principles of microeconomics assignment 1

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Microeconomics

Unit 1: basic economic concepts, unit 2: supply, demand, and market equilibrium, unit 3: elasticity, unit 4: consumer and producer surplus, market interventions, and international trade, unit 5: consumer theory, unit 6: production decisions and economic profit, unit 7: forms of competition, unit 8: factor markets, unit 9: market failure and the role of government.

ECON101: Principles of Microeconomics

Course introduction.

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When discussing the economy, we refer to the marketplace or economic system where the choices of all economic agents interact. This course explores how and why we make economic decisions and how our choices affect the economy. Each unit is a building block. By the end of this course, you will be able to grasp the major issues microeconomists face, including consumer and producer behavior, supply and demand, how different markets function, and the welfare outcomes of consumers and producers. We also examine how formal principles and concepts apply to real-world issues.

Course Syllabus

First, read the course syllabus. Then, enroll in the course by clicking "Enroll me". Click Unit 1 to read its introduction and learning outcomes. You will then see the learning materials and instructions on how to use them.

Unit 1: Introduction to Economics

This unit sets the stage for our journey into the principles of microeconomics. We begin by defining economics and its foundations, emphasizing the concepts of scarcity, choice, and opportunity cost and the need for economic models and theories. Next, we delve into the trade-offs economic agents face when confronting scarcity and applying marginal analysis in their decision-making processes. Once we have discussed the introductory economic toolbox, we finish this unit by introducing basic economic models.

Completing this unit should take you approximately 5 hours.

Unit 2: Supply and Demand

In this unit, we introduce the demand and supply model and the resulting market equilibrium for price and quantity. We will explore how markets are constantly affected by changes that affect prices and quantities. If the market is unaffected by failures or government intervention, we will see that prices and quantities tend to move toward the equilibrium benchmark.

"During the last decades, several challenges have significantly affected the egg industry, such as the increasing consumer demand for animal welfare, the need for more sustainable food production, and the growing human health and food security issues related to egg consumption." (Agnese Rondoni et al., Trends in Food Science & Technology, 2020)

When you finish this unit, you will be able to analyze how these changes affect the prices of eggs and the quantity of eggs available in the market.

Unit 3: Elasticity and its Applications

In this unit, we delve into the concept of elasticity and its practical applications for how firms make pricing decisions and how governments analyze and make policy decisions. Put simply, elasticity measures responsiveness. It helps us understand why Netflix increases their prices for their Standard and Premium tiers more frequently, compared to their entry-level Basic plan. Government analysts also rely on elasticity to determine the extent of tax increases.

We can apply elasticity to demand and supply analysis. Elasticity measures how quantity responds to changes in the price of the product, the price of related goods, income, advertising, and more. Once you grasp the concept and its basic calculations, applications of elasticity in economic analysis are nearly limitless.

Completing this unit should take you approximately 4 hours.

Unit 4: Markets and Maximizing Individual Behavior

You are now familiar with the workings of the market. You understand how changes in demand or supply affect prices and quantities for firms and consumers. In this unit, we revisit the demand and supply model to explore economic efficiency. Economic efficiency occurs if "the optimal amount of each good and service is produced and consumed."

We introduce the concepts of consumer and producer surplus to analyze how free markets increase overall welfare. Then, we apply these concepts to analyze the effects of price controls on prices, quantities, and market efficiency.

The market, on its own, does not always allocate resources efficiently. Economists talk about market failure when it falls short. We analyze how the government can alleviate these market failures.

This unit concludes with an introduction to the causes and ramifications of income inequality. While much debate exists on long-term inequality, economists can objectively measure the problem's scope and offer options to manage this economic phenomenon. Protracted poverty and inequality can cause long-term harm to an economy's development.

Unit 5: Introduction to Consumer Choice

As you know, consumers are driven by their unique preferences when they seek to maximize their satisfaction (utility) while considering their limited budgets. Despite the subjectivity of preferences, choices are also influenced by income and prices. This Unit introduces the economic theories behind consumer decision-making. We build upon the budget constraint concept from Unit 1 and demonstrate how economic theory helps predict consumption responses to price and income changes.

Completing this unit should take you approximately 3 hours.

Unit 6: The Producer

In this unit, we dive into the world of production. Our focus is on understanding the behavior of producers and the costs associated with their operations in the short and long run. In other words, we explore the relationship between the quantity of output a firm produces and the cost of producing that output. We also analyze the relationship between various cost functions and identify the production function's characteristics in different timeframes. This chapter lays the foundation for a deeper understanding of how businesses operate and make crucial production-related decisions.

Unit 7: Market Structure: Competitive and Non-Competitive Markets

In this unit, we study how firms operate and compete within different market environments defined by the degree of competition. We introduce the concept of perfect competition, an ideal model that serves as a benchmark economists use to analyze real-world market structures. The model of perfect (or pure) competition results in an efficient allocation of resources. However, unregulated markets (which are central to perfect competition) often fail to create desired outcomes in the real world. Economists refer to these situations as examples of imperfect competition.

Keeping the perfect competition model as the analytical benchmark, we transition to its polar opposite, the monopoly model. Following that, we venture into the realm of imperfect competition, encompassing two distinct models: monopolistic competition and oligopoly. Within the context of oligopoly, we introduce some concepts of game theory, such as the prisoner's dilemma model and the Nash Equilibrium.

Unit 8: The Role of the Government in a Market Economy

In this unit, we delve into how government intervention can address market failures, such as the existence of public goods, externalities, and income and wealth inequality. We analyze decision-making in the public sector, comparing public interest theory with public choice theory. Finally, we explore the Coase Theorem to determine whether private bargaining is preferable to government intervention when dealing with external effects.

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Principles of Microeconomics

(18 reviews)

Timothy Taylor, Saint Paul, Minnesota

Steven A. Greenlaw, Fredericksburg, Virginia

Eric Dodge, Hanover, Indiana

Copyright Year: 2014

ISBN 13: 9781938168246

Publisher: OpenStax

Language: English

Formats Available

Conditions of use.

Learn more about reviews.

Reviewed by Yi Duan, Assistant Professor, Marshall University on 12/5/23

The book covers all major topics in introductory microeconomics. It encompasses discussions on both theories and policies. read more

Comprehensiveness rating: 5 see less

The book covers all major topics in introductory microeconomics. It encompasses discussions on both theories and policies.

Content Accuracy rating: 4

The majority of the content is precise and accurate. However, there can be some subtle issues. In 7.3 “Costs in the Short Run”, the gap between ATC (average total cost) and AVC (average variable cost) is AFC (average fixed cost), and AFC is supposed to decrease as output increases since the fixed cost is distributed across a larger number of units. But 7.3 fails to highlight this point and some of the graphs fail to show this feature.

Relevance/Longevity rating: 5

The majority of the content is current, with discussions addressing the impact of recent events such as the COVID-19 pandemic.

