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Chapter 1 - Chapter 1 Introduction Do safer cars...

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Chapter 1 Introduction Do safer cars necessarily result in fewer traffic deaths? Is it sensible to subsidize domestic U.S. oil drilling in an effort to make the U.S. less dependent on unstable regions of the world? Would outlawing live Christmas trees help to reduce deforestation? Should we impose laws against “price gauging”? Is boycotting companies that use cheap labor abroad a good way to express our outrage at the dismal working conditions in those countries? Would it be better for workers to require their employers to pay their social security taxes rather than taxing the workers directly? Should we tax the sales by monopolies so that these companies don’t earn such outrageous profits? Many people would instinctively answer “yes” to each of these questions. Many economists would say “no”, or at least “not necessarily.” Why is that? One possible answer is that economists are social misfits who have different values than “real people.” But I don’t think that’s typically the right answer. By and large, economists are an ideo- logically diverse group, distributed along the political spectrum much as the rest of the population. Most of us live perfectly normal lives, love our children and empathize with the pain of others. Some of us even go to church. We do, however, look at the world through a somewhat different lens, a lens that presumes people respond to incentives and that these responses aggregate in ways that are often surprising, frequently humbling and sometimes quite stunning. What we think we know isn’t always so, and – as a result – our actions, particularly in the policy realm, often have “unintended” consequences. I know many of you are taking this course with a hidden agenda of learning more about “busi- ness” – and I certainly hope that you will not be disappointed. But the social science of economics in general, and microeconomics in particular, is about much more than that. Through the lens of this science, economists see many instances of remarkable social order emerging from millions of seemingly unconnected choices in the “marketplace” – spontaneous cooperation among individuals on different ends of the globe, the kind of cooperation that propels societies out of the material poverty and despair that has characterized most of human history. At the same time, our lens clarifies when individual incentives run counter to the “common good” – when private interests unravel social cooperation in the absence of corrective non-market institutions. Markets have given rise to enormous wealth, but we also have to come to terms with issues such as economic inequality and global warming, unscrupulous business practices and racial discrimination. Economics can certainly help us think more clearly about business and everyday life. It can also, however, teach some very deep insights about the world in which we live – a world in which incentives matter.
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10 Chapter 1. Introduction 1.1 What is Microeconomics?
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