Microeconomics

Citation

Pindyck, R. S., & Rubinfeld, D. L. (2017). Microeconomics (9th ed.). Pearson.

Chapter Summary

The ninth edition has 19 chapters in four parts; the Global Edition runs to 784 pages. Pearson describes the book as one that exposes students to topics central to microeconomics, from game theory and competitive strategy to uncertainty, information and the pricing decisions of firms with market power, and that presents microeconomics as a practical tool for decision-making and for designing and understanding public policy. The order moves from supply and demand to consumers and producers under competition, then to market power and strategy, and finally to information, market failure and the role of government.

Part 1, Chapters 1-2: Introduction: Markets and Prices

The opening part has two chapters: "Preliminaries" and "The Basics of Supply and Demand". Chapter 1 frames the subject; Chapter 2 introduces the supply-and-demand model on which the rest of the book builds.

Part 2, Chapters 3-9: Producers, Consumers, and Competitive Markets

Seven chapters on the two sides of competitive markets. The consumer side comes first, with "Consumer Behavior", "Individual and Market Demand" and "Uncertainty and Consumer Behavior". The producer side follows with "Production", "The Cost of Production" and "Profit Maximization and Competitive Supply". Chapter 9, "The Analysis of Competitive Markets", then brings the two sides together. Uncertainty is thus treated within the consumer part, before production and cost.

Part 3, Chapters 10-15: Market Structure and Competitive Strategy

Six chapters follow. The first four leave perfect competition behind. Chapter 10 treats market power in its two forms, "Monopoly and Monopsony", and Chapter 11 is devoted to "Pricing with Market Power". Chapter 12 covers monopolistic competition and oligopoly, and Chapter 13 gives "Game Theory and Competitive Strategy" its own chapter. The part then turns to the markets for inputs and capital with "Markets for Factor Inputs" (Chapter 14) and "Investment, Time, and Capital Markets" (Chapter 15).

Part 4, Chapters 16-19: Information, Market Failure, and the Role of Government

The final part collects four chapters: "General Equilibrium and Economic Efficiency", "Markets with Asymmetric Information", "Externalities and Public Goods" and "Behavioral Economics". Behavioral economics is the closing chapter.

Key Concepts

Parts 1-2: Competitive markets

• Supply and demand: the market model introduced in Chapter 2.
• Consumer behavior and market demand: how individual choices aggregate into demand (Chapters 3-4).
• Uncertainty and consumer behavior: choices made when outcomes are not certain (Chapter 5).
• Cost of production and competitive supply: the producer-side counterpart (Chapters 6-8).

Parts 3-4: Market power, strategy and market failure

• Monopoly and monopsony: market power on the selling and buying side (Chapter 10).
• Pricing with market power: how firms with power set prices (Chapter 11).
• Game theory and competitive strategy: strategic interaction among firms (Chapter 13).
• Asymmetric information: markets in which one side knows more than the other (Chapter 17).
• Externalities and public goods: two classic reasons for government involvement (Chapter 18).
• Behavioral economics: the closing chapter, on departures from the standard model of choice (Chapter 19).

Critical Analysis

Strengths

• Strategy and information are part of the core. Pearson highlights game theory, competitive strategy, uncertainty and information, and the book gives game theory and pricing with market power chapters of their own.
• Business and policy orientation. The publisher presents the book as showing how microeconomics supports decisions in business and the design of public policy. It also says the ninth edition adds new coverage and examples and an exposition it calls clear, accessible and engaging.
• Clear division of the course. Four parts, each with a distinct purpose, make the book easy to navigate: competitive markets, market power and strategy, and then information and market failure.
• Behavioral economics included. The final chapter brings behavioral economics into an intermediate text.

Limitations

• Length. At 784 pages for the Global Edition, the book is more than most one-semester courses can cover, so a course will have to select.
• Strategy before welfare. General equilibrium and efficiency appear only in Part 4, after the chapters on market structure, so a student who wants the welfare theorems early must reorder.
• Behavioral economics last. Because the chapter closes the book, it can be treated as an optional extension rather than part of the core model of choice.

Where It Fits in the Course

Pindyck and Rubinfeld is one of two full-length intermediate textbooks on the list. The other is Varian and Melitz's Intermediate Microeconomics, whose 37 short chapters develop consumer theory first and also reach game theory, behavioral economics, welfare and market failure; the two cover similar ground, so the choice is a matter of course preference. Varian's tenth edition is available in an algebra-based version, with a separate calculus-based companion. Parkin's Microeconomics and Dixit's Microeconomics: A Very Short Introduction are gentler, principles-level treatments that can come first.

The graduate-level continuations are Mas-Colell, Whinston and Green's Microeconomic Theory and Jehle and Reny's Advanced Microeconomic Theory, which assume intermediate microeconomics and more mathematics.

How to Use This Book

The book is for students who have completed a principles course, as part of an intermediate microeconomics course; Pearson's overview is addressed to Intermediate Microeconomics courses.

A practical plan: read Part 1 quickly as a refresher, then take Part 2 in order, since it establishes consumer and producer theory and competitive equilibrium. Chapters 10-13 are the core of Part 3: monopoly and monopsony, pricing with market power, oligopoly and game theory. Chapters 14 and 15, on factor inputs and on investment, time and capital, can be matched to the syllabus. In Part 4, general equilibrium and economic efficiency (Chapter 16) belongs near the end of the course, followed by asymmetric information and externalities and public goods. Behavioral economics (Chapter 19) is a natural final chapter or optional extension.