Clarity rating: 4

Most of the content is clear and easily understandable. The “Clear It Up” sessions can be very helpful in clarifying some confusing content. However, some content can be improved. 5.1 “Price Elasticity of Demand and Price Elasticity of Supply” highlights the importance of using the absolute values for price elasticity of demand, but the following mathematical calculations simply equate negative values to positive values, which can be mathematically confusing; I suggest adding absolute value symbols in mathematical calculations to avoid this confusion.

Consistency rating: 5

The content and writing style maintain consistency throughout the entire book.

Modularity rating: 5

This book is well-organized into modular sections. The individual modules of the book collectively contribute to an enhanced overall understanding of the subject matter.

Organization/Structure/Flow rating: 5

In general, this book exhibits a well-organized structure. It adheres to the principles of microeconomics effectively.

Interface rating: 5

The design and layout are good. I would appreciate the inclusion of graphs in high resolution.

Grammatical Errors rating: 5

I did not find any grammatical errors.

Cultural Relevance rating: 5

This book introduces economic theories that apply to most of the countries in the world. In addition, Chapter 19 “International Trade” and Chapter 20 “Globalization and Protectionism” discuss economic interactions across countries.

This book is one of the best open textbooks featuring introductory microeconomics. I have seen tremendous improvement from the first edition to the current third edition.

Reviewed by Lori Lavigne, Professor, Framingham State University on 11/7/22

The book covers all of the major topics from a intro micro course. I would consider using this text in the future. read more

The book covers all of the major topics from a intro micro course. I would consider using this text in the future.

Content Accuracy rating: 5

Relevance/Longevity rating: 4

Relevant, but typically always pulling recent events for examples.

Consistency rating: 4

Consistent with other texts

Modularity rating: 4

Well organized

The text covers the topics in the order that are typically covered.

Seems easy to navigate.

Grammar looks correct

Cultural Relevance rating: 4

Reviewed by ATM Sayfuddin, Assistant Professor, Randolph College on 4/2/22

The book covers almost all major areas typically contained in an introductory microeconomics textbook. However, I expected the chapter discussing "public goods" (chapter 13) to also discuss all four categories of goods - private goods, public... read more

Comprehensiveness rating: 4 see less

The book covers almost all major areas typically contained in an introductory microeconomics textbook. However, I expected the chapter discussing "public goods" (chapter 13) to also discuss all four categories of goods - private goods, public goods, common resources, and quasi-public goods.

I the content of the book accurate.

Content is up-to-date. I liked the idea of using hyperlinks to external sources in the online version, allowing students to dig deeper into interesting ideas/scenarios in the real world.

In my experience with my students, I think most of my students find the textbook written in clear and concise language, although use of more examples would be helpful.

The text is consistent.

I see the value of introducing the concept of consumers' Budget Constraints and Production Possibility Frontier in chapter 2, but I still think those topics are better served in their own subsequent chapters - chapters 9 and 19, respectively - because the brief introduction of these topics in the 2nd chapter leaves many questions unanswered in the students' minds.

Organization/Structure/Flow rating: 4

I liked the overall flow of the book.

The interface is user-friendly.

I did not notice any grammatical errors.

The text is not culturally insensitive or offensive in any way.

I liked the book most helpful because of the length of each chapter, which students find manageable rather than burdensome.

Reviewed by Jean-Baptiste Tondji, Assistant Professor, University of Texas Rio Grande Valley on 10/31/20

Principles of Economics is impressive and extremely comprehensive. It covers interesting and current topics that are suitable and relevant for any principles of Microeconomics and Macroeconomics courses at the lower undergraduate level. read more

Principles of Economics is impressive and extremely comprehensive. It covers interesting and current topics that are suitable and relevant for any principles of Microeconomics and Macroeconomics courses at the lower undergraduate level.

The textbook is accurate, error-free, and unbiased. The contents can be used to raise issues at the national and international levels. This is important given that we navigate in the world with many social networks and connections.

Principles of Economics is up-to-date since it tackles several current economic topics such as environmental protection, poverty, inequality, healthcare, race, gender, immigration, among others. In future editions, I think topics such as protests, (social) justice, political polarization, pandemics (vaccines), and the future of the green economy might be useful for our undergraduate students. The text is written in such a way that it will not be tedious to implement such updates.

Clarity rating: 5

The text presents a clear, concise, and accessible approach for each concept. The lucidity in the writing makes the contents easily accessible to every student, including the one to which English might not be the first language.

The text is consistent in terms of both terminology and its framework. Principles of Economics is based on a solid pedagogical foundation. Each chapter builds on a case study and offers new facts and knowledge to extend the understanding of the current environment. The chapter ends with a summary of key terms, a brief summary of the contents, and assessments. The latter are arranged in a progressive path towards the learning goals. I think having some self-check questions at the end of each topic might also help. In the text, all problems and questions are relegated to the end of the chapter.

The text is easily and readily divisible into smaller reading sections that can be assigned at different points within the course.

The text covers several relevant topics that are presented in a logical, and clear fashion.

Principles of Economics is free of significant interface issues, including navigation problems, distortion of images (or charts), and any other display features that may distract or confuse the reader.

I did not find any grammatical or mechanical errors that could cloud meaning.

The textbook covers a range of issues on immigration, gender, race with facts, and no bias at the national or international focus. Examples used are relevant and are not culturally insensitive or offensive in any way.

Overall, Principles of Economics is an excellent textbook for all students in a face-to-face introduction to Microeconomics and Macroeconomics courses at the undergraduate level. The text is up-to-date, concise, clear, consistent, accurate, and it covers relevant topics with a national and international focus. The text also presents additional materials, such as the use of mathematics in economics, to complement the intuitive and applied sections. Finally, the text is well organized so that instructors can easily select appropriate contents to be covered in a full semester.

Reviewed by Jay Leung, Instructor, Bunker Hill Community College on 7/13/20

The textbook covers most of the intro-level mainstream microeconomic topics. An honors level microeconomics course would consider a textbook that was more advanced and in-depth. read more

The textbook covers most of the intro-level mainstream microeconomic topics. An honors level microeconomics course would consider a textbook that was more advanced and in-depth.

The content is accurate.

Photos and real-world examples would need to be regularly updated.

Clarity rating: 3

The text is written in an easy-to-read manner. However, the book would benefit significantly from graphic design overhaul. The graphs are too small in size and lack color. The use of color would illuminate the various cost curves. Math equations could be typeset more clearly by using a different font and improved layout. Table data could be laid out more clearly.

The textbook is consistent in its use of terminology.

The chapters can be used in the same groupings as other microeconomics textbook.

The chapters are organized in a standard way.

There are no issues with the interface.

I didn’t find any grammatical errors, but there are quite a few typos.

I didn’t find anything that was culturally offensive. Many of the examples are quite dated though. Note that the textbook is from an American perspective.

OER is a very worthy project. I root for its success. The prose of the book is very approachable; however, the graphic design including the text layout makes this textbook not ready for primetime. Although the free price tag of this book is attractive, the lack of integration between the explanations and the graphs (e.g. no use of color) detracts from the effectiveness of the textbook.

