Solution Manual for Principles of Economics, 10th Edition By N. Gregory Mankiw

Solution Manual for Principles of Economics, 10th Edition By N. Gregory Mankiw-I. Introduction A. The word “economy” comes from the Greek word oikonomos meaning “one who manages a household.” 1. Instruction Idea: 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. B. Both households and economies face many decisions about how to allocate resources. C. Resources are scarce so they must be managed carefully. © 2022 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5 1. Instruction Idea: 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. 1. Keep in Mind: Because most college freshmen and sophomores 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. 2. Instruction Idea: 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. 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. d. This implies that the cost of this increased equality is a reduction in the efficient use of our resources. 4. Recognizing that trade-offs exist does not indicate what decisions should or will be made. B. Principle #2: The Cost of Something Is What You Give Up to Get It 1. Making decisions requires individuals to consider the benefits and costs of some action. 2. What are the costs of going to college? a. We should not count room and board (unless they are more expensive at college than elsewhere) because the student would have to pay for food and shelter even if she were not in school. b. We should count the value of the student’s time because she could be working for pay instead of attending classes and studying.