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Bernheim and Whinston’s 2nd edition of Microeconomics is uniquely designed to appeal to a variety of learning
styles. The text offers a current take on core, traditional material and also covers exciting recent developments in whinston
microeconomics, such as game theory, information economics, and behavioral economics. All content is delivered
in a combination of print, digital, and mobile formats appropriate for the modern learner.
microeconomics
new to this edition
Calculus has been integrated in a unique way that makes the content equally appropriate for courses
that require calculus and those that don’t. Features include calculus-related text boxes next to applicable
discussions, calculus versions of Worked-Out Problems and In-Text Exercises, and calculus-based end-of-
chapter problems—all of which can easily be skipped if desired, allowing for fexibility in calculus coverage.
Enhanced and new features include video solutions for every In-Text Exercise, which walk students step-by-
step through the answers. Also, Read More Online content helps expand explanations beyond the text for better
student understanding.
McGraw-Hill Connect® Plus features auto-gradable assignable homework and study content, fully integrated with an
eBook offering search, highlight, and note-taking capability. All end-of-chapter exercises—Questions, Problems, and
Calculus Problems—will be assignable in Connect, along with the book’s Test Bank.
Within Connect, LearnSmart adaptive study modules help students master core concepts and terminology in each
chapter, making it easier for them to engage with the text’s numerous applications and relevant examples.
Barcodes within chapters provide mobile access to online resources, including calculus versions of the
Worked-Out Problems, the Read More Online feature, and video solutions for In-Text Exercises.
For more information, visit www.mhhe.com/bernheim2e
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2e bernheim | whinston
microeconomics
ISBN 978-0-07-337585-4
MHID 0-07-337585-3
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EAN
www.mhhe.com
Rev.Confirming Pages
MICROECONOMICS
SECOND EDITION
B. Douglas Bernheim
Stanford University
Michael D. Whinston
Northwestern University
ber75853_fm_i-xxx.indd iii 25/01/13 10:13 AM

MICROECONOMICS, SECOND EDITION

Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of
the Americas, New York, NY, 10020. Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights
reserved. Printed in the United States of America. Previous edition © 2008. No part of this publication
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Library of Congress Cataloging-in-Publication Data

Bernheim, B. Douglas.
Microeconomics / B. Douglas Bernheim, Michael D. Whinston.—Second edition.
pages cm.—(The McGraw-Hill series in economics)
Includes index.
ISBN 978-0-07-337585-4 (alk. paper)—ISBN 0-07-337585-3 (alk. paper)
1. Microeconomics. I. Whinston, Michael Dennis. II. Title.
HB172.B485 2014
338.5—dc23
2012049438
The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a web-
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ber75853_fm_i-xxx.indd iv 25/01/13 10:13 AM

The McGraw-Hill Series in Economics

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Dedication
To our families
ber75853_fm_i-xxx.indd vi 25/01/13 10:13 AM

ABOUT THE AUTHORS

B. Douglas Bernheim is the Edward Ames Edmonds Professor of Economics at
Stanford University. He has also taught in the Department of Finance at Northwest-
ern University’s J.L. Kellogg Graduate School of Management and the Department of
Economics at Princeton University. He received his A.B. from Harvard University in
1979, and Ph.D. from M.I.T. in 1982. Professor Bernheim’s work has spanned a number
of fields, including public economics, political economy, game theory, contract theory,
behavioral economics, industrial organization, and financial economics. He is a Fellow
of the American Academy of Arts and Sciences and of the Econometric Society. He
has also served as Co-Editor of the American Economic Review, the profession’s most
widely read journal. Professor Bernheim’s teaching has included undergraduate courses
in microeconomics and public economics, and graduate courses in microeconomics,
public economics, political economy, industrial organization, behavioral economics, and
insurance and risk management.
Michael D. Whinston is the Robert E. and Emily H. King Professor of Business

Institutions in the Department of Economics at Northwestern University, where he
also holds appointments at the Kellogg Graduate School of Management and the Law
School. Prior to moving to Northwestern, he taught at Harvard. Professor Whinston
received his B.S. from the Wharton School at the University of Pennsylvania in 1980,
his M.B.A. from the Wharton School in 1984, and his Ph.D. from M.I.T. in 1984. His
research has covered a variety of topics in microeconomics and industrial organization,
including game theory, the design of contracts and organizations, firm behavior in
oligopolistic markets, antitrust, and law and economics. Professor Whinston is a
co-author of the leading graduate textbook in microeconomics, Microeconomic Theory
[Oxford University Press, 1995]. He is a Fellow of the Econometric Society and has also
served as a Co-Editor of the RAND Journal of Economics, the leading journal in indus-
trial organization. His teaching has included undergraduate microeconomics, as well as
graduate courses in microeconomics, industrial organization, and competitive strategy.
Professors Bernheim and Whinston met during the early 1980s while in graduate school
at M.I.T., where they began a long and productive collaboration, as well as a close
friendship. Together they have co-authored eight published articles in addition to this
book. In the course of their collaboration, they have been known to argue with each
other for hours about trivial details, such as whether a sentence should use the word
“however” or “nevertheless.” It is a miracle that they managed to complete this book
and its revision for the second edition.
vii
ber75853_fm_i-xxx.indd vii 25/01/13 10:13 AM

PREFACE
ll of us confront an endless variety of economic choices. Some of those choices

involve personal matters such as financing the purchase of a new car or saving
for retirement. Some involve business matters such as cost-effective production
techniques or investment in new product development. Some involve matters of public
policy, such as whether to vote for a school bond initiative or a candidate who advocates
a particular flavor of health care reform. Sometimes good economic decision making is
just a matter of common sense. But in many situations, a command of basic microeco-
nomic principles helps us understand the consequences of our choices and make better
decisions.
Our object in writing this book is to provide students with a treatment of intermedi-
ate microeconomics that stimulates their interest in the field, introduces them to the tools
of the discipline, and starts them on the path toward “thinking like an economist.” Most
students will not turn out to be economists, but whether they end up making business
decisions, helping to design public policies, or simply managing their own money, the
tools of microeconomics can prove invaluable.
WHAT’S NEW IN THE

SECOND EDITION?
We received a great deal of helpful feedback on the first edition of Microeconomics, and
we paid careful attention to it. While we worked hard to improve the book in all dimen-
Read More
Online, Calculus sions, our main focus was on the insightful suggestions we received for enhancing its use-
Worked-Out fulness to students and instructors. The following is a quick synopsis of the main ways in
Problems, and
Calculus In-Text which the second edition differs from the first.
Exercises
available at
www.mhhe.com/
bernheim2e, or USE OF TECHNOLOGY
scan here. Need a barcode reader? Try
ScanLife, available in your app store. Recent technological developments have started to blur the boundaries of the traditional
textbook, opening new vistas for improved pedagogy. In producing the second edition,
we have taken advantage of these possibilities, creating a great deal of useful material
that does not appear in the physical book. Microeconomics is the most digitally focused
product available for the intermediate microeconomics course.
For students using smartphones and tablets, scanning barcodes (or QR codes) located
within the chapters provide immediate access to more resources. There are two types of
codes in each chapter.
> The barcode appearing on the first page of each chapter gives students access to
additional chapter resources which include:
• Read More Online features for that chapter.
• Calculus Worked-Out Problems that mirror the chapter’s Worked-Out Problems.
• Calculus In-Text Exercises that mirror the In-Text Exercises in the chapter.
• Solutions to the Calculus In-Text Exercises.
viii
ber75853_fm_i-xxx.indd viii 25/01/13 10:13 AM

> The barcodes next to each In-Text Exercise lead the student to text and video solu-
tions for that chapter’s exercises. Students are encouraged to work through the In-Text
Exercises themselves and then check either solution format to check their answer, or Want the video or
to get help if they’re unsure how to solve the problem. The video solutions add extra text solution? Visit
www.mhhe.com/
commentary so students can clearly understand the thought processes involved in bernheim2e or
solving these exercises. They are valuable study tools for completing homework and scan here. Need a
barcode reader? Try
preparing for exams. ScanLife, available in
your app store.
Students not using smartphones or tablets can access the same resources by clicking
the barcodes when viewing the eBook or by going to www.mhhe.com/bernheim2e.
Microeconomics is also designed to be used with McGraw-Hill Connect Plus® Eco-
nomics, an online assessment and grading program that allows instructors to administer
homework entirely online. (See more details at the end of this preface and on the inside
cover.) Connect Plus Economics includes the following elements:
> End-of-chapter questions and problems available both as they appear in the text and
ber75853_ch05_118-161.indd 123 11/12/12 3:16 PM
as algorithmic variations—the same question but with different values to solve for.
> Graphing problems.
> Detailed feedback for each question and problem. Select problems have video feed-
back so students can view step-by-step solutions and explanations.
> LearnSmart™, an adaptive learning system that uses a series of probing questions to
pinpoint each student’s knowledge gaps, is available as part of Connect. LearnSmart
analyzes the gaps and then provides an optimal learning path for each student.
> A media-rich, interactive eBook is included in Connect Plus, which contains links to
the special features in the barcodes as well as other resources. Also, as students are
working on a homework problem in Connect, there will be a link from that problem
to the appropriate place in the eBook where a student can get more help.
A FLEXIBLE ROLE FOR CALCULUS

We re-engineered the second edition so that it is equally appropriate for courses that
require calculus and those that don’t. The fundamental concepts and intuitions of micro-
economics remain the same regardless of whether calculus is used. For example, in both
cases, students need to learn about marginal cost and its relationship to total cost. Also,
in both cases, all but the most mathematically inclined students understand these con-
cepts best when they are explained with the same clear diagrams. While students who If you have the formula
know calculus can perform the extra step of taking the relevant derivative (for example, for an indifference
to obtain the marginal function curve from the total function curve), this step is easily curve, you can find
the marginal rate of substitution
compartmentalized. That is what we have done in this edition. Calculus is included in the by taking the derivative and
following ways: multiplying by 21. To see a
worked-out example, look at
> Calculus concepts are explained in text boxes and are indicated with an icon. Read More Online 4.3.
> Calculus versions of the text’s Worked-Out Problems and In-Text Exercises are avail-
able to students in two ways.
• Access materials directly online, either through the Connect Plus ebook or through
the text’s website at www.mhhe.com/bernheim2e.
ix
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IN-TEXT EXERCISE 3.3 Suppose • By scanning a barcode at the beginning of the chapter using a smartphone or
for up to six hours. The total benef tablet, students can get instant access to these materials without needing to log
total cost is C(H ) 5 110H 1 24H
onto their computers. Whenever there is a calculus version of an In-Text Exercise
benefit is MB(H ) 5 654 2 80H
What is your best choice? or Worked-Out Problem, the calculus icon appears next to it.
> The end-of-chapter exercises include calculus problems. To simplify the process of
assigning suitable problems, we organize these exercises into three groups: Discus-
sion Questions, Problems, and Calculus Problems. In many cases, we provide both
calculus and non-calculus versions of the same exercise. While calculus has many
important uses in microeconomics, we take the view that, at the intermediate level,
non-calculus students can solve the same quantitative problems as calculus students,
as long as they are provided with the formulas for marginal cost, marginal, utility,
and the like. The task of deriving those formulas by taking a derivative is primarily a
quick technical step in the solution of the typical problem, rather than an economi-
cally interesting one.
STREAMLINED EXPOSITION
The typical course in intermediate microeconomics covers a lot of ground. But the reality
is that students have limited time and patience for unnecessarily long-winded explanations.
So it is important to address each topic with an economy of words. Short. Clear. Punchy.
We’ve put in a lot of work to make sure each section of our text fits that description. We’ve
also streamlined the text by converting optional materials to Read More Online features.
RETAINED CORE PRINCIPLES

