Frontiers of Microeconomics

Economics IS a study of the choices that people make and the resulting interactions they have with one another. This study has many facets, as we have ‘seen in the preceding chapters. Yet it would be a mistake to think that all the facets we have seen make up a finished jewel, perfect and unchanging Like all scientists, economists are always on the lookout for new areas to study and new phenomena to explain This final chapter on microeconomics offers an assortment of three topics at the discipline’s frontier to see how economists are trying to expand their understanding of human behavior and society The first topic is the economics of asymmetric information. Many times in life, some people are better informed than others, and this difference in information can affect the choices they make and how they deal with one another. Thinking about this asymmetry can shed light on many aspects of the world from the market for used cars to the custom of gift giving The second topic we examine in this chapter is political economy. Throughout this book, we have seen many examples where markets fail and government policy can potentially improve matter But potentially is a needed qualifier: Whether this potential is realized depends on how well our political institutions work. The field of political economy uses the tools of economics to understand the functioning of government The third topic in this chapter is behavioral economics. This field brings some of the insights from psychology into the study of economic issues. It offers a view of human behavior that is more subtle and complex than that found In conventional economic theory, but this view may also be more realistic This chapter covers a lot of ground. To do so, it offers not a full helping of these three topics but instead, a taste of each. One goal is to show a few of the directions economists are heading in their effort to expand knowledge of how the economy works. Another goal is to whet your appetite for more courses economics.