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Principles of Economics
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The word economy comes from the Greek word oikonomos, which means “one who manages a household.” At first, this origin might seem peculiar.
But in fact, households and economies have much in common. A household faces many decisions. It must decide which members of
the household do which