Principles of Microeconomics: An Integrative Approach

500 Pages·2021·7.806 MB·English

by  Martin Kolmar

Classroom Companion: Economics
Martin Kolmar
Principles
of Microeconomics
An Integrative Approach
Second Edition
Classroom Companion: Economics
The Classroom Companion series in Economics features fundamental textbooks
aimedatintroducingstudentstothecoreconcepts,empiricalmethods,theoriesand
tools of the subject. The books offer a firm foundation for students preparing to
movetowardsadvancedlearning.Eachbookfollowsacleardidacticstructureand
presentseasyadoptionopportunitiesforlecturers.
Moreinformationaboutthisseriesathttp://www.springer.com/series/16375
Martin Kolmar
Principles of
Microeconomics
An Integrative Approach
Second Edition
MartinKolmar
InstituteforBusinessEthics
DepartmentofEconomics
UniversitätSt.Gallen
St.Gallen,Switzerland
ISSN2662-2882 ISSN2662-2890 (electronic)
ClassroomCompanion:Economics
ISBN978-3-030-78166-8 ISBN978-3-030-78167-5 (eBook)
https://doi.org/10.1007/978-3-030-78167-5
©TheEditor(s)(ifapplicable)andTheAuthor(s),underexclusivelicensetoSpringerNatureSwitzerland
AG2022
Thisworkissubjecttocopyright.AllrightsaresolelyandexclusivelylicensedbythePublisher,whether
thewhole orpart ofthematerial isconcerned, specifically therights oftranslation, reprinting, reuse
ofillustrations, recitation, broadcasting, reproductiononmicrofilmsorinanyotherphysicalway,and
transmissionorinformationstorageandretrieval,electronicadaptation,computersoftware,orbysimilar
ordissimilarmethodologynowknownorhereafterdeveloped.
Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication
doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant
protectivelawsandregulationsandthereforefreeforgeneraluse.
Thepublisher,theauthors,andtheeditorsaresafetoassumethattheadviceandinformationinthisbook
arebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor
theeditorsgiveawarranty,expressedorimplied,withrespecttothematerialcontainedhereinorforany
errorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregardtojurisdictional
claimsinpublishedmapsandinstitutionalaffiliations.
ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSwitzerlandAG.
Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland
Formydaughter,
Carlotta
Preface to the Second Edition
After4years,itwastimetosubstantiallyexpandandrevisethistextbook.Indoing
so, the three features that make this textbook special, contextualization, critical
reflection,andapplicationofthetheories,havebeenfurtherdeveloped.
In particular, the present edition systematically expands the part on decision
theory. Traditional decision theory under certainty is joined by a chapter dealing
with traditional decision theories under risk and uncertainty. Another chapter is
devotedtobehavioraleconomics.Oneaspectofthischapteristobetterunderstand
to what extent people take consequences of their behavior on other people into
account (social preferences). A second aspect is to understand and explain devia-
tions from the paradigm of rational choice. In addition, the empirical results and
theoreticalexplanationsaremethodicallyscrutinizedtostrengthencriticalthinking
and methodologicalcompetence.Furthermore,they are comparedwith the results
ofclassicalrational-choicetheoryanditsimplicationsforeconomicpolicy.Afinal
chapter on decision theory goes one step further and discusses important theories
andresultsfromneuroscience,evolutionarypsychology,and narrativepsychology
togainanevenmorefundamentalunderstandingofhumanperceptionandbehavior.
This chapter also explores potential implications of these findings for traditional
economicsandalternativenormativeviewsonhowtoconceptualizeindividualwell-
beingandaneconomythatseekstopromoteit.
Regarding those chapters that already existed in the first edition, theoretical
additions have been made and case studies and examples have been updated.
For example, the chapter on monopoly behavior includes a section on two-sided
markets,thechapteroncomparativeadvantageincludescasestudiesontradewars
and long-termchangesin comparativeadvantage,and the chapter on externalities
includesmodelsandcasestudiesonpandemicsandtheclimatecrisis.
vii
viii PrefacetotheSecondEdition
IthankMagnusHoffmannforco-authoringChaps.8and10andforhiscritical
guidance throughout the project. I thank Judith Gamp for her critical comments
and careful review of the manuscript. A thank you is also due to Yara Locher,
whopreparedthegraphics,andtoClaudiaFichtner,JürgFurrer,StefanLegge,and
Alfonso Sousa-Poza for their many constructive comments. Last but not least, I
wouldalsothankallthosestudentswhomadeinputsbigandsmallthatfoundtheir
wayintothisbook.
St.Gallen,Switzerland MartinKolmar
February2021
Preface to the First Edition
One may wonder why I think that it makes sense to add yet another introductory
