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Economic Theory

FOREWORD

The Theory of Economics does not
furnish a body of settled conclusions
immediately applicable to policy. It is a

method rather than a doctrine, an
apparatus of the mind, which helps its
possessor to draw correct conclusions.

John Maynard Keynes

An economist must be “mathematician, historian, statesman,

philosopher, in some degree… as aloof and incorruptible as an artist, yet
sometimes as near the earth as a politician”. So remarked John Maynard
Keynes, the great British economist who, as much as anyone, could be
called the father of economics. No single statement summarizes better

what it means to be an economist.
As Keynes’s assessment suggests, students who aim to learn
economics need to draw on many disparate talents. The job of helping

students find and develop these talents falls to instructors and textbook
authors. Therefore, the main goal of the authors of this textbook is to make
economics understandable, relevant, and interesting for students. While
designing the text, the authors were guided by the following:

 Students are motivated to study economics if they see that it
relates to their own lives.

 Students learn best from an inductive approach, in which they
are first confronted with a question and then led through the process of
how to answer that question.

The intended audience of this textbook is Bachelor students of all
specialties, students of the In-Service Institute and all those who are
interested in economic theory and its applied aspects. Many may never

take another economics course. The aim of this textbook is to increase
their economic literacy both by developing their aptitude for economic
thinking and by presenting key insights about economics that every
educated individual should know.

The textbook provides students with a vehicle to understand the
structure of economics and trains them how to use this structure. It is
organized around theoretical constructs. Important tools appear over and

over again, allowing students to learn from repetition and to see how one

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