Lynne Pepall - Microeconomics for Dummies: USA Edition

Microeconomics For Dummies, U.S. Edition

Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com

Copyright 2016 by John Wiley & Sons, Inc., Hoboken, New Jersey

Adapted from Microeconomics For Dummies, U.K. Edition (978-1-119-02662-4) 2016 by John Wiley & Sons, Ltd., Chichester, West Sussex, UK

Published simultaneously in Canada

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Library of Congress Control Number: 2015960129

ISBN 978-1-119-18439-3 (pbk); ISBN 978-1-119-18440-9 (ePub); ISBN 978-1-119-18441-6 (ePDF)

1. Table of Contents

Economics is about many things. On one level, its concerned with humanitys struggle to cope with scarcity and how this leads individuals to make choices about the things that should have priority. On another level, its about the human quest for happiness in an uncertain world, and the ways people have found to achieve it. On yet another level, economics is about how societies organize themselves from the bottom up, using markets as a way of trading with each other. However you look at it, economics is a huge subject.

Microeconomics looks at economics on the smallest scales at the level of individual consumers and firms and builds up to an understanding of how markets and industries work. Microeconomics has become a very big subject too, taking in everything from what kinds of decisions people make to the right way to measure and analyze those decisions. Its the part of economics thats like looking through a microscope as small creatures go about their business.

So thats what microeconomists do. The microscope, though, is a bit unusual. Its not made of glass, but of tools, called models, which are ways of representing the world that you can use to examine real life. Theyre not real life itself. Making a model of real life that was accurate in every way would be akin to the perfect global map in a Lewis Carroll story that ended up being the size of the entire world. Instead, models are guides to help you when you need to know whats going on in a particular situation.

Maybe youre thinking about starting a business. Microeconomics can help with everything from working out how much to pay staff to knowing which markets to avoid. Maybe youre wondering whether a company is a good place to invest in. Microeconomics can help you figure out whether the company is profitable in the market its competing in. Maybe you want to figure out how to get the best price for something you want to sell. Microeconomics can help you work out how to auction it off to get the highest price. In all these places in life, microeconomics can help you figure out an answer.

This book takes you through the most common tools and models that microeconomists use to make sense of a complicated world. The aspects that we cover include the following:

• What utility is and why microeconomists assume people maximize it.
• What a firm is and what it does.
• What happens when firms and consumers interact in a market.
• Why competition is usually better than monopoly.
• How to understand competition among firms, and how the outcome depends on the way firms compete.
• What happens when some people in a marketplace know more about the trade than others.
• How you can generalize to some extent the results from one market to all markets, and how that informs decisions you may make about distributing resources.
• How you can figure out which options a firm will choose to take when it has competitors who also want to do the best for themselves.
• How and why markets fail, and some of the things you can do about it.

Economists often make assumptions they have to make models when they dont know exactly how things work in a specific case. Sometimes those assumptions can be foolish, something we learned from Samuel L. Jackson in The Long Kiss Goodnight and Eric Bogosian in Under Siege 2: Dark Territory. In writing this book, we make some foolish assumptions about you:

• Youre interested in putting together a picture of why the world is as it is.
• Youre smart and you dont just accept a glib and easy answer like us.
• Youre interested in learning more about economics and are looking for a good place to start. Maybe youre considering studying more at school or university, or adding to your impressive portfolio of professional skills.
• Youre a citizen bemused by discussion of business news and want to know how anyone arrives at the opinions they do.
• Youre not frightened about using the odd number or bit of simple math we try to do nearly everything in words, but economics deals with money, and money comes in numbers and thats not something we can do anything about.
• Youre sure, from the books branding and its fun, accessible style and easy-to-read layout, that youll gain more utility from reading it than from other activities, such as archaeology or knitting.