Chapter 1/Ten Principles of Economics ❖ 1
1
Principles of Economics 9E -Mankiw – SOLUTION
MANUAL BEST EDITION
WHAT’S NEW IN THE NINETH EDITION:
There are no major changes to this chapter.
LEARNING OBJECTIVES:
By the end of this chapter, students should understand:
that economics is about the allocation of scarce resources.
that individuals face trade-offs.
the meaning of opportunity cost.
how to use marginal reasoning when making decisions.
how incentives affect people’s behavior.
© 2018 Cengage Learning®. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
, Chapter 1/Ten Principles of Economics ❖ 2
why trade among people or nations can be good for everyone.
why markets are a good, but not perfect, way to allocate resources.
what determines some trends in the overall economy.
CONTEXT AND PURPOSE:
Chapter 1 is the first chapter in a three-chapter section that serves as the introduction to the text.
Chapter 1 introduces ten fundamental principles on which the study of economics is based. In a broad
sense, the rest of the text is an elaboration on these ten principles. Chapter 2 will develop how
economists approach problems while Chapter 3 will explain how individuals and countries gain from
trade.
The purpose of Chapter 1 is to lay out ten economic principles that will serve as building blocks for
the rest of the text. The ten principles can be grouped into three categories: how people make decisions,
how people interact, and how the economy works as a whole. Throughout the text, references will be
made repeatedly to these ten principles.
© 2018 Cengage Learning®. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
, Chapter 1/Ten Principles of Economics ❖ 3
KEY POINTS:
The fundamental lessons about individual decision making are that people face trade-offs
among alternative goals, that the cost of any action is measured in terms of forgone
opportunities, that rational people make decisions by comparing marginal costs and
marginal benefits, and that people change their behavior in response to the incentives they
face.
The fundamental lessons about interactions among people are that trade and
interdependence can be mutually beneficial, that markets are usually a good way of
coordinating economic activity among people, and that the government can potentially
improve market outcomes by remedying a market failure or by promoting greater economic
equality.
The fundamental lessons about the economy as a whole are that productivity is the ultimate
source of improving living standards, that growth in the quantity of money is the ultimate
source of inflation, and that society faces a short-run trade-off between inflation and
unemployment.
CHAPTER OUTLINE:
I. Introduction
Begin by pointing out that economics is a subject that students must confront
in their daily lives. Point out that they already spend a great deal of their time
thinking about economic issues: changes in prices, buying decisions, use of
A. The word “economy” comes from the Greek word oikonomos meaning “one who manages a
household.”
B. Both households and economies face many decisions about how to allocate resources.
C. Resources are scarce so they must be managed carefully.
You will want to start the semester by explaining to students that part of
learning economics is understanding a new vocabulary. Economists generally
useLearning®.
© 2018 Cengage very precise (and sometimes
All Rights Reserved. May not be scanned, different) definitions
copied or duplicated, or posted to afor words
publicly that
accessible arein whole
website, or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approv ed learning
commonly used outside of the economics
management discipline.
system for classroom use. Therefore, it will be
, Chapter 1/Ten Principles of Economics ❖ 4
D. Definition of scarcity: the limited nature of society’s resources.
E. Definition of economics: the study of how society manages its scarce resources.
Because most college freshmen and sophomores have limited experiences
with viewing the world from a cause-and-effect perspective, do not
As you discuss the ten principles, make sure that students realize that it is
okay if they do not grasp each of the concepts completely or find each of the
II. How People Make Decisions
A. Principle #1: People Face Trade-offs
1. “There ain’t no such thing as a free lunch.” To get something that we like, we usually have to
give up, or trade for, something else that we also like.
2. Examples include how students spend their time, how a family decides to spend its income,
how the U.S. government spends tax dollars, and how regulations may protect the
environment at a cost to firm owners.
3. An important trade-off that society faces is the trade-off between efficiency and equality.
a. Definition of efficiency: the property of society getting the most it can from its
scarce resources.
b. Definition of equality: the property of distributing economic prosperity
uniformly among the members of society.
c. For example, tax dollars paid by wealthy Americans and then distributed to those less
fortunate may improve equality but lower the return to hard work and therefore reduce
the level of output produced by our resources.
