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  • Print publication year: 2016
  • Online publication date: May 2018

Book I - The market economy, overview and application

Summary

Chapters 1–4 of Microeconomics for MBAs, which constitute Book I, develop the broad outlines of The Economic Way of Thinking for Managers. We explore in Chapters 1 and 2 what economists mean by markets and “rational behavior” and show how rationality-based thinking can illuminate many (hardly all) public and management policies. In Chapter 3 we will focus on how markets can be analyzed through the forces of supply and demand, developed with graphical analysis, in spite of serious limitations regarding the complete realism of having just two lines on a graph (supply and demand) to represent market forces. However, we show how supply and demand curves can be used to illuminate how and why competitive markets can work efficiently (to one degree or another) and under what conditions competitive markets can fail to work efficiently. In Book II, Chapters 5–6, supply and demand curve analysis is used to explore the market consequences of an array of governmental and organizational policies. Throughout Chapters 1–6, we will consider how management policies can affect the forces of supply and demand and how market forces can affect management policies. Our goal in Book I and II is to provide a broad overview of the market economy. In Book III, Chapters 7–9, and Book IV, Chapters 9–13, we will examine many of the theoretical details underpinning supply and demand. In these later chapters, we will develop a theory of firms and explain how firms can be pressed to minimize their production costs in markets with different levels of competitiveness and in markets dominated by firms with differing levels of monopoly power.