Reviewed by Damindi De Silva, Adjunct Professor, Quinsigamond Community College on 6/29/20

The text covers all areas and ideas of the subject and provides an effective index and/or glossary. The text can be used as a required text at an Introductory level Microeconomics course at College level. read more

The text covers all areas and ideas of the subject and provides an effective index and/or glossary. The text can be used as a required text at an Introductory level Microeconomics course at College level.

Most part I found the text to be accurate and error free and unbiased. But I would like to mention the following as improvements to the text. The Figure 1.2 on page 11 shows a picture of absolute poverty rather than scarce resources for me. Scarcity is a relative term and the picture on the figure shows an absolute concept. Students will surely get confused as to scarcity is something like poverty. Scarcity is limited resources to fulfill unlimited wants. Scarcity is prevalent everywhere even among the rich. So I wouldn't put that figure 1.2 as scarcity. Another improvement that I suggest is to explain absolute advantage and comparative advantage where the explanation of specialization and division of labor is mentioned. If Trade and Markets are introduced in page 14 some understanding about absolute and comparative advantage should be mentioned at that point. This can be connected to the Chapter on International Trade later on. I like how the cost curves and product curves are well explained in chapter 7. However on page 199 it would be great if another two diagrams are used after Figure 8.6 showing the shaded areas such as contribution towards covering fixed cost in the short run and the loss areas when price goes below Average Variable Cost. The Chapter on Oligopoly could be expanded with sub topics as price wars and non price competition. Since this market is a very interesting market more examples from different countries could be used. In the chapter on Monopoly a dead weight loss diagram comparing perfect competition and monopoly firms, a diagram to show Allocative inefficiency and sub topic on price discrimination would complete that chapter well.

Content is up- to-date on most part but Table 1.2 and many other tables could be updated. The text is written in such away that necessary updates will be relatively easy and straight forward to implement.

The text is written in lucid, accessible prose and provides adequate context for any jargon/technical terminology used.

The text is internally consistent in terms of framework.

The text is easily and readily divisible into smaller reading sections that can be assigned at different points within the course (i.e., enormous blocks of text without subheadings should be avoided). The text should not be overly self-referential, and should be easily reorganized and realigned with various subunits of a course without presenting much disruption to the reader.

The topics in the text are presented in a logical, clear fashion. But in Chapter 3 I would include a section on distinction between movement along and the shifts of demand and supply curves. Also an explanation on how excess demand and excess supply moves towards a market equilibrium will be a needed addition to page 50 on Chapter 3. The features such as Link it Up, Work it Out, Bring it Home, Key terms, Key concepts and summary,Review Questions, Critical Thinking questions, Problems at the end of each chapter are great features.

The text is free of significant interface issues, including navigation problems, distortion of images/charts, and any other display features that may distract or confuse the reader. The Link it up feature is great feature. Videos and articles both could be used for this feature.

the text contains no grammatical errors.

The text is not culturally insensitive. But I would not include Table 1.2 with countries like China. Based on the national income categorization China is a upper middle income country and India is a lower middle income country. Tables like table 1.2 can be culturally sensitive especially in an era where trade wars and controversies are happening with this country.

Education resources such as these texts are way of bridging the gap between the divided world. Especially texts on Economics can be used to do this bridging very well. I would use many examples from around the world in my classes of Macro and Micro Economics. When using countries as examples I would be cautious as to what the essence the students will bring home. Overall this text has done great justice in building a text of Principles of Microeconomics. I recommend it to Instructors for an introductory level course at College level.

Reviewed by David Ornstil, adjunct lecturer, University of Massachusetts Lowell on 6/17/20

This principles textbook covers all areas generally taught in a principles of microeconomics course as well as including chapters on social welfare and behavioral economics. Theories are thoughtfully presented and easy to read with many examples... read more

This principles textbook covers all areas generally taught in a principles of microeconomics course as well as including chapters on social welfare and behavioral economics. Theories are thoughtfully presented and easy to read with many examples that students will enjoy reading about.

All information appears to be accurately presented and covers many subjects that might be considered controversial but are explained in a neutral, unbiased manner

There are plenty of examples of companies and policies that are current, However, a number of the tables offered need to be updated with current statistics. Many end in 2015 or before. By early on offering the availability of the FRED website students will be able to take the tables used in the text and update the information to make it more relevant.

This textbook is extremely well written and clearly explains the topics offered. Students will find the readings easy to follow.

A great framework for presenting the material. Each chapter gives an overview of the material then proceeds to follow that outline step by step. Each chapter ends with a glossary of terms used for easy reference and questions that are thought provoking. However, I found some of the graphs difficult to follow as they are one color and not bold enough to present a clear understanding of the graphical presentation. Found that the switch back and forth between linear and non linear graphs might be somewhat confusing for the students.

This textbook will be easy to divide into sections that can be brought forward or pushed back as you organize your class structure.

I found the position of some chapters very curious. I would have talked about elasticity before government involvement and international trade much earlier when looking at consumer and producer surplus.

Interface rating: 4

As mentioned above the only complaint I have is the presentation of the graphs. They need to be bolder and more consistent in shape.

no major grammatical errors

The textbook is neutral in its presentation

This textbook can easily be adapted to cover any topic covered in a Principles of Microeconomics course

Reviewed by Colin Jareb, Graduate Student, University of Colorado Boulder on 6/11/20

The textbook covers all of the sections that are expected for a principles class. Further extensions into financial markets, income inequality, and political economy are covered well. There is a nice index with links to the appropriate pages,... read more

Comprehensiveness rating: 3 see less

The textbook covers all of the sections that are expected for a principles class. Further extensions into financial markets, income inequality, and political economy are covered well. There is a nice index with links to the appropriate pages, however there is no glossary with all of the key terms and definitions in one place; instead they are presented at the end of each chapter which could potentially make them difficult to find. A drawback of the way the material is presented is that trade is covered in the last two chapters; the concept of comparative advantage and the gains from trade are fundamental reasons that markets form and should thus be covered much earlier. Further, the authors introduce consumer, producer, and social surplus but neglect to tie these concepts to deadweight loss and market inefficiencies in subsequent chapters.

The graphs and diagrams are for the most part high-quality and accurate. There are some specific instances, for example the chapter on externalities, where the graphs presented don't flow with the material as well as they could. In the chapter on externalities the graphs do not clearly show that the social cost curve lies above the private supply curve as a result of the size of the externality. Otherwise, in the examples, clear it up, and bring it home sections material is presented well and in a non-biased manner.

The base content is up-to-date and in general the content taught in a standard principles class will not change frequently. Some of the examples and policy applications are somewhat out-of-date. For example, one example concerns Netflix charging for streaming and DVD rentals, which most college students won't really connect with as they don't consume DVDs anymore. Any economics textbook will have to deal with this dilemma and new editions and updates are straightforward; however, this book may be out of date within two or three years.

