Introduction to Economic Analysis
Version 2.0
by R. Preston McAfee
J. Stanley Johnson Professor of Business, Economics and Management
California Institute of Technology
Begun: June 24, 2004
This Draft: July 24, 2006
This book presents introductory economics (“principles”)
material using standard
mathematical tools, including calculus. It is designed for a
relatively sophisticated
undergraduate who has not taken a basic university course in
economics. It also
contains the standard intermediate microeconomics material and
some material that
ought to be standard but is not. The book can easily serve as an
intermediate
microeconomics text. The focus of this book is on the conceptual
tools and not on fluff.
Most microeconomics texts are mostly fluff and the fluff market
is exceedingly overserved
by $100+ texts. In contrast, this book reflects the approach
actually adopted by
the majority of economists for understanding economic activity.
There are lots of
models and equations and no pictures of economists.
McAfee: Introduction to Economic Analysis, http://www.introecon.com
July 24, 2006
Title - Introduction - Table of Contents (pp. i - v)
1 WHAT IS ECONOMICS? (pp. 1-7)
1.1.1 Normative and Positive Theories
1.1.2 Opportunity Cost
1.1.3 Economic Reasoning and Analysis
2 SUPPLY AND DEMAND (pp. 8-40)
2.1 Supply and Demand
2.1.1 Demand and Consumer Surplus
2.1.2 Supply
2.2 The Market
2.2.1 Market Demand and Supply
2.2.2 Equilibrium
2.2.3 Efficiency of Equilibrium
2.3 Changes in Supply and Demand
2.3.1 Changes in Demand
2.3.2 Changes in Supply
2.4 Elasticities
2.4.1 Elasticity of Demand
2.4.2 Elasticity of Supply
2.5 Comparative Statics
2.5.1 Supply and Demand Changes
2.6 Trade
2.6.1 Production Possibilities Frontier
2.6.2 Comparative and Absolute Advantage
2.6.3 Factors and Production
2.6.4 International Trade
3 THE US ECONOMY (pp. 41-78)
3.1.1 Basic Demographics
3.1.2 Education
3.1.3 Households and Consumption
3.1.4 Production
3.1.5 Government
3.1.6 Trade
3.1.7 Fluctuations
4 PRODUCER THEORY (pp. 79-138)
4.1 The Competitive Firm
4.1.1 Types of Firms
4.1.2 Production Functions
4.1.3 Profit Maximization
4.1.4 The Shadow Value
4.1.5 Input Demand
4.1.6 Myriad Costs
4.1.7 Dynamic Firm Behavior
4.1.8 Economies of Scale and Scope
4.2 Perfect Competition Dynamics
4.2.1 Long-run Equilibrium
4.2.2 Dynamics with Constant Costs
4.2.3 General Long-run Dynamics
4.3 Investment
4.3.1 Present value
4.3.2 Investment
4.3.3 Investment Under Uncertainty
4.3.4 Resource Extraction
4.3.5 A Time to Harvest
4.3.6 Collectibles
4.3.7 Summer Wheat
5 CONSUMER THEORY (pp. 139-194)
5.1 Utility Maximization
5.1.1 Budget or Feasible Set
5.1.2 Isoquants
5.1.3 Examples
5.1.4 Substitution Effects
5.1.5 Income Effects
5.2 Additional Considerations
5.2.1 Corner Solutions
5.2.2 Labor Supply
5.2.3 Compensating Differentials
5.2.4 Urban Real Estate Prices
5.2.5 Dynamic Choice
5.2.6 Risk
5.2.7 Search
5.2.8 Edgeworth Box
5.2.9 General Equilibrium
6 MARKET IMPERFECTIONS (pp. 195-250)
6.1 Taxes
6.1.1 Effects of Taxes
6.1.2 Incidence of Taxes
6.1.3 Excess Burden of Taxation
6.2 Price Floors and Ceilings
6.2.1 Basic Theory
6.2.2 Long- and Short-run Effects
6.2.3 Political Motivations
6.2.4 Price Supports
6.2.5 Quantity Restrictions and Quotas
6.3 Externalities
6.3.1 Private and Social Value, Cost
6.3.2 Pigouvian Taxes
6.3.3 Quotas
6.3.4 Tradable Permits and Auctions
6.3.5 Coasian Bargaining
6.3.6 Fishing and Extinction
6.4 Public Goods
6.4.1 Examples
6.4.2 Free-Riders
6.4.3 Provision with Taxation
6.4.4 Local Public Goods
6.5 Monopoly
6.5.1 Sources of Monopoly
6.5.2 Basic Analysis
6.5.3 Effect of Taxes
6.5.4 Price Discrimination
6.5.5 Welfare Effects
6.5.6 Two-Part Pricing
6.5.7 Natural Monopoly
6.5.8 Peak Load Pricing
6.6 Information
6.6.1 Market for Lemons
6.6.2 Myerson-Satterthwaite Theorem
6.6.3 Signaling
7 STRATEGIC BEHAVIOR (pp. 251-314)
7.1 Games
7.1.1 Matrix Games
7.1.2 Nash Equilibrium
7.1.3 Mixed Strategies
7.1.4 Examples
7.1.5 Two Period Games
7.1.6 Subgame Perfection
7.1.7 Supergames
7.1.8 The Folk Theorem
7.2 Cournot Oligopoly
7.2.1 Equilibrium
7.2.2 Industry Performance
7.3 Search and Price Dispersion
7.3.1 Simplest Theory
7.3.2 Industry Performance
7.4 Hotelling Model
7.4.1 Types of Differentiation
7.4.2 The Standard Model
7.4.3 The Circle Model
7.5 Agency Theory
7.5.1 Simple Model
7.5.2 Cost of Providing Incentives
7.5.3 Selection of Agent
7.5.4 Multi-tasking
7.5.5 Multi-tasking without Homogeneity
7.6 Auctions
7.6.1 English Auction
7.6.2 Sealed-bid Auction
7.6.3 Dutch Auction
7.6.4 Vickrey Auction
7.6.5 Winner’s Curse
7.6.6 Linkage
7.6.7 Auction Design
7.7 Antitrust
7.7.1 Sherman Act
7.7.2 Clayton Act
7.7.3 Price-Fixing
7.7.4 Mergers
8 INDEX (pp. 315-322)
8.1 List of Figures
8.2 Index
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Róbinson Rojas
(1997) on
Basic knowledge on economics
Notes designed for students wanting to understand the basic tenets of textbook economics ( capitalist economics, that is), without
calculus, which is utilised as a disguise to justify a barbaric economic system leading to social exclusion and waste of human and material resources.
The capitalist economic problem: what to produce, how to produce, for whom to produce. Resource allocation: alternative
approaches, the free market versus central planning. The meaning of "resource
allocation" and the main alternative methods of allocating resources.
Concepts for Review: Economic resources, resource allocation, production possibility
curves, supply, demand, competition, profitability and the free market, central planning
and bureaucracy, factors of production, distribution of income, factor mobility
Related themes:
- Aid
- Bureaucracy
- Debt
- Decentralization
- Development
- Development Economics
- The future of development
--- economics
- Economic Policies
- The New Economy in development
- Employment/Unemployment
- Foreign Direct Investment
- Gender
- Globalization
- Governance/Institutions
- Human Rights
- Human Development
- Hunger
- Inequality/social exclusion
- Spatial inequality in Asia
- Informal sector
- Labour Market
- Microfinance
- Migration
- Planning for Development
- Poverty
- Privatization
- PRSP
- Sustainable Development
- The state, civil society, and development
- The developmental state
- The neoliberal state
- Transnational Corporations
- Urbanization
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