Principles of Economics
Arab World
4th Edition
by Gregory Mankiw
Complete Chapter Solutions Manual
are included (Ch 1 to 37)
** Immediate Download
** Swift Response
** All Chapters included
, Chapter 1/ Ten Principles of Economics ❖ 1
CHAPTER 1 TEN PRINCIPLES OF ECONOMICS
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.
• 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.
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
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 1/ Ten Principles of Economics ❖ 2
CHAPTER OUTLINE:
1) 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 their time,
concerns about employment, etc.
a) The word “economy” comes from the Greek word oikonomos meaning “one who manages a
household.”
b) This makes some sense because in the economy we are faced with many decisions (just as a
household is).
c) Fundamental economic problem: resources are scarce.
You will want to start the semester by explaining to students that part of learning
economics is understanding a new vocabulary. Economists generally use very precise
(and sometimes different) definitions for words that are commonly used outside of
the economics discipline. Therefore, it will be helpful to students if you follow the
definitions provided in the text as much as possible.
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 first and second year university students have limited experiences
with viewing the world from a cause-and-effect perspective, do not underestimate
how challenging these principles will be for the student.
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 arguments
fully convincing. These ideas will be explored more completely throughout the text.
2) How People Make Decisions
a) Principle #1: People Face Trade-offs
i) “Nothing is for free.” Making decisions requires trading one goal for another.
ii) Examples include how students spend their time, how a family decides to spend its income,
how the government spends tax collected, and how regulations may protect the environment
at a cost to firm owners.
iii) An important trade-off that society faces is the trade-off between efficiency and equality.
(1) Definition of efficiency: the property of society getting the maximum benefits from its
scarce resources.
(2) Definition of equality: the property of distributing economic prosperity uniformly among
the members of society.
Arab World
4th Edition
by Gregory Mankiw
Complete Chapter Solutions Manual
are included (Ch 1 to 37)
** Immediate Download
** Swift Response
** All Chapters included
, Chapter 1/ Ten Principles of Economics ❖ 1
CHAPTER 1 TEN PRINCIPLES OF ECONOMICS
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.
• 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.
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
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 1/ Ten Principles of Economics ❖ 2
CHAPTER OUTLINE:
1) 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 their time,
concerns about employment, etc.
a) The word “economy” comes from the Greek word oikonomos meaning “one who manages a
household.”
b) This makes some sense because in the economy we are faced with many decisions (just as a
household is).
c) Fundamental economic problem: resources are scarce.
You will want to start the semester by explaining to students that part of learning
economics is understanding a new vocabulary. Economists generally use very precise
(and sometimes different) definitions for words that are commonly used outside of
the economics discipline. Therefore, it will be helpful to students if you follow the
definitions provided in the text as much as possible.
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 first and second year university students have limited experiences
with viewing the world from a cause-and-effect perspective, do not underestimate
how challenging these principles will be for the student.
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 arguments
fully convincing. These ideas will be explored more completely throughout the text.
2) How People Make Decisions
a) Principle #1: People Face Trade-offs
i) “Nothing is for free.” Making decisions requires trading one goal for another.
ii) Examples include how students spend their time, how a family decides to spend its income,
how the government spends tax collected, and how regulations may protect the environment
at a cost to firm owners.
iii) An important trade-off that society faces is the trade-off between efficiency and equality.
(1) Definition of efficiency: the property of society getting the maximum benefits from its
scarce resources.
(2) Definition of equality: the property of distributing economic prosperity uniformly among
the members of society.