The text is well-written and easy to follow. Each chapter is structured well so that it is clear what topics are covered in which sections and the flow is sensible. The biggest issue I find is that some of the graphs and diagrams do not always align smoothly with the text that discusses the associated concepts.

Terminology and the flow of each chapter is consistent with each other. As mentioned previously there are some concepts that could easily be linked across chapters. The authors are consistent in that this content does not appear and disappear readily.

The book is modular. As noted earlier it may be very beneficial to in fact go out of order, for example, by teaching chapter 19 early in the course and linking this content to the production possibilities frontier and why markets form. Within chapters the introduction clearly lays out what is covered in each section and sections can easily be re-ordered or skipped.

Within chapters the content is well-organized, has a clear logical flow and hard-to-digest concepts are properly built and presented. As mentioned earlier, I would re-order some of the chapters if using this book to teach my class.

The textbook has several hyperlinks and qr codes that function properly. There are no noticeable distortions or errors that prevent delivery of the textbook content.

The book is well-written and does not contain noticeable grammatical or spelling errors.

Economics generally can tackle questions that are divisive and some of the topics in the book should be treated with care if presented in class. Having pointed that out, the authors are very objective in presenting these examples, applications, and concepts in a way that is unoffensive and culturally relevant.

Reviewed by Shengnan Fang, Economics Instructor, Linn-Benton Community College on 1/9/20

This textbook not only covers the major content for principles level class, but also introduces chapters related to industrial organization, labor economics, environmental economics and international trade. The index is hyperlinked, which is... read more

This textbook not only covers the major content for principles level class, but also introduces chapters related to industrial organization, labor economics, environmental economics and international trade. The index is hyperlinked, which is useful and efficient to locate the chapter accurately. Each chapter begins with a real world economic example or question in "Bring it Home" section, and it also ends with a detail explanations related to the examples or questions in "Bring it Home". This layout is efficient and helpful for students to catch up the application of the chapter content. Key terms, concepts and summary at the end of each chapter are also useful to help student better catch the main points.

The content is accurate. However, I want to point out that the graphs in Chapter 3 are little bit messy, especially on Page 53. The students might be confused to see the graph at the first time. In my opinion, it might be not necessary to put all the dots on the graph, and the numbers of arrows are more than needed. And this also shows on Page 48 and 49. You have already shown the demand schedule and supply schedule in tables, it might be much clearer to show two dots on the graph to explain how to draw the curves.

The textbook begins with a question to Facebook, which and catch students' attentions as they use it often. And this question can also make student realize that Economics is everywhere. I think the book content is up-to-date and policy relevant. For example, Chapter 12 introduces the environmental protection, and it uses the example of bottle bills, which is what we need to pay in Oregon. Therefore, it might be interesting to encourage my students' engagement to discuss it.

Overall, the text is written in lucid and accessible prose. But I still want to point out the layout of Chapter 3. It might be better to move Figure 3.2 on Page 48 to Page 47, which is easier to student to understand how to draw a demand curve based on the demand schedule. At the end of Page 51, it might be better to move the title 3.2 to next page. Too many pairs of price and quantity in graphs of Chapter 3 might be a little bit messy.

The book is consistent in terms of terminology and framework.

There are 20 chapters in this textbook. I think it might be a little bit more than my students. For example, after Chapter 3, the authors add Chapter 4 which mainly focuses the policy application of Chapter 3. And there are also some contents, such as Minimum Wage, repeating in Chapter 14. Chapter 12 and Chapter 13 introduce the negative and positive externalities, and it might be better to combine these two chapters into one chapter.

Each chapter is well organized. I like the "Introduction" at the beginning of each chapter. It highlights the questions needed to understand and gives me a guideline to go through the content.

Download the textbook online is easy and the hyperlinks and QR codes in "Link It Up" section work well.

I cannot recall any grammatical errors in the textbook.

I think there is no culturally offensive content.

As an instructor to community college students, I think the content of this textbook is up-to-date and easy to go through. However, for microeconomics, I think 20 chapters might be more for my students. For the section of "Link-It-Up", it might be better to put more video (less than 4 mins) to catch students' attention and improve their engagement.

Reviewed by Rupayan Gupta, Professor, Roger Williams University on 12/9/19

I find the book very comprehensive. Comparing with some of the leading published textbooks the coverage and depth are both comparable. Perhaps the section on Oligopoly could be expanded a bit with a few more examples. read more

I find the book very comprehensive. Comparing with some of the leading published textbooks the coverage and depth are both comparable. Perhaps the section on Oligopoly could be expanded a bit with a few more examples.

The subject matter is accurate and unbiased.

The book is relevant today and I believe it will be relevant long term.

I feel that the presentation of the material is lucid.

The subject matter is internally consistent.

Very well demarcated into modules for easy reading and understanding.

Nicely organized, though I would have had a better demarcation between monopolistic competition and oligopoly.

The book's interface is a little less attractive than some of the textbooks from traditional publishers. It is by no means bad, but students used to current levels of gloss might find the interface a bit drab. However, this has more to do with superficial presentation techniques than with real factors associated with learning. The less expense might make students more amenable to forgoing the catchiness of the product.

Grammatically correct

Not culturally offensive

It is a book that is thoughtful and comprehensive. It can compete on an equal footing with textbooks offered by traditional commercial publishers.

Reviewed by Zhongjin Li, Assistant Professor, University of Missouri - Kansas City on 12/14/18

The textbook covers most of the intro-level standard microeconomic materials and provides students a relatively full picture of the microeconomic landscape with real-world examples. I do hope it can incorporate more heterodox and historical... read more

The textbook covers most of the intro-level standard microeconomic materials and provides students a relatively full picture of the microeconomic landscape with real-world examples. I do hope it can incorporate more heterodox and historical perspectives and research, so students can be exposed to the arguments and contribution made by Institutionalists, Marxists, etc on a variety of topics in microeconomics and get the impression that many theories and issues are debatable and many terms have a historical context. I did use a real-world micro reader as a complementary text in teaching.

It's a quite standard intro-level microeconomics textbook. The mainstream interpretation in microeconomics is accurate.

I would like to see more updates in the chapter on international trade.

The text is written in lucid, accessible prose. It may be better to include more real-world examples, debates, and data, so students can feel more involved, especially on issues directly related with a college campus, such as a tobacco ban, contingent labor form, and student debt.

The text is quite consistent in terminology and the general framework.

I was not able to teach the entire book in one semester, so a few later chapters were skipped, but students had no problem to do the readings.

The topics are organized in a standard way.

My students, in general, feel the textbook quite easy to navigate.

The text contains no grammatical errors.

The text is not culturally offensive.

Given the high price of other standard non-open source textbooks, I think this textbook does a fairly good job as a substitute. I would recommend instructors to consider adopting this book while at the same time using a more non-standard book/reader (collection of short essays) as a complementary (but also required) piece of readings.

