ChapterV1/TenVPrinciplesVofVEconomicsV ❖V
1
1
PrinciplesVofVEconomicsV9EV-MankiwV–
VSOLUTIONVMANUALVBESTVEDITION
WHAT’SVNEWVINVTHEVNINETHVEDITION:
ThereVareVnoVmajorVchangesVtoVthisVchapter.
LEARNINGVOBJECTIVES:
ByVtheVendVofVthisVchapter,VstudentsVshouldVunderstand:
➢ thatVeconomicsVisVaboutVtheVallocationVofVscarceVresources.
➢ thatVindividualsVfaceVtrade-offs.
➢ theVmeaningVofVopportunityVcost.
➢ howVtoVuseVmarginalVreasoningVwhenVmakingVdecisions.
➢ howVincentivesVaffectVpeople’sVbehavior.
©V2018VCengageVLearning®.VAllVRightsVReserved.VMayVnotVbeVscanned,VcopiedVorVduplicated,VorVpostedVtoVaVpubliclyVaccessibleVwebsite,VinVwh
oleVorVinVpart,V exceptVforVuseVasVpermittedVinVaVlicenseVdistributedVwithVaVcertainVproductVorVserviceVorVotherwiseVonVaVpassword-
protectedVwebsiteVorVschool-approvedVlearningVmanagementVsystemVforVclassroomVuse.
, ChapterV1/TenVPrinciplesVofVEconomicsV ❖V
2
➢ whyVtradeVamongVpeopleVorVnationsVcanVbeVgoodVforVeveryone.
➢ whyVmarketsVareVaVgood,VbutVnotVperfect,VwayVtoVallocateVresources.
➢ whatVdeterminesVsomeVtrendsVinVtheVoverallVeconomy.
CONTEXTVANDVPURPOSE:
ChapterV1VisVtheVfirstVchapterVinVaVthree-
chapterVsectionVthatVservesVasVtheVintroductionVtoVtheVtext.VChapterV1VintroducesVtenVfundamentalVpr
inciplesVonVwhichVtheVstudyVofVeconomicsVisVbased.VInVaVbroadVsense,VtheVrestVofVtheVtextVisVanVela
borationVonVtheseVtenVprinciples.VChapterV2VwillVdevelopVhowVeconomistsVapproachVproblemsVwhileVC
hapterV3VwillVexplainVhowVindividualsVandVcountriesVgainVfromVtrade.
TheVpurposeVofVChapterV1VisVtoVlayVoutVtenVeconomicVprinciplesVthatVwillVserveVasVbuildingVblock
sVforVtheVrestVofVtheVtext.VTheVtenVprinciplesVcanVbeVgroupedVintoVthreeVcategories:VhowVpeopleVmak
eVdecisions,VhowVpeopleVinteract,VandVhowVtheVeconomyVworksVasVaVwhole.VThroughoutVtheVtext,Vre
ferencesVwillVbeVmadeVrepeatedlyVtoVtheseVtenVprinciples.
©V2018VCengageVLearning®.VAllVRightsVReserved.VMayVnotVbeVscanned,VcopiedVorVduplicated,VorVpostedVtoVaVpubliclyVaccessibleVwebsite,VinVwh
oleVorVinVpart,V exceptVforVuseVasVpermittedVinVaVlicenseVdistributedVwithVaVcertainVproductVorVserviceVorVotherwiseVonVaVpassword-
protectedVwebsiteVorVschool-approvedVlearningVmanagementVsystemVforVclassroomVuse.
, ChapterV1/TenVPrinciplesVofVEconomicsV ❖V
3
KEYVPOINTS:
• TheVfundamentalVlessonsVaboutVindividualVdecisionVmakingVareVthatVpeopleVfaceVtrade-
offsVamongValternativeVgoals,VthatVtheVcostVofVanyVactionVisVmeasuredVinVtermsVofVfor
goneVopportunities,VthatVrationalVpeopleVmakeVdecisionsVbyVcomparingVmarginalVcosts
Vand
marginalVbenefits,VandVthatVpeopleVchangeVtheirVbehaviorVinVresponseVtoVtheVincentivesV
theyVface.
• TheVfundamentalVlessonsVaboutVinteractionsVamongVpeopleVareVthatVtradeVand
interdependenceVcanVbeVmutuallyVbeneficial,VthatVmarketsVareVusuallyVaVgoodVwayVofVco
ordinatingVeconomicVactivityVamongVpeople,VandVthatVtheVgovernmentVcanVpotentiallyVim
proveVmarketVoutcomesVbyVremedyingVaVmarketVfailureVorVbyVpromotingVgreaterVeconomi
cVequality.
