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Microeconomics, A Way of
Thinking about Business
In economics in particular, education seems to be largely a matter of unlearning and “disteaching” rather
than constructive action. A onc- famous American humorist observed that “it’s not ignorance that does so
much damage; it’s knowin’ so darn much that ain’t so.” . . .It seems that the hardest things to learn and to
teach are things that everyone already knows.
Frank H. Knight


rank Knight was a wise professor. Through long years of teaching he realized that
students, even those in advanced business programs, beginning a study of
economics, no matter the level, face a difficult task. They must learn many things
in a rigorous manner that, on reflection and with experience, amount to common sense.
To do that, however, they must set aside —or “unlearn”—many pre-conceived notions of
the economy and of the course itself. The problem of “unlearning” can be especially
acute for MBA students who are returning to a university after years of experience in
industry. People in business rightfully focus their attention on the immediate demands of
their jobs and evaluate their firms’ successes and failures with reference to production
schedules and accounting statements, a perspective that stands in stark contrast to the
perspective developed in an economics class.
As all good teachers must do, we intend to challenge you in this course to rethink
your views on the economy and the way firms operate. We will ask you to develop new
methods of analysis, maintaining all the while that there is, indeed, an “economic way of
thinking” that deserves mastering. We will also ask you to reconsider, in light of the new
methods of thinking, old policy issues, both inside and outside the firm, about which you
may have fixed views. These tasks will not always be easy for you, but we are convinced
that the rewards from the study ahead are substantial. The greatest reward may be that
this course of study will help you to better understand the way the business world works
and how businesses might be made more efficient and profitable. Much of what this
course is about is, oddly enough, crystallized in a story of what happened in a prisonerof-war camp.
The Emergence of a Market
Economic systems spring from people’s drive to improve their welfare. R.A. Radford, an
American soldier who was captured and imprisoned during the Second World War, left a
vivid account of the primitive market for goods and services that grew up in hi...
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