Reviewed by Pablo Hernandez, Associate Professor of Economics, Hollins University on 5/21/18

This OER text offers readers a comprehensive breadth of topics from an introductory standard microeconomics perspective. This text features a table of contents, index, end-of-chapter key terms, and a comprehensive chapter/topic list of references. read more

This OER text offers readers a comprehensive breadth of topics from an introductory standard microeconomics perspective. This text features a table of contents, index, end-of-chapter key terms, and a comprehensive chapter/topic list of references.

Content Accuracy rating: 3

Content is accurate and error-free. The book is biased toward an assessment of economic outcomes from market approaches and fairly free-market driven processes. Early in their careers, young aspiring economists ought to be exposed to an understanding of the enclosure of the commons and the overriding importance of alternative property regimes. “Because things are driven by tradition, [DOES NOT NECESSARILY MEAN] there is little economic progress or development”. (Principles of Microeconomics, p. 15. My emphasis) Conversely, self-sustenance and small-scale farming – elements under a “traditional economy”- are considered key bottom-up principles for the conservation of natural capital and a revitalization of the commons.

Relevance/Longevity rating: 3

Content is up-to-date and policy-relevant. The relevance may improve should alternative policy examples be included in areas such as international migration; forced migration due to global climate change, a juxtaposition of views surrounding controversial economic theories or themes related to microeconomics (i.e.: environmental and natural resources economics views versus ecological economic views concerning natural capital).

Prose is clear. Use of jargons and techncal terminology is limited. Although diagrams may seem a bit convoluted at first sight. Authors may removing so many quantity,price numbered pairs, particularly under chapter 3: Demand and Supply.

Book is consistent based on approach (standard microeconomics) and terminology.

Modularitty is evident from the beginning of the text, as authors offer alternate sequencing. Also, more advanced topics may be read and discussed without significant prior knowledge in microeconomics.

Topics are presented in a logical and consistent manner. Text structure is fine.

The text's interface is also fairly nimble. Navigation (online or on downloaded PDF version) is smooth.

I can't recall any grammatical errors.

Cultural Relevance rating: 3

Text may offer cultural or "traditional economy" insenstivity. Refer to above case concerning "traditional economy".

Reviewed by Aida Odobasic, Assistant Professor , University of Delaware on 2/1/18

Principles of Microeconomics textbook covers the breath of microeconomic topics from introduction to the subject, to development of the main model of demand and supply, fundamentals of the microeconomics theory, microeconomic policy issues, and... read more

Principles of Microeconomics textbook covers the breath of microeconomic topics from introduction to the subject, to development of the main model of demand and supply, fundamentals of the microeconomics theory, microeconomic policy issues, and it finishes by introducing international economics. It covers everything typically covered in the introductory microeconomics course. Index is hyperlinked, which makes it efficient. The book is well organized. Each chapter has a 'Clear It Up' sections where the most typical misconceptions are addressed. Additionally, there are review and practice problems at the end of the chapter, along with summaries, and key terms.

The examples used are relevant and current. Hyperlinks to different websites where examples came from are provided for further reading. Definitions and explanations are straightforward and accurate. The data used in numerous examples is current as of 2015.

The book uses examples and data from 2015. The examples are carefully picked. The textbook will stay current for the number of years. For example, oil price changes in the US economy will always be a topic of interest that captures students attention regardless when the particular price change discussed took place. Number of examples are about the US economy.

The text is straightforward and easy to understand. Explanations are clear. For example, the text provides one of the best explanations for the concept of perfectly elastic demand that I have ever read in a principles textbook. I put special focus on topics that students usually have troubles grasping, such as elasticity, and I am excited to introduce this textbook to my principles class this winter and see how students react to it.

I did not find any inconsistency in terms of terminology and framework.

The text is divided into 20 chapter. Each chapter is subtitled and organized by topics. Examples are provided throughout the text. The organization of topics is organized in a way I typically use when I teach the material. Depending on the class, instructor can chose to skip some of the later chapters on policy issues without disruption to the reader.

I found the text easy to read and interesting, well organized in a logical order. The effort that went into producing this text is admirable.

I downloaded the pdf version of the textbook without any issues. I used hyperlinks for internal end external materials without any problems.

I found no grammatical errors while reading the text.

I did not find text offensive. It is geared mostly to the US audience, but without favoritism or bias. Authors are from the US and they use examples from their own frame of reference, which is as expected.

I enjoyed the text and I am going to adopt it in my principles class. I would like to thank the authors and everyone involved for the time and effort they devoted to creating a high quality textbook.

Reviewed by John Brouwer, Principal, Eton College on 5/8/17

The text covers all the areas and ideas of Macroeconomics that one would expect to find at the introductory level. The subjects are clear, easy to follow, relevant with applied examples. Global examples are used through the lens of US laws and... read more

The text covers all the areas and ideas of Macroeconomics that one would expect to find at the introductory level. The subjects are clear, easy to follow, relevant with applied examples. Global examples are used through the lens of US laws and economics. No index or glossary was provided with the version that was reviewed.

Text is accurate, error-free, but does have a bias towards US law and economics. Many of the case studies are global in origin, which are excellent, however, the authors always return to the effects towards the US, or if a US case study is examined there is very little mention of the effect towards the Canadian economy.

The content is up to date and should constantly be up dated to truly connect the student to the learning objectives as they effect the global economies of today. Generally the text will not become obsolete in a short period of time yet the authors will need to either update the data within the text or provide updated links to the already numerous web sites referred to within the text.

The authors use a story telling format that is easy to read and comprehend.

The text is consistent in terminology and framework. The early chapters are well setup providing foundational information for the each of the subsequent chapters. Each chapter progressively provides the learner with more challenging concepts, language, and equations.

The text builds upon each chapter that provides effective information to the reader to continue. There are many reading sections with each followed by "Key Takeaway" statements and "Checking Your Understanding" questions. It may be difficult for those not familiar with economic concepts to not read the chapters sequentially.

Story telling format; the reader is provided with fundamental economic realities in the world using examples that are relevant to people in general. The foundational concepts are discussed before the math and graphs are introduced hence the reader has already seen the "what's in it for me" reality.

No problems were found.

Grammatical Errors rating: 4

None were found.

The text does not appear to be insensitive or offensive in any way. As the text is focused to US learners, students from other countries, such as Canada, may not feel that this is relevant to their history, or future.

The text is well laid out as is the content but the text should be entitled: Macroeconomics: Theory in Application from a US Perspective. Web links worked as did page reference links (there was a request to register to Flatworldknowledge.com which I did not do). The international examples are excellent for any student to use. Overall the text would be excellent if there was a considerable amount of Canadian content added. The reason for this is that while economic policies appear to be similar between Canada and the USA, the decision making is different.

This review originated in the BC Open Textbook Collection and is licensed under CC BY-ND.

