© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a
certain product or service or otherwise on a password-protected website for classroom use.
Seventh Edition
Microeconomics
Principles of
N. Gregory Mankiw
CHAPTER
1
11
1
Ten Principles
of Economics
In this chapter,
look for the answers to these questions
•What kinds of questions does economics
address?
•What are the principles of how people make
decisions?
•What are the principles of how people interact?
•What are the principles of how the economy as
a whole works?
2
What Economics Is All About
Scarcity:
Economics:
how people decide what to buy,
how much to work, save, and spend
how firms decide how much to produce,
how many workers to hire
how society decides how to divide its resources
between national defense, consumer goods,
protecting the environment, and other needs
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a
certain product or service or otherwise on a password-protected website for classroom use.
The principles of
HOW PEOPLE
MAKE DECISIONS
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4
PRINCIPLE 1
People Face Tradeoffs
All decisions involve tradeoffs. Examples:
Going to a party the night before your midterm
leaves less time for studying.
Having more money to buy stuff requires
working longer hours, which leaves less time
for leisure.
Protecting the environment requires resources
that could otherwise be used to produce
consumer goods.
5
PRINCIPLE 1
People Face Tradeoffs
Society faces an important tradeoff:
efficiency vs. equality
Efficiency:
Equality:
Tradeoff:
6
PRINCIPLE 2
The Cost of Something Is
What You Give Up to Get It
Making decisions requires comparing the costs
and benefits of alternative choices.
The opportunity cost of any item is
It is the relevant cost for decision making.
PRINCIPLE 2
The Cost of Something Is
What You Give Up to Get It
Examples:
