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Non-economists think economics is about unemployment, inflation, growth, competitiveness of nations, and other matters pertaining to the economy as a whole, or in economists’ jargon, about macroeconomics. They rarely mention, and perhaps are not even aware of, the whole nexus of choices and transactions behind the larger picture: people's choices of where to live and work, how much to save, what to buy, and so on; firms’ decisions about location, investment, hiring, firing, advertising, and many other dimensions of business; and government policies with regard to infrastructure, regulation of industries, structure and rates of taxes on goods and services, and so on. Citizens’ relative ignorance and neglect of these fine-level, or microeconomic, issues is partly explained by the fact that things often work pretty well at that level, and when they don’t work so well, each failure seems small in the larger scheme of things. But many such small failures can add up to a large economic cost. They can have large ramifications at the macroeconomic level too. Therefore it is important to understand why things work pretty well in the microeconomy much of the time, when and why they fail in little and big ways, and what to do to guard against and cope with such failures. In this book, I attempt to present this way of thinking about economics, and some of the conclusions it yields. I hope to convince non-specialist readers that microeconomics is important, and connects as closely with their daily life as unemployment and inflation. I hope to give them some aha moments, where they say, ‘I have often seen this; now I understand why!’ For more lasting value, I hope to equip them with some basic concepts and tools of microeconomic analysis for use in their own thinking and actions, and leave them eager to do the further reading that I recommend.
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