Reviewed by Anna Antus, Adjunct Professor, North Hennepin Community College on 4/11/17

The textbook is very comprehensive. It covers all topics covered in most principle of microeconomics courses and more. It has great index of the whole textbook and glossary attached to each chapter. It provides with good order of all major areas... read more

The textbook is very comprehensive. It covers all topics covered in most principle of microeconomics courses and more. It has great index of the whole textbook and glossary attached to each chapter. It provides with good order of all major areas covered in principles of microeconomics. I like organization of the topics as they follow most of the main stream textbook order of concepts.

After reading the textbook I could not find any errors or lack of accuracy in the textbook. Great link and updated stories attached in the body of the textbook. I really like the "Link it Up" section that bring accurate and updated stories to the students attention.

The content is relevant and up-to-date. It might be that the chapters (some of them) are a little too long. I might not be to objective as I am mostly teaching hybrid accelerate courses and the longevity of each textbook chapters are sort of important to me. But I like the section "Clear it Up" and "Work it Out" as a great resource for students regardless if the class is online or face-to-face.

I think the text is written with very clear language with some technical terminology that is necessary for better and clear understanding of economics.

The text is very consistent in using the same terms and framework through all the chapters.

The text has some flexibility and modularity as it can be assigned at different points within the course. Well organize with plenty of flexibility to reorganize the order of the assigned material.

The topics are presented in a logical, clear order following most of the main economics textbook like Krugman or Mankiw.

I have downloaded the text in PDF to better navigate on my computer (as being bigger file it was slowing down my navigation on line) and using PDF file I have not noticed any interface problems. It was not having any distortion of images/charts etc.

I did not detect any grammar issues in the textbook myself.

I have not found any cultural insensitive issues or examples that would have improper cultural relevance.

Very well done textbook. I might use it in the future in my classes.

Reviewed by Joseph Schoen, Lecturer, Anoka-Ramsey Community College on 4/11/17

The textbook covers the major content areas covered in a Principle of Microeconomics course. The index and the glossary are just as good, if not better, than those found in other textbooks. On top of the topics you come to expect in any... read more

The textbook covers the major content areas covered in a Principle of Microeconomics course. The index and the glossary are just as good, if not better, than those found in other textbooks. On top of the topics you come to expect in any Microeconomics textbook, other relevant topics are also included later in the book, such as risk and insurance, issues in labor markets, and financial markets.

Even though the textbook goes into many examples and additional areas of Microeconomics, little was found in terms of errors. The textbook seems to be unbiased in its presentation, but that would be more of a concern in a Macroeconomics textbook. Typing errors are very rare, and most likely will not be noticed by most readers. Overall, the textbook was found to be accurate throughout.

The textbook does have lots of relevant examples throughout, which is one of its strong points, but with that comes the issue of ensuring that these examples are updated as time goes on, which may have implications on the books longevity. When it comes to the core issues covered, the textbook is again relevant and the longevity issue becomes much less of a concern.

The textbook is written at a level appropriate for the expected audience. Plenty of context is given for the economic terminology that is presented throughout the book. The structure of the chapters makes the textbook very approachable, and provides a good structure in explaining the complicated concepts that can arise in a microeconomics course.

The book is consistent in its chapter structures and general layout. After the first few chapters, students will know where to look in a chapter for additional resources (list of key terms, self check questions, etc.) and what to expect in these resources.

The textbook breaks the topics up in an appropriate matter that makes it easy for the instructor to "bounce" around the textbook as they see fit. The textbook also mentions how the material to be covered in a particular section may relate to other topics within the book.

Great structure overall. The text starts with the fundamental concepts that are typically covered in a Principles of Microeconomics course and builds off of them nicely as it progresses through the topics. If the instructor finds the structure doesn't necessarily follow the way they would normally address the topics, the textbooks modularity makes it easy for them to organize it in a way that works for them.

Interface rating: 1

Overall, the books interface seems to be adequate for the topic, but also its weakest area. It would have been nice for the graphs to be bolder in color and professional looking. For instance, the graphs of supply, demand, and market equilibrium are all monotone with thin lines. This becomes even more of an issue when looking at the graphical representation of profit maximization in later topics. Adding more color would go a long way.

Very few grammatical errors were found throughout the textbook.

The textbook is not culturally insensitive or offensive. Like many other economic textbooks, it does address some controversial issues to lure the reader in, but does so in a way that avoids issues of insensitivity.

Overall a good textbook. It has smooth transitions from one topic to the other and interrelates the areas covered nicely. The graphs could be improved upon though, but this does not make or break the textbook.

Reviewed by Janice Kinghorn, Senior Lecturer, Miami University on 8/21/16

The text covers all the learning objectives required for an introductory microeconomic theory course. Examples extend the content to topics such as supply and demand in financial and labor markets, and antitrust policy. Additional chapters at... read more

The text covers all the learning objectives required for an introductory microeconomic theory course. Examples extend the content to topics such as supply and demand in financial and labor markets, and antitrust policy. Additional chapters at the end of the text provide extensions into current topics such as poverty and inequality, unions, discrimination, and immigration. Chapters on public economics and financial markets are a nice addition for an instructor who wants to extend the typical micro theory content.

I did not find any material mistakes in the text. I was pleased with how more controversial topics were presented. The books gave facts and introduced methods of analysis without betraying a bias.

Examples are quite up to date. Some of the latest data in graphs were 2010 or 2012. Material in the international trade section will need to be updated by an instructor or a future edition.

The writing seems to be very clear and straightforward. Disciplinary specific terms are defined and placed in context but may need to be pointed out by an instructor.

The book is quite consistent - each chapter's layout is similar thus increasing the clarity for a student.

The book is broken down into short modules within chapters. Each chapter begins by placing it in the context of the course material and referring to other places in the text where it may be integrated. An instructor should have no difficulty using individual chapters.

The books begins with production possibility frontiers, incorporating budget lines in that content, then proceeds to supply and demand analysis. Examples from labor and financial markets reinforce supply and demand analysis before proceedings to elasticity and consumer choice. The next section of the book discusses industry structure and includes antitrust policy. The text then introduces externalities in the context of environmental protection and public goods. Finally, issues such as poverty, labor market issues, information, public economics are covered. The book ends with a section on international trade and globalization.

I reviews a print copy of the text that was professionally presented.

I did not observe any grammatical errors in the text.

Most examples in the text were from common firms or products (Amazon, the cotton industry, TSA, etc.).

