In this introduction to modern microeconomic theory, Samuel Bowles returns to the classical economists' interest in the wealth and poverty of nations and people, the workings of the institutions of capitalist economies, and the co-evolution of individual preferences and the structures of markets, firms and other institutions. Using advances in evolutionary game theory, contract theory, behavioural experiments and the modelling of dynamic processes, he develops a theory of how economic institutions shape individual behaviour, and how institutions evolve due to individual actions, technological change and chance events. Topics addressed include institutional innovation, social preferences, nonmarket social interactions, social capital, equilibrium unemployment, credit constraints, economic power, generalized increasing returns, disequilibrium outcomes and path dependency. Each chapter is introduced by empirical puzzles or historical episodes illuminated by the modelling that follows and includes a set of problems to be solved by readers seeking to improve their mathematical modelling skills. Complementing standard mathematical analysis are agent-based computer simulations of complex evolving systems that are available online so that readers can experiment with the models. Bowels concludes with the time-honoured challenge of "getting the rules right", providing an evaluation of markets, states and communities as contrasting and yet sometimes synergistic structures of governance.