While much has changed between the first and second editions, much has also remained
the same. It is therefore worth reaffirming our commitment to the principles we articu-
lated in the preface to the first edition.
> Accessibility. Microeconomics teaches economic principles and builds economic
intuition without heavy reliance on formal mathematics.
> Clarity. We have worked hard to make sure that the writing in Microeconomics is
transparent, the explanations are clear and intuitive, and the graphs lead students
naturally through the key ideas.
> Up-to-date coverage. The book covers exciting recent developments in microeconom-
ics, drawing for example on game theory, information economics, and behavioral
economics, and providing applications involving topics of current interest.
ber75853_ch03_057-082.indd 71
> Accuracy. Microeconomics employs clear and understandable
10/19/12 8:00 PM
explanations of micro-
economic principals without resorting to common “fudges” that appear in many
other texts.
> Usefulness. Students learn to solve quantitative problems whether or not they use
calculus.
> Relevance. In Microeconomics, we always explain why we ask the student to learn a
particular concept, and underscore the material’s relevance by featuring fact-based
applications.
ber75853_fm_i-xxx.indd x 25/01/13 10:13 AM

PEDAGOGY FOR STUDENT SUCCESS

A wealth of additional learning features and enrichment materials are provided within
the text and online to supplement students’ understanding of the subject matter.
LEARNING OBJECTIVES L EARNING O BJECTIVES

Each chapter begins with a list of key learning
objectives to help focus planning for instructors and After reading this chapter, students should be able to:
studying for students. } Explain what supply and demand curves for a good, and supply and
demand functions, represent.
} Identify various market forces that shift supply and demand curves.
} Use the concept of market equilibrium to calculate the equilibrium price
Application 2.2 and the amount bought and sold.
A Room with a View (and its Price) } Evaluate how changes in demand or supply affect market equilibrium.
} Understand elasticity and the way economists use it to measure the
T he elegant Bar Harbor Inn overlooks beautiful Frenchman’s
Bay in Bar Harbor, Maine, just minutes from Acadia National
Park. At the height of the summer tourist season, the inn’s most
expensive rooms cost over $350 per night. Unfortunately, those
same tourists have little interest in visiting once the leaves have
fallen from the trees. By then, they’re thinking of Caribbean
beaches or the ski slopes in Colorado and Utah.
APPLICATIONS
As a result, the price of hotel rooms at Bar Harbor’s many inns,
which together make up the supply in this market, vary greatly by
These in-text boxes highlight real-world examples
season. As Figure 2.7 shows, the supply curve for hotel rooms in
Bar Harbor is the same in November as in July.3 The quantity Q is
The Bar Harbor Inn
that put concepts into practice.
the total number of rooms. At high prices, innkeepers want to rent
all those rooms, but at low prices, they withdraw some rooms
from the supply, since the price no longer compensates them the price in November (PNov ) is much lower than the price in
for the expense and effort of serving customers. (In the dead of (PJuly ). In 2012, for example, a tourist paid $385 a night to sta
winter, some inn owners close temporarily and take a vacation.) the Bar Harbor Inn’s best room during July, but only $165 a n
The demand in the two months is very different however so that to stay in the same room during November
WORKED-OUT PROBLEMS WORKED-OUT PROBLEM 4.2
Each chapter includes Worked-Out Problems to

ber75853_ch02_024-056.indd 35 10/19/12 7:22 PM
The Problem Mitra enjoys reading books and watching movies. Her utility
show students how to solve the problems posed in function is U(M, B) 5 M 3 B2, where M stands for the number of movies and B
stands for the number of books enjoyed during a month. How does Mitra rank
the chapter and to prepare them for homework and the following bundles? (1) 4 movies and 5 books, (2) 10 movies and 4 books, (3)
25 movies and 2 books, (4) 40 movies and 1 book, (5) 100 movies and no books.
exams. Each problem is clearly stated and the solu- The Solution Applying Mitra’s utility function, we find for part (1) that U(4, 5)
tion contains detailed steps and narrative explana- 5 4 3 52 5 100. Similarly, we have, (2) U(10, 4) 5 160, (3) U(25, 2) 5 100,
(4) U(40, 1) 5 40, and (5) U(100, 0) 5 0. Therefore, Mitra ranks the bundles
tions to show how the problem is solved. Calculus ber75853_ch02_024-056.indd 24
listed in the problem, in order of preference, as follows: first, 10 movies and
10/19/12 7:22 PM
4 books; next, either 4 movies and 5 books or 25 movies and 2 books (she is
versions of the problems and solutions are available indifferent between those two bundles); next, 40 movies and 1 book; and last,
100 movies and no books.
by scanning the barcode at the beginning of the
chapter or at www.mhhe.com/bernheim2e.
IN-TEXT EXERCISES Want the video or

text solution? Visit
www.mhhe.com/
IN-TEXT EXERCISE 4.2 Judy drinks both Coke and Pepsi. Suppose the formula for
her indifference curves is C 5 U 2 1.2P, where C stands for liters of Coke and P
stands for liters of Pepsi consumed over a month. Draw some of Judy’s indifference
These ask students to either redo the Worked-Out bernheim2e or
scan here. Need a curves. Which does she prefer, a bundle consisting of three liters of Coke and no
barcode reader? Try
Pepsi, or a bundle consisting of three liters of Pepsi and no Coke?
Problem or extend the concept in a slightly different ScanLife, available in
your app store.
way. Solutions are available in text form and—new to

this edition—in video format. The videos walk students
through the solutions, reinforcing the lessons from lectures and independent reading. The
videos and text solutions can be accessed at www.mhhe.com/bernheim2e, or by scanning
the barcode next to the exercise with a smartphone. ber75853_ch04_083-117.indd 105 11/12/12 3:15 PM
xi
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ber75853_fm_i-xxx.indd xi 25/01/13 10:13 AM

Figure 5.6
The Best Affordable Bundle
with Perfect Complements.
Bundle A is Maria’s best choice.
Since bundle A lies on the
Right shoes
45-degree line, Maria buys the

Best affordable
bundle same number of left and right
shoes. This conclusion doesn’t FIGURES AND TABLES
A depend on the slope of the
budget line. Even if the prices of
The exhibits, graphs, and tables are critical for students
left and right shoes differ, Maria
will still buy the same number
to understand the world of microeconomics. Color
45°
of each.
is used to help students understand the make-up and
Left shoes meaning of each graph, and an extended caption is
included with figures to further explain the concepts.
READ MORE ONLINE

ber75853_ch05_118-161.indd 125
READ MORE ONLINE 2.1 11/12/12 3:16 PM Read More Online features, which offer additional
in-depth discussion of particular topics, are found
ESTIMATING DEMAND AND SUPPLY CURVES
throughout the book. These can be accessed through
the barcode at the beginning of the chapter, or online
at www.mhhe.com/bernheim2e. A list of these exten-
To answer many questions in economics and business, we need to measure the sions appears on page (pages xxviii and xxix).
relationships between the amount demanded and/or supplied and various factors,
including the product’s price. We’ve already seen that we need to know demand and
supply functions to predict market prices. Later in this book, we’ll see that this same
knowledge is useful for such diverse purposes as evaluating the effects of a tax and
OPTIONAL SECTIONS
*3.4 CONSTRAINED OPTIMIZATION
While we have moved some optional topics to Read More
Online features, we’ve kept ones that strike us and our Many economic problems we’ll study have the feature that a de
constraint that affects several decisions, requiring that she ma
reviewers as particularly important in the text. These are them. For example, the fact that you can’t spend more than is i
is a constraint that affects both where you go for spring break a
marked with an asterisk so that students can easily distin- a new smartphone. Likewise, consider a consumer who has t
guish them from core material.
CALCULUS TEXT BOXES

In addition to Calculus versions of the Worked-Out If you have the formula
for an indifference
Problem and In-Text Exercises, Calculus text boxes curve, you can find
explain how to understand the marginal rate of substitution
the material through by taking the derivative and
the lens of calculus. multiplying by 21. To see a
worked-out example, look at
Read More Online 4.3. D I S C U S S I O N Q U E ST I O N S
IMPROVED AND EXPANDED END-OF-

1. After terrorists destroyed the World Trade Center
CHAPTER EXERCISES and surrounding office buildings on September 11,
2001, some businesspeople worried about the risks
Many instructors who used the first edition asked us to of remaining in Manhattan. What effect would you
expect their concern to have on the price of office
space in Manhattan? Over time, those fears eased
beef up the end-of-chapter exercises. We heard you loud
ber75853_rmo_2.1.indd 1 08/01/13 2:29 PM
and
d the
th area around d the
th World
W ld Trade
T d Center site was
PROBLEMS* made into a park, so the destroyed office buildings
uildin
and clear. Users of the second edition will find a much were never rebuilt. Who would be likely to gain
economically from the creation of this park? Who
k? Wh
larger number of exercises and better representation of the would be likely to lose?
1.A Consider again the demand function for corn
in formula (1). Graph the corresponding demand
4.B Suppose tha
Q d 5 200/P
topics covered in the text. We have also divided the exer- curve when potatoes and butter cost $0.75 and $4 per
pound, respectively, and average income is $40,000 per
the equilibr
5.B The daily w
year. At what price does the amount demanded equal millions of
cises for each chapter into three sections: Discussion Ques- 15 billion bushels per year? Show your answer using
algebra.
supply func
per gallon.
tions, which require thought but no math (or at least very ber75853_ch03_057-082.indd 73
2.A Consider again the supply function for corn in
formula (2). Graph the corresponding supply curve
What is the
6.B Consider ag 10/12/12 10:47 AM
when diesel fuel costs $2.75 per gallon and the price in Worked-
little); Problems, which require algebra, graphs, or both; of soybeans is $10 per bushel. At what price does the
amount supplied equal 21 billion bushels per year?
governmen
for a third-w
and Calculus Problems, which typically include (but are not CA LC U LU S P R O B L E M S *
limited to) calculus versions of some of the Problems. We 1.B The demand function for a product is Q d 5 100 2 BdP. consumers’ total e
also rate the difficulty of each exercise, using A for Easi- Suppose that there is a tax of t dollars per unit that
producers must pay and that the supply function
answer should be i
4.C Let P denote the p
for the product when the tax is t and the price is P is using a single inpu
est, B for More Difficult, and C for Most Difficult. Much Q s 5 Bs (P 2 t) 2 5. What is the equilibrium price
as a function of the tax t? Define the “pass-through
function for the pr
the supply functio
rate” of a small increase in the tax as the derivative Q s 5 0 if P # W. H
thought and effort has gone into creating questions that of the market price consumers pay with respect to the
tax: dP/dt. What is the pass-through rate of a small
depend on W? Wh
price P with respe
students will find tractable and enlightening. tax increase in this market? How does it depend on Bd
and Bs? 5.C Suppose that the d
Q d 5 AP2B and th
2.B Suppose the daily demand for coffee in Seattle is where A, B, C, and
xii
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Q d 5 100,000(3 2 P)2. What is the elasticity of a. What is the ela
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ORGANIZATION OF THE BOOK

The organization of Microeconomics is slightly unconventional for an undergradu-
ate microeconomics text, but has the advantage of following the logical progression of
the discipline. Microeconomic theory begins by examining the behavior of individuals
in their roles as either consumers or managers of firms. On this foundation, it builds
a theory of aggregate economic outcomes, with an emphasis on market equilibrium.
Microeconomics follows this logical structure more closely than other texts by clearly
distinguishing the study of individual decision making from the analysis of markets. It is
divided into the following three parts.
Part I contains three introductory chapters. The first introduces the field of micro-
economics. The second reviews the basic principles of supply and demand. The third
elaborates on a central theme of microeconomics reasoning: how to find a decision that
maximizes the difference between total benefits and total costs by equating marginal bene-
fits to marginal costs. We invoke that principle repeatedly throughout the rest of the book.
Part II focuses on individuals’ economic decisions. Three chapters on consumer the-
ory (Chapters 4–6) and three on producer theory (Chapters 7–9) are followed by three
chapters (Chapters 10–12) covering decisions involving time, uncertainty, and strategy
(game theory). An additional chapter (Chapter 13) examines behavioral perspectives on
economic decision making.
Part III concerns markets. We begin with three chapters covering competitive markets
(Chapters 14–16), including one on partial equilibrium theory, one on the analysis of gov-
ernment interventions, and one on general equilibrium. We then turn to market failures,
including three chapters on monopoly and oligopoly (Chapters 17–19), one on externali-
ties and public goods (Chapter 20), and one on informational imperfections (Chapter 21).
While the organization of the book emphasizes the distinction between topics con-
cerning decision making and topics concerning markets, we recognize that instructors
may not wish to teach the material in that order. For example, many instructors may wish
to jump directly from basic producer theory (which concludes in Chapter 9) to competi-
tive equilibrium (which begins in Chapter 14), returning to the additional topics on deci-
sion making as time allows. The book is written to provide instructors with this flexibility.
ALTERNATIVE COURSE DESIGNS