Reviewed by Alexandra Nica, Lecturer, The University of Iowa on 1/7/16

The textbook overall is very comprehensive, it covers all the areas of study and concepts that are typically covered in a Principles of Microeconomics course. The amount of information included in this book is impressive and some of the chapters... read more

The textbook overall is very comprehensive, it covers all the areas of study and concepts that are typically covered in a Principles of Microeconomics course. The amount of information included in this book is impressive and some of the chapters actually have more information than a typical textbook of this level. There are also chapters that are not necessarily covered in this type of class (mostly due to time constraints), however they are well presented in general and quite a great resource for instructors and students who want to include more and relevant material in their coursework. As with any other textbook there are also a few minor shortcomings. Some of the chapters can be a little longer than anticipated, which could have a distracting side effect on students. For example the introductory chapter does a good job of going over a lot of the topics that will be covered, but it feels as if it goes into too many details right from the beginning. It also talks about a few Macroeconomics issues that won’t be part of the textbook as it goes along, so it feels more of an introductory chapter to a Principles of Economics book. Another example is the presentation of the budget constraint, which appears in the same chapter as the presentation of the production possibilities frontier (to reflect choice for consumers versus choice for society) and then appears again in the consumer choice chapter. It is a more unusual way to present this topic, as typically the budget constraint and utility go together without having to refer back to another chapter. It is by no means a big problem, just an observation. Some other less typical groupings are negative externalities and positive externalities treated in separate chapters, grouped with other concepts (environmental protectionism and public goods respectively). This particular approach could potentially be a little confusing to students, especially since the Coase Theorem is not treated in a lot of detail. All chapters in general are well constructed. There are a few other concepts/details in some of these chapters though that miss certain aspects that one would expect to see. For example the elasticity chapter does not cover the details of elasticity along a demand curve. The oligopoly chapter does not have a detailed preliminary discussion on game theory and its elements before presenting actual game setups. Also, the monopoly chapter does not go into a lot of detail on the inefficiency and deadweight loss that results from a monopoly. There is also no discussion on price discrimination and it would have been great to see more explanatory graphs in here. There is however a separate chapter on monopoly and antitrust law and cases, which is well presented, if albeit slightly long. One last observation is related to the production side (i.e. the chapters on costs and perfect competition), which seem a little disjointed, with some aspects that we would expect to see in one chapter presented in the other. Other chapters are particularly well done and the concepts are very nicely and clearly explained, some with unique approaches (e.g. the supply and demand chapter, the labor and financial market chapters, the more unique labor market related chapter concentrated on unions, immigration, discrimination, the international trade and globalization chapters, the asymmetric information and risk chapter, the poverty and inequality chapter and the public economy chapter). There are also three Appendices included with this book, which are very useful. One covers the mathematics needed to understand all the concept explanations and applications, one covers a thorough presentation on indifference curves including a step by step explanation on income and substitution effects. The third appendix covers a presentation of present value calculation methods. Answers to review questions are provided as well, which can be extremely useful to students for self-assessment and better understanding of concepts. The PDF version of the book provides a comprehensive index at the end of it. The online version of the book has a glossary at the end of each of the modules from each chapter, which comes in very handy.

From what I have seen, the content of the book is accurate and error free. There are a few rare typos, but nothing that would distract the reader from the material. It also does not seem to be biased even though it covers some controversial topics in a few chapters, however it is in a manner of stating facts, not choosing sides, which is the most important distinction. There could be the argument that many examples are related to the US economy, however they contribute to the relevancy of the topic discussed. All examples included are very well chosen and one of the strong points of the book.

The book contains many current examples/cases/information, which is a big plus especially for a Microeconomics text that contains a lot of theory and many times it does not need frequent updates because of this reason. This book however has many examples and I think that from the way the book is structured and the manner in which these cases are included in each chapter, it would not make it too hard to keep them up to date. And it would have the added benefit that it would refresh the content and make it especially interesting to current and future students

Here is where this textbook excels in almost every chapter. The material is presented very clearly and in a very approachable style. There are learning goals listed at the beginning of each chapter and at the beginning of each of the subsections of said chapter as well, which is a great way to keep everything on track and make it clear to students what they should expect to know after reading that particular part of the material. The book gives a lot of examples, uses current information and data and clarifies concepts very well in this manner. It addresses the students directly and almost has the feel of the instructor talking to the class when reading it. It contains many step-by-step explanations of concepts and graphs and clarifies even elementary notions without giving the sense of simplifying things too much. It achieves a good level of interactivity (so to speak), because it breaks the text down in several ways. Each chapter has a “Bring it Home” example or case at the beginning and at the end of the chapter. It also contains “Work it Out” sections with solved problems relevant to the concepts presented. There are “Link it Up” sections that contain a link to a real world case or example relevant to the concept studied. And also there are “Clear it Up” sections that describe well many of the concepts that tend to be challenging to students at the beginning. In the online version of the book, these sections are not titled in that manner, but start with a “NOTE”, which does not provide the same level of detail. The PDF version’s notation is preferable from this point of view, to keep student’s interest high. Also each chapter contains key concept summaries at the end of it, self-check questions, review questions and critical thinking questions. All of these add to the clarity and understanding of the concepts studied.

The text is consistent in terms of terminology and framework, the presentation as well throughout the book with only a few exceptions that I mentioned in the comprehensiveness part of this review.

The way the text is separated in the sections mentioned above (in the “Clarity” part of the review) makes it very engaging and interactive for students. This way the student has the opportunity to read the material pertaining to a specific concept, relate it to a real-world example and also try a problem that would help deepen the understanding of that concept. It also helps by not making all the material in a chapter too overwhelming to go through. In the online version of the book, the modularity aspect is even more prevalent, because each chapter is separated in modules, each module containing a glossary, references and review questions at the end of it (whereas the PDF version has all the review questions at the end of the chapter, together with key concept reviews, self-check questions and critical thinking questions).

Organization/Structure/Flow rating: 3

Some of the chapters of this book are not organized in a typical manner. I gave a few examples of this in the comprehensiveness part of the book (e.g. the externalities chapters, the monopoly chapters, some of the production side details, consumer choice details etc.). As an instructor, it would be easy to assign them in different order to students or combine the relevant information from some of the chapters. However for students who are looking to improve their economic knowledge and use the book outside of a class structure, it might prove a little more challenging to keep some of these related chapters and concepts organized.

There was only one issue that I encountered with the PDF version of the book. The links from the “Link it Up” section are not easily followed directly from the text (or copy/pasted in a browser). This is not an issue for the online version of the book.

There were only very few (very minor) errors spotted throughout the book, but nothing that would distract or keep students from using the textbook.

The textbook does not seem culturally insensitive or offensive, even if it covers some topics that could be considered controversial. However as I mentioned before, they are presented as facts in a relevant discussion surrounding the concepts covered, not as opinions, so it does not qualify as culturally offensive or insensitive. Many of the examples are focused on the US economy, however there are also international aspects and examples presented.

Overall, the textbook is a very pleasant surprise, with all relevant Microeconomics topics covered and in a comprehensive and clear manner. I especially like the approachable style and the structure that I think will keep students engaged and enthusiastic about the material, which is no small feat to accomplish from an introductory economics text.

Table of Contents

• Chapter 1: Welcome to Economics!
• Chapter 2: Choice in a World of Scarcity
• Chapter 3: Demand and Supply
• Chapter 4: Labor and Financial Markets
• Chapter 5: Elasticity
• Chapter 6: Consumer Choices
• Chapter 7: Cost and Industry Structure
• Chapter 8: Perfect Competition
• Chapter 9: Monopoly
• Chapter 10: Monopolistic Competition and Oligopoly
• Chapter 11: Monopoly and Antitrust Policy
• Chapter 12: Environmental Protection and Negative Externalities
• Chapter 13: Positive Externalities and Public Goods
• Chapter 14: Poverty and Economic Inequality
• Chapter 15: Issues in Labor Markets: Unions, Discrimination, Immigration
• Chapter 16: Information, Risk, and Insurance
• Chapter 17: Financial Markets
• Chapter 18: Public Economy
• Chapter 19: International Trade
• Chapter 20: Globalization and Protectionism

Ancillary Material

About the book.

