guide as to which topics are required and which are not; not
all topics will be covered in the texts.
Primary Texts: Choose between...
Kreps, D., A Course in Microeconomic Theory, (Princeton: Princeton
University Press, 1990).
MasCollel, A., M. Whinston, and J. Green, Microeconomic Theory
(New York: Oxford University Press, 1995).
Varian, H., Microeconomic Analysis (3rd edition) (New York: Norton,
Supplemental Text (at an undergraduate level):
Nicholson, W. Microeconomic Theory: Basic Principles and Extensions,
Sixth ed. (New York: Dryden Press, 1995).
The main references for this course are the texts. Below is a list of topics
with some additional readings. The additional articles are mainly
intended as a references for the curious, and most of the articles listed
below will not be discussed in class.
Course Outline with Readings
1. Introduction, Overview, and Tools
1.1. Overview of the Course
1.2. Introduction to Microeconomic Models
1.3. Mathematical Tools: Optimization, Lagrangians, and the Envelope Theorem
Varian, Chapters 26 and 27. Concise and comprehensive reference.
M-W-G, Mathematical Appendix. Provides more detail than other sources
(and more than is required for this six week course).
Kreps Appendix 1. Intuitive explanation of optimization with multiple
Nicholson Chapters 1 and 2. Good elementary introduction; includes
most important topics.
2. Choice and the Theory of Demand
Varian, Chapters 7-10.
M-W-G Chapters 1-4.
Kreps Chapters 2.
Nicholson Chapters 3-7.
Deaton, A. and J. Muellbauer, Economics and Consumer Behavior,
Cambridge University Press, 1980.
Houthakker, H., "The Present State of Consumer Theory," Econometrica,
Houthakker, H., "Additive Preferences," Econometrica, April 1960.
Samuelson, P., Foundations of Economic Analysis, Cambridge, Harvard
University Press, 1947, Chapter 5.
2.1. Rationality Axioms, Utility, and Indifference Curves
Liebenstein, H., "Bandwagon, Snob, and Veblen Effects in the Theory
of Consumers' Demand," Quarterly Journal of Economics 64 (May 1970):
Simon, H., "Theories of Economic Decision-Making in Economics and Behavioral
Science," American Economic Review, XLIV, 3, June 1959.
Simon, H., "Rationality as Process and Product of Thought," American
Economic Review, Papers and Proceedings, (May 1978), p. 1-14.
Stigler, George, "Development of Utility Theory," Journal of Political
Economy 59, pts 1-2 (August-October 1950), pp. 307-327, 373-396.
Tversky, A. and D. Kahneman, "The Forming of Decisions and the Psychology
of Choice," Science 21 (30), January 1981, pp. 453-58.
2.2. Budget Constraints and Utility Maximization
Bloackorby C. et al, "Homothetic Separability and Consumer Budgeting,"
Econometrica 38 (3), May 1970, pp. 468-72.
2.3. Individual Demand
2.4. Duality, Indirect Utility, and Expenditure Functions
Dwyer, G.P. and C.M. Lindsey, "Robert Giffen and the Irish Potato,"
American Economic Review (March 1984): 188-192.
2.5. Revealed Preference
Koo, A.Y.C. and Georg Haverkamp, "Structure of Revealed Preference:
Some Preliminary Evidence," Journal of Political Economy, July/August
2.6. Taxes and Transfers
Congressional Budget Office, Federal Tax of Tobacco, Alcoholic Beverages,
and Motor Fuels, August 1990.
Diamond, Peter and Dan McFadden, "Some Uses of the Expenditure Function
in Public Finance," Journal of Public Economics, 3 (1974): 3-21.
Hausman, Jerry, "Labor Supply," in Henry Aaron and Joseph A. Pechman,
How Taxes Affect Economic Behavior (Washington, DC: Brookings Institution,
1981), p. 54-.
Smeeding, Timothy, "The Anti-Poverty Effectiveness of In-Kind Transfers,"
Journal of Human Resources 12, no. 3 (Summer 1977): 365-378.
2.7. Price Indices
Berndt, Ernst R., Griliches, Zvi, and Rosett, Joshua G., "Auditing
the Producer Price Index: Micro Evidence from Prescription Pharamceutical
Preparations," Journal of Business and Economic Statistics, July
1993, 11 (3), 251-64.
Blackorby, C. and P.R. Russell, "Indices and Subindices of the Cost
of Living," International Economic Review 19 (1), February 1978.
