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Economics, Global Edition

Economics, Global Edition

Author: Hubbard

Publisher: Pearson


Publish Date: 2016

ISBN-10: 1292159928

Pages: Pages

File Type: PDF

Language: English

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Book Preface

We love economics. We marvel at the way economic systems work. When we buy a smartphone, we think about the complex supply chain and the hundreds of thousands of people who played a role in producing an awe-inspiring piece of technology that was assembled from components manufactured across the globe.

The market’s ability to do the world’s work without anyone being in charge strikes us as a phenomenon no less profound than the existence of consciousness or life itself. We believe that the creation of the market system is one of the greatest achievements of humankind.

We wrote this book to highlight the simplicity of economic ideas and their extraordinary power to explain, predict, and improve what happens in the world. We want students to master the essential principles of economic analysis. With that goal in mind, we identify the three key ideas that lie at the heart of the economic approach to understanding human behavior: optimization, equilibrium, and empiricism. These abstract words represent three ideas that are actually highly intuitive.

Our Vision: Three Unifying Themes

The first key principle is that people try to choose the best available option: optimization. We don’t assume that people always successfully optimize, but we do believe that people try to optimize and often do a relatively good job of it. Because most decision makers try to choose the alternative that offers the greatest net benefit, optimization is a useful tool for predicting human behavior. Optimization is also a useful prescriptive tool. By teaching people how to optimize, we improve their decisions and the quality of their lives. By the end of this course, every student should be a skilled optimizer—without using complicated mathematics, simply by using economic intuition.

The second key principle extends the first: economic systems operate in equilibrium, a state in which everybody is simultaneously trying to optimize. We want students to see that they’re not the only ones maximizing their well-being. An economic system is in equilibrium when each person feels that he or she cannot do any better by picking another course of action. The principle of equilibrium highlights the connections among economic actors. For example, Apple stores stock millions of iPhones because millions of consumers are going to turn up to buy them. In turn, millions of consumers go to Apple stores because those stores are ready to sell those iPhones. In equilibrium, consumers and producers are simultaneously optimizing and their behaviors are intertwined.

Our first two principles—optimization and equilibrium—are conceptual. The third is methodological: empiricism. Economists use data to test economic theories, learn about the world, and speak to policymakers. Accordingly, data play a starring role in our book, though we keep the empirical analysis extremely simple. It is this emphasis on matching theories with real data that we think most distinguishes our book from others. We show students how economists use data to answer specific questions, which makes our chapters concrete, interesting, and fun. Modern students demand the evidence behind the theory, and our book supplies it.

For example, we begin every chapter with an empirical question and then answer that question using data. One chapter begins by asking: Would a smoker quit the habit for $100 a month?

Later in that chapter, we describe how smoking fell when researchers paid smokers to quit. Another chapter opens with the question Why are you so much more prosperous than your great-great-grandparents were?

Later in that chapter, we demonstrate the central role played by technology in explaining U.S. economic growth and why we are much better off than our relatives a few generations ago.

In our experience, students taking their first economics class often have the impression that economics is a series of theoretical assertions with little empirical basis. By using data, we explain how economists evaluate and improve our scientific insights. Data also make concepts more memorable. Using evidence helps students build intuition, because data move the conversation from abstract principles to concrete facts. Every chapter sheds light on how economists use data to answer questions that directly interest students. Every chapter demonstrates the key role that evidence plays in advancing the science of economics.

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