King Rat (gkr) wrote,
King Rat

Eco 200: textbook missing glossary

I just realized what is wrong with the textbook, Microeconomics: The Economic Way of Thinking, by Paul Heyne. The text does a shitty job of defining terms.

For example, I am now reading the chapter on supply. It's attempting to explain marginal cost. First is starts off by referring to marginal value. The marginal value of something is the amount a person would be willing to pay for an additional amount. It then says that the same reasoning can be applied to costs. It then says that most people confuse previous costs with marginal cost. And then three paragraphs later that marginal cost is always in the future. Then two paragraphs later in an example it explains that the relevant cost is the cost of the opportunity lost by not selling a motorcycle, not the cost paid for it (which is a sunk cost). Then it goes into a two page example of a couple purchasing a house which then falls in value. In one part of the example, it says their mortgage payments are the marginal opportunity cost if they took out a mortgage on the place and keep possession.

Expanding it out into three pages doesn't make it any clearer. Theoretically, marginal cost should be a pretty simple concept. But this text just ends up making it complicated.

The marginal cost of any action is the future cost resulting from the action. Total cost is the sunk cost (what you've already paid) plus the marginal cost. The relevant cost is the marginal cost. The marginal cost of me retaining possession of my condo is the present value of my future mortgage payments. The marginal cost of selling it is the value of selling it at a future time minus the price i receive for it now. It opportunity cost in this case; i could have made more money by waiting. That's a simplification, but it illustrates the meaning.

What I wouldn't give for a better description so this wouldn't be so difficult. If it were only this one term, I could post this and my friends with lots of knowledge would explain it to me. But it's irritating that the author does this for most terms.

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