Instructors who use this book can organize their courses in a variety of different ways. A
basic one-semester or one-quarter course might cover all of Chapters 1–9, 14–15, and 17.
Alternatively, by covering fewer sections in some of those chapters, Chapters 18.1–18.3,
19, and 20 might be added. A more ambitious course, or one lasting two terms, might also
cover parts of Chapters 10–13 (additional topics on decision making), 16 (general equi-
librium), the remainder of 18 (price discrimination through self-selection and bundling),
and 21 (informational imperfections). As we’ve noted, the material on decisions involving
time, uncertainty, and strategy (game theory) in Chapters 10–12 could be covered imme-
diately after covering consumer and producer theory, or delayed until later in the course.
Business-oriented courses might instead reduce to some degree their coverage of
consumer theory (Chapters 4–6) and externalities and public goods (Chapter 20) in favor
of covering game theory (Chapter 12) and all of Chapter 18 on pricing policies. More
policy-oriented courses might skip over Chapter 18 entirely in favor of covering general
equilibrium (Chapter 16).
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As we’ve mentioned, the book devotes a separate chapter to behavioral econom-

ics (Chapter 13). That material is entirely compartmentalized, and any instructor who
wishes to teach a conventional course on intermediate microeconomics can simply skip
the chapter. For those who are interested in introducing behavioral perspectives, we have
designed the chapter with a modular structure, so that it can be used in one of two differ-
ent ways. Most obviously, an instructor can introduce behavioral economics as a stand-
alone topic, covering all or part of the chapter. Alternatively, an instructor can integrate
behavioral perspectives with traditional perspectives, for example, covering Sections 13.1
and 13.2 after basic consumer theory (Chapters 4 through 6), Section 13.3 after deci-
sions involving time (Chapter 10), Section 13.4 after decisions involving uncertainty
(Chapter 11), and Section 13.5 after decisions involving strategy (Chapter 12).
McGraw-Hill Learning Solutions provides options for customizing your text. Contact
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SUPPLEMENTARY MATERIALS
Microeconomics strives to present economics clearly and logically, giving students insight
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text, providing extra practice for students and additional resources for teachers. These
resources include:
Instructor’s Manual—The Instructor’s Manual provides instructors with additional
insight into the various chapters and examples in Microeconomics, as well as
resources for bringing the concepts to life within the classroom. It is a must for new
teachers and those new to this book, because it identifies the goals of each chap-
ter and highlights common areas of student difficulty. The Instructor’s Manual also
includes several fully developed case studies that show microeconomics at work in
the world and that offer graduated questions—allowing instructors to cover as much
or as little of the book as they see fit, and making the case studies usable from the
very first week of class. Detailed solutions to the end-of-chapter questions and prob-
lems are also available.
Test Bank and EZTest Online—The Test Bank is comprised of over 50 questions per
chapter, including multiple-choice, short-answer, and essay question options. Each
question is tagged by level of difficulty, section in the book, and AACSB category.
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create customized exams. This user-friendly program allows instructors to sort ques-
tions by format, edit existing questions or add new ones, and scramble questions for
multiple versions of the same test.
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nomics are cutting-edge, assisting learning by drawing selected graphs one line at a
time on screen. The animation—simple enough to be clear while complete enough to
be useful—also helps to demonstrate how tables can be assembled and data analyzed
when completing problems. The presentations include exhibits from the book itself,
creating a seamless connection between what students have read and what they see
in the lecture.
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Online Learning Center (www.mhhe.com/bernheim2e)—The Online Learning Center

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Text Exercises and Worked-Out Problems.
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The Connect Economics Student Study Center is the place for students to access addi-
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Students want to make the best use of their study time. The LearnSmart adaptive self-
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• Increase intent listening and class participation by easing students’ concerns about
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McGraw-Hill Connect® Plus Economics

McGraw-Hill reinvents the textbook learning experience for the modern student with Con-
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In short, Connect Economics offers you and your students powerful tools and features
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To learn more about Tegrity watch a 2-minute Flash demo at http://tegritycampus.
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xvii
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ACKNOWLEDGEMENTS
Many people have made important contributions to the development of this book, and
those thanked in the preface to the first edition have our continuing gratitude. The sec-
ond edition has benefited from the unflagging support of the team at McGraw-Hill. We
would like to thank Scott Smith and Michele Janicek, Brand Managers; Alyssa Lincoln
and Christina Kouvelis, Development Editors; Patricia Frederickson, Lead Project
Manager; Keri Johnson, Content Licensing Specialist; and Marianne Musni, Content
Project Manager. We also thank Kane Sweeney for his excellent research assistant work
on this edition.
We also want to thank those that contributed to the digital features for this edition:
Chris Johnson, University of North Florida Debashis Pal, University of Cincinnati
Leonie Stone, SUNY Geneseo Ross vanWassenhove, University of Houston
Daniel Mizak, Frostburg State University
We owe a heartfelt thank you to the many reviewers who helped shape this edition:
Douglas Agbetsiafa, Indiana University– Claire Hammond, Wake Forest University
South Bend Steve Heubeck, Ohio State
Terry Alexander, Iowa State University University–Columbus
Marigee Bacolod, University of Robert Jerome, James Madison University
California–Irvine Sumit Joshi, George Washington University
Amit Batabyal, Rochester Institute of Ernesto Lucas, Hawaii Pacific
Technology University–Honolulu
James Bradfield, Hamilton College Richard Mcgrath, Armstrong Atlantic
Miki Brunyer, Saint John’s University State University
Paul Carrillo, George Washington John Merrifield, University of Texas at
University San Antonio
Tina Carter, Florida State University Farahmand Rezvani, Montclair State
Eliane Catilina, American University University
Ron Cheung, Florida State University Udayan Roy, Long Island University–C.W.
Finn Christensen, Towson University Post Campus
Timothy Classen, Loyola Lynda Rush, California State Polytechnic
University–Chicago University–Pomona
Dennis Coates, University of Maryland– Edward Steinberg, Columbia University
Baltimore County Andrew Stivers, Oregon State University
Yi Deng, University of South Vasant Sukhatme, Macalester College
Florida–Tampa Jane Sung, Truman State University
Joanne Doyle, James Madison University David Switzer, Saint Cloud State
Thomas Grennes, North Carolina State University
University–Raleigh Jason Taylor, Central Michigan University
Each of these individuals invested a great deal of time and effort reviewing the first
edition. Their insightful comments have helped us improve the book immeasurably.
xviii
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And, we thank the reviewers who helped us during the development of our first edition:
Arabinda Basistha West Virginia Gabriel Lozada University of Utah, Salt
University Lake City
David Bernotas University of Georgia Tom Lee California State University,
Ravi Bhandri University of California, Northridge
Berkeley James Leonard Lloyd University of Houston
McKinley Blackburn University of South Wolfgang Mayer University of Cincinnati
Carolina Michael Marlow California Polytechnic
Victor Brajer California State University, David McAdams Massachusetts Institute
Fullerton of Technology
Daniel Condon Dominican University, James Meehan Colby College
Illinois Jack Osman San Francisco State University
Jeremiah Cotton University of Edgar Preugschat University of
Massachusetts Minnesota
Carl Davidson Michigan State University Luis Rayo University of Chicago
Richard Eastin University of Southern Lynn Riggs DePaul University
California
Anusuya Roy University of Southern
Raymond Fisman Columbia University, Indiana
Graduate School of Business
George Santopietro Radford University
Craig Gallet California State University,
Sudipta Sarangi Louisiana State University
Sacramento
Timothy Schibik University of Southern
Rajeev Goel Illinois State University
Indiana
Denise Hare Reed College
Sergei Severinov Duke University
Jon Harford California State University
Curtis Simon Clemson University
Govind Hariharan Kennesaw State
Thomas More Smith University of Illinois
University
Jennifer Van Gilder Ursinus College
Joe Hughes Rutgers University
Michele Villinski DePauw University
Todd Idson Boston University
Steve Waters Brigham Young University
Joseph Jadlow Oklahoma State University
Denis Weisman Kansas State University
Geoffrey Jehle Vassar College
Randall Westgren University of Illinois,
David Kamerschen University of Georgia,
Urbana-Champaign
Athens
Finally, we would like to thank our families once again for their loving support and
patience (which we sorely tested) during the many early mornings, long days, and late
nights that we spent working on this project.
B. Douglas Bernheim
Michael D. Whinston
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BRIEF CONTENTS
part Introduction
1 PRELIMINARIES 2
2 SUPPLY AND DEMAND 24
3 BALANCING BENEFITS AND COSTS 57
part Economic Decision Making
II-A: Consumption Decisions 84

4 CONSUMER PREFERENCES 85
5 CONSTRAINTS, CHOICES, AND DEMAND 118
6 DEMAND AND WELFARE 162
II-B: Production Decisions 202
7 TECHNOLOGY AND PRODUCTION 203
8 COST 239
9 PROFIT MAXIMIZATION 279
II-C: Additional Topics Concerning Decisions 308
10 CHOICES INVOLVING TIME 309
11 CHOICES INVOLVING RISK 349
12 CHOICES INVOLVING STRATEGY 387
13 BEHAVIORAL ECONOMICS 430
part Markets
IIIA: Competitive Markets 474

14 EQUILIBRIUM AND EFFICIENCY 475
15 MARKET INTERVENTIONS 513
16 GENERAL EQUILIBRIUM, EFFICIENCY, AND EQUITY 543
IIIB: Market Failures 587
17 MONOPOLY 588
18 PRICING POLICIES 626
19 OLIGOPOLY 660
20 EXTERNALITIES AND PUBLIC GOODS 707
21 ASYMMETRIC INFORMATION 751
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CONTENTS
part Introduction
1 Preliminaries 2
1.1 What Is Microeconomics? 3 / Institutions for Allocating Resources 3 / Economic
Motives 7 / Positive versus Normative Analysis 7 / The Scope of Microeconomics 9
1.2 Tools of Microeconomics 10 / The Scientific Method 11 / Models and Mathematics 12 /
Simplifying Assumptions 13 / Data Analysis 13 / Why Economists Sometimes Disagree 15
1.3 Themes of Microeconomics 16 / Decisions: Some Central Themes 16 / Markets: Some
Central Themes 18
1.4 Uses of Microeconomics 20
Chapter Summary 22 / Discussion Questions 22
2 Supply and Demand 24

2.1 Demand 25 / Demand Curves 25 / Demand Functions 27
2.2 Supply 28 / Supply Curves 28 / Supply Functions 30
2.3 Market Equilibrium 30 / Changes in Market Equilibrium 33 / The Size of Changes in
Market Equilibrium 39
2.4 Elasticities of Demand and Supply 42 / The (Price) Elasticity of Demand 43 / The
(Price) Elasticity of Supply 51 / The Size of Changes in Market Demand, Revisited 52 /
Other Elasticities 52
Chapter Summary 54 / Discussion Questions 55 / Problems 55 / Calculus Problems 56
3 Balancing Benefits and Costs 57

3.1 Maximizing Benefits Less Costs 58 / Maximizing Net Benefits with Finely
Divisible Actions 61
3.2 Thinking on the Margin 62 / Marginal Cost 63 / Marginal Benefit 63 / Best Choices
and Marginal Analysis 64 / Marginal Benefit and Marginal Cost with Finely Divisible
Actions 65 / Best Choices and Marginal Analysis with Finely Divisible Actions 68
3.3 Sunk Costs and Decision Making 71
*3.4 Constrained Optimization 73
Chapter Summary 75 / Discussion Questions 75 / Problems 75 / Calculus Problems 76 /
Appendix: Finding a Best Choice Using Marginal Analysis 78
part Economic Decision Making 83
II-A: Consumption Decisions 84

