Microeconomics: Smart Choices for You

I think the essential microeconomic concepts are opportunity cost, marginal analysis, and external and implicit costs, which are behind the “Three Keys to Smart Choices,” which form the core of (Micro)Economics for Life.

Economics for Life: The Three Keys

Key 1: Choose only when additional benefits are greater than additional opportunity costs.

Key 2: Count only additional benefits and additional opportunity costs.

Key 3: Be sure to count all additional benefits and costs, including implicit costs and externalities.

These three keys are essential for students to remember five years after graduating. They contain the microeconomic core of what it means to think like an economist. The nice to have list matches the chapters of this book. The let go list included more intricate economic concepts and tools that have been excluded.

Microeconomic concepts not covered include:

  • Tools for understanding utility maximization, including the equalization of MU/P, indifference curve analysis\
  • Detailed elasticity concepts like cross-elasticity and extreme (zero, infinity) values
  • Detailed derivation of firms’ cost curves from production functions and a wide range of short-run and long-run cost curves (average variable cost, average fixed cost, long-run average cost) beyond MC and ATC. There are no discussions of nuances of shutdown points, intersections of cost curves, or scalloped LRAC curves.
  • Detailed models of perfect competition, monopolistic competition, oligopoly, perfect price discrimination, pure monopoly, or monopsony. (Instead, market structure distinctions are collapsed into a continuum based on elasticity of demand and a firm’s pricing power.)
  • Graphical demonstrations of efficiency based on areas of consumer and producer surpluses and deadweight loss

I consider these exclusions to be a major strength of the textbook. The excluded topics detract from the student’s accepting the value of the basic economic analysis that will enhance her decision-making throughout her life. As one strays beyond the core concepts and stories set out in this book, diminishing returns set in rapidly.

It is far more valuable, I believe, for most students to understand and apply the core economic concepts well than to be exposed to a wide range of concepts they will not master and therefore will likely soon forget.

Economics for Life is designed to get students interested in economics as a way of thinking that will help them make smarter choices in their lives. This is reflected in the narrative style of the book. The economic concepts are not presented as theories that must be learned but as concepts to enhance the students’ decision-making skills. The concepts emerge logically from the narrative as an economic way of choosing the smart direction to take when faced with a choice. For example, in Micro Chapter 3, Show Me the Money: The Law of Supply, we begin with a student working part-time, who gets a call from his panicked boss requesting more hours of work. When the student doesn’t offer up many additional hours, the boss offers double time. When that elicits more hours, but still not enough, the boss offers triple time. In having the student think through that choice about how many hours to work, we develop the law of supply.

The scenarios form the basis of each chapter and show the students how to use economic concepts to make smart choices. The concepts are not presented as theoretical ideas that must be learned in isolation, or as formulas for a set of  problems.