Economics Mankiw

Unit I: Introduction to Economics (Chapters I & II)

Chapter I Review Questions

1. Give 3 examples of important trade-offs that you face in your life.

2. Water is necessary for life. Is the marginal benefit of a glass of water large or small?

3. Why should policymakers think about incentives?

4. Why isn’t trade among countries like a game with some winners and some losers?

5. What does the “invisible hand” of the marketplace do?

6. Explain the 2 main causes of market failure and give an example of each.

Chapter II Review Questions

7. Name a way that your family interacts in the factor market, and a way that it interacts in the product market.

8. Use a production possibilities frontier to describe the idea of ‘efficiency’.

9. Why do economists sometimes offer conflicting advice to policymakers?

10. Classify each of the following statements as positive or normative. Explain.

a. Society faces a short-run trade-off between inflation and unemployment

b. A reduction in the rate of money growth will reduce the rate of inflation

c. The Federal Reserve should reduce the rate of money growth

d. Society ought to require welfare recipients to look for jobs

e. Lower tax rates encourage more work and more saving

Unit II: Critical Principles in Economics (Chapters III, IV, V, & VI)

Chapter III Review Questions

1. Give an example in which one person has an absolute advantage in doing something but another person has a comparative advantage.

2. Is absolute advantage or comparative advantage more important for trade? Explain your reasoning using the example in your answer to question #1.

3. Will a nation tend to export or import goods for which it has a comparative advantage? Explain.

4. Why do economists oppose policies that restrict trade among nations?

Answers: Chapter I

1. Time trade-offs (studying one subject over another or participating in social activities) and spending trade-offs (buy a pizza or a study guide, e.g.)

2. The marginal...