My colleagues Tyler Cowen and Alex Tabarrok have published a new economics principles textbook.  It’s amazing, then, that Alex is still giving away fantastic economic education for free.  Check out his latest post, and get edified:

Imagine that a single employer was able to buy for his employees
equal quality health insurance at a lower price. Would wages at that
firm rise?  No, an employer only has to pay workers what they could
earn in another job.  If other firms aren’t paying more then this firm
need not raise wages even though its costs have fallen.  Thus an
employer that reduced health insurance costs while keeping real
compensation the same could pocket the savings as profit.  It’s only
when other firms follow suit–also in an attempt to cut costs and earn
excess profits–that wages at all firms rise, eliminating the excess
profit everywhere.

The process produces the equilibrium.  You can’t have one without the other.

Alex’s pedagogy is so good that I only have one thing to add: His point applies equally well to almost any bundled decision – for example, an econ textbook that bundles micro and macro…