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.




This book is dedicated to





and M.F.,


from whom I learned economics and to





and all of the the others who have made the value of teaching it greater than the cost.


I would also like to thank the people who helped me write this book--the creators of the computers (LNW for the first edition, Macintosh for the second), word processors (Le Script and WriteNow), and graphics software (MacPaint and MacDraw) with which it was written. Thanks are also due to David Besanko, Jerry Fusselman, James Graves and Lawrence Lynch for useful comments and suggestions, and special thanks to Wolfgang Mayer for assistance in finding and correcting defects above and beyond what an author may reasonably expect from a reviewer.

Additional Materials

In addition to the textbook itself, there are an instructor's manual (which provides suggested test questions) and a set of computer programs. The programs are intended for student use; they are designed to teach a few concepts that I believe can be taught better by a computer than by a book. Instructors who wish to make them available to their students should request diskettes from South-Western Publishing Company, specifying Macintosh or MSDos. The diskettes are not copy protected; any student taking a course for which this book is a required text is entitled to copy and use them.

[Note to the Webbed version of this: I do not know whether the diskettes are still available or not, nor whether the programs, which were originally written about ten years ago, will still run on the current versions of Intel and Mac hardware and the associated operating systems. D.F.]

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