First, let’s begin with the simplest situation, which we call the case of “simultaneous moves,” in which everyone makes his or her decision at the same time. In order to analyze such a situation, we will express the situation using a model, which we call a “game.”

It’s been a long journey, but we have finally covered the basics of economic analysis. Now that you have learned the analytical tools (theoretical models) we use in economics, I believe that you have gained a strong understanding of how society allocates resources via the market mechanism. However, that is not the end of the story.

Economists call (1) to (7) resource allocation issues. More specifically, (5) to (7) are called distribution issues. Each society resolves these issues with its own institutions and rules, which have historically included feudal systems, planned economies, and market economy mechanisms.

Let’s continue studying the basics of economic analysis when there is asymmetric information. As I explained in Chapter 8, there are two main types of problems with asymmetric information.

In the United States, some firms are just small-scale enterprises with a few employees, and some are huge companies with several thousand employees. Firms might have various departments, such as accounting or sales. Manufacturing firms have many factories. In order to understand the central role these firms play in markets, traditional microeconomics (price theory) makes a dramatic simplification and treats firms like “black boxes” that output goods using production inputs (see Figure 2.1). Details about what exactly is happening inside firms are ignored.

Here we study flows that possess steady solutions that may not persist in time if subjected to small perturbations. Often the behavior of a fluid with no time-dependency is dramatically different than one with time-dependency. Understanding what type of perturbation induces persistent time-dependency is essential for scientific and practical understanding of fluid behavior. An example that we will consider here as well as in later chapters is that of warm air rising or not rising; see Fig. 12.1.

This book considers the mechanics of a fluid, defined as a material that continuously deforms under the influence of an applied shear stress, as depicted in Fig. 1.1. Here the fluid, initially at rest, lies between a stationary wall and a moving plate. Nearly all common fluids stick to solid surfaces. Thus, at the bottom, the fluid remains at rest; at the top, it moves with the velocity of the plate.

This chapter will focus on one-dimensional flow of a compressible fluid. The emphasis will be on inviscid problems, with one brief excursion into viscous compressible flow that will serve as a transition to a study of viscous flow in following chapters. The compressibility we will study here is that which is induced when the fluid particle velocity is of similar magnitude to the fluid sound speed.

This chapter will expand upon potential flow, introduced in Section 7.7, and will mainly be restricted to steady, two-dimensional planar, incompressible potential flow. Such flows can be characterized by a scalar potential field. An example of such a field along with associated streamlines is given in Fig. 8.1.