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

1 - Microeconomics: a way of thinking about business

from Book I - The market economy, overview and application


In economics in particular, education seems to be largely a matter of unlearning and “disteaching” rather than constructive action. A once famous American humorist observed that “it's not ignorance that does so much damage; it's knowin’ so darn much that ain't so” … It seems that the hardest things to learn and to teach are things that everyone already knows.

Frank H. Knight

The late Frank Knight was a wise professor at the University of Chicago who realized that students beginning a study of economics, no matter the level – even those who are in advanced business programs – face a difficult task. They must learn many things in a rigorous manner that, on reflection and with experience, amount to common sense. To do that, however, they must set aside – or “unlearn” – many preconceived notions of the economy and of the course itself. The problem of “unlearning” can be especially acute for MBA and other advanced business students who are returning to a university after years of experience in industry. People in business rightfully focus their attention on the immediate demands of their jobs and evaluate their firms’ successes and failures with reference to production schedules and accounting statements, a perspective that stands in stark contrast to the perspective developed in an economics class.

You are now one of the many students to whom Knight directed his comments. As all good teachers must do, we intend to challenge you in this course to rethink your views on the economy and the way firms operate, as well as using abstract, deductive thinking. We shall ask you to develop new methods of analysis, maintaining all the while that there is, indeed, a distinctive “economic way of thinking” that deserves to be mastered.

We will not tell you how you must think when you move into managerial roles. However, we will ask you to think differently while reading the materials for this course in the expectation that practicing the economic way of thinking will, to one degree or another, become more or less “natural.” We understand that you might never be as precisely rational as we assume people are in the economic models developed and refined throughout the chapters.

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