© 2018 Cengage Learning®. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
1
Principles of Economics 9E -Mankiw – SOLUTION
MANUAL BEST EDITION
WHAT’S NEW IN THE NINETH EDITION:
There are no major changes to this chapter.
LEARNING OBJECTIVES:
By the end of this chapter, students should understand:
that economics is about the allocation of scarce resources.
that individuals face trade-offs.
the meaning of opportunity cost.
how to use marginal reasoning when making decisions.
how incentives affect people’s behavior.
© 2018 Cengage Learning®. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
, Chapter 1/Ten Principles of Economics ❖ 2
why trade among people or nations can be good for everyone.
why markets are a good, but not perfect, way to allocate resources.
what determines some trends in the overall economy.
CONTEXT AND PURPOSE:
Chapter 1 is the first chapter in a three-chapter section that serves as the introduction to the text.
Chapter 1 introduces ten fundamental principles on which the study of economics is based. In a broad
sense, the rest of the text is an elaboration on these ten principles. Chapter 2 will develop how
economists approach problems while Chapter 3 will explain how individuals and countries gain from
trade.
The purpose of Chapter 1 is to lay out ten economic principles that will serve as building blocks for
the rest of the text. The ten principles can be grouped into three categories: how people make decisions,
how people interact, and how the economy works as a whole. Throughout the text, references will be
made repeatedly to these ten principles.
© 2018 Cengage Learning®. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
, Chapter 1/Ten Principles of Economics ❖ 3
KEY POINTS:
The fundamental lessons about individual decision making are that people face trade-offs
among alternative goals, that the cost of any action is measured in terms of forgone
opportunities, that rational people make decisions by comparing marginal costs and
marginal benefits, and that people change their behavior in response to the incentives they
face.
The fundamental lessons about interactions among people are that trade and
interdependence can be mutually beneficial, that markets are usually a good way of
coordinating economic activity among people, and that the government can potentially
improve market outcomes by remedying a market failure or by promoting greater economic
equality.
The fundamental lessons about the economy as a whole are that productivity is the ultimate
source of improving living standards, that growth in the quantity of money is the ultimate
source of inflation, and that society faces a short-run trade-off between inflation and
unemployment.
CHAPTER OUTLINE:
I. Introduction
Begin by pointing out that economics is a subject that students must confront
in their daily lives. Point out that they already spend a great deal of their time
thinking about economic issues: changes in prices, buying decisions, use of
A. The word “economy” comes from the Greek word oikonomos meaning “one who manages a
household.”
B. Both households and economies face many decisions about how to allocate resources.
C. Resources are scarce so they must be managed carefully.
You will want to start the semester by explaining to students that part of
learning economics is understanding a new vocabulary. Economists generally
useLearning®.
© 2018 Cengage very precise (and sometimes
All Rights Reserved. May not be scanned, different) definitions
copied or duplicated, or posted to afor words
publicly that
accessible arein whole
website, or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approv ed learning
commonly used outside of the economics
management discipline.
system for classroom use. Therefore, it will be
, Chapter 1/Ten Principles of Economics ❖ 4
D. Definition of scarcity: the limited nature of society’s resources.
E. Definition of economics: the study of how society manages its scarce resources.
Because most college freshmen and sophomores have limited experiences
with viewing the world from a cause-and-effect perspective, do not
As you discuss the ten principles, make sure that students realize that it is
okay if they do not grasp each of the concepts completely or find each of the
II. How People Make Decisions
A. Principle #1: People Face Trade-offs
1. “There ain’t no such thing as a free lunch.” To get something that we like, we usually have to
give up, or trade for, something else that we also like.
2. Examples include how students spend their time, how a family decides to spend its income,
how the U.S. government spends tax dollars, and how regulations may protect the
environment at a cost to firm owners.
3. An important trade-off that society faces is the trade-off between efficiency and equality.
a. Definition of efficiency: the property of society getting the most it can from its
scarce resources.
b. Definition of equality: the property of distributing economic prosperity
uniformly among the members of society.
c. For example, tax dollars paid by wealthy Americans and then distributed to those less
fortunate may improve equality but lower the return to hard work and therefore reduce
the level of output produced by our resources.
© 2018 Cengage Learning®. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
