Chapter 1/Ten Principles of Economics ❖ 1
TEST BANK & NOTES for Principles of Economics 8th
Edition by N. Mankiw
All Chapters Fully Covered| Verified Notes, Questions & Solutions for
Exam Preparations| A+ PASS GUARANTEED
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an
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, Chapter 1/Ten Principles of Economics ❖ 2
1
TEN PRINCIPLES OF ECONOMICS
WHAT’S NEW IN THE EIGHTH EDITION:
There is a new case study ―Adam Smith Would Have Loved Uber.‖
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.
Fr
the meaning of opportunity cost.
an
how to use marginal reasoning when making decisions.
kl
yn
how incentives affect people’s behavior.
e
why trade among people or nations can be good for everyone.
A
why markets are a good, but not perfect, way to allocate resources.
pl
u sP
as
s
2|Page
, Chapter 1/Ten Principles of Economics ❖ 3
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.
Fr
an
kl
yn
e
A
pl
u sP
as
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3|Page
, Chapter 1/Ten Principles of Economics ❖ 4
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 their time,
Fr
an
A. The word ―economy‖ comes from the Greek word oikonomos meaning ―one who manages a
kl
household.‖
yn
B. Both households and economies face many decisions about how to allocate resources.
e
C. Resources are scarce so they must be managed carefully.
A
You will want to start the semester by explaining to students that part of learning
pl
economics is understanding a new vocabulary. Economists generally use very
precise (and sometimes different) definitions for words that are commonly used
u
outside of the economics discipline. Therefore, it will be helpful to students if you
sP
as
s
4|Page
TEST BANK & NOTES for Principles of Economics 8th
Edition by N. Mankiw
All Chapters Fully Covered| Verified Notes, Questions & Solutions for
Exam Preparations| A+ PASS GUARANTEED
Fr
an
kl
yn
e
A
pl
u sP
as
s
1|Page
, Chapter 1/Ten Principles of Economics ❖ 2
1
TEN PRINCIPLES OF ECONOMICS
WHAT’S NEW IN THE EIGHTH EDITION:
There is a new case study ―Adam Smith Would Have Loved Uber.‖
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.
Fr
the meaning of opportunity cost.
an
how to use marginal reasoning when making decisions.
kl
yn
how incentives affect people’s behavior.
e
why trade among people or nations can be good for everyone.
A
why markets are a good, but not perfect, way to allocate resources.
pl
u sP
as
s
2|Page
, Chapter 1/Ten Principles of Economics ❖ 3
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.
Fr
an
kl
yn
e
A
pl
u sP
as
s
3|Page
, Chapter 1/Ten Principles of Economics ❖ 4
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 their time,
Fr
an
A. The word ―economy‖ comes from the Greek word oikonomos meaning ―one who manages a
kl
household.‖
yn
B. Both households and economies face many decisions about how to allocate resources.
e
C. Resources are scarce so they must be managed carefully.
A
You will want to start the semester by explaining to students that part of learning
pl
economics is understanding a new vocabulary. Economists generally use very
precise (and sometimes different) definitions for words that are commonly used
u
outside of the economics discipline. Therefore, it will be helpful to students if you
sP
as
s
4|Page
