Microeconomics

Author: (American) Robert S. Pindyck et al.
Translator: Zhang Jun et al.
Editor-in-Chief: Chen Daixun
Publisher:
Publishing Date: 2003-01-01
Features:
This book is an intermediate microeconomics textbook published in the United States in 1995. The authors, Robert S. Pindyck and Daniel L. Rubinfeld, are professors at the Massachusetts Institute of Technology and the University of California, Berkeley, respectively. The book introduces the concepts of markets and prices as a prelude to gradually delve into consumer choice, producer choice, market structure, competitive strategy, information, market failures, and the role of government. It comprehensively and systematically discusses the basic content and theoretical structure of modern microeconomics, clarifying the efficiency conditions for resource allocation and the roles of markets and governments in coordinating resource allocation. Compared to existing textbooks, this book incorporates the new research findings in economics over the past decade, such as game theory, information economics, new institutional economics, etc. In terms of presentation, it adopts a combination of theoretical instruction and case studies (with over 80 cases in the book) and maximizes the application of basic principles to policy analysis, making it informative, enlightening, and practical. This textbook is highly regarded by economics departments and related disciplines in the West.
Excerpt:
§1 Applications and Limitations of Microeconomic Theory
Like any other discipline, economics is concerned with explaining and predicting observed phenomena. For example, when the price of raw materials used in production changes, why do firms often hire or lay off workers? If raw material prices rise by 10%, how many workers in a particular firm or industry might be hired or laid off? In economics, as in other disciplines, explanations and predictions are based on theoretical foundations, and the development of theories follows a set of basic principles and assumptions to explain observed phenomena. For instance, firm theory begins with a simple assumption: firms aim to maximize their profits. This theory uses this assumption to explain how firms choose their output levels and how they determine the quantities of labor, capital, and raw materials to use in production. It also explains how these choices depend on the prices of inputs (such as labor, capital, and raw materials) and how they depend on the prices firms can obtain from their output. Economic theories also serve as the basis for making predictions. Therefore, firm theory can tell us whether a firm's output level will rise or fall in response to an increase in the wage rate or a decrease in the price of raw materials. With the application of statistical and econometric techniques, theories can be used to construct models (models) and make quantitative predictions. Models based on economic theories are mathematical representations of firms, markets, and other economic entities. For example, we can create a model for a specific firm and use it to predict how much change in output level will result if raw material prices fall by 10%. ① Neither in economics, physics, nor in any other discipline is a theory entirely correct. The usefulness and validity of a theory depend on its success in explaining and predicting the phenomena it attempts to explain and predict. To achieve this goal, theories are constantly tested against observation. As a result of testing, theories are often refined or improved, and sometimes even discarded. The testing and refinement of theories are key to the development of economics as a science. When evaluating a theory, it is important to remember that it is always imperfect, and this is true in every branch of science. For example, in physics, Boyle's law links volume, temperature, and pressure. ① This law is based on the assumption that gas molecules move like tiny, elastic billiard balls. Modern physicists know that the motion of gas molecules is not always like billiard balls, partly due to this reason, Boyle's law no longer holds under extreme pressure and temperature. However, in most cases, the law can very accurately predict how the temperature of a gas will change when pressure and volume are altered, making it a fundamental tool for engineers and scientists. Economics is no different. For example, firms do not always maximize their profits, and perhaps for this reason, firm theory has achieved only limited success in explaining certain firm behaviors (such as the timing of capital investment decisions). Nevertheless, this theory does explain a large number of phenomena related to firm and industry behavior, growth, and evolution, making it an important tool for managers and decision-makers. ②
§2 Positive and Normative Analysis
Microeconomics deals with both positive and normative questions. Positive questions involve explanation and prediction, while normative questions concern how things should be. Suppose the U.S. government imposes quotas on the import of foreign cars. What impact would these quotas have on car prices, production, and sales? What impact would they have on U.S. consumers? What impact would they have on workers in the car industry? These all fall under the realm of positive analysis. Positive analysis is the central issue of microeconomics, as explained above, we develop theories to explain various phenomena, test theories with observation, and use theories to construct models for prediction. Predicting with economic theory is important for both firm managers and public policy. Suppose the federal government is considering raising gasoline taxes. The tax would affect gasoline prices, consumers' preferences for large and small cars, the frequency with which people use their cars, and so on. To make practical plans, oil companies, car companies, auto parts manufacturers, and tourism industry companies all want to understand the extent of the various impacts of the tax. Decision-makers in government agencies also need to estimate these impacts quantitatively. They want to determine: the costs borne by consumers (which may be categorized by income levels), the impact on profits and employment in the oil industry, the automotive industry, and the tourism industry, and the potential annual tax revenue.