Boskin, Michael, et al, "Toward a More Accurate Measure of the Cost
of Living," Interim Report to the Senate Finance Committee from the
Advisory Commission to Studythe Consumer Price Index, September 15,
Braithwait, S.D., "The Substitution Bias of the Laspeyres Price Index:
An Analysis Using Estimated Cost of Living Indices," American Economic
Review (March 1980): 70-.
Fisher, F. and K. Shell, Economic Theory of Price Indices, New
York: Academic Press, 1972, Essay I.
Lau, L.J., "On Exact Index Numbers," Review of Economicsand Statistics
61 (1) February 1979, pp. 73-82.
2.8. Market Demand and Elasticities
Medoff, Marshall H., "An Economic Analysis of the Demand for Abortions,"
Economic Inquiry, April 1988, 26 (2), 353-59.
Newhouse, J.P., and C.E. Phelps, "Price and Income Elasticities for
Medical Care Services," in The Economics of Health and Medical Care,
ed. M. Perlman (New York: John Wiley and Sons, 1974), pp. 139-161.
3. Production and Supply
Nicholson Chapters 11-14.
Varian Chapters 1-6.
M-W-G Chapter 6.
Kreps Chapters 7, 19-20.
3.1. Production Functions and Technology
Machlup, F., "On the Meaning of Marginal Product." Reprinted in American
Economic Association, Reading in the Theory of Income Distribution.
Philadelphia: Blakiston Co., 1951. Pp. 158-174.
Zimmerman, Martin B., "Learning Effects and the Commericialization of
New Energy Technologies: The Case of Nuclear Power," Bell Journal of
Economics 13 (2), 1982, 297-310.
3.2. Production Costs and Cost Minimization; Duality
McFadden, D., "Cost, Revenue, and Profit Functions," in M. Fuss and
D. McFadden (eds.) Production Economics: A Dual Approach to Theory and
McFadden, D., and P. Diamond, "Some Uses of the Expenditure Function
in Public Finance," Journal of Public Economics 3 (1974) 3-21.
3.3. Profit Maximization, Short and Long Run Supply
3.4. Comparative Statics in the Theory of the Firm
Athey, Susan, Paul Milgrom, and John Roberts, Monotone Methods for
Comparative Statics Analyses, Unpublished research monograph.
3.5. Alternative Models of the Firm
Milgrom, Paul, and John Roberts, "The Economics of Modern Manufacturing:
Strategy, Structure, and Organizational Change," American Economic Review
Milgrom, Paul, and John Roberts, Economics, Organizations, and Management.
Prentice Hall: 1992, Chapter 1.
Stigler, G., "The Division of Labor is Limited by the Extent of the
Market." Journal of Political Economy 59 (June 1951): 185-193.
4. Prices and Markets
4.1. Partial Equilibrium Price Determination
4.2. Long-Run Equilibrium
4.3. Applied Competitive Analysis
4.4. Imperfect Competition and Market Power
Bishop, R., "The Effects of Specific and ad Valorem Taxes," Quarterly
Journal of Economics, May 1968.
Borenstein, Severin, "The Evolution of U.S. Airline Competition," Journal
of Economic Perspectives (Spring 1992): 45-74.
Fisher, Frank, "Diagnosing Monopoly," Chp. 1 of Industrial Organization
and the Law, Hemel Hempstead: Harverster Wheatsheaf and Cambridge:
MIT Press, 1990.
5. Choice Under Uncertainty
Varian Chapter 11.
M-W-G Chapter 6.
Kreps Chapter 3.
Nicholson Chapter 9.
Kreps, D., 1988, Notes on the Theory of Choice, Underground classics
in economics, Boulder, CO: Westview.
5.1. Von-Neumann Morgenstern Expected Utility
Machina, M. "'Expected Utility' Analysis Without the Independence Axiom,"
Econometrica March 1982.
Pollak, R., "Additive von Neumann-Morgenstern Utility Functions," Econometrica,
5.2. Risks, Measuring Risk Aversion and Certainty Equivalents
McCloskey, Don, "The Open Fields of England: Rent, Risk, and the Rate
of Interest, 1300-1815," in D. Galenson, ed., Markets in History: Economic
Studies of the Past (Cambridge University Press, 1989).
Arrow, Ken, "Uncertainty and the Welfare Economics of Health Care,"
American Economic Review 53 (1963): 941- 973.
5.4. The Value of Information
Lave, Lester, "The Value of Better Weather Information to the Raisin
Industry," Econometrica 31 (January/April 1963): 151-164.