New World Economics

Preface

E conomics has traditionally been defined by both its methods and its subject
matter. That is to say, there are economic methods—models and statistical
tests—that are based on a set of assumptions about the way people behave and
interact with one another. Moreover, there is a distinct set of “tools” or “principles”
economists employ in their analyses.
Economists have studied the world of “business” extensively. As may be
obvious from the table of contents of this book, we believe that the economic
methods that have been used to study business issues over the centuries can also be
applied to many other areas of human behavior. Indeed, while we acknowledge that
economics is only a partial view of human behavior, we see no practical limit to the
application of economic methods to all areas of human behavior. Even a “partial
view” can often offer insights that could be overlooked if economics were not
employed. The test of the applicability of economic methods to areas of human (or,
for that matter, animal) behavior is whether insights that stand up to empirical tests
are found. We remain firmly convinced that these new applications make the study
of economics more exciting, more interesting, and more relevant.
When The New World of Economics was first published in the 1970s, it was
(would you believe?) controversial because many economists were not comfortable
extending the application of economic methods to politics, sex, crime, marriage,
family, divorce, riots and panics, and learning, among other topics. We heard from
hostile economists who were stunned by our audaciousness.
Given its widespread use in college and university classrooms over the decades,
we are pleased to say that The New World of Economics has changed a number of
professional minds. It was the first introductory economics reader to discuss
(among a host of other topics) public choice economics, the economics of marriage
and family, and law and economics. Several Nobel Prizes have since been given to
economists who have worked in these areas. We have also heard from economists
and their students who have written to say, in effect, “Right on! About time.”
Many of the subjects we have covered in The New World over its first five
editions now have extensive scholarly literatures and have been integrated into
 “conventional” or “mainstream” economics textbooks published since The New
World first appeared. A host of other popular books have since been released that
have more broadly applied economic methods, most notably Freakonomics, which
had a long run on The New York Times bestseller list.1
Indeed, we have chosen to reissue this major revision of The New World because
many current practicing economists are too young to remember the success and
impact of its first five editions and because many professors of economics of all
generations want to show their students the “new, new worlds” of economic inquiry
that have emerged within the professional lifetimes of the last generation of
economists. We have included a number of these “new, new” topics in this edition.
However, our overall objective remains the same, namely, to show students how the
principles of economics are applicable to their everyday experiences and to a
variety of issues studied in other courses, not the least of which are business and
social science courses that are grounded in psychology, neuroscience, and evolutionary
biology.
Accordingly, we have retained many of the topics covered in the first five
editions, but we have also added a heavy emphasis on pricing strategies and
behavioral economics, now a burgeoning subdiscipline within economics, which
is grounded on serious criticisms of conventional economics’ underlying assumptions
and conclusions. We review the “behavioralist” approach and its arguments,
but we also point to problem areas within behavioral economics.
Most budding economists understand that businesses can become successful by
developing “better mousetraps.” We stress how businesses have improved the
profitability of their products by careful construction of their pricing strategies to
take advantage of their market positions. In any number of topics covered in the
following chapters, we describe the insights of another subdiscipline—organizational
economics—which has radically expanded since the first edition of The New
World was released.
Most introductory economics textbooks are, literally, encyclopedias of just
about everything known in the subject. We have always believed that the first and
most important principle in economics should be economy in the principles that are
taught and studied. The critical concern in education is not how much is taught, but
how much is learned and what insights can be drawn from what is learned.
Accordingly, students will probably be relieved and pleased to know that we
introduce a relatively small number of principles through coverage of the various
disparate topics in the chapters. However, we make those few principles work,
applying them broadly, to just about every nook and cranny of human behavior. We
strive to keep the analysis simple in order to make the learning process productive
(incidentally, a topic which we elaborate on in Chaps. 18 and 19). An often-cited
adage applies to economic education: “less is more.”
The New World of Economics has been developed on the premise that economics
is, at its disciplinary core, a way of thinking. We believe that students will want to
read this book because of our focused emphasis on honing their thinking skills, as
well as applications to interesting topics. And by the end of the book, we believe
students and readers will be thinking much like economists do, all very naturally (or
viii Preface
as if by second nature). We have been told numerous times by students and
professors alike that this book simply works in changing the way students see the
world.
We are, of course, indebted to our many colleagues around the country who have
contributed directly or indirectly to the development of chapters in this book in the
form of their recommendations for improvements.We are also immensely indebted
to our students; they have taught us much that is reflected in this (and past) editions.
Nothing helps improve a book more than classroom use, and this book has been
used, at one time or another, in most of the country’s colleges and universities and
in many foreign universities. Over the years, both authors have continued to extend
the application of economics to an ever-expanding arena of ideas, and in redeveloping
The New World we have drawn on our published works for other audiences.2
We welcome students to what could be for many the educational trip of their
college careers.
Irvine, CA, USA Richard B. McKenzie
Tucson, AZ, USA Gordon Tullock