50 ) Chapter 3/Interdependence and the Gains from Trade
workers, who have an opportunity cost of 50 scones per sweater (50 scones per hour
divided by 1 sweater per hour).
If England and Scotland decide to trade, Scotland will produce sweaters and tr
28 ) Chapter 2/Thinking Like an Economist
Curves in the Coordinate System
Often, economists want to show how one variable affects another, holding all
other variables constant.
An example of this is a demand curve.
Chapter 1/Ten Principles of Economics ) 15
To make an intelligent decision about whether to reduce inflation, a policymaker would need to
know what causes inflation and unemployment, as well as what determines the trade-off
between them. This means th
12 ) Chapter 1/Ten Principles of Economics
Productivity is important because a country's standard of living depends on its ability to produce
goods and services. The greater a country's productivity (the amount of goods and services
produced from each
20 ) Chapter 2/Thinking Like an Economist
Our First Model: The Circular Flow Diagram
Definition of circular-flow diagram: a visual model of the economy that
shows how dollars flow through markets among households and firms.
THINKING LIKE AN ECONOMIST
WHATS NEW IN THE FOURTH EDITION:
The presentation of the production possibilities frontier has been extensively rewritten and augmented.
There is a new FYI box on Who Studies Economics? There is a new In the News feature on Su
14 ) Chapter 1/Ten Principles of Economics
probability of making mistakes is very high. You will also be faced with tough choices
about the music industry compared to other parts of the economy. If you produce more
sports equipment, you will have fewer re
18 ) Chapter 2/Thinking Like an Economist
1. Economists try to address their subject with a scientists objectivity. Like all scientists, they make
appropriate assumptions and build simplified models in order to understand the world around them
Chapter 2/Thinking Like an Economist ) 27
AppendixGraphing: A Brief Review
Many instructors may be unaware of how much trouble beginning students have
grasping the most basic graphs. It is important for instructors to make sure that
students are comfor
Chapter 2/Thinking Like an Economist ) 31
An example of a positive statement is higher taxes discourage work effort. It is a positive
statement because it is a claim that describes the world as it is. An example of a normative
statement is the governme
Chapter 2/Thinking Like an Economist ) 29
Cause and Effect
Economists often make statements suggesting that a change in Variable A
causes a change in Variable B.
Ideally, we would like to see how changes in Variable A affect Variable B, holding
2 ) Chapter 1/Ten Principles of Economics
decisions, how people interact, and how the economy works as a whole. Throughout the text, references
will be made repeatedly to these ten principles.
1. The fundamental lessons about individual decisi
Chapter 3/Interdependence and the Gains from Trade ) 43
The rancher buys 15 ounces of potatoes for 5 ounces of meat. The price
of each ounce of potatoes is one-third ounce of meat. This is lower than
the rancher's opportunity cost of one-half ounce of
Chapter 3/Interdependence and the Gains from Trade ) 39
Table 1 shows the amount of time each takes to produce one ounce of either
Minutes Needed to
Make One Ounce of:
Amount Produced in Eight
Chapter 3/Interdependence and the Gains from Trade ) 41
The rancher produces 18 ounces of meat and trades 5 ounces, leaving
him with 13 ounces of meat. He also grows 12 ounces of potatoes and
receives 15 ounces in th
INTERDEPENDENCE AND THE
GAINS FROM TRADE
WHATS NEW IN THE FOURTH EDITION:
The section on Comparative Advantage and Trade has been augmented for improved clarity. There is a
new In the News box on Evolution and Economics.
By the end
44 ) Chapter 3/Interdependence and the Gains from Trade
This implies that he has an absolute advantage.
Suppose that it takes him two hours to mow his lawn. In that same two hours,
he could film a commercial for Nike for which he would earn $1
42 ) Chapter 3/Interdependence and the Gains from Trade
Opportunity Cost and Comparative Advantage
Definition of opportunity cost: whatever must be given up to obtain
For the rancher, it takes ten minutes to produce one ounce o
38 ) Chapter 3/Interdependence and the Gains from Trade
2. There are two ways to compare the ability of two people in producing a good. The person who can
produce the good with a smaller quantity of inputs is said to have an absolute advantage in
Chapter 3/Interdependence and the Gains from Trade ) 51
The production possibilities frontiers for the two countries are shown in Figure 5. If,
without trade, a U.S. worker spends half of his time producing each good, the United
States will have 50
40 ) Chapter 3/Interdependence and the Gains from Trade
We will assume that the farmer and rancher divide their time equally between
raising cattle and growing potatoes.
The farmer produces (and consumes) at point A16 ounces of potatoes
Chapter 1/Ten Principles of Economics ) 7
Principle #6: Markets Are Usually a Good Way to Organize Economic Activity
Many countries that once had centrally planned economies have abandoned this
system and are trying to develop market economies.
Chapter 2/Thinking Like an Economist ) 19
Economists use economic models to explain the world around us.
To illustrate to the class how simple but unrealistic models can be useful, bring a
road map to class. Point out how unrealistic it is. For example
10 ) Chapter 1/Ten Principles of Economics
Activity 2So Many Things to Do, So Little Time
Trade-offs, opportunity cost, thinking at the margin, incentives
Chapter 2/Thinking Like an Economist ) 33
Problems and Applications
See Figure 5; the four transactions are shown.
Figure 6 shows a production possibilities frontier between guns and butter. It is bowed
out because the opportunity cost o
Instructor's Manual with Solutions Manual
Principles of Macroeconomics
N. Gregory Mankiw
Eastern Illinois University
The instructors material that accompanies the five versions of Mankiws Principles of
Economics, Fourth Edition textbooks address the needs of both novice and experienced
instructors. To meet the needs of these two groups, this Instructors Manual w
Comparative Table of Contents
Part 1: Introduction
1 Ten Principles of Economics
2 Thinking Like an Economist
3 Interdependence and the Gains from Trade
Part 2: How Markets Work
4 The Market Forces of Supply and Demand
5 Elasticity and Its Applicatio
Chapter 2/Thinking Like an Economist ) 23
The production possibilities frontier reveals Principle #1: People face tradeoffs.
Suppose the economy is currently producing 600 cars and 2,200
To increase the production of cars to 7
Chapter 2/Thinking Like an Economist ) 25
Definition of normative statements: claims that attempt to prescribe
how the world should be.
Positive statements can be evaluated by examining data, while normative
statements involve personal viewpoints.
8 ) Chapter 1/Ten Principles of Economics
Examples of Market Failure
Definition of externality: the impact of one persons actions on
the well-being of a bystander.
Definition of market power: the ability of a single economic actor
Chapter 1/Ten Principles of Economics ) 5
When the price of a good rises, consumers will buy less of it because its
cost has risen.
When the price of a good rises, producers will allocate more resources to
the production of the good because the bene
26 ) Chapter 2/Thinking Like an Economist
Case Study: Mr. Mankiw Goes to Washington
From 2003 to 2005, the author of this textbook was the chairman of the
Council of Economic Advisers.
Why Economists Disagree
Differences in Scientific Judgme