Stand-Up Economics: The Micro Textbook

To coincide with the release of The Cartoon Introduction to Economics, I’m working on updates of a (free!) companion micro textbook. Here is the latest version (version 5.01) of the textbook: basic and with calculus.

Both versions have chapters that line up with the chapters of The Cartoon Introduction, with follow-up supplemental chapters on inflation, sequential-move-games, etc. Compared to previous versions of this textbook, I’ve also improved the Q&A at the end of each chapter, e.g., you can now easily click back and forth between each Q and the corresponding A.

Please let me know if you’re using the book, and definitely let me know if you find any mistakes!

9 responses to “Stand-Up Economics: The Micro Textbook”

  1. I’m in PB AF 516!!

  2. On Pg. 17 of the basic book it states: “Comparing the items in the various payoff boxes, we can see that some are in all the payoff boxes and some are not.” However, there appear to be no “items” in figure 2.1′s boxes. Is this referring to a separate diagram or is this figure possibly missing some detail?

  3. I love your website – and started reading the micro textbook – had a question early on – one of the concepts that I found most insightful when I was working towards my degree in econ some 40 years ago was Simon’s idea of “satisficing” vs. “optimizing”. I have felt for years that economists would be wise to incorporate this idea into their work – along with more agency and game theory concepts. Your thoughts?

  4. OK – I will pre-order :-)

    My gut is that the optimizing model works fine – unless the buyer decides he will “settle” for a satisficing outcome – and the problem is he/she does so without telling us in advance which “behavior” he/she prefers.

    I am a marketing PhD student and have read a good bit of agency theory stuff – some game theory – any suggestions on how to get better grounded in behavioral economics?

  5. Yoram, I love your discussion of Pareto efficiency and Pareto optimality, but would seriously recommend just scrapping the discussion of cost-benefit analysis.

    Let’s take this passage: “These are difficult issues, and it is in large part because of them that cost benefit analysis, though useful in practice, is unattractive in theory. Fortunately, there is an alternative concept [to cost-benefit analysis], one based on the work of Italian economist Vilfredo Pareto (1848-1923).”

    Where do I start? Pedagogically, setting up a straw man and knocking him down isn’t that helpful (“Prof, do we need to know this stuff about cost-benefit analysis for the exam?”) For the theory of CBA, see Dreze and Stern – CBA can be done in a beautiful theoretical social choice framework (though, in practice, often isn’t). The Pareto criterion isn’t a useful alternative to CBA – Pareto improvements can be thought of as $20 bills lying on the sidewalk – great if you can find them, but there aren’t many of them around. The Pareto criteria gives an incomplete ordering of states of the world (in Arrow’s terms). In fact, CBA can be thought of as simply an attempt to search for potential Pareto improvements. And it’s not obvious that Pareto is best described as an economist – sociologists claim him too.

    It’s a pity, because the discussion of Pareto optimality and Pareto efficiency in the cartoon introduction is just excellent.

  6. Yoram – thanks for taking the time to reply.

    I think Dreze and Stern’s position would be that, when making policy decisions, value judgements are unavoidable, and it’s best to be up front about them – e.g. with a social welfare function. Note that they say “four ways of *apparently* avoiding the use…” None of these ways *actually* avoids the use of value judgements.

    It sounds like you and I agree that CBA is, in practice, frequently the best way of making policy decisions (Pareto improvements being rare and the potential Pareto criterion being equivalent to a certain type of CBA – though as you know the social choice literature on potential Pareto improvements is vast).

    If this is the case, then there must be a reason why CBA is the preferred option. Unless that reason is grounded in theory, then we have serious problems with our discipline – i.e. we don’t have a theoretically sound way of making policy recommendations. So I can’t agree with you that “CBA is unattractive in theory”.

    The other thing that, perhaps, we can agree on, is that CBA is complicated (it’s my least favourite thing to teach in public finance, precisely because of these complications, and because I feel like I’m one lonely person with a few sandbags, trying to stem a flood of sloppy, ad hoc, analyses.)

    Are you continuing to update the text? I see the on-line version is dated 2010, and the cartoon guide is now being bundled with a variety of first year texts.

    Producing e-texts is an amazing service to the profession, kudos to you for taking the time to do it,

    Frances

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