I can think of three common ECON 100 microeconomic lies:
- Diminishing marginal utility: We have known since Pareto and Hicks that this concept is meaningless, and neither necessary nor sufficient to show either downward-sloping demand or even diminishing marginal rates of substitution, but it seems to be
- Consumer surplus: The answer to no known economic question, this is typically taught at first year not as a useful approximation but the actual value of the difference between the willingness of consumers to pay and the amount they actually had to pay.
- Deadweight losses of taxes constructed by comparing total surplus with and without a tax: The deadweight loss triangle corresponds quite nicely to the idea of Pareto inefficiency (at least in contexts where partial equilibrium analysis is reasonable), but the ECON 100 derivation that comes from adding up total consumer plus producer plus government surplus rests on no welfare foundation that I know of. It is not Kaldor-Hicks, since government revenue is considered as a separate entity to the surpluses of individuals.
Note: Please don’t get me wrong; what I am calling lies here are not attempts to pull the wool over students’ eyes or sell a political viewpoint. I don’t think there is ever any justification for diminishing marginal utility, but consumer surplus and deadweight losses are useful concepts to teach that give appropriate conclusions if used in the right contexts. It certainly is better for students to have to unlearn these concepts slightly, than to be hit with duality theory and general equilibrium in their first year.