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Introduction to Economic Analysis.pdf

October 23, 2009 · Filed Under Social Economic  · Tags: , , , , , ,

Written by: R. Preston McAfee. Taken from What is Economics: Economics studies the allocation of scarce resources among people – examining what goods and services wind up in the hands of which people. Why scarce resources?

Absent scarcity, there is no significant allocation issue. All practical, and many impractical, means of allocating scarce resources are studied by economists. Markets are an important means of allocating resources, so economists study markets. Markets include stock markets like the New York Stock Exchange, commodities markets like the Chicago Mercantile, but also farmer’s markets, auction markets like Christie’s or Sotheby’s (made famous in movies by people scratching their noses and inadvertently purchasing a Ming vase) or eBay, or more ephemeral markets, such as the market for music CDs in your neighborhood. In addition, goods and services (which are scarce resources) are allocated by governments, using taxation as a means of acquiring the items. Governments may be controlled by a political process, and the study of allocation by the politics, which is known as political economy, is a significant branch of economics. Goods are allocated by certain means, like theft, deemed illegal by the government, and such allocation methods nevertheless fall within the domain of economic analysis; the market for marijuana remains vibrant despite interdiction by the governments of most nations. Other allocation methods include gifts and charity, lotteries and gambling, and cooperative societies and clubs, all of which are studied by economists.

Some markets involve a physical marketplace. Traders on the New York Stock Exchange get together in a trading pit. Traders on eBay come together in an electronic marketplace. Other markets, which are more familiar to most of us, involve physical stores that may or may not be next door to each other, and customers who search among the stores, purchasing when the customer finds an appropriate item at an acceptable price. When we buy bananas, we don’t typically go to a banana market and purchase from one of a dozen or more banana sellers, but instead go to a grocery store.

Nevertheless, in buying bananas, the grocery stores compete in a market for our banana patronage, attempting to attract customers to their stores and inducing them to purchase bananas.

Price – exchange of goods and services for money – is an important allocation means, but price is hardly the only factor even in market exchanges. Other terms, such as convenience, credit terms, reliability, and trustworthiness are also valuable to the participants in a transaction. In some markets such as 36 inch Sony WEGA televisions, one ounce bags of Cheetos, or Ford Autolite spark plugs, the products offered by distinct sellers are identical, and for such products, price is usually the primary factor considered by buyers, although delivery and other aspects of the transaction may still matter. For other products, like restaurant meals, camcorders by different manufacturers, or air travel on distinct airlines, the products differ to some degree, and thus the qualities of the product are factors in the decision to purchase. Nevertheless, different products may be considered to be in a single market if the products are reasonable substitutes, and we can consider a “quality-adjusted” price for these different goods.

Contents:

  • 1 WHAT IS ECONOMICS?
    • Normative and Positive Theories
    • Opportunity Cost
    • Economic Reasoning and Analysis
  • 2 SUPPLY AND DEMAND
    • Supply and Demand
    • The Market
    • Changes in Supply and Demand
    • Elasticities
    • Comparative Statics
    • Trade
  • 3 THE US ECONOMY
    • Basic Demographics
    • Education
    • Households and Consumption
    • Production
    • Government
    • Trade
    • Fluctuations
  • 4 PRODUCER THEORY
    • The Competitive Firm
    • Perfect Competition Dynamics
    • Investment
  • 5 CONSUMER THEORY
    • Utility Maximization
    • Additional Considerations
  • 6 MARKET IMPERFECTIONS
    • Taxes
    • Price Floors and Ceilings
    • Externalities
    • Public Goods
    • Monopoly
    • Information
  • 7 STRATEGIC BEHAVIOR
    • Games
    • Cournot Oligopoly
    • Hotelling Model
    • Agency Theory
    • Auctions
    • Antitrust
  • 8 INDEX
    • List of Figures
    • Index

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Download free Introduction to Economic Analysis.pdf (328 pages pdf file, 2.6 MB).

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