Summary Principles of Economics - N. Gregory Mankiw PDF

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Summary Principles of Economics N. Gregory Mankiw 6th Revised Edition Contents 1. Ten principles of Economics ................................................................................................................ 6 1. How people make decisions .................................................

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Summary Principles of Economics

N. Gregory Mankiw 6th Revised Edition

Contents 1. Ten principles of Economics ................................................................................................................ 6 1.1. How people make decisions ......................................................................................................... 6 1.2. How people interact ..................................................................................................................... 7 1.3. How the Economy as a whole works ............................................................................................ 8 2. Thinking like an Economist ................................................................................................................ 10 2.1. The economist as a Scientist ...................................................................................................... 10 2.2. The economist as a policy advisor .............................................................................................. 13 3. Interdependence and the gains from Trade ..................................................................................... 14 3.1. A parable for the modern Economy ........................................................................................... 14 3.2. Comparative advantage: The driving force of Specialization ..................................................... 15 4. The market forces of supply and demand......................................................................................... 18 4.1. Markets and competition ........................................................................................................... 19 4.2. Demand ...................................................................................................................................... 20 4.3. Supply ......................................................................................................................................... 23 4.4. Supply and demand together ..................................................................................................... 25 5. Elasticity and its Applications ............................................................................................................ 28 5.1. The Elasticity of Demand ............................................................................................................ 29 5.2. The Elasticity of Supply............................................................................................................... 32 6. Supply, Demand and government policies........................................................................................ 34 6.1. Control on prices ........................................................................................................................ 35 6.2. Taxes ........................................................................................................................................... 38 7. Consumers, Producers, and the Efficiency of Markets ..................................................................... 41 7.1. Consumer surplus....................................................................................................................... 42 7.2. Producer surplus ........................................................................................................................ 44 7.3. Market efficiency........................................................................................................................ 45 8. Application: The costs of taxation ..................................................................................................... 47 8.1. The Deadweight loss of Taxation ............................................................................................... 47 8.2. The determinants of the deadweight loss ................................................................................. 49 8.3. Deadweight loss and tax revenue as taxes vary ......................................................................... 50 9. Application: International trade ........................................................................................................ 52 9.1. The determinants of trade ......................................................................................................... 52 9.2. The winners and losers from trade ............................................................................................ 53 9.3. The arguments for restricting trade ........................................................................................... 56 10. Externalities ..................................................................................................................................... 58 10.1. Externalities and market inefficiency ....................................................................................... 58

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10.2. Public policies towards externalities ........................................................................................ 60 10.3. Private solutions to externalities.............................................................................................. 61 11. Public goods and common resources.............................................................................................. 62 11.1. The different kinds of goods .................................................................................................... 62 11.2. Public goods ............................................................................................................................. 64 11.3. Common resources .................................................................................................................. 65 12. The design of the tax system ........................................................................................................... 67 12.1. A financial overview of the US government............................................................................. 68 12.2. Taxes and efficieny ................................................................................................................... 68 12.3. Taxes and equity....................................................................................................................... 69 13. The costs of production ................................................................................................................... 72 13.1. What are costs? ........................................................................................................................ 73 13.2. Production and costs ................................................................................................................ 74 13.3. The various measures of costs ................................................................................................. 75 13.4. Costs in the short run and in the long run ............................................................................... 77 14. Firms in competitive markets .......................................................................................................... 78 14.1. What is a competitive market? ................................................................................................ 79 14.2. Profit maximization and the competitive firm's supply ........................................................... 80 14.3. The supply curve in a competitive market ............................................................................... 82 15. Monopoly ........................................................................................................................................ 84 15.1. Why monopolies arise .............................................................................................................. 85 15.2. How monopolies make production and pricing ....................................................................... 86 15.3. The welfare cost of monopolies ............................................................................................... 87 15.4. Price discrimination .................................................................................................................. 88 15.5. Public policy toward monopolies ............................................................................................. 90 16. Monopolistic competition ............................................................................................................... 92 16.1. Between monopoly and perfect competition .......................................................................... 92 16.2. Competition with differentiated products ............................................................................... 93 16.3. Advertising................................................................................................................................ 96 17. Oligopoly.......................................................................................................................................... 97 17.1. Markets with only a few sellers................................................................................................ 97 17.2. The economics of cooperation ............................................................................................... 100 17.3. Public policy toward oligopolies............................................................................................. 102 18. The markets for the factors of production .................................................................................... 104 18.1. The demand for labor............................................................................................................. 104 18.2. The supply of labor ................................................................................................................. 106

