Mankiw Economics paper 1

Mankiw Economics paper 1 - Paper One The study of economics...

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Paper One The study of economics is guided by a few big ideas as outlined in chapter one. However, chapter one first explained very acutely what economics is. Economics is the study of how society manages its scarce resources. Author N. Gregory Mankiw listed and described the ten big ideas of economics in chronic detail. The first four of the ten principles of economics make up a larger picture of how people make decisions as well. Each of the ten principles laid are in support of Mankiw’s arguments. First off Mankiw states that people face trade-offs. He is simply implying here that to obtain one thing or item, one usually has to give up something else. An example of this is work time verses biology study time. If a student at Saint John Fisher College has three hours free, he or she must split the time based on preference since he or she can not spend the three hours working and studying biology. He or she may split the time, working an hour and a half and studying biology and hour and a half or a ratio to which fits his or her needs. His or her needs may change based on the efficiency or the ability to obtain the maximum benefits from the utilization of that time and the equity or distribution of that time equally between the two choices. Principle two merely states that the opportunity cost of something is what you give up to get it. An example of this is a bike for sale for twenty dollars. The opportunity cost of obtaining that bike is then twenty dollars as you must give up the twenty dollars to get the bike. Principle three as Mankiw states is that rational people think at the margin (at the edge). Rational people are people who make the best decisions to achieve their objectives, and they think of the marginal benefits and the marginal costs. Marginal benefits are more pleasures you get out of a decision and marginal costs are the more give-ups based on a decision. To break all of this information
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down if the marginal benefits outweigh the marginal costs then you will make a decision and if the marginal benefits are outweighed by the marginal costs then you won’t make a decision. Principles four then goes on to say people respond to incentives. Incentives are something that induces a person to act. If a price of a good rises, people will tend to buy less of that good. The price raise is a negative incentive. Principles five, six and seven pertain to how people interact with one another. Trade can make everyone better off is the key concept of principle five. An excellent example of this is on page eight of the Principles of Microeconomics textbook where a young boy trades his lawn mowing labor ability for five dollars so his neighbor can watch the baseball game with out being nagged. I believe this demonstrates how trade, even at a minute level, can make everyone better. It is applicable to our everyday lives, which makes it such a great example. Principle six discusses the concept that markets are usually a good way to organize
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This note was uploaded on 04/18/2008 for the course ECON 100 taught by Professor Roche during the Spring '08 term at St. John Fisher College.

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Mankiw Economics paper 1 - Paper One The study of economics...

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