SYNOPSIS

Essential Microeconomics is designed to help students deepen their understanding of the core theory of microeconomics. Unlike other texts, this book focuses on the most important ideas and does not attempt to be encyclopedic.

Two-thirds of the book focuses on price theory. As well as taking a new look at standard equilibrium theory, there is an extensive examination of equilibrium under uncertainty, the capital asset pricing model, and arbitrage pricing theory. Choice over time is also given extensive coverage and includes a basic introduction to continuous time models (control theory).

The final third of the book on game theory has an extensive introduction to models with asymmetric information. Topics such as auctions, signaling, and mechanism design are made very accessible to students who have a basic rather than a deep understanding of mathematics.

There is extensive use of examples and diagrams to illustrate the essence of an issue, as well as formal derivations. Readers have a choice of whether to go beyond the core ideas to the underlying mathematics of the model.

Problem solving is crucial to developing a deep understanding of a topic. Therefore the book contains a large number of exercises (all with answers available). Most provide the reader with opportunities to apply economic principles. Other questions ask the reader to extend the formal theory.

There is also a web-based self-learning course to help students review the mathematics that is used in the text.

Although proving a theorem is always a special joy, finding a convincing way to understand why theorems are true has always been a major fascination. I often learn much more from an informal graphical argument or from a well-thought-out example than from the formal analysis. Perhaps that is why I have always enjoyed teaching so much. It is so satisfying to take a major idea in economic theory and explain it in a way that gives students a new and deeper understanding.

I have written this text with the core goal of answering the question “Why?” in a clear and convincing manner. Some texts try to be encyclopedic. This one does not. Instead it explores the most important contributions of both price theory and game theory with the objective of developing strong insights as to why the results are true.

People learn in different ways. I remember once excitedly showing Roy Radner a diagrammatic explanation of a paper he had written with Joe Stiglitz. Roy listened patiently, then smiled and said, “Very good John, but I never did understand a graphical argument!” Despite this disappointment, most people do find a clear diagram very helpful. There are a lot of them in this text. Yet looking at a graph only takes learning so far. There is no substitute for learning by doing. For this reason there is a strong focus on exercises. Many of the exercises are illustrative examples, but many others provide opportunities for a student to prove something related to the theorems presented in the text. Answers to all of the questions are provided. Half are in the text, and the rest can be found on this website.

I have learned from so many remarkable economists. My earliest inspiration and mentor was Bert Brownlie at the University of Canterbury. In addition, two very early and profoundly different teachers were Joe Stiglitz, who presented a freshly written paper in every class, and Gerard Debreu, whose teaching discipline and clarity were stunning. At MIT my approach to both teaching and research was deeply influenced by Bob Solow. Then, as a junior colleague at UCLA, I taught my first classes on the economics of uncertainty with my most important mentor Jack Hirshleifer. Our teaching styles were very different but complementary. Among my recent colleagues at UCLA, Christian Hellwig and William Zame have been especially influential. Of course I have learned so much from coauthors, in particular from Eric Maskin.