4 Consumer Preferences 85
4.1 Principles of Consumer Choice 86
4.2 Features of Consumer Preferences 88 / How Do People Rank Consumption
Bundles? 89 / Consumer Indifference Curves 90 / Goods versus Bads 96
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xxii Contents
4.3 Substitution Between Goods 97 / Rates of Substitution 97 / Special Cases: Perfect

Substitutes and Complements 102
4.4 Utility 104 / From Indifference Curves to Utility Functions and Back 105 / Ordinal
versus Cardinal Utility 107 / Utility Functions and the Marginal Rate of Substitution 108 /
Some Special Utility Functions 110
5 Constraints, Choices, and Demand 118

5.1 Affordable Consumption Bundles 119 / Income, Prices, and the Budget Line 119 /
Changes in Income and Prices 121
5.2 Consumer Choice 124 / Interior Solutions 126 / Boundary Solutions 128 / Utility
Maximization 131
5.3 Prices and Demand 134 / The Price-Consumption Curve 134 / Individual Demand
Curves 135 / Price Changes and Shifts in Demand 139
5.4 Income and Demand 140 / The Income-Consumption Curve 141 / Normal versus
Inferior Goods 142 / Engel Curves 144 / Changes in Income and Shifts in the Demand
Curve 147
5.5 Volume-Sensitive Pricing 149
*5.6 How Economists Determine a Consumer’s Preferences 153 / The Principle of Revealed
Preference 154 / The Use of Statistical Tools 156
6 Demand and Welfare 162

6.1 Measuring Changes in Consumer Welfare Using Demand Curves 163 / Compensating
Variation 163 / Consumer Surplus 165 / Using Consumer Surplus to Measure Changes in
Welfare 167
6.2 Dissecting The Effects of a Price Change 169 / Compensated Price Changes 169 /
Substitution and Income Effects 171 / The Direction of Substitution and Income
Effects 174 / Why Do Demand Curves Usually Slope Downward? 176
6.3 Labor Supply and the Demand for Leisure 177 / The Effect of Wages on Hours of
Work 179 / The Effect of Wages on Labor Force Participation 181
*6.4 Another Type of Demand Curve 183 / The Relationship between the Two Types of
Demand Curves 184 / Exact Consumer Surplus 188
*6.5 Measuring Changes in Consumer Welfare Using Cost-of-Living Indexes 192 / What
Is a Cost-of-Living Index? 192 / A Perfect Cost-of-Living Index 193 / Fixed-Weight Price
Indexes 193
II-B: Production Decisions 202

7 Technology and Production 203
7.1 Production Technologies 204 / The Production Possibilities Set and the Efficient
Production Frontier 207 / Production Functions 208 / Production in the Short Run and the
Long Run 208
7.2 Production with One Variable Input 210 / Average Product 210 / Marginal Product 211 /
The Relationship between Average and Marginal Product 213 / Using the Marginal Product
of Labor to Make Production Decisions 214
7.3 Production with Two Variable Inputs 217 / Isoquants 218 / Average and Marginal
Products with More than One Input 222 / Substitution between Inputs 223 /
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Contents xxiii
The MRTS and Marginal Products 225 / Input Substitution for Three Special Production
Technologies 226
7.4 Returns to Scale 228 / Reasons for Increasing and Decreasing Returns to Scale 230 /
Implications of Returns to Scale 231
7.5 Productivity Differences and Technological Change 232 / Productivity Differences and
Technological Change with Two Inputs 232 / Reasons for Productivity Differences 233
8 Cost 239
8.1 Types of Cost 240 / What Do Economic Costs Include? 242
8.2 Cost with One Variable Input 244
8.3 Cost Minimization with Two Variable Inputs 247 / Isocost Lines 248 / Least-Cost
Production 249 / Interior Solutions and the Tangency Condition 251 / Boundary
Solutions 252 / Finding the Least-Cost Input Combination 254 / The Firm’s Cost
Function 255
8.4 Average and Marginal Costs 258 / Average and Marginal Cost Curves 259 / The
Relationship between Average and Marginal Costs 262 / Three Kinds of Average Cost 263 /
Marginal Costs and Variable Cost 265
8.5 Effects of Input Price Changes 265
8.6 Short-Run versus Long-Run Costs 268
8.7 Economies and Diseconomies of Scale and Scope 271 / Economies of Scope 273
9 Profit Maximization 279

9.1 Profit-Maximizing Quantities and Prices 280 / Choosing Price versus Choosing
Quantity 281 / Maximizing Profit 282
9.2 Marginal Revenue, Marginal Cost, and Profit Maximization 285 / Marginal Revenue 285 /
The Profit-Maximizing Sales Quantity 288
9.3 Supply Decisions by Price-Taking Firms 288 / The Profit-Maximizing Sales Quantity of
a Price-Taking Firm 289 / The Supply Function of a Price-Taking Firm 291 / The Law of
Supply 293 / Changes in Input Prices and Shifts in the Supply Function 294
9.4 Short-Run versus Long-Run Supply by Price-Taking Firms 297
9.5 Producer Surplus 301
*9.6 Supply by Multiproduct Price-Taking Firms 302
II-C: Additional Topics Concerning Decisions 308

10 Choices Involving Time 309
10.1 Transactions Involving Time 310 / Interest Rates and Compound Interest 310 / Present
Value and the Price of a Future Dollar 312 / Valuing Streams of Future Payments or
Receipts 315 / Why Do Interest Rates Differ? 319 / Real versus Nominal Interest 320
10.2 Saving and Borrowing by Consumers 322 / The Timing of Consumption 322 / Saving,
Borrowing, and the Interest Rate 327 / Saving and Consumption over the Life Cycle 329
10.3 Investment 333 / Measuring the Profitability of Investments: Net Present Value 334 /
The Internal Rate of Return 336 / Investment and the Interest Rate 338 / Choosing between
Mutually Exclusive Projects 339 / Investing in Human Capital 342
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xxiv Contents
11 Choices Involving Risk 349

11.1 What Is Risk? 350 / Possibilities 350 / Probability 351 / Uncertain Payoffs 351 /
Expected Payoff 353 / Variability 355
11.2 Risk Preferences 356 / Consumption Bundles 356 / Preferences and Indifference
Curves 358 / The Concept of Risk Aversion 359 / Alternatives to Risk Aversion 363 /
Expected Utility 364
11.3 Insurance 368 / The Nature of Insurance 368 / The Demand for Insurance 369 / The
Value of Insurance 372
11.4 Other Methods of Managing Risk 375 / Risk Sharing 375 / Hedging and
Diversification 378 / Information Acquisition 382
12 Choices Involving Strategy 387

12.1 What Is a Game? 388 / Two Types of Games 389 / How to Describe a Game 389
12.2 Thinking Strategically in One-Stage Games 391 / Dominant Strategies 392 /
Dominated Strategies 395 / Weakly Dominated Strategies 398
12.3 Nash Equilibrium in One-Stage Games 400 / The Concept of Nash Equilibrium 400 /
Nash Equilibria in Games with Finely Divisible Choices 404 / Mixed Strategies 406
12.4 Games with Multiple Stages 411 / Credible Threats in Games with Perfect
Information 411 / Cooperation in Repeated Games 418
*12.5 Games in Which Different People Have Different Information 422 / The Winner’s
Curse 422 / Reputation 424
13 Behavioral Economics 430

13.1 Objectives and Methods of Behavioral Economics 431 / Motivations and Objectives 431 /
Methods 432 / How to Evaluate Behavioral Evidence 434
13.2 Departures from Perfect Rationality 435 / Incoherent Choices 435 / Bias toward the
Status Quo 438 / Narrow Framing 442 / Salience 445 / Rules of Thumb 445
13.3 Choices Involving Time 447 / Maintaining Self-Control 447 / Ignoring Sunk Costs 453 /
Forecasting Future Tastes and Needs 455
13.4 Choices Involving Risk 455 / Trouble Assessing Probabilities 456 / Preferences toward
Risk 458
13.5 Choices Involving Strategy 463 / Possible Shortcomings of Game Theory 463 /
The Importance of Social Motives 466
part Markets 473
IIIA: Competitive Markets 474

14 Equilibrium and Efficiency 475
14.1 What Makes a Market Competitive? 476
14.2 Market Demand and Market Supply 478 / Market Demand 478 / Market Supply 479
14.3 Short-Run and Long-Run Competitive Equilibrium 484 / Long-Run Competitive
Equilibrium with Free Entry 485 / Short-Run and Long-Run Responses to Changes in
Demand 486 / Demand-Induced Changes in Input Costs 491
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Contents xxv
14.4 Efficiency of Perfectly Competitive Markets 492 / Aggregate Surplus and Economic
Efficiency 492 / How Perfectly Competitive Markets Maximize Aggregate Surplus 494
14.5 Measuring Surplus Using Market Demand and Supply Curves 500 / Deadweight
Loss 503 / Consumer and Producer Surpluses 504
Chapter Summary 505 / Discussion Questions 506 / Problems 506 / Calculus Problems 507 /
Appendix: Competitive Equilibrium in Factor Markets 509
15 Market Interventions 513

15.1 Taxes (and Subsidies) 514 / The Burden of a Tax 514 / The Welfare Effects of a
Tax 520 / Which Goods Should the Government Tax? 523 / Government Subsidies and
Their Effects 525
15.2 Policies Designed to Raise Prices 527 / Price Floors 527 / Price Supports 529 /
Production Quotas 531 / Voluntary Production Reduction Programs 531 / Policies that
Lower Prices 533
15.3 Import Tariffs and Quotas 534 / Tariffs 535 / Quotas 536 / Beneficial Trade
Barriers 537
16 General Equilibrium, Efficiency, and Equity 543

16.1 The Nature of General Equilibrium 544
16.2 Positive Analysis of General Equilibrium 546 / Market-Clearing Curves 546 /
A General Equilibrium in Two Markets 548 / The Effects of a Sales Tax 549
16.3 Normative Criteria for Evaluating Economic Performance 554 / Efficiency 554 /
Equity 555 / Social Welfare Functions 557
16.4 General Equilibrium and Efficient Exchange 558 / General Equilibrium in Exchange
Economies 558 / The First Welfare Theorem 561 / Efficiency in Exchange 562
16.5 General Equilibrium and Efficient Production 567 / Efficiency in Production 567 /
The First Welfare Theorem, Again 573 / Efficiency as a Justification for Free Markets 576
16.6 Equity and Redistribution 578 / The Second Welfare Theorem 578 / The Conflict
between Equity and Efficiency 579
IIIB: Market Failures 587

17 Monopoly 588
17.1 Market Power 589 / How Do Firms Become Monopolists? 591
17.2 Monopoly Pricing 593 / Marginal Revenue for a Monopolist 593 / Monopoly Profit
Maximization 597 / Markup: A Measure of Market Power 599
17.3 Welfare Effects of Monopoly Pricing 601
17.4 Nonprice Effects of Monopoly 604 / Product Quality 604 / Advertising 607 /
Investments Made to Become a Monopolist 609
17.5 Monopsony 610 / Marginal Expenditure 611 / Monopsony Profit Maximization 612 /
The Welfare Effects of Monopsony Pricing 613
17.6 Regulation of Monopolies 614 / Why Are Some Monopolies Regulated? 614 / First-
Best versus Second-Best Price Regulation 616 / Nonprice Effects of Price Regulation 616 /
Regulatory Failure 617 / The Trend toward Deregulation 617 / Government Ownership of
Monopolies 619
*17.7 Multiproduct Monopoly 619
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xxvi Contents
18 Pricing Policies 626

18.1 Price Discrimination: Pricing to Extract Surplus 627
18.2 Perfect Price Discrimination 629 / Two-Part Tariffs 631
18.3 Price Discrimination Based on Observable Customer Characteristics 634 / Welfare
Effects of Imperfect Price Discrimination 639
18.4 Price Discrimination Based on Self-Selection 641 / Quantity-Dependent Pricing and
Self-Selection 642 / The Profit-Maximizing Two-Part Tariff 644 / Using Menus to Increase
Profit 648
*18.5 Bundling 653 / Mixed Bundling 655
19 Oligopoly 660
19.1 Oligopoly and Game Theory 661
19.2 The Bertrand Model: Price Competition with Homogeneous Goods 663
19.3 Cournot Quantity Competition 666 / Nash Equilibrium in a Cournot Market 667 /
Oligopoly versus Monopoly Deadweight Loss 672 / Oligopoly Prices and the Number of
Competitors 672 / Markups in a Cournot Market 674
19.4 Price Competition with Differentiated Products 677
19.5 Collusion 683 / Factors that Inhibit Collusion 685 / Tacit versus Explicit Collusion 686
19.6 Market Entry and Monopolistic Competition 688 / Market Entry, Product
Differentiation, and Monopolistic Competition 691
*19.7 Strategic Behavior that Shapes Future Competition 692 / Raising Rivals’ Costs 693 /
Strategic Precommitment 694
19.8 Antitrust Policy 698 / U.S. Antitrust Law 699 / Antitrust Violations 699
20 Externalities and Public Goods 707

20.1 Externalities and Inefficiency 708 / What Is an Externality? 708 / Negative Externalities
and Inefficiency in Competitive Markets 710 / Positive Externalities and Inefficiency in
Competitive Markets 714 / Externalities in Imperfectly Competitive Markets 715
20.2 Remedies for Externalities: The Private Sector 717 / Property Rights and
Negotiation 718 / Limitations of Bargaining 721
20.3 Remedies for Externalities: The Public Sector 722 / Policies that Support Markets 722 /
Quantity Controls 722 / Policies that Correct Private Incentives 724 / Controlling Quantities
versus Correcting Incentives 730 / Hybrid Market Approaches 734
20.4 Common Property Resources 735
20.5 Public Goods 737 / The Efficient Provision of Public Goods 739 / Public Goods and
Market Failure 740 / Public Policy toward Public Goods 741
21 Asymmetric Information 751

21.1 Adverse Selection 752 / Adverse Selection and Lemons 753 / Adverse Selection in a
Labor Market 753 / Responses to Adverse Selection 758
21.2 Signaling 762 / A Simple Model of Educational Attainment 762 / Market
Equilibrium 764 / A Possible Role for the Government 766
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Contents xxvii
21.3 Screening 769 / A Simple Model of Workplace Responsibilities 770 / Market

Equilibrium 772 / A Possible Role for the Government 776
21.4 Incentives and Moral Hazard 777 / Efficiency and Incentive Pay 778 / The Costs of
Incentives 783 / Other Sources of Incentives 784
Glossary 791
Credits 802
Index 804
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READ MORE ONLINE TABLE OF CONTENTS

CHAPTER 2 SUPPLY AND DEMAND CHAPTER 7 TECHNOLOGY AND PRODUCTION
2.1 Estimating Demand and Supply Curves 7.1 The Marginal Product of Labor and the Slope of
2
2.2 Enron’s Stock Price Collapse the Production Function
2.3 Responses to a Change in Demand or Supply 7.2 Partial Derivatives
2
2.4 The Slope of a Nonlinear Demand Curve
7.3 Deriving the MRTS from an Isoquant Formula
2.5 Constant Elasticity Demand Functions
7.4 Output and Productivity Growth
2.6 The Elasticity of Demand and Total Expenditure:
An Algebraic Derivation
CHAPTER 8 COST
CHAPT
2.7 The Elasticity of Demand and Total Expenditure:
8.1 Cost Minimization and Constrained Optimization
A Calculus Derivation
CHAPTER 3 BALANCING BENEFITS AND COSTS 8.2 Sufficiency of the Tangency Condition When a
Firm’s Technology Has a Declining MRTS
3.1 Regulation of Arsenic Levels in Drinking Water
8.3 Marginal Cost, Marginal Products, and Input Prices
3.2 Marginal Benefit and the Slope of the Benefit
Curve 8.4 Responses to Input Price Changes
3.3 Marginal Benefit and Marginal Cost Are the
CHAPTER 9 PROFIT MAXIMIZATION
Derivatives of the Benefit and Cost Functions
9.1 Profit Maximization by a Price-Taking Firm When
3
3.4 Best Choices with Avoidable Fixed Costs
the Marginal Cost Curve Is Not Upward Sloping
3.5 The Method of Lagrange Multipliers
9.2 Effect of a Price Increase on the Profit-Maximizing
Supply
3.6 Calculus and the No Marginal Improvement
9.3 Input Demands by a Price-Taking Firm
Principle
3.7 Partial Derivatives CHAPTER 11 CHOICES INVOLVING RISK
11.1 Allocating Resources among Assets in a Financial
CHAPTER 4 CONSUMER PREFERENCES Portfolio
4.1 Finding Points on an Indifference Curve
4
4.2 Goods versus Bads CHAPTER 12 CHOICES INVOLVING STRATEGY
4.3 Deriving the MRS from an Indifference Curve 12.1 Analyzing Multiple-Stage Games
Formula
CHAPTER 13 BEHAVIORAL ECONOMICS
4
4.4 MRSs and the Gains from Trade
13.1 A New Methodological Frontier
4.5 Partial Derivatives
CHAPTER 14 EQUILIBRIUM AND EFFICIENCY
CHAPTER 5 CONSTRAINTS, CHOICES, AND DEMAND
CHAPT 14.1 Short-Run and Long-Run Responses to Changes in
5.1 Utility Maximization and Constrained Optimization Cost
5.2 Substitution between Domestic and Imported 14.2 Welfare Properties of Competitive Equilibria in
Automobiles Factor Markets
5.3 What Makes a Good Normal or Inferior?
CHAPTER 15 MARKET INTERVENTIONS
5.4 A Frequent Reader’s Club
15.1 Ad Valorem Taxes
CHAPTER 6 DEMAND AND WELFARE 15.2 Derivation of the Tax Incidence Formula
6.1 The Slutsky Equation 15.3 Tax Incidence in Imperfectly Competitive Markets
xxviii
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Read More Online Contents xxix
15.4 Welfare Effects of a Tax When Income Effects Are CHAPTER 19 OLIGOPOLY
CHAPT
Present 19.1 Finding the Nash Equilibrium in a Differentiated
15.5 Deadweight Loss-Minimizing Taxes Product Market Using Calculus
15.6 U.S. Dairy Subsidies 19.2 Market Entry and Social Welfare
19.3 Credible Entry Deterrence
CHAPTER 16 GENERAL EQUILIBRIUM, EFFICIENCY,
AND EQUITY CHAPTER 20 EXTERNALITIES AND PUBLIC GOODS
16.1 Arrow’s Impossibility Theorem 20.1 Solving for the Socially Efficient Output Level with
16.2 Bargaining and Competitive Markets Externalities
CHAPTER 17 MONOPOLY CHAPTER 21 ASYMMETRIC INFORMATION

17.1 Distinguishing Monopoly from Perfect Competition 21.1 Signaling Equilibria with Separation and Pooling
17.2 Canadian Drug Prices and Government Regulation 21.2 Screening Equilibria with Separation and Pooling
17.3 Regulation of a Multiproduct Monopolist 21.3 Adverse Selection and Screening in Insurance
Markets
CHAPTER 18 PRICING POLICIES 21.4 Incentives and Risk Aversion
18.1 Price Discrimination in Non-Monopoly Markets
18.2 An Illustration of a Damaged-Good Pricing Strategy
18.3 Profit-Maximizing Quantity-Dependent Pricing
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DANCE ON STILTS AT THE GIRLS’ UNYAGO, NIUCHI
Newala, too, suffers from the distance of its water-supply—at least

the Newala of to-day does; there was once another Newala in a lovely
valley at the foot of the plateau. I visited it and found scarcely a trace
of houses, only a Christian cemetery, with the graves of several
missionaries and their converts, remaining as a monument of its
former glories. But the surroundings are wonderfully beautiful. A
thick grove of splendid mango-trees closes in the weather-worn
crosses and headstones; behind them, combining the useful and the
agreeable, is a whole plantation of lemon-trees covered with ripe
fruit; not the small African kind, but a much larger and also juicier
imported variety, which drops into the hands of the passing traveller,
without calling for any exertion on his part. Old Newala is now under
the jurisdiction of the native pastor, Daudi, at Chingulungulu, who,
as I am on very friendly terms with him, allows me, as a matter of
course, the use of this lemon-grove during my stay at Newala.
FEET MUTILATED BY THE RAVAGES OF THE “JIGGER”
(Sarcopsylla penetrans)
The water-supply of New Newala is in the bottom of the valley,