Afterword:
Postscript
After six months of joint effort and successful collaboration by the translators, this microeconomics textbook with hundreds of thousands of words has finally been completed and submitted to China Renmin University Press for publication. As one of the translators and proofreaders of this textbook, I feel a sense of relief. However, after resting, I also feel an invisible pressure: the book is translated, but the responsibility does not disappear with it. Submitting the translation manuscript seems to have truly placed us on the "judgment bench" of the readers. Nevertheless, I must admit that the quality of the translation was our goal from the beginning, set jointly by the translators at Fudan University and the editors at China Renmin University Press. I clearly remember one day in April 1996 when Ms. Liang Jing from China Renmin University Press came to Shanghai specifically to discuss the translation of this economics textbook. At the time, I felt that this might be the most rigorous and demanding publisher I had ever encountered, and she was facing several Chinese laborers washing dishes in overseas restaurants. But we knew very well that this was precisely the foundation for a good collaboration. Therefore, we readily agreed to take on this task, even though I and my colleagues seemed to have barely enough time to bear this heavy burden. Today, after six months of arduous effort, the Chinese translation of this textbook has finally been completed and submitted to China Renmin University Press. As one of the translators and coordinators, I feel immensely gratified. This microeconomics textbook was published in the West in 1995, with the authors, Professor Pindyck and Professor Rubinfeld, serving as professors at the Massachusetts Institute of Technology and the University of California, Berkeley, respectively. The textbook was first published in 1989 and the second edition in 1992. The version published in 1995 is naturally the third edition. According to the authors' notes, the third edition, like the second edition, has been revised and supplemented in many chapters, with new content added and some examples used to illustrate economic theories updated or replaced. Indeed, as an intermediate microeconomics textbook, the relative value of this book lies in its relatively fast pace of version updates, which allows it to quickly reflect the new research findings in economics. The value of a textbook is that it allows us to understand the new developments and achievements in scientific research, as textbooks can be constantly revised and updated, which is unparalleled by other academic works. In this microeconomics textbook, the important achievements in recent years in economic research have been timely reflected. We believe that these new research findings and directions are primarily concentrated in the revolution in the method of game theory in economics, theories of uncertainty and asymmetric information, and research on firm behavior in industrial organization theory (such as pricing strategies). While the content of most of our microeconomics textbooks is still largely based on the era of Marshall, this textbook has clearly been occupied by these new fields of economics. In this sense, the publication of this textbook not only helps us improve and update our teaching content in Western economics but also, I believe, will provide valuable reference value for professional researchers in economics and all those interested in economics. Of course, this does not mean that this textbook is perfect in meeting the needs of economics students. From a teaching perspective, we still need to adapt the teaching content to the characteristics of Chinese students. As usual, I would like to thank my colleagues at the School of Economics, Fudan University—Dr. Yin Xiangshuo, Professor Luo Han, and Dr. Xie Shiyu—for not only having a solid background in modern economics but also a strong foundation in English. Coincidentally, we have all conducted research work successively at the University of Sussex in the UK, so we share a dual alumni relationship. After accepting this translation project, my coordination work received their understanding and support, and our collaboration went quite smoothly. Without their active cooperation, I think it would have been impossible for us to sit down and discuss and resolve translation issues and align our thoughts each time; without their outstanding work and rigorous and realistic attitude, this book would never have been translated so smoothly. I would also like to thank Ms. Liang Jing, Director of the Editorial Department at China Renmin University Press, for her care, understanding, and support at every stage of the translation process. Our collaboration has proven to be very pleasant. I would also like to thank several anonymous reviewers who reviewed part of the translated manuscript and provided comments. Of course, I cannot fail to express my gratitude to my mentor, Professor Song Chengxian, who still proofread our translation despite his poor health. Although I still clearly remember, when my colleague Liang Jing and I visited Professor Song to ask him to serve as the general proofreader for the Chinese translation of this textbook, he said to us: "Let the young people take the lead; I completely trust my student Zhang Jun." The teachings I received from him during my academic development will remain unforgettable throughout my life. This microeconomics textbook was published in the West in 1995, with the authors, Professor Pindyck and Professor Rubinfeld, serving as professors at the Massachusetts Institute of Technology and the University of California, Berkeley, respectively. The textbook was first published in 1989 and the second edition in 1992. The version published in 1995 is naturally the third edition. According to the authors' notes, the third edition, like the second edition, has been revised and supplemented in many chapters, with new content added and some examples used to illustrate economic theories updated or replaced. Indeed, as an intermediate microeconomics textbook, the relative value of this book lies in its relatively fast pace of version updates, which allows it to quickly reflect the new research findings in economics. The value of a textbook is that it allows us to understand the new developments and achievements in scientific research, as textbooks can be constantly revised and updated, which is unparalleled by other academic works. In this microeconomics textbook, the important achievements in recent years in economic research have been timely reflected. We believe that these new research findings and