Principles of Economics 2e  covers the scope and sequence of most introductory economics courses. The text includes many current examples, which are handled in a politically equitable way. The outcome is a balanced approach to the theory and application of economics concepts. The second edition has been thoroughly revised to increase clarity, update data and current event impacts, and incorporate the feedback from many reviewers and adopters.

Changes made in  Principles of Economics 2e  are described in the preface and the transition guide to help instructors transition to the second edition. The first edition of  Principles of Economics by OpenStax is available in web view in the ancillaries

About the Contributors

Senior Contributing Author

Timothy Taylor , Macalester College

Senior Content Expert

Steven A. Greenlaw , University of Mary Washington

Senior Contributors

Eric Dodge , Hanover College

Contribute to this Page

Since $1.60 per gallon is above the equilibrium price, the quantity demanded would be lower at 550 gallons and the quantity supplied would be higher at 640 gallons. (These results are due to the laws of demand and supply, respectively.) The outcome of lower Qd and higher Qs would be a surplus in the gasoline market of 640 – 550 = 90 gallons.

To make it easier to analyze complex problems. Ceteris paribus allows you to look at the effect of one factor at a time on what it is you are trying to analyze. When you have analyzed all the factors individually, you add the results together to get the final answer.

• An improvement in technology that reduces the cost of production will cause an increase in supply. Alternatively, you can think of this as a reduction in price necessary for firms to supply any quantity. Either way, this can be shown as a rightward (or downward) shift in the supply curve.
• An improvement in product quality is treated as an increase in tastes or preferences, meaning consumers demand more paint at any price level, so demand increases or shifts to the right. If this seems counterintuitive, note that demand in the future for the longer-lasting paint will fall, since consumers are essentially shifting demand from the future to the present.
• An increase in need causes an increase in demand or a rightward shift in the demand curve.
• Factory damage means that firms are unable to supply as much in the present. Technically, this is an increase in the cost of production. Either way you look at it, the supply curve shifts to the left.
• More fuel-efficient cars means there is less need for gasoline. This causes a leftward shift in the demand for gasoline and thus oil. Since the demand curve is shifting down the supply curve, the equilibrium price and quantity both fall.
• Cold weather increases the need for heating oil. This causes a rightward shift in the demand for heating oil and thus oil. Since the demand curve is shifting up the supply curve, the equilibrium price and quantity both rise.
• A discovery of new oil will make oil more abundant. This can be shown as a rightward shift in the supply curve, which will cause a decrease in the equilibrium price along with an increase in the equilibrium quantity. (The supply curve shifts down the demand curve so price and quantity follow the law of demand. If price goes down, then the quantity goes up.)
• When an economy slows down, it produces less output and demands less input, including energy, which is used in the production of virtually everything. A decrease in demand for energy will be reflected as a decrease in the demand for oil, or a leftward shift in demand for oil. Since the demand curve is shifting down the supply curve, both the equilibrium price and quantity of oil will fall.
• Disruption of oil pumping will reduce the supply of oil. This leftward shift in the supply curve will show a movement up the demand curve, resulting in an increase in the equilibrium price of oil and a decrease in the equilibrium quantity.
• Increased insulation will decrease the demand for heating. This leftward shift in the demand for oil causes a movement down the supply curve, resulting in a decrease in the equilibrium price and quantity of oil.
• Solar energy is a substitute for oil-based energy. So if solar energy becomes cheaper, the demand for oil will decrease as consumers switch from oil to solar. The decrease in demand for oil will be shown as a leftward shift in the demand curve. As the demand curve shifts down the supply curve, both equilibrium price and quantity for oil will fall.
• A new, popular kind of plastic will increase the demand for oil. The increase in demand will be shown as a rightward shift in demand, raising the equilibrium price and quantity of oil.

Step 1. Draw the graph with the initial supply and demand curves. Label the initial equilibrium price and quantity.

Step 2. Did the economic event affect supply or demand? Jet fuel is a cost of producing air travel, so an increase in jet fuel price affects supply.

Step 3. An increase in the price of jet fuel caused an increase in the cost of air travel. We show this as an upward or leftward shift in supply.

Step 4. A leftward shift in supply causes a movement up the demand curve, increasing the equilibrium price of air travel and decreasing the equilibrium quantity.

Step 2. Did the economic event affect supply or demand? A tariff is treated like a cost of production, so this affects supply.

Step 3. A tariff reduction is equivalent to a decrease in the cost of production, which we can show as a rightward (or downward) shift in supply.

Step 4. A rightward shift in supply causes a movement down the demand curve, lowering the equilibrium price and raising the equilibrium quantity.

A price ceiling (which is below the equilibrium price) will cause the quantity demanded to rise and the quantity supplied to fall. This is why a price ceiling creates a shortage.

A price ceiling is just a legal restriction. Equilibrium is an economic condition. People may or may not obey the price ceiling, so the actual price may be at or above the price ceiling, but the price ceiling does not change the equilibrium price.

A price ceiling is a legal maximum price, but a price floor is a legal minimum price and, consequently, it would leave room for the price to rise to its equilibrium level. In other words, a price floor below equilibrium will not be binding and will have no effect.

Assuming that people obey the price ceiling, the market price will be below equilibrium, which means that Qd will be more than Qs. Buyers can only buy what is offered for sale, so the number of transactions will fall to Qs. This is easy to see graphically. By analogous reasoning, with a price floor the market price will be above the equilibrium price, so Qd will be less than Qs. Since the limit on transactions here is demand, the number of transactions will fall to Qd. Note that because both price floors and price ceilings reduce the number of transactions, social surplus is less.

Because the losses to consumers are greater than the benefits to producers, so the net effect is negative. Since the lost consumer surplus is greater than the additional producer surplus, social surplus falls.

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Access for free at https://openstax.org/books/principles-microeconomics-2e/pages/1-introduction

• Authors: Steven A. Greenlaw, David Shapiro
• Publisher/website: OpenStax
• Book title: Principles of Microeconomics 2e
• Publication date: Sep 15, 2017
• Location: Houston, Texas
• Book URL: https://openstax.org/books/principles-microeconomics-2e/pages/1-introduction
• Section URL: https://openstax.org/books/principles-microeconomics-2e/pages/chapter-3

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Course info.

• Prof. Jonathan Gruber

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As taught in.

• Microeconomics

Learning Resource Types

Principles of microeconomics, mit14_01scf11_soln01.pdf.

This resource contains solutions to the problem statements related to equilibrium price and quantity.

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