some 1,600 feet lower down. The way is not only long and fatiguing,
but the water, when we get it, is thoroughly bad. We are suffering not
only from this, but from the fact that the arrangements at Newala are
nothing short of luxurious. We have a separate kitchen—a hut built
against the boma palisade on the right of the baraza, the interior of
which is not visible from our usual position. Our two cooks were not
long in finding this out, and they consequently do—or rather neglect
to do—what they please. In any case they do not seem to be very
particular about the boiling of our drinking-water—at least I can
attribute to no other cause certain attacks of a dysenteric nature,
from which both Knudsen and I have suffered for some time. If a
man like Omari has to be left unwatched for a moment, he is capable
of anything. Besides this complaint, we are inconvenienced by the
state of our nails, which have become as hard as glass, and crack on
the slightest provocation, and I have the additional infliction of
pimples all over me. As if all this were not enough, we have also, for
the last week been waging war against the jigger, who has found his
Eldorado in the hot sand of the Makonde plateau. Our men are seen
all day long—whenever their chronic colds and the dysentery likewise
raging among them permit—occupied in removing this scourge of
Africa from their feet and trying to prevent the disastrous
consequences of its presence. It is quite common to see natives of
this place with one or two toes missing; many have lost all their toes,
or even the whole front part of the foot, so that a well-formed leg
ends in a shapeless stump. These ravages are caused by the female of
Sarcopsylla penetrans, which bores its way under the skin and there
develops an egg-sac the size of a pea. In all books on the subject, it is
stated that one’s attention is called to the presence of this parasite by
an intolerable itching. This agrees very well with my experience, so
far as the softer parts of the sole, the spaces between and under the
toes, and the side of the foot are concerned, but if the creature
penetrates through the harder parts of the heel or ball of the foot, it
may escape even the most careful search till it has reached maturity.
Then there is no time to be lost, if the horrible ulceration, of which
we see cases by the dozen every day, is to be prevented. It is much
easier, by the way, to discover the insect on the white skin of a
European than on that of a native, on which the dark speck scarcely
shows. The four or five jiggers which, in spite of the fact that I
constantly wore high laced boots, chose my feet to settle in, were
taken out for me by the all-accomplished Knudsen, after which I
thought it advisable to wash out the cavities with corrosive
sublimate. The natives have a different sort of disinfectant—they fill
the hole with scraped roots. In a tiny Makua village on the slope of
the plateau south of Newala, we saw an old woman who had filled all
the spaces under her toe-nails with powdered roots by way of
prophylactic treatment. What will be the result, if any, who can say?
The rest of the many trifling ills which trouble our existence are
really more comic than serious. In the absence of anything else to
smoke, Knudsen and I at last opened a box of cigars procured from
the Indian store-keeper at Lindi, and tried them, with the most
distressing results. Whether they contain opium or some other
narcotic, neither of us can say, but after the tenth puff we were both
“off,” three-quarters stupefied and unspeakably wretched. Slowly we
recovered—and what happened next? Half-an-hour later we were
once more smoking these poisonous concoctions—so insatiable is the
craving for tobacco in the tropics.
Even my present attacks of fever scarcely deserve to be taken
seriously. I have had no less than three here at Newala, all of which
have run their course in an incredibly short time. In the early
afternoon, I am busy with my old natives, asking questions and
making notes. The strong midday coffee has stimulated my spirits to
an extraordinary degree, the brain is active and vigorous, and work
progresses rapidly, while a pleasant warmth pervades the whole
body. Suddenly this gives place to a violent chill, forcing me to put on
my overcoat, though it is only half-past three and the afternoon sun
is at its hottest. Now the brain no longer works with such acuteness
and logical precision; more especially does it fail me in trying to
establish the syntax of the difficult Makua language on which I have
ventured, as if I had not enough to do without it. Under the
circumstances it seems advisable to take my temperature, and I do
so, to save trouble, without leaving my seat, and while going on with
my work. On examination, I find it to be 101·48°. My tutors are
abruptly dismissed and my bed set up in the baraza; a few minutes
later I am in it and treating myself internally with hot water and
lemon-juice.
Three hours later, the thermometer marks nearly 104°, and I make
them carry me back into the tent, bed and all, as I am now perspiring
heavily, and exposure to the cold wind just beginning to blow might
mean a fatal chill. I lie still for a little while, and then find, to my
great relief, that the temperature is not rising, but rather falling. This
is about 7.30 p.m. At 8 p.m. I find, to my unbounded astonishment,
that it has fallen below 98·6°, and I feel perfectly well. I read for an
hour or two, and could very well enjoy a smoke, if I had the
wherewithal—Indian cigars being out of the question.
Having no medical training, I am at a loss to account for this state
of things. It is impossible that these transitory attacks of high fever
should be malarial; it seems more probable that they are due to a
kind of sunstroke. On consulting my note-book, I become more and
more inclined to think this is the case, for these attacks regularly
follow extreme fatigue and long exposure to strong sunshine. They at
least have the advantage of being only short interruptions to my
work, as on the following morning I am always quite fresh and fit.
My treasure of a cook is suffering from an enormous hydrocele which
makes it difficult for him to get up, and Moritz is obliged to keep in
the dark on account of his inflamed eyes. Knudsen’s cook, a raw boy
from somewhere in the bush, knows still less of cooking than Omari;
consequently Nils Knudsen himself has been promoted to the vacant
post. Finding that we had come to the end of our supplies, he began
by sending to Chingulungulu for the four sucking-pigs which we had
bought from Matola and temporarily left in his charge; and when
they came up, neatly packed in a large crate, he callously slaughtered
the biggest of them. The first joint we were thoughtless enough to
entrust for roasting to Knudsen’s mshenzi cook, and it was
consequently uneatable; but we made the rest of the animal into a
jelly which we ate with great relish after weeks of underfeeding,
consuming incredible helpings of it at both midday and evening
meals. The only drawback is a certain want of variety in the tinned
vegetables. Dr. Jäger, to whom the Geographical Commission
entrusted the provisioning of the expeditions—mine as well as his
own—because he had more time on his hands than the rest of us,
seems to have laid in a huge stock of Teltow turnips,[46] an article of
food which is all very well for occasional use, but which quickly palls
when set before one every day; and we seem to have no other tins
left. There is no help for it—we must put up with the turnips; but I
am certain that, once I am home again, I shall not touch them for ten
years to come.
Amid all these minor evils, which, after all, go to make up the
genuine flavour of Africa, there is at least one cheering touch:
Knudsen has, with the dexterity of a skilled mechanic, repaired my 9
× 12 cm. camera, at least so far that I can use it with a little care.
How, in the absence of finger-nails, he was able to accomplish such a
ticklish piece of work, having no tool but a clumsy screw-driver for
taking to pieces and putting together again the complicated
mechanism of the instantaneous shutter, is still a mystery to me; but
he did it successfully. The loss of his finger-nails shows him in a light
contrasting curiously enough with the intelligence evinced by the
above operation; though, after all, it is scarcely surprising after his
ten years’ residence in the bush. One day, at Lindi, he had occasion
to wash a dog, which must have been in need of very thorough
cleansing, for the bottle handed to our friend for the purpose had an
extremely strong smell. Having performed his task in the most
conscientious manner, he perceived with some surprise that the dog
did not appear much the better for it, and was further surprised by
finding his own nails ulcerating away in the course of the next few
days. “How was I to know that carbolic acid has to be diluted?” he
mutters indignantly, from time to time, with a troubled gaze at his
mutilated finger-tips.
Since we came to Newala we have been making excursions in all
directions through the surrounding country, in accordance with old
habit, and also because the akida Sefu did not get together the tribal
elders from whom I wanted information so speedily as he had
promised. There is, however, no harm done, as, even if seen only
from the outside, the country and people are interesting enough.
The Makonde plateau is like a large rectangular table rounded off
at the corners. Measured from the Indian Ocean to Newala, it is
about seventy-five miles long, and between the Rovuma and the
Lukuledi it averages fifty miles in breadth, so that its superficial area
is about two-thirds of that of the kingdom of Saxony. The surface,
however, is not level, but uniformly inclined from its south-western
edge to the ocean. From the upper edge, on which Newala lies, the
eye ranges for many miles east and north-east, without encountering
any obstacle, over the Makonde bush. It is a green sea, from which
here and there thick clouds of smoke rise, to show that it, too, is
inhabited by men who carry on their tillage like so many other
primitive peoples, by cutting down and burning the bush, and
manuring with the ashes. Even in the radiant light of a tropical day
such a fire is a grand sight.
Much less effective is the impression produced just now by the
great western plain as seen from the edge of the plateau. As often as
time permits, I stroll along this edge, sometimes in one direction,
sometimes in another, in the hope of finding the air clear enough to
let me enjoy the view; but I have always been disappointed.
Wherever one looks, clouds of smoke rise from the burning bush,
and the air is full of smoke and vapour. It is a pity, for under more
favourable circumstances the panorama of the whole country up to
the distant Majeje hills must be truly magnificent. It is of little use
taking photographs now, and an outline sketch gives a very poor idea
of the scenery. In one of these excursions I went out of my way to
make a personal attempt on the Makonde bush. The present edge of
the plateau is the result of a far-reaching process of destruction
through erosion and denudation. The Makonde strata are
everywhere cut into by ravines, which, though short, are hundreds of
yards in depth. In consequence of the loose stratification of these
beds, not only are the walls of these ravines nearly vertical, but their
upper end is closed by an equally steep escarpment, so that the
western edge of the Makonde plateau is hemmed in by a series of
deep, basin-like valleys. In order to get from one side of such a ravine
to the other, I cut my way through the bush with a dozen of my men.
It was a very open part, with more grass than scrub, but even so the
short stretch of less than two hundred yards was very hard work; at
the end of it the men’s calicoes were in rags and they themselves
bleeding from hundreds of scratches, while even our strong khaki
suits had not escaped scatheless.
NATIVE PATH THROUGH THE MAKONDE BUSH, NEAR

MAHUTA
I see increasing reason to believe that the view formed some time
back as to the origin of the Makonde bush is the correct one. I have
no doubt that it is not a natural product, but the result of human
occupation. Those parts of the high country where man—as a very
slight amount of practice enables the eye to perceive at once—has not
yet penetrated with axe and hoe, are still occupied by a splendid
timber forest quite able to sustain a comparison with our mixed
forests in Germany. But wherever man has once built his hut or tilled
his field, this horrible bush springs up. Every phase of this process
may be seen in the course of a couple of hours’ walk along the main
road. From the bush to right or left, one hears the sound of the axe—
not from one spot only, but from several directions at once. A few
steps further on, we can see what is taking place. The brush has been
cut down and piled up in heaps to the height of a yard or more,
between which the trunks of the large trees stand up like the last
pillars of a magnificent ruined building. These, too, present a
melancholy spectacle: the destructive Makonde have ringed them—
cut a broad strip of bark all round to ensure their dying off—and also
piled up pyramids of brush round them. Father and son, mother and
son-in-law, are chopping away perseveringly in the background—too
busy, almost, to look round at the white stranger, who usually excites
so much interest. If you pass by the same place a week later, the piles
of brushwood have disappeared and a thick layer of ashes has taken
the place of the green forest. The large trees stretch their
smouldering trunks and branches in dumb accusation to heaven—if
they have not already fallen and been more or less reduced to ashes,
perhaps only showing as a white stripe on the dark ground.
This work of destruction is carried out by the Makonde alike on the
virgin forest and on the bush which has sprung up on sites already
cultivated and deserted. In the second case they are saved the trouble
of burning the large trees, these being entirely absent in the
secondary bush.
After burning this piece of forest ground and loosening it with the
hoe, the native sows his corn and plants his vegetables. All over the
country, he goes in for bed-culture, which requires, and, in fact,
receives, the most careful attention. Weeds are nowhere tolerated in
the south of German East Africa. The crops may fail on the plains,
where droughts are frequent, but never on the plateau with its
abundant rains and heavy dews. Its fortunate inhabitants even have
the satisfaction of seeing the proud Wayao and Wamakua working
for them as labourers, driven by hunger to serve where they were
accustomed to rule.
But the light, sandy soil is soon exhausted, and would yield no
harvest the second year if cultivated twice running. This fact has
been familiar to the native for ages; consequently he provides in
time, and, while his crop is growing, prepares the next plot with axe
and firebrand. Next year he plants this with his various crops and
lets the first piece lie fallow. For a short time it remains waste and
desolate; then nature steps in to repair the destruction wrought by
man; a thousand new growths spring out of the exhausted soil, and
even the old stumps put forth fresh shoots. Next year the new growth
is up to one’s knees, and in a few years more it is that terrible,
impenetrable bush, which maintains its position till the black
occupier of the land has made the round of all the available sites and
come back to his starting point.
The Makonde are, body and soul, so to speak, one with this bush.
According to my Yao informants, indeed, their name means nothing
else but “bush people.” Their own tradition says that they have been
settled up here for a very long time, but to my surprise they laid great
stress on an original immigration. Their old homes were in the
south-east, near Mikindani and the mouth of the Rovuma, whence
their peaceful forefathers were driven by the continual raids of the
Sakalavas from Madagascar and the warlike Shirazis[47] of the coast,
to take refuge on the almost inaccessible plateau. I have studied
African ethnology for twenty years, but the fact that changes of
population in this apparently quiet and peaceable corner of the earth
could have been occasioned by outside enterprises taking place on
the high seas, was completely new to me. It is, no doubt, however,
correct.
The charming tribal legend of the Makonde—besides informing us
of other interesting matters—explains why they have to live in the
thickest of the bush and a long way from the edge of the plateau,
instead of making their permanent homes beside the purling brooks
and springs of the low country.
“The place where the tribe originated is Mahuta, on the southern
side of the plateau towards the Rovuma, where of old time there was
nothing but thick bush. Out of this bush came a man who never
washed himself or shaved his head, and who ate and drank but little.
He went out and made a human figure from the wood of a tree
growing in the open country, which he took home to his abode in the
bush and there set it upright. In the night this image came to life and
was a woman. The man and woman went down together to the
Rovuma to wash themselves. Here the woman gave birth to a still-
born child. They left that place and passed over the high land into the
valley of the Mbemkuru, where the woman had another child, which
was also born dead. Then they returned to the high bush country of
Mahuta, where the third child was born, which lived and grew up. In
course of time, the couple had many more children, and called
themselves Wamatanda. These were the ancestral stock of the
Makonde, also called Wamakonde,[48] i.e., aborigines. Their
forefather, the man from the bush, gave his children the command to
bury their dead upright, in memory of the mother of their race who
was cut out of wood and awoke to life when standing upright. He also
warned them against settling in the valleys and near large streams,
for sickness and death dwelt there. They were to make it a rule to
have their huts at least an hour’s walk from the nearest watering-
place; then their children would thrive and escape illness.”
The explanation of the name Makonde given by my informants is
somewhat different from that contained in the above legend, which I
extract from a little book (small, but packed with information), by
Pater Adams, entitled Lindi und sein Hinterland. Otherwise, my
results agree exactly with the statements of the legend. Washing?
Hapana—there is no such thing. Why should they do so? As it is, the
supply of water scarcely suffices for cooking and drinking; other
people do not wash, so why should the Makonde distinguish himself
by such needless eccentricity? As for shaving the head, the short,
woolly crop scarcely needs it,[49] so the second ancestral precept is
likewise easy enough to follow. Beyond this, however, there is
nothing ridiculous in the ancestor’s advice. I have obtained from
various local artists a fairly large number of figures carved in wood,
ranging from fifteen to twenty-three inches in height, and
representing women belonging to the great group of the Mavia,
Makonde, and Matambwe tribes. The carving is remarkably well
done and renders the female type with great accuracy, especially the
keloid ornamentation, to be described later on. As to the object and
meaning of their works the sculptors either could or (more probably)
would tell me nothing, and I was forced to content myself with the
scanty information vouchsafed by one man, who said that the figures
were merely intended to represent the nembo—the artificial
deformations of pelele, ear-discs, and keloids. The legend recorded
by Pater Adams places these figures in a new light. They must surely
be more than mere dolls; and we may even venture to assume that
they are—though the majority of present-day Makonde are probably
unaware of the fact—representations of the tribal ancestress.
The references in the legend to the descent from Mahuta to the
Rovuma, and to a journey across the highlands into the Mbekuru
valley, undoubtedly indicate the previous history of the tribe, the
travels of the ancestral pair typifying the migrations of their
descendants. The descent to the neighbouring Rovuma valley, with
its extraordinary fertility and great abundance of game, is intelligible
at a glance—but the crossing of the Lukuledi depression, the ascent
to the Rondo Plateau and the descent to the Mbemkuru, also lie
within the bounds of probability, for all these districts have exactly
the same character as the extreme south. Now, however, comes a
point of especial interest for our bacteriological age. The primitive
Makonde did not enjoy their lives in the marshy river-valleys.
Disease raged among them, and many died. It was only after they
had returned to their original home near Mahuta, that the health
conditions of these people improved. We are very apt to think of the
African as a stupid person whose ignorance of nature is only equalled
by his fear of it, and who looks on all mishaps as caused by evil
spirits and malignant natural powers. It is much more correct to
assume in this case that the people very early learnt to distinguish
districts infested with malaria from those where it is absent.
This knowledge is crystallized in the
ancestral warning against settling in the
valleys and near the great waters, the
dwelling-places of disease and death. At the
same time, for security against the hostile
Mavia south of the Rovuma, it was enacted
that every settlement must be not less than a
certain distance from the southern edge of the
plateau. Such in fact is their mode of life at the
present day. It is not such a bad one, and
certainly they are both safer and more
comfortable than the Makua, the recent
intruders from the south, who have made USUAL METHOD OF
good their footing on the western edge of the CLOSING HUT-DOOR
plateau, extending over a fairly wide belt of
country. Neither Makua nor Makonde show in their dwellings
anything of the size and comeliness of the Yao houses in the plain,
especially at Masasi, Chingulungulu and Zuza’s. Jumbe Chauro, a
Makonde hamlet not far from Newala, on the road to Mahuta, is the
most important settlement of the tribe I have yet seen, and has fairly
spacious huts. But how slovenly is their construction compared with
the palatial residences of the elephant-hunters living in the plain.
The roofs are still more untidy than in the general run of huts during
the dry season, the walls show here and there the scanty beginnings
or the lamentable remains of the mud plastering, and the interior is a
veritable dog-kennel; dirt, dust and disorder everywhere. A few huts
only show any attempt at division into rooms, and this consists
merely of very roughly-made bamboo partitions. In one point alone
have I noticed any indication of progress—in the method of fastening
the door. Houses all over the south are secured in a simple but
ingenious manner. The door consists of a set of stout pieces of wood
or bamboo, tied with bark-string to two cross-pieces, and moving in
two grooves round one of the door-posts, so as to open inwards. If
the owner wishes to leave home, he takes two logs as thick as a man’s
upper arm and about a yard long. One of these is placed obliquely
against the middle of the door from the inside, so as to form an angle
of from 60° to 75° with the ground. He then places the second piece
horizontally across the first, pressing it downward with all his might.
It is kept in place by two strong posts planted in the ground a few
inches inside the door. This fastening is absolutely safe, but of course
cannot be applied to both doors at once, otherwise how could the
owner leave or enter his house? I have not yet succeeded in finding
out how the back door is fastened.
MAKONDE LOCK AND KEY AT JUMBE CHAURO