textbooktotheoverfilledshelfofwell-establishedbooksonmicroeconomics.There
arethreereasonsthatmotivatedmetodoso.
First,alotoftextbooksineconomicswanttomakeonebelievethatthetheories
presentedaremoreorlesscontext-freeandobjective.Thisisawronganddangerous
belief. First of all, all theories are embeddedin an intellectual milieu from which
they borrow and on which they build. No man is an island, and no scientific
theoryiseither.Thetendencytoshunanycontextualizationsofthetheoriescomes
at the risk of blindness towards the implicit assumptions, value judgements and
epistemes on which the theory depends. This makes economics prone to being
misused for ideologicalpurposes. Economic literacy does not only mean that one
isabletounderstandtherulesandpatternsofmoderneconomies,butalsothatone
understandshow economic theories relate to other social sciences and the culture
from which they emerge. This textbook is an attempt to contextualize modern
economicsin the hopethatstudentswillgeta betteroverviewof itsstrengthsand
weaknesses.Itputsalsoaspecificemphasisoncasestudiesthatrangewidelyfrom
the functioningof coffeemarkets,the logic of overfishing,to price discrimination
in the digital age. This approach makes this book also potentially interesting
for students who study economics as a minor and who want to understand how
economictheoriesrelatetoothersocialsciencesandhowtheycanbeusedtobetter
understandmarketsaswellasphenomenalikeclimatechange,amongmanyothers.
Tomakeiteasiertoidentifythemostimportantcontextualizationsinthisbook,
I work with a series of icons that one will find in the margins of this book. L
indicates a legal, B a business, and (cid:2) a philosophical(broadlyspeaking) context.
Furthermore, one will find the most important definitions and technical terms
highlightedwitha(cid:2)-signinthemarginsofthebook.
Second,textbooksthatgiveanintroductiontoeconomicshavebecomeamillion-
dollar business over the last decades, with thousands of universities and colleges
teaching the same basic principles worldwide. The globalization of this market
has led to a commodification of textbooks in the attempt to sell as many copies
aspossible.Asaresult,thelion’sshareofthemarketisservedbytextbooksthatare
veryelementaryandonlyscratchthesurfaceofmosttheories.Thisstrategymakes
themcommerciallysuccessful,becauseoftheappealtothemassmarketbut,atthe
same time, denies the students a deeper and more sophisticated understanding of
ix
x PrefacetotheFirstEdition
thestrengthsandweaknessesofthetheories.Onecouldarguethatsuchanin-depth
understanding of theories is not necessary in an introductory class in economics,
becausetherewillbeplentyofintermediateandadvancedcoursesthatwillfillthese
gaps later on. The reality is, however, that a significant fraction of students gets
all of its knowledge from the introductorycourse. It is never too early to educate
independentandcriticalminds.
Third,mosttextbooksthatIamawareofarenottailoredtotheneedsofabusiness
school where students study economics, business administration and maybe law.
Economics is about the functioning of institutions and most institutions have a
legalbackbone.Bringingthisfacttotheforegroundcreatessynergiesbetweenlaw
and economics. By the same token, economic theory allows one to identify the
key parameters that a firm must know in order to be successful in the markets in
which they compete. Examining the common ground between management and
economics allows one to better understand the implications of different market
contextsandindustriesformanagersanditshowsonehowcloselyeconomicsand
business administration can and should be linked. Economics, law and business
administrationarereallythree perspectivesonthe samephenomenon:thelogicof
socialinteraction.
This book took shape over many years during which I have been teaching
“Principles of Economics” and “Microeconomics” to undergraduate students. I
would like to thank all of my former students for their patience and for their
countlessdiscussionsthat allcontributed,in their own ways, to this book.Special
thanks are due to my present and former Ph.D. students and research assistants
PhilippDenter,MagnusHoffmann,HendrikRommeswinkelandDanaSisak,allof
whomhada majorinfluenceonthe contentandthe didacticsofthis book.Thisis
also true for Thomas Beschorner, Friedrich Breyer, Claudia Fichtner, Jürg Furrer,
MichaelHeumann,NormannLorenz,IngoPies,AlfonsoSousa-PozaandAndreas
Wagener, who gave me me detailed feedback on earlier versions of the book and
helped me with valuable suggestions. I would also like to thank Maya G. Davies,
CorinneKnöpfel,LeopoldLerach,JanRissandJanSerwart,whosupportedmein
finishingthisbookandwhodidagreatjobinmakingitmorestudentfriendlyand
accessible.Itisdefinitelynottheirfaultifyoufindyourselfstrugglingwithsomeof
thematerial.
St.Gallen,Switzerland MartinKolmar
May2017