Chicago Price Theory

by Sonia Jaffe, Robert Minton, Casey B. Mulligan

An authoritative textbook based on the legendary economics course taught at the University of Chicago

Price theory is a powerful analytical toolkit for measuring, explaining, and predicting human behavior in the marketplace. This incisive textbook provides an essential introduction to the subject, offering a diverse array of practical methods that empower students to learn by doing. Based on Economics 301, the legendary PhD course taught at the University of Chicago, the book emphasizes the importance of applying price theory in order to master its concepts.

Chicago Price Theory features immersive chapter-length examples such as addictive goods, urban-property pricing, the consequences of prohibition, the value of a statistical life, and occupational choice. It looks at human behavior in the aggregate of an industry, region, or demographic group, but also provides models of individuals when they offer insights about the aggregate. The book explains the surprising answers that price theory can provide to practical questions about taxation, education, the housing market, government subsidies, and much more.



Emphasizes the application of price theory, enabling students to learn by doing


Features chapter-length examples such as addictive goods, urban-property pricing, the consequences of prohibition, and the value of a statistical life


Supported by video lectures taught by Kevin M. Murphy and Gary Becker


The video course enables students to learn the theory at home and practice the applications in the classroom

Genres: Economics, Business

248 pages, Hardcover

First published January 1, 2019

Reviews

[Nico]

Lots of neat observations. This approach should be taught more. The book would benefit from another round of editing for clarity though. (Though I saw there’s a second edition now which might be easier to read.)

Some points I found interesting:
- For anyone, how much they value an additional unit of good 1 vs good 2 is equal to the ratio of market prices
- How to formally model short- vs long-run elasticities using total derivatives (chap. 6)
- The Becker and Murphy (1988) model of addiction that past consumption affects utility from present consumption
- Discrete choice, which seems connected to take-up in public finance (chap. 7)
- The location choice/rent gradient model that only depends on production/work, not preferences over locations (chap. 8)
- If you know a firm’s marginal product of labour and wage, you automatically know it’s overall marginal cost and the marginal product of capital/rental rate (chap. 10)
- the industry model (chap. 11)
- making something illegal reduces activity in other sectors because people expend more effort to produce the illegal good (see prohibition). and so half-hearted prohibition is more costly than fully enforced prohibition
- in monopoly problems both the firm and the consumer prefer a (p,q) pair that’s not the non-cooperative solution but it requires commitment (e.g., a negotiated discount, chap. 13)
- loved the durable goods chapter, all of it taught me a lot (chap. 15), including that the equilibrium model gives the same solution as a planning approach (chap. 17)
- the distinction between insurance (buying marginal utility in the bad state) and self-protection (buying a higher chance at the full level of utility in the bad state by reducing the probability of the bad state, chap. 20)

[Joseph Campbell]

I ❤️ Kevin Murphy