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Ask an expert: Marketing microeconomics
Question: How do you approach teaching microeconomics? Answer: Supply and demand are at the heart of how market economies work. When teaching microeconomics to introductory students, it is important to develop and apply the tools of supply and demand as fully and consistently as possible. Doesn't everyone agree with this? Haven't supply and demand always been at the center of the principles course? Surprisingly, no. The first edition of Paul Samuelson's great text, published in 1948, did not introduce supply and demand curves until Page 447 of a 608-page book. Of course, as the book was revised, the tools of supply and demand became more prominent. But even today, in many principles courses, supply and demand curves are often not developed as fully as I think they should be. In particular, the ideas of welfare economics are often left out of the principles course, or are mentioned only in passing. The basic tools of welfare economics are consumer surplus and producer surplus, which are natural extensions of the framework of supply and demand. Consumer surplus is merely the area under the demand curve, and producer surplus is the area above the supply curve, so these concepts are best taught immediately after supply and demand. There are three main advantages to giving welfare economics prominent coverage in the principles course. First, it gives students a deeper understanding of where supply and demand curves come from and how they are similar to each other. When developing the concept of consumer surplus, it is natural to develop the idea of a consumer's willingness to pay and to show how this determines the demand curve. Similarly, when developing the concept of producer surplus, it is natural to draw the link between a producer's costs and its supply curve. If these ideas are taught together, the student sees that producer surplus and consumer surplus, like supply and demand curves, are parallel constructs. Second, the tools of welfare economics give students the ability to understand the concept of market efficiency. If there is one thing that separates economists from mere mortals, it is an appreciation of the power of markets as a mechanism for allocating scarce resources. Economists have known this lesson at least since Adam Smith introduced the metaphor of the invisible hand, and it should be one of the key topics in any principles course. After all, it explains the biggest economic event of the 20th century -- the victory of capitalism over communism. The best way to teach market efficiency is with the tools of welfare economics. Using not much more than supply and demand curves, students can learn that the market equilibrium maximizes the size of the economic pie as measured by the sum of producer and consumer surplus. Third, after introducing the basic concepts of welfare economics, supply and demand curves can be used to address a greater range of policy questions. How do taxes affect market efficiency? Who wins and who loses when a country opens itself to international trade? How do externalities, such as pollution, affect the efficiency of market outcomes? These questions will motivate students, and they are well-addressed using the tools of supply, demand, producer surplus and consumer surplus. At 29, Greg Mankiw became one of the youngest tenured professors in the history of Harvard University. He received the first seven-figure advance ever in college textbook publishing for his version of basic economics, "Principles of Economics." In addition to teaching and writing, Mankiw is director of the monetary economics program at the National Bureau of Economic Research, a nonprofit think tank in Cambridge, Massachusetts. He is also an adviser to the Congressional Budget Office and the Federal Reserve Bank of Boston. RELATED STORY: Ask an expert: Introduction to economics teaching RELATED SITES: Introduction to Keynesians | ||||
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