• TheVfundamentalVlessonsVaboutVtheVeconomyVasVaVwholeVareVthatVproductivityVisVtheVulti
mateVsourceVofVimprovingVlivingVstandards,VthatVgrowthVinVtheVquantityVofVmoneyVisVthe
VultimateVsourceVofVinflation,VandVthatVsocietyVfacesVaVshort-runVtrade-
offVbetweenVinflationVand
unemployment.
CHAPTERVOUTLINE:
I. Introduction
BeginVbyVpointingVoutVthatVeconomicsVisVaVsubjectVthatVstudentsVmustVconf
rontVinVtheirVdailyVlives.VPointVoutVthatVtheyValreadyVspendVaVgreatVdealVof
VtheirVtimeVthinkingVaboutVeconomicVissues:VchangesVinVprices,VbuyingVdeci
sions,VuseVof
A. TheVwordV“economy”VcomesVfromVtheVGreekVwordVoikonomosVmeaningV“oneVwhoVmanag
esVaVhousehold.”
B. BothVhouseholdsVandVeconomiesVfaceVmanyVdecisionsVaboutVhowVtoVallocateVresources.
C. ResourcesVareVscarceVsoVtheyVmustVbeVmanagedVcarefully.
YouVwillVwantVtoVstartVtheVsemesterVbyVexplainingVtoVstudentsVthatVpartV t
ofVlearningVeconomicsVisVunderstandingVaVnewVvocabulary.VEconomistsVge h
nerallyVuseVveryVpreciseV(andVsometimesVdifferent)VdefinitionsVforVwordsV
©V2018VCengageVLearning®.VAllVRightsVReserved.VMayVnotVbeVscanned,VcopiedVorVduplicated,VorVpostedVtoVaVpubliclyVaccessibleVwe
a
bsite,VinVwholeVexceptVforVuseVasVpermittedVinVaVlicenseVdistributedVwithVaVcertainVproductVorVserviceVorVotherwiseVonVaVpassword-
protectedVwebsiteVorVschool-approv
managementVsystemVforVclassroomVuse.
, ChapterV1/TenVPrinciplesVofVEconomicsV ❖V
tVare 4
commonlyVusedVoutsideVofVtheVeconomicsVdiscipline.VTherefore,VitVwillVbe
orVinVpar
t,VedVlear
ning
1
1
PrinciplesVofVEconomicsV9EV-MankiwV–
VSOLUTIONVMANUALVBESTVEDITION
WHAT’SVNEWVINVTHEVNINETHVEDITION:
ThereVareVnoVmajorVchangesVtoVthisVchapter.
LEARNINGVOBJECTIVES:
ByVtheVendVofVthisVchapter,VstudentsVshouldVunderstand:
➢ thatVeconomicsVisVaboutVtheVallocationVofVscarceVresources.
➢ thatVindividualsVfaceVtrade-offs.
➢ theVmeaningVofVopportunityVcost.
➢ howVtoVuseVmarginalVreasoningVwhenVmakingVdecisions.
➢ howVincentivesVaffectVpeople’sVbehavior.
©V2018VCengageVLearning®.VAllVRightsVReserved.VMayVnotVbeVscanned,VcopiedVorVduplicated,VorVpostedVtoVaVpubliclyVaccessibleVwebsite,VinVwh
oleVorVinVpart,V exceptVforVuseVasVpermittedVinVaVlicenseVdistributedVwithVaVcertainVproductVorVserviceVorVotherwiseVonVaVpassword-
protectedVwebsiteVorVschool-approvedVlearningVmanagementVsystemVforVclassroomVuse.
, ChapterV1/TenVPrinciplesVofVEconomicsV ❖V
2
➢ whyVtradeVamongVpeopleVorVnationsVcanVbeVgoodVforVeveryone.
➢ whyVmarketsVareVaVgood,VbutVnotVperfect,VwayVtoVallocateVresources.
➢ whatVdeterminesVsomeVtrendsVinVtheVoverallVeconomy.
CONTEXTVANDVPURPOSE:
ChapterV1VisVtheVfirstVchapterVinVaVthree-
chapterVsectionVthatVservesVasVtheVintroductionVtoVtheVtext.VChapterV1VintroducesVtenVfundamentalVpr
inciplesVonVwhichVtheVstudyVofVeconomicsVisVbased.VInVaVbroadVsense,VtheVrestVofVtheVtextVisVanVela
borationVonVtheseVtenVprinciples.VChapterV2VwillVdevelopVhowVeconomistsVapproachVproblemsVwhileVC
hapterV3VwillVexplainVhowVindividualsVandVcountriesVgainVfromVtrade.