This is the general way of closing a house. The Makonde at Jumbe
Chauro, however, have a much more complicated, solid and original
one. Here, too, the door is as already described, except that there is
only one post on the inside, standing by itself about six inches from
one side of the doorway. Opposite this post is a hole in the wall just
large enough to admit a man’s arm. The door is closed inside by a
large wooden bolt passing through a hole in this post and pressing
with its free end against the door. The other end has three holes into
which fit three pegs running in vertical grooves inside the post. The
door is opened with a wooden key about a foot long, somewhat
curved and sloped off at the butt; the other end has three pegs
corresponding to the holes, in the bolt, so that, when it is thrust
through the hole in the wall and inserted into the rectangular
opening in the post, the pegs can be lifted and the bolt drawn out.[50]
MODE OF INSERTING THE KEY
With no small pride first one householder and then a second

showed me on the spot the action of this greatest invention of the
Makonde Highlands. To both with an admiring exclamation of
“Vizuri sana!” (“Very fine!”). I expressed the wish to take back these
marvels with me to Ulaya, to show the Wazungu what clever fellows
the Makonde are. Scarcely five minutes after my return to camp at
Newala, the two men came up sweating under the weight of two
heavy logs which they laid down at my feet, handing over at the same
time the keys of the fallen fortress. Arguing, logically enough, that if
the key was wanted, the lock would be wanted with it, they had taken
their axes and chopped down the posts—as it never occurred to them
to dig them out of the ground and so bring them intact. Thus I have
two badly damaged specimens, and the owners, instead of praise,
come in for a blowing-up.
The Makua huts in the environs of Newala are especially
miserable; their more than slovenly construction reminds one of the
temporary erections of the Makua at Hatia’s, though the people here
have not been concerned in a war. It must therefore be due to
congenital idleness, or else to the absence of a powerful chief. Even
the baraza at Mlipa’s, a short hour’s walk south-east of Newala,
shares in this general neglect. While public buildings in this country
are usually looked after more or less carefully, this is in evident
danger of being blown over by the first strong easterly gale. The only
attractive object in this whole district is the grave of the late chief
Mlipa. I visited it in the morning, while the sun was still trying with
partial success to break through the rolling mists, and the circular
grove of tall euphorbias, which, with a broken pot, is all that marks
the old king’s resting-place, impressed one with a touch of pathos.
Even my very materially-minded carriers seemed to feel something
of the sort, for instead of their usual ribald songs, they chanted
solemnly, as we marched on through the dense green of the Makonde
bush:—
“We shall arrive with the great master; we stand in a row and have
no fear about getting our food and our money from the Serkali (the
Government). We are not afraid; we are going along with the great
master, the lion; we are going down to the coast and back.”
With regard to the characteristic features of the various tribes here
on the western edge of the plateau, I can arrive at no other
conclusion than the one already come to in the plain, viz., that it is
impossible for anyone but a trained anthropologist to assign any
given individual at once to his proper tribe. In fact, I think that even
an anthropological specialist, after the most careful examination,
might find it a difficult task to decide. The whole congeries of peoples
collected in the region bounded on the west by the great Central
African rift, Tanganyika and Nyasa, and on the east by the Indian
Ocean, are closely related to each other—some of their languages are
only distinguished from one another as dialects of the same speech,
and no doubt all the tribes present the same shape of skull and
structure of skeleton. Thus, surely, there can be no very striking
differences in outward appearance.
Even did such exist, I should have no time
to concern myself with them, for day after day,
I have to see or hear, as the case may be—in
any case to grasp and record—an
extraordinary number of ethnographic
phenomena. I am almost disposed to think it
fortunate that some departments of inquiry, at
least, are barred by external circumstances.
Chief among these is the subject of iron-
working. We are apt to think of Africa as a
country where iron ore is everywhere, so to
speak, to be picked up by the roadside, and
where it would be quite surprising if the
inhabitants had not learnt to smelt the
material ready to their hand. In fact, the
knowledge of this art ranges all over the
continent, from the Kabyles in the north to the
Kafirs in the south. Here between the Rovuma
and the Lukuledi the conditions are not so
favourable. According to the statements of the
Makonde, neither ironstone nor any other
form of iron ore is known to them. They have
not therefore advanced to the art of smelting
the metal, but have hitherto bought all their
THE ANCESTRESS OF
THE MAKONDE
iron implements from neighbouring tribes.
Even in the plain the inhabitants are not much
better off. Only one man now living is said to
understand the art of smelting iron. This old fundi lives close to
Huwe, that isolated, steep-sided block of granite which rises out of
the green solitude between Masasi and Chingulungulu, and whose
jagged and splintered top meets the traveller’s eye everywhere. While
still at Masasi I wished to see this man at work, but was told that,
frightened by the rising, he had retired across the Rovuma, though
he would soon return. All subsequent inquiries as to whether the
fundi had come back met with the genuine African answer, “Bado”
(“Not yet”).
BRAZIER
Some consolation was afforded me by a brassfounder, whom I

came across in the bush near Akundonde’s. This man is the favourite
of women, and therefore no doubt of the gods; he welds the glittering
brass rods purchased at the coast into those massive, heavy rings
which, on the wrists and ankles of the local fair ones, continually give
me fresh food for admiration. Like every decent master-craftsman he
had all his tools with him, consisting of a pair of bellows, three
crucibles and a hammer—nothing more, apparently. He was quite
willing to show his skill, and in a twinkling had fixed his bellows on
the ground. They are simply two goat-skins, taken off whole, the four
legs being closed by knots, while the upper opening, intended to
admit the air, is kept stretched by two pieces of wood. At the lower
end of the skin a smaller opening is left into which a wooden tube is
stuck. The fundi has quickly borrowed a heap of wood-embers from
the nearest hut; he then fixes the free ends of the two tubes into an
earthen pipe, and clamps them to the ground by means of a bent
piece of wood. Now he fills one of his small clay crucibles, the dross
on which shows that they have been long in use, with the yellow
material, places it in the midst of the embers, which, at present are
only faintly glimmering, and begins his work. In quick alternation
the smith’s two hands move up and down with the open ends of the
bellows; as he raises his hand he holds the slit wide open, so as to let
the air enter the skin bag unhindered. In pressing it down he closes
the bag, and the air puffs through the bamboo tube and clay pipe into
the fire, which quickly burns up. The smith, however, does not keep
on with this work, but beckons to another man, who relieves him at
the bellows, while he takes some more tools out of a large skin pouch
carried on his back. I look on in wonder as, with a smooth round
stick about the thickness of a finger, he bores a few vertical holes into
the clean sand of the soil. This should not be difficult, yet the man
seems to be taking great pains over it. Then he fastens down to the
ground, with a couple of wooden clamps, a neat little trough made by
splitting a joint of bamboo in half, so that the ends are closed by the
two knots. At last the yellow metal has attained the right consistency,
and the fundi lifts the crucible from the fire by means of two sticks
split at the end to serve as tongs. A short swift turn to the left—a
tilting of the crucible—and the molten brass, hissing and giving forth
clouds of smoke, flows first into the bamboo mould and then into the
holes in the ground.
The technique of this backwoods craftsman may not be very far
advanced, but it cannot be denied that he knows how to obtain an
adequate result by the simplest means. The ladies of highest rank in
this country—that is to say, those who can afford it, wear two kinds
of these massive brass rings, one cylindrical, the other semicircular
in section. The latter are cast in the most ingenious way in the
bamboo mould, the former in the circular hole in the sand. It is quite
a simple matter for the fundi to fit these bars to the limbs of his fair
customers; with a few light strokes of his hammer he bends the
pliable brass round arm or ankle without further inconvenience to
the wearer.
SHAPING THE POT
SMOOTHING WITH MAIZE-COB
CUTTING THE EDGE