directions are primarily concentrated in the revolution in the method of game theory in economics, theories of uncertainty and asymmetric information, and research on firm behavior in industrial organization theory (such as pricing strategies). While the content of most of our microeconomics textbooks is still largely based on the era of Marshall, this textbook has clearly been occupied by these new fields of economics. In this sense, the publication of this textbook not only helps us improve and update our teaching content in Western economics but also, I believe, will provide valuable reference value for professional researchers in economics and all those interested in economics. Of course, this does not mean that this textbook is perfect in meeting the needs of economics students. From a teaching perspective, we still need to adapt the teaching content to the characteristics of Chinese students. As usual, I would like to thank my colleagues at the School of Economics, Fudan University—Dr. Yin Xiangshuo, Professor Luo Han, and Dr. Xie Shiyu—for not only having a solid background in modern economics but also a strong foundation in English. Coincidentally, we have all conducted research work successively at the University of Sussex in the UK, so we share a dual alumni relationship. After accepting this translation project, my coordination work received their understanding and support, and our collaboration went quite smoothly. Without their active cooperation, I think it would have been impossible for us to sit down and discuss and resolve translation issues and align our thoughts each time; without their outstanding work and rigorous and realistic attitude, this book would never have been translated so smoothly. I would also like to thank Ms. Liang Jing, Director of the Editorial Department at China Renmin University Press, for her care, understanding, and support at every stage of the translation process. Our collaboration has proven to be very pleasant. I would also like to thank several anonymous reviewers who reviewed part of the translated manuscript and provided comments. Of course, I cannot fail to express my gratitude to my mentor, Professor Song Chengxian, who still proofread our translation despite his poor health. Although I still clearly remember, when my colleague Liang Jing and I visited Professor Song to ask him to serve as the general proofreader for the Chinese translation of this textbook, he said to us: "Let the young people take the lead; I completely trust my student Zhang Jun." The teachings I received from him during my academic development will remain unforgettable throughout my life. This microeconomics textbook was published in the West in 1995, with the authors, Professor Pindyck and Professor Rubinfeld, serving as professors at the Massachusetts Institute of Technology and the University of California, Berkeley, respectively. The textbook was first published in 1989 and the second edition in 1992. The version published in 1995 is naturally the third edition. According to the authors' notes, the third edition, like the second edition, has been revised and supplemented in many chapters, with new content added and some examples used to illustrate economic theories updated or replaced. Indeed, as an intermediate microeconomics textbook, the relative value of this book lies in its relatively fast pace of version updates, which allows it to quickly reflect the new research findings in economics. The value of a textbook is that it allows us to understand the new developments and achievements in scientific research, as textbooks can be constantly revised and updated, which is unparalleled by other academic works. In this microeconomics textbook, the important achievements in recent years in economic research have been timely reflected. We believe that these new research findings and directions are primarily concentrated in the revolution in the method of game theory in economics, theories of uncertainty and asymmetric information, and research on firm behavior in industrial organization theory (such as pricing strategies). While the content of most of our microeconomics textbooks is still largely based on the era of Marshall, this textbook has clearly been occupied by these new fields of economics. In this sense, the publication of this textbook not only helps us improve and update our teaching content in Western economics but also, I believe, will provide valuable reference value for professional researchers in economics and all those interested in economics. Of course, this does not mean that this textbook is perfect in meeting the needs of economics students. From a teaching perspective, we still need to adapt the teaching content to the characteristics of Chinese students. As usual, I would like to thank my colleagues at the School of Economics, Fudan University—Dr. Yin Xiangshuo, Professor Luo Han, and Dr. Xie Shiyu—for not only having a solid background in modern economics but also a strong foundation in English. Coincidentally, we have all conducted research work successively at the University of Sussex in the UK, so we share a dual alumni relationship. After accepting this translation project, my coordination work received their understanding and support, and our collaboration went quite smoothly. Without their active cooperation, I think it would have been impossible for us to sit down and discuss and resolve translation issues and align our thoughts each time; without their outstanding work and rigorous and realistic attitude, this book would never have been translated so smoothly. I would also like to thank Ms. Liang Jing, Director of the Editorial Department at China Renmin University Press, for her care, understanding, and support at every stage of the translation process. Our collaboration has proven to be very pleasant. I would also like to thank several anonymous reviewers who reviewed part of the translated manuscript and provided comments. Of course, I cannot fail to express my gratitude to my mentor, Professor Song Chengxian, who still proofread our translation despite his poor health. Although I still clearly remember, when my colleague Liang Jing and I visited Professor Song to ask him to serve as the general proofreader for the Chinese translation of this textbook, he said to us: "Let the young people take the lead; I completely trust my student Zhang Jun." The teachings I received from him during my academic development will remain unforgettable throughout my life.
As one of the translators and coordinators, I am naturally responsible for any flaws or errors that may exist in the translation of this book.
Zhang Jun
January 14, 1997, Shanghai