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Economics - Theory Through Applications
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Students are aware that they live in an uncertain world, and their choices are made in a forward-looking
manner. Yet traditional texts emphasize static choices in a world of certainty. Students are also aware that
firms typically set prices and that most firms sell products that are differentiated from those of their
competitors. Traditional texts base most of their analysis on competitive markets. Students end up
thinking that economic theory is unrealistic and unrelated to the real world.
We do not shy away from dynamics and uncertainty, but instead introduce students to the tools of
discounted present value and decision-making under uncertainty. We also place relatively more emphasis
on imperfect competition and price-setting behavior, and then explain why the competitive model is
relevant even when markets are not truly competitive. We give more prominence than other texts to topics
such as basic game theory, statistics, auctions, and asset prices. Far from being too difficult for principles
students, such ideas are in fact more intuitive, relevant, and easier to understand than many traditional
topics.