TheVpurposeVofVChapterV1VisVtoVlayVoutVtenVeconomicVprinciplesVthatVwillVserveVasVbuildingVblock
sVforVtheVrestVofVtheVtext.VTheVtenVprinciplesVcanVbeVgroupedVintoVthreeVcategories:VhowVpeopleVmak
eVdecisions,VhowVpeopleVinteract,VandVhowVtheVeconomyVworksVasVaVwhole.VThroughoutVtheVtext,Vre
ferencesVwillVbeVmadeVrepeatedlyVtoVtheseVtenVprinciples.
©V2018VCengageVLearning®.VAllVRightsVReserved.VMayVnotVbeVscanned,VcopiedVorVduplicated,VorVpostedVtoVaVpubliclyVaccessibleVwebsite,VinVwh
oleVorVinVpart,V exceptVforVuseVasVpermittedVinVaVlicenseVdistributedVwithVaVcertainVproductVorVserviceVorVotherwiseVonVaVpassword-
protectedVwebsiteVorVschool-approvedVlearningVmanagementVsystemVforVclassroomVuse.
, ChapterV1/TenVPrinciplesVofVEconomicsV ❖V
3
KEYVPOINTS:
• TheVfundamentalVlessonsVaboutVindividualVdecisionVmakingVareVthatVpeopleVfaceVtrade-
offsVamongValternativeVgoals,VthatVtheVcostVofVanyVactionVisVmeasuredVinVtermsVofVfor
goneVopportunities,VthatVrationalVpeopleVmakeVdecisionsVbyVcomparingVmarginalVcosts
Vand
marginalVbenefits,VandVthatVpeopleVchangeVtheirVbehaviorVinVresponseVtoVtheVincentivesV
theyVface.
• TheVfundamentalVlessonsVaboutVinteractionsVamongVpeopleVareVthatVtradeVand
interdependenceVcanVbeVmutuallyVbeneficial,VthatVmarketsVareVusuallyVaVgoodVwayVofVco
ordinatingVeconomicVactivityVamongVpeople,VandVthatVtheVgovernmentVcanVpotentiallyVim
proveVmarketVoutcomesVbyVremedyingVaVmarketVfailureVorVbyVpromotingVgreaterVeconomi
cVequality.
• TheVfundamentalVlessonsVaboutVtheVeconomyVasVaVwholeVareVthatVproductivityVisVtheVulti
mateVsourceVofVimprovingVlivingVstandards,VthatVgrowthVinVtheVquantityVofVmoneyVisVthe
VultimateVsourceVofVinflation,VandVthatVsocietyVfacesVaVshort-runVtrade-
offVbetweenVinflationVand
unemployment.
CHAPTERVOUTLINE:
I. Introduction
BeginVbyVpointingVoutVthatVeconomicsVisVaVsubjectVthatVstudentsVmustVconf
rontVinVtheirVdailyVlives.VPointVoutVthatVtheyValreadyVspendVaVgreatVdealVof
VtheirVtimeVthinkingVaboutVeconomicVissues:VchangesVinVprices,VbuyingVdeci
sions,VuseVof
A. TheVwordV“economy”VcomesVfromVtheVGreekVwordVoikonomosVmeaningV“oneVwhoVmanag
esVaVhousehold.”
B. BothVhouseholdsVandVeconomiesVfaceVmanyVdecisionsVaboutVhowVtoVallocateVresources.
C. ResourcesVareVscarceVsoVtheyVmustVbeVmanagedVcarefully.
YouVwillVwantVtoVstartVtheVsemesterVbyVexplainingVtoVstudentsVthatVpartV t
ofVlearningVeconomicsVisVunderstandingVaVnewVvocabulary.VEconomistsVge h
nerallyVuseVveryVpreciseV(andVsometimesVdifferent)VdefinitionsVforVwordsV
©V2018VCengageVLearning®.VAllVRightsVReserved.VMayVnotVbeVscanned,VcopiedVorVduplicated,VorVpostedVtoVaVpubliclyVaccessibleVwe
a
bsite,VinVwholeVexceptVforVuseVasVpermittedVinVaVlicenseVdistributedVwithVaVcertainVproductVorVserviceVorVotherwiseVonVaVpassword-
protectedVwebsiteVorVschool-approv
managementVsystemVforVclassroomVuse.
, ChapterV1/TenVPrinciplesVofVEconomicsV ❖V
tVare 4
commonlyVusedVoutsideVofVtheVeconomicsVdiscipline.VTherefore,VitVwillVbe
orVinVpar
t,VedVlear
ning
