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0

icroeconomic

Principles

PAUL TEMPLE

A Buffer Stock Agency (BSA) designed to stabilize farmers revenue from a particular crop in the face of unplanned fluctuations in supply.

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BSA BSA SELLS BUYS



PREFACE THE SEVENTH EDmON

This edition, like its predecessor, differs from other microeconomics texts in three main respects. First, it is all a teaching book. Most other texts simply present the Principles Course material and let the student fend for himself in recognizing, practicing, and appl)dng it. Even if there is a workbook, problem solving experience with the standard textbook is almost bound to be scanty. This is a fundamental pedagogical mistake. Beginning students acquire problem solving skills only through long pracdce and experience. All too often we encounter students who can follow economic logic in the text or lectures, but whose experience with manipulaung the concepts is so limited that they can do little more than parrot the theory and recite a few definitions. We have avoided this pitfall by presendng an enormous number of problems -nearly six-hundred in all - together with answers, hints, and explanations. The student who works through the material is bound to be well drilled not only in recognizing the theory, but also in seeing how it relates to itself and to the world about him.

Second, the book is designed in confluence with the lecture material traditionally presented in the , UCSB Principles Course. Again the organization, notation, and approach of the typical Principles text at best only loosely track those ofthe instructor Here weve expended every effort to ensure that the text closely supports the lectures in theme and approach.

Finally, although we thoroughly cover the core of the Principles material, weve scrupulously avoid- cd the chatter which clutters most Principles books on the market today. Specifically, weve rejected the seemingly widespread notion that an introductory book should offer a few words on every possible subject, even if they happen to be empty ones. This is nonsense. Students cannot develop an appreciation for, say, input/output analysis in three carefully chosen paragraphs. What they can and do develop is a good deal of confusion about where the material is leading after a number of such bombardments.

We should like to thank our former students who helped us immeasurably in developing this book. As-the books current size attests, we have bowed yet again to student requests for more explanations in the text and answers. We would also like to extend special thanks to Professor Robert Carrington-Crouch for encouraging us to undertake this project in the first place and for providing expert editorial assistance along the way. Professor Carrington-Crouchs approach to Microeconomic Principles makes up virtually the back-ne of this book. Kevin Salyer, who originally signed on as a proofreader, made editorial contributions that .went far beyond his original task. We are also grateful to Steve Laveson, Patiicia Nold, Jim Lavery, Larry iingell, Alan Gin, Markjanczur, Mohammed Roghani, John Mussachia. Tim Dykman, Eric Hampton, Joe •wrey, Midge Walls, Chris Raymond, Alan Williams, Margot Greenberg, and Yosuf Mohammed for helpful omments. Michael Woolleys contribution to the questions in this book is particularly heavy. We can only say we wish wed thought of these questions ourselves. Louise Cannell, Bee Hanson, June Finney, and Norm errick. our word processors, c)cled through the often illegible manuscript with skill and forbearance.

aul Temple



HOW USE THIS BOOK

This book has nvo purposes. Our goal has been not only to present the major themes ofthe U( Principles Course clearly and comprehensively, but also to train your mind to reason logically and dedu tively about economics. The second goal is as important as the first. Economics is a problem solving dij pline which relies upon a process of logical deductive argument. As such, ifyou are to master econor there is simply no substitute for solving problems and developing the ability to reason logically and dedu tively. Thus, this book confronts you vvith problem after problem, so that ifyou work through all the ma rial diligently, you will master both the material itself and the problem solving skills necessary for examii tion success.

As a special feature, midterm and final review quesdons have been presented at the end of Sectio IV and IX. Honors quesdons are preceded by the letter "H." We sincerely beheve weve done all tha Principles book can do. The rest is up to you. But if you want to use this book with maximum effecthenc we suggest you adopt the following procedure religiously.

First, cycle through the material several dmes. Muldple readings will prove necessary, first of s because some parts are difficult, and secondly, because the material is intended to be fairly compact we thoroughly cover all major themes found in the Principles Course, we have not wasted your ume and< with any chatter

Second, immediately afterwards, attempt the warm-up quesdons appearing at the end of each i tion. These are eas} problems designed to cement your understanding of the basic concepts just introduc Ifyou encounter any difficulty with these quesdons, you should read the secdon again undl it passes.

Third, once youve been through the warm-ups, its dme to attempt the regular quesdons. vary in difficulty, but are roughly representadve of what you can expect to find on exams. In fact, manyi quesdons have already appeared on-previous UCSB tests. But even with the answers, hints, and explana given at the end of the secdon, you will sdll not understand every answer At this poirit we urgejou to < suit your . Take notes on his explanadons. Dont be satisfied undl you understand each and every ans Students who visit their TAs regularly almost always write the best exams.

Fourth, mark each question that gives you initial difficulty. These are your weak points and youi want to expend special effort there when studying for exams.

Fifth, this book builds upon prior material and becomes progressively more demanding at least i Section V. This means that if you let yourself lag behind, you will become ever more lost Keep up the throughout

Finally, above all, do not be creative. Follow the procedure exactly as weve suggested and you do well. While this may seem like a lot of effort, we can assure you that in this course, students regret doij too little study much more often than they regret doing too much.

-tl-



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