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One year we have a food surplus, and the next year Congress passes legislation giving farmers an incentive to produce more food. To fly from New York to Los Angeles, one person may pay $129 for a seat while the next person may pay $399 for an identical seat. The average annual salary of college professors probably is about $30,000, while major league baseball players consider striking because of "exploitation," even though their average salary is about $300,000 per year.
There are many more seeming paradoxes in the behavior of prices, markets, and individuals; the three just mentioned constitute only the tip of the iceberg. These problems also form the basis of a multitude of pressing social and economic issues that face us every day; if we don't notice them ourselves, the news media are sure to bring them to our attention. And if the media are not successful in that endeavor, politicians pick up these issues and use them in their campaigns.
How can an individual with some training in economics understand and, indeed, explain why paradoxes such as those mentioned above are not really paradoxes at all? How can one separate the real issues from the rhetoric when a politician speaks? For many such problems, a bare understanding of the so-called budget constraint is sufficient. When you realize that at any moment in time the total amount of resources is fixed, you are automatically faced with the fact that trade-offs must be made: When the politician asks for more of one thing, it usually means less of something else. But there are many issues which cannot be understood so simply. Rather, a more complete grasp of how markets work is necessary. The knowledge of and ability to apply basic microeconomic theory cannot fail to aid the inquisitive mind's attempt to understand how markets function. A microeconomic model can help give a better idea of how our entire economic system works and how it can be compared with other economic systems. It can even help predict what will happen in the world around us when parameters in our environment change.
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