Price Theory

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  Price Theory: An Intermediate Text   by   David D. Friedman  Published by South-Western Publishing Co. ©David D. Friedman 1986, 1990 Table of Contents  Introduction   Preface   Section   I   ECONOMICS FOR PLEASURE AND PROFIT   Chapter    1   What is Economics?   2   How Economists Think.   Section   II   PRICE=VALUE=COST: COMPETITIVE EQUILIBRIUM IN A SIMPLE ECONOMY   Chapter    3   The Consumer: Choice and Indifference Curves   4   The Consumer: Marginal Value, Marginal Utility, and Consumer Surplus   5   Production   6   Simple Trade   7   Markets&endash;Putting it All Together    8   The Big Picture   Halftime   Section   III   COMPLICATIONS, OR ONWARD TO REALITY   Chapter    9   The Firm   10   Small-Numbers Problems: Monopoly and All That   11   Hard Problems: Game Theory, Strategic Behavior, and Oligopoly   12   Time...   13   ...and Chance   14   The Distribution of Income and the Factors of Production   Section   IV   JUDGING OUTCOMES   Chapter    15   Economic Efficiency   16   What is Efficient?    17 Market Interference 18 Market Failures Section V APPLICATIONS &endash; CONVENTIONAL AND UN Chapter 19 The Political Marketplace 20 The Economics of Law and Law Breaking 21 The Economics of Love and Marriage Section VI WHY YOU SHOULD BUY THIS BOOK Chapter 22 Final Words Additional Chapters from the First Edition not included in the Second  Chapter 21 The Economics of Heating  22 Inflation and Unemployment The author retains all rights in this material, save that users of the World Wide Web are permitted to reproduce it to the extent, and only to the extent, that doing so is a necessary part of reading it on the web. The printed version of the book, along with supplementary materials, is available from South-Western Publishing, Cincinnati, OH. My new book  Hidden Order: The  Economics of Everyday Life offers a similar approach to explaining economics in a shorter form, aimed at the intelligent layman rather than at students taking intermediate micro. Click here for the table of contents, and here for a link to My  Publisher's Page. The chapters given here are from the versions on my hard disk, and differ in minor details f rom the published versions. The same is true of the figures.  Preface  Many students have been persuaded, by their experience in high school and college, that taking a course consists of memorizing a set of conclusions. Reading a textbook then becomes an exercise in creative highlighting, designed to extract from five hundred pages of verbiage the thirty or forty pages containing the answers to the questions that will appear on the final exam. Such a collection of answers is about as easy to remember as a collection of random numbers, and not much more useful. Students who take such courses generally forget shortly after the final most of what they have learned. This book is based on a different idea of how economics (and most other things) should be taught--the idea that since answers are hard to remember and easy to look up, one should instead concentrate on learning ways of thinking. The book has two central purposes. The first is to introduce you to what one of my competitors has called the economic way of thinking. Economists--even economists with widely differing political views--have in common an approach to understanding human  behavior that seems natural to them and very odd indeed to most non-economists. This book is designed to introduce you to that way of thinking, in the hope that many of you will find it interesting and at least some may find it irresistable. I am in that sense a missionary. The second central purpose of the book is to teach you the analytical core of economics as it now exists. One of the features of economics that distinguishes it from most of the other social sciences is that it has such a core--a set of well worked out and closely related ideas that underlie almost everything done in the field. That core is  price theory--the analysis of why things cost what they do and of how prices function to coordinate economic activity. This book is organized into six sections. Section I is a general introduction to what economics is and why it is worth learning. Section II shows how the prices at which goods and services are sold and the quantities produced and consumed are determined in a simple economy. It is the most important part of the book. If you completely understand it you will know economics, in the same sense that a French six-year-old knows French. You may still be missing many details and complications, but you will understand the essential logic of how an economy works. Section III adds the most important of the complications omitted in the previous section, including firms, monopoly, change, and uncertainty. Section IV introduces the idea of economic efficiency and shows how it can be used to evaluate the outcome of different economic arrangements. Section V presents a number of real-world applications of the ideas of the previous sections, some of them conventional, most not. The final chapter of the book discusses what economics is good for and what economists do. Some chapters have special sections at the end identified by a thin blue line running down the margin. These sections contain material that, while interesting in itself and  perhaps useful in later courses, is not essential to understanding the rest of the text.  They are intended for students who find the ideas of the chapter sufficiently interesting to want to pursue them further. One thing I hope you will pay attention to as you go through the book is the importance of understanding things rather than merely remembering them. You should try to develop (if you have not already developed) a built in alarm that goes off whenever I say it follows that and you see no particular reason why it follows or whenever I say that the answer is a particular point on a graph and you see no good reason why it should be that point instead of some other point. Whenever the alarm goes off, go back over the argument to see if you have missed something. If what I am saying still does not make sense, ask your instructor, or another student, or someone. It is all supposed to make sense, and if it does not, one of us is making a mistake. You may eventually conclude that the mistake is mine (or the typesetter's) but you should start by assuming that it is yours. Dedication  This book is dedicated to   A.S., D.R., A.M., and M.F.,   from whom I learned economics and to   Linda, Ruben,   and all of the the others who have made the value of teaching it greater than the cost.
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