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18.3. Equilibrium in the labor market ............................................................................................. 107 18.4. The other factors of production: Land and capital ................................................................ 108 19. Earnings and discrimination .......................................................................................................... 110 19.1. Some determinants of equilibrium wages ............................................................................. 111 19.2. The economics of discrimination ........................................................................................... 112 20. Income inequality and poverty ..................................................................................................... 114 20.1. The measurement of inequality ............................................................................................. 114 20.2. The political philosophy of redistributing income.................................................................. 116 20.3. Policies to reduce poverty ...................................................................................................... 117 21. The theory of consumer choice ..................................................................................................... 120 21.1. The budget constraint: What the consumer can afford......................................................... 121 21.2. Preferences: What the consumer wants ................................................................................ 122 21.3. Optimization: What the consumer chooses........................................................................... 125 21.4. Three applications .................................................................................................................. 128 22. Frontiers of microeconomics......................................................................................................... 130 22.1. Asymmetric information ........................................................................................................ 130 22.2. Political economy ................................................................................................................... 133 22.3. Behavioral economics ............................................................................................................ 135 23. Measuring a nation's income ........................................................................................................ 138 23.1. The economy's income and expenditure ............................................................................... 139 23.2. The measurement of gross domestic product ....................................................................... 139 1. The components of GDP.............................................................................................................. 141 23.4. Real versus nominal GDP........................................................................................................ 142 23.5. Is GDP a good measure of economic well-being? .................................................................. 144 24. Measuring the cost of living .......................................................................................................... 146 24.1. The Consumer price index ...................................................................................................... 147 24.2. Correcting economic variables for the effects of inflation..................................................... 150 25. Production and growth ................................................................................................................. 151 25.1. Economic growth around the world ...................................................................................... 152 25.2. Productivity: Its role and determinants ................................................................................. 152 25.3. Economic growth and public policy ....................................................................................... 154 26. Saving, investment and the financial system ................................................................................ 158 26.1. Financial institutions in the US economy ............................................................................... 159 26.2. Saving and Investment in the national income accounts....................................................... 161 26.3. The market for loanable funds ............................................................................................... 162 27. The basic tools of finance .............................................................................................................. 166

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27.1. Present value: measuring the time value of money .............................................................. 166 27.2. Managing risk ......................................................................................................................... 167 27.3. Asset valuation ....................................................................................................................... 169 28. Unemployment.............................................................................................................................. 172 28.1. Identifying unemployment ..................................................................................................... 173 28.2. Job Search............................................................................................................................... 175 28.3. Minimum-wage laws .............................................................................................................. 177 28.4. Unions and collective bargaining ........................................................................................... 177 28.5. The theory of efficiency wages............................................................................................... 178 29. The monetary system .................................................................................................................... 181 29.1. The meaning of money........................................................................................................... 182 29.2. The Federal Reserve System .................................................................................................. 184 29.3. Banks and the money supply ................................................................................................. 185 29.4. The Fed's tools of monetary control ...................................................................................... 186 30. Money Growth and Inflation ......................................................................................................... 189 30.1. The classical theory of inflation.............................................................................................. 190 30.2. The costs of inflation .............................................................................................................. 193 31. Open-economy macroeconomics: Basic concepts ........................................................................ 195 31.1. The international flows of goods and capital ......................................................................... 196 31.2. The prices for international transactions: Real and nominal ................................................. 198 31.3. A first theory of exchange rate determination ...................................................................... 200 32. A macroeconomic theory of the open economy .......................................................................... 202 1. Supply and demand for loanable funds and for foreign-currency .............................................. 203 32.2. Equilibrium in the open economy .......................................................................................... 205 32.3. How policies and events affect an open economy................................................................. 206 33. Aggregate demand and aggregate supply..................................................................................... 209 33.1. Three key facts about economic fluctuations ........................................................................ 211 33.2. Explaining short-run economic fluctuations .......................................................................... 212 33.3. The aggregate demand curve................................................................................................. 213 33.4. The aggregate supply curve ................................................................................................... 216 33.5. Two causes of economic fluctuations .................................................................................... 219 34. The influence of monetary and fiscal policy on aggregate demand ............................................. 221 1. How monetary policy influences aggregate demand.................................................................. 222 34.2. How fiscal policy influences aggregate demand .................................................................... 225 34.3. Using policy to stabilize the economy .................................................................................... 226 35. The short-run trade-off between inflation and unemployment ................................................... 228

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35.1. The Phillips curve.................................................................................................................... 228 35.2. Shifts in the Phillips curve: The role of expectations ............................................................. 230 35.3. Shifts in the Phillips curve: The role of supply shocks ............................................................ 232 35.4. The cost of reducing inflation................................................................................................. 232 36. Six debates over macroeconomic policy ...................................................................................