For students who care about how the world works, microeconomics is one of the most relevant and interesting subjects they can study. A good grasp of microeconomics is vital for managerial decision making, for designing and un­derstanding public policy, and more generally for appreciating how a modern economy functions.

We wrote this book, Microeconomics, because we believe that students need to be exposed to the new topics that have come to playa central role in micro­economics over the years-:-topics such as game theory and competitive strat­egy, the roles of uncertainty and information, and the analysis of pricing by firms with market power. We also felt that students need to be shown how mi­croeconomics can help us to understand what goes on in the world and how it can be used as a practical tool for decision making. Microeconomics is an ex­citing and dynamic subject, but students need to be given an appreciation at its relevance and usefulness. They want and need a good understanding of how microeconomics can actually be used outside the classroom. .

To respond to these needs, the fifth edition of Microeconomics provides a treat­ment of microeconomic theory that stresses its relevance and application to both managerial and public-policy decision making. This applied emphasis is ac­complished by including 107 extended examples that cover such topics as the analysis of demand, cost, and market efficiency; the design of pricing’ strategies; investment and production decisions; and public policy analysis. Because of the importance that we attach to these examples, they are included in the flow of the text. (A complete list of the examples is included in the table of contents on pages ix-xxii.)

The coverage in the fifth edition of Microeconomics incorporates the dramatic changes that have occurred in the field in recent years. There has been grow­ing interest in game theory and the strategic interactions of firms (Chapters 12 and 13), in the role and implications of uncertainty and asymmetric informa­tion (Chapters 5 and 17), in the pricing strategies of firms with market power (Chapters 10 and 11), and in the design of policies to deal efficiently with ex­ternalities such as environmental pollution (Chapter 18). These topics, which have only recently received attention in most books, are covered extensively hare.

This book differs from other microeconomics texts in three main ways. First, it integrates real-world examples throughout, not just in isolated applications. Second, it places greater emphasis than other texts on modern theories-such as industrial organization theories, game theory, transaction cost theory, information theory, and contract theory-that are useful in analyzing actual markets. Third, it employs a step-by-step approach to demonstrate how to use microeconomic theory to solve problems and analyze policy issues.

To convince students that economics is practical and useful, not just a textbook exercise, this text presents theories using real-world examples rather than made-up analyses of widgets, those nonexistent products beloved by earlier generations of textbook writers. These real eco­nomic "stories" are integrated into the formal presentation of many economic theories, dis­cussed in featured Applications, and analyzed in what-if policy discussions.

Integrated Real-World Examples. The book uses real-world examples throughout the nar­rative to illustrate many basic theories of microeconomics. Students learn the basic model of supply and demand using estimated supply and demand curves for Canadian processed pork. They analyze consumer choice employing typical consumers' estimated indifference curves between beer and wine and mill workers' indifference curves between income and leisure. Students examine the effects of income taxes for estimated labor supply curves from several countries. They learn about production and cost functions using evidence from a Norwegian printing firm. Students see monopoly theory applied to a patented pharmaceutical, Tagamet. They use oligopoly theories to analyze the rivalry between United Airlines and American Airlines on the Chicago-Los Angeles route and between Coke and Pepsi in the cola industry. They investigate whether it pays to go to college at various interest rates. They examine why some lawyers charge by the hour while others share the trial award with their clients.

This new edition has been substantially revised and updated. To make space for new terms we have removed some now dated material. In some cases, for example banking and credit control, deregulation has simplified our task. In others, for example taxation, the continued growth of complexity has, for reasons of space, obliged us to curtail what hitherto was fairly comprehensive coverage. In selecting entries, we have given priority to recent developments in economic theory and, in keeping with trends in thc economics profession, we have continued to emphasize the international rather than the purely UK aspects of our subject.

We are greatly indebted to the help and support we have received from Dee Baxter and Fran'Yoise Bannock in getting the work to press.

We must also thank our many readers who have contacted us with valuable suggestions which we have endeavored to meet. We arc sure that they will understand that because of limited space not all their proposed additional entries could be accommodated but we do hope that will not deter them from writing to us with their comments and suggestions in the future.

This book is designed for use in the courses that focus on the economics of development in Africa, Asia, and Latin America., regions often collectively referred to as the third world. It is structured and written both for students who have had some basic training in economics and for those with little or no formal economics background. For both groups, essential principles and concepts of economics that are particularly relevant for understanding development problems are highlighted in boldface and explained and extensive glossary which includes other terms and concepts that may be unfamiliar to non economic majors. Thus the book should be of special value in undergraduate development courses that attract students from a variety of disciplines.      

This book is designed to improve your under­standing of the world around you. It provides a framework that ties things together in a meaning­ful way. I hope you find that the organization of the book not only helps you understand current issues of the day, but also provides you with a sense of how various seemingly unconnected top­ics relate to one another and fit into a larger, uni­fied view of reality.

The book is structured around three major inte­grating themes. In order to satisfy human wants with limited means, people have three options:

1. Expand resource capabilities (called economic growth);
2.  Improve resource use (which has three as­pects: improve aggregate efficiency, allocative efficiency, and distributional equity); and
3. Constrain our expectations (simplify life).

The first option is discussed in Unit A, which comprises three chapters. Chapter I present some important economic concepts that are used throughout the rest of the text. Chapter 2 intro­duces you to the measurement of the economic performance and progress of any economy. In Chapter 3, economic growth is examined.

The second option takes up most of the book. Units B, C, and D are devoted to efficiency and equity questions as they relate to various subjects. Unit B is devoted entirely to allocative efficiency. Chapters 4 through 9 address this topic, how it is defined, measured, and evaluated. Chapters 5, 6, and 7 are very important since they provide you with a solid overview of the market system. In Chapter 8, shortcomings of the system are dis­cussed. And in Chapter 9, we examine various policies that may be used to deal with these short­comings.