Introduction to Economic Analysis


R. Preston McAfee
California Institute of Technology

"The Open Source Introduction to Microeconomics"

Creative Commons License
This work is licensed under a
Creative Commons License.

If you would like to contribute exercises or text to this project, please email me. This is a "technical" principles book, assuming a working knowledge of calculus. It will cover most intermediate material as well and could easily be used for an intermediate course; the difference is that there are explanations of principles ideas in the text. I will cite in my version included text and exercises supplied by others.

Why open source? Academics do an enormous amount of work editing journals and writing articles and now publishers have broken an implicit contract with academics, in which we gave our time and they weren't too greedy. Sometimes articles cost $20 to download, and principles books regularly sell for over $100. They issue new editions frequently to kill off the used book market, and the rapidity of new editions contributes to errors and bloat. Moreover, textbooks have gotten dumb and dumber as publishers seek to satisfy the student who prefers to learn nothing. Many have gotten so dumb ("simplified") so as to be simply incorrect. And they want $100 for this schlock? Where is the attempt to show the students what economics is actually about, and how it actually works? Why aren't we trying to teach the students more, rather than less?

Here are actual prices, as of January 2005 (quoted by Amazon):
Economics, by Campbell R. McConnell, Stanley L. Brue, $136
Principles of Economics, by N. Gregory Mankiw, $131.95
Managerial Economics: Economic Tools for Today's Decision Makers, by Paul G. Keat, Philip K.Y. Young, $133
Economics, by John B. Taylor, $130.36
Microeconomics with MyEconLab Student Access Kit (7th Edition), by Michael Parkin, $93.80
Principles of Microeconomics, by Karl E. Case, Ray C. Fair, paperback $99
Principles of Macroeconomics, by Karl E. Case, Ray C. Fair, paperback $99

The way principles is taught embodies an inefficiency -- generally we motivate the analysis in principles but don't complete it, then perform the analysis in intermediate micro. Why not combine these two in one more thorough course? In this regard, managerial economics in business schools does a much better job (and the books are better, too, but are focused on business applications and not general economics).

"I should also mention that at Chicago, they did not offer what is known as a "principles" course, the watered-down, mind-numbing survey course that most universities offer as a first course in economics. At Chicago, they started right off at the intermediate microeconomics level. So I had the enormous advantage of starting off with challenging, intellectually coherent material and first-rate teachers. I was very fortunate."

--From an interview with Paul Romer, Conversations with Economists: Interpreting Macroeconomics, edited by Brian Snowdon and Howard Vane, Edward Elgar, 1999.

The publishers are vulnerable to an open source project: rather than criticize the text, we will be better off picking and choosing from a free set of materials. Many of us write our own notes for the course anyway and just assign a book to give the students an alternate approach. How much nicer if in addition that "for further reading" book is free. Moreover, by doing it this way, we avoid the problem of assigning a $100 book that has all sorts of errors and problems, an assignment which justifiably annoys students. I'll start by contributing a version I am happy with and then collectively we can develop a set of readings and exercises that are tunable to distinct audiences (my contribution will be tuned to Caltech) and make a text superfluous.

My attempt is to produce a version that covers principles through intermediate in a single course, by using mathematics where needed, and not where it isn't. This idea is that this book, plus econometrics, provides most of the economic analysis tools to take upper division economics courses of any type.

You are free to use any subset of this work provided you don't charge for it, and you make any additions or improvements to it available under the same terms. In addition, you must provide a link to my site on the first or top page of your version. This isn't sourced like Linux, where you can charge for your "flavor" or value-added. If you are writing a for-profit book, don't start here. And if you are writing a principles book, remember that the dumb and dumber market is already pretty crowded.

It would have been useful to produce a hypertext document, but the problem with HTML is that equations need to be embedded as images, which roughly quadruples the pain of creation. So I am going to use Microsoft Word as the source and distribute to students via Acrobat PDF. I'm making it without color, to simplify producing a Kinkos physical copy. I've yet to meet the student that was satisfied with just an electronic copy. Why MS Word? Everyone has it. Pagemaker and the like are not that common and are expensive. A small number of individuals are passionate about Latex, but the majority of economists use Word and don't use Latex. It is easy to print a pdf file in Word.

There are some technical issues associated with open sourcing a book, and few books have been open sourced, although many are given away free. Some of the challenges are discussed at My model is slightly different than the model espoused there. I hope some people will maintain their own version of this work, using mine as a springboard, adding to it over the years until it is personalized and superior for their course. I expect some others to just use the most appropriate "flavor" around. The best outcome would be a friendly competition between different flavors, with the result of several specialized versions for distinct purposes, all embedding best-of-breed insights. I'll maintain a list of recommended flavors, although I won't attempt to be comprehensive. If I deem a version unsuitable, I won't draw attention to it by linking to it. However, the nature of the license is that I have ceded control so that others can create versions I don't personally like. I also hope that others will create complementary websites with homework exercises and additional applications, although I will of course include some of those in my version.