FINISHING THE BOTTOM
LAST SMOOTHING BEFORE

BURNING
FIRING THE BRUSH-PILE

LIGHTING THE FARTHER SIDE OF
THE PILE
TURNING THE RED-HOT VESSEL
NYASA WOMAN MAKING POTS AT MASASI

Pottery is an art which must always and everywhere excite the
interest of the student, just because it is so intimately connected with
the development of human culture, and because its relics are one of
the principal factors in the reconstruction of our own condition in
prehistoric times. I shall always remember with pleasure the two or
three afternoons at Masasi when Salim Matola’s mother, a slightly-
built, graceful, pleasant-looking woman, explained to me with
touching patience, by means of concrete illustrations, the ceramic art
of her people. The only implements for this primitive process were a
lump of clay in her left hand, and in the right a calabash containing
the following valuables: the fragment of a maize-cob stripped of all
its grains, a smooth, oval pebble, about the size of a pigeon’s egg, a
few chips of gourd-shell, a bamboo splinter about the length of one’s
hand, a small shell, and a bunch of some herb resembling spinach.
Nothing more. The woman scraped with the
shell a round, shallow hole in the soft, fine
sand of the soil, and, when an active young
girl had filled the calabash with water for her,
she began to knead the clay. As if by magic it
gradually assumed the shape of a rough but
already well-shaped vessel, which only wanted
a little touching up with the instruments
before mentioned. I looked out with the
MAKUA WOMAN closest attention for any indication of the use
MAKING A POT. of the potter’s wheel, in however rudimentary
SHOWS THE a form, but no—hapana (there is none). The
BEGINNINGS OF THE embryo pot stood firmly in its little
POTTER’S WHEEL
depression, and the woman walked round it in
a stooping posture, whether she was removing
small stones or similar foreign bodies with the maize-cob, smoothing
the inner or outer surface with the splinter of bamboo, or later, after
letting it dry for a day, pricking in the ornamentation with a pointed
bit of gourd-shell, or working out the bottom, or cutting the edge
with a sharp bamboo knife, or giving the last touches to the finished
vessel. This occupation of the women is infinitely toilsome, but it is
without doubt an accurate reproduction of the process in use among
our ancestors of the Neolithic and Bronze ages.
There is no doubt that the invention of pottery, an item in human
progress whose importance cannot be over-estimated, is due to
women. Rough, coarse and unfeeling, the men of the horde range
over the countryside. When the united cunning of the hunters has
succeeded in killing the game; not one of them thinks of carrying
home the spoil. A bright fire, kindled by a vigorous wielding of the
drill, is crackling beside them; the animal has been cleaned and cut
up secundum artem, and, after a slight singeing, will soon disappear
under their sharp teeth; no one all this time giving a single thought
to wife or child.
To what shifts, on the other hand, the primitive wife, and still more
the primitive mother, was put! Not even prehistoric stomachs could
endure an unvarying diet of raw food. Something or other suggested
the beneficial effect of hot water on the majority of approved but
indigestible dishes. Perhaps a neighbour had tried holding the hard
roots or tubers over the fire in a calabash filled with water—or maybe
an ostrich-egg-shell, or a hastily improvised vessel of bark. They
became much softer and more palatable than they had previously
been; but, unfortunately, the vessel could not stand the fire and got
charred on the outside. That can be remedied, thought our
ancestress, and plastered a layer of wet clay round a similar vessel.
This is an improvement; the cooking utensil remains uninjured, but
the heat of the fire has shrunk it, so that it is loose in its shell. The
next step is to detach it, so, with a firm grip and a jerk, shell and
kernel are separated, and pottery is invented. Perhaps, however, the
discovery which led to an intelligent use of the burnt-clay shell, was
made in a slightly different way. Ostrich-eggs and calabashes are not
to be found in every part of the world, but everywhere mankind has
arrived at the art of making baskets out of pliant materials, such as
bark, bast, strips of palm-leaf, supple twigs, etc. Our inventor has no
water-tight vessel provided by nature. “Never mind, let us line the
basket with clay.” This answers the purpose, but alas! the basket gets
burnt over the blazing fire, the woman watches the process of
cooking with increasing uneasiness, fearing a leak, but no leak
appears. The food, done to a turn, is eaten with peculiar relish; and
the cooking-vessel is examined, half in curiosity, half in satisfaction
at the result. The plastic clay is now hard as stone, and at the same
time looks exceedingly well, for the neat plaiting of the burnt basket
is traced all over it in a pretty pattern. Thus, simultaneously with
pottery, its ornamentation was invented.
Primitive woman has another claim to respect. It was the man,
roving abroad, who invented the art of producing fire at will, but the
woman, unable to imitate him in this, has been a Vestal from the
earliest times. Nothing gives so much trouble as the keeping alight of
the smouldering brand, and, above all, when all the men are absent
from the camp. Heavy rain-clouds gather, already the first large
drops are falling, the first gusts of the storm rage over the plain. The
little flame, a greater anxiety to the woman than her own children,
flickers unsteadily in the blast. What is to be done? A sudden thought
occurs to her, and in an instant she has constructed a primitive hut
out of strips of bark, to protect the flame against rain and wind.
This, or something very like it, was the way in which the principle
of the house was discovered; and even the most hardened misogynist
cannot fairly refuse a woman the credit of it. The protection of the
hearth-fire from the weather is the germ from which the human
dwelling was evolved. Men had little, if any share, in this forward
step, and that only at a late stage. Even at the present day, the
plastering of the housewall with clay and the manufacture of pottery
are exclusively the women’s business. These are two very significant
survivals. Our European kitchen-garden, too, is originally a woman’s
invention, and the hoe, the primitive instrument of agriculture, is,
characteristically enough, still used in this department. But the
noblest achievement which we owe to the other sex is unquestionably
the art of cookery. Roasting alone—the oldest process—is one for
which men took the hint (a very obvious one) from nature. It must
have been suggested by the scorched carcase of some animal
overtaken by the destructive forest-fires. But boiling—the process of
improving organic substances by the help of water heated to boiling-
point—is a much later discovery. It is so recent that it has not even
yet penetrated to all parts of the world. The Polynesians understand
how to steam food, that is, to cook it, neatly wrapped in leaves, in a
hole in the earth between hot stones, the air being excluded, and
(sometimes) a few drops of water sprinkled on the stones; but they
do not understand boiling.
To come back from this digression, we find that the slender Nyasa
woman has, after once more carefully examining the finished pot,
put it aside in the shade to dry. On the following day she sends me
word by her son, Salim Matola, who is always on hand, that she is
going to do the burning, and, on coming out of my house, I find her
already hard at work. She has spread on the ground a layer of very
dry sticks, about as thick as one’s thumb, has laid the pot (now of a
yellowish-grey colour) on them, and is piling brushwood round it.
My faithful Pesa mbili, the mnyampara, who has been standing by,
most obligingly, with a lighted stick, now hands it to her. Both of
them, blowing steadily, light the pile on the lee side, and, when the
flame begins to catch, on the weather side also. Soon the whole is in a
blaze, but the dry fuel is quickly consumed and the fire dies down, so
that we see the red-hot vessel rising from the ashes. The woman
turns it continually with a long stick, sometimes one way and
sometimes another, so that it may be evenly heated all over. In
twenty minutes she rolls it out of the ash-heap, takes up the bundle
of spinach, which has been lying for two days in a jar of water, and
sprinkles the red-hot clay with it. The places where the drops fall are
marked by black spots on the uniform reddish-brown surface. With a
sigh of relief, and with visible satisfaction, the woman rises to an
erect position; she is standing just in a line between me and the fire,
from which a cloud of smoke is just rising: I press the ball of my
camera, the shutter clicks—the apotheosis is achieved! Like a
priestess, representative of her inventive sex, the graceful woman
stands: at her feet the hearth-fire she has given us beside her the
invention she has devised for us, in the background the home she has
built for us.
At Newala, also, I have had the manufacture of pottery carried on
in my presence. Technically the process is better than that already
described, for here we find the beginnings of the potter’s wheel,
which does not seem to exist in the plains; at least I have seen
nothing of the sort. The artist, a frightfully stupid Makua woman, did
not make a depression in the ground to receive the pot she was about
to shape, but used instead a large potsherd. Otherwise, she went to
work in much the same way as Salim’s mother, except that she saved
herself the trouble of walking round and round her work by squatting
at her ease and letting the pot and potsherd rotate round her; this is
surely the first step towards a machine. But it does not follow that
the pot was improved by the process. It is true that it was beautifully
rounded and presented a very creditable appearance when finished,
but the numerous large and small vessels which I have seen, and, in
part, collected, in the “less advanced” districts, are no less so. We
moderns imagine that instruments of precision are necessary to
produce excellent results. Go to the prehistoric collections of our
museums and look at the pots, urns and bowls of our ancestors in the
dim ages of the past, and you will at once perceive your error.
MAKING LONGITUDINAL CUT IN
BARK
DRAWING THE BARK OFF THE LOG
REMOVING THE OUTER BARK

BEATING THE BARK
WORKING THE BARK-CLOTH AFTER BEATING, TO MAKE IT

SOFT
MANUFACTURE OF BARK-CLOTH AT NEWALA

To-day, nearly the whole population of German East Africa is
clothed in imported calico. This was not always the case; even now in
some parts of the north dressed skins are still the prevailing wear,
and in the north-western districts—east and north of Lake
Tanganyika—lies a zone where bark-cloth has not yet been
superseded. Probably not many generations have passed since such
bark fabrics and kilts of skins were the only clothing even in the
south. Even to-day, large quantities of this bright-red or drab
material are still to be found; but if we wish to see it, we must look in
the granaries and on the drying stages inside the native huts, where
it serves less ambitious uses as wrappings for those seeds and fruits
which require to be packed with special care. The salt produced at
Masasi, too, is packed for transport to a distance in large sheets of
bark-cloth. Wherever I found it in any degree possible, I studied the
process of making this cloth. The native requisitioned for the
purpose arrived, carrying a log between two and three yards long and
as thick as his thigh, and nothing else except a curiously-shaped
mallet and the usual long, sharp and pointed knife which all men and
boys wear in a belt at their backs without a sheath—horribile dictu!
[51]
Silently he squats down before me, and with two rapid cuts has
drawn a couple of circles round the log some two yards apart, and
slits the bark lengthwise between them with the point of his knife.
With evident care, he then scrapes off the outer rind all round the
log, so that in a quarter of an hour the inner red layer of the bark
shows up brightly-coloured between the two untouched ends. With
some trouble and much caution, he now loosens the bark at one end,
and opens the cylinder. He then stands up, takes hold of the free
edge with both hands, and turning it inside out, slowly but steadily
pulls it off in one piece. Now comes the troublesome work of
scraping all superfluous particles of outer bark from the outside of
the long, narrow piece of material, while the inner side is carefully
scrutinised for defective spots. At last it is ready for beating. Having
signalled to a friend, who immediately places a bowl of water beside
him, the artificer damps his sheet of bark all over, seizes his mallet,
lays one end of the stuff on the smoothest spot of the log, and
hammers away slowly but continuously. “Very simple!” I think to
myself. “Why, I could do that, too!”—but I am forced to change my
opinions a little later on; for the beating is quite an art, if the fabric is
not to be beaten to pieces. To prevent the breaking of the fibres, the
stuff is several times folded across, so as to interpose several
thicknesses between the mallet and the block. At last the required
state is reached, and the fundi seizes the sheet, still folded, by both
ends, and wrings it out, or calls an assistant to take one end while he
holds the other. The cloth produced in this way is not nearly so fine
and uniform in texture as the famous Uganda bark-cloth, but it is
quite soft, and, above all, cheap.
Now, too, I examine the mallet. My craftsman has been using the
simpler but better form of this implement, a conical block of some
hard wood, its base—the striking surface—being scored across and
across with more or less deeply-cut grooves, and the handle stuck
into a hole in the middle. The other and earlier form of mallet is
shaped in the same way, but the head is fastened by an ingenious
network of bark strips into the split bamboo serving as a handle. The
observation so often made, that ancient customs persist longest in
connection with religious ceremonies and in the life of children, here
finds confirmation. As we shall soon see, bark-cloth is still worn
during the unyago,[52] having been prepared with special solemn
ceremonies; and many a mother, if she has no other garment handy,
will still put her little one into a kilt of bark-cloth, which, after all,
looks better, besides being more in keeping with its African
surroundings, than the ridiculous bit of print from Ulaya.
MAKUA WOMEN

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ORGANIZATION OF THE BOOK

ALTERNATIVE COURSE DESIGNS

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As we’ve mentioned, the book devotes a separate chapter to behavioral econom-

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Online Learning Center (www.mhhe.com/bernheim2e)—The Online Learning Center

MCGRAW-HILL CONNECT® ECONOMICS

McGraw-Hill Connect Economics features

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Student study center

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McGraw-Hill Connect® Plus Economics

Tegrity Campus: Lectures 24/7

McGraw-Hill Customer Care Contact Information

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part Economic Decision Making

II-A: Consumption Decisions 84

IIIA: Competitive Markets 474

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2 Supply and Demand 24

3 Balancing Benefits and Costs 57

part Economic Decision Making 83

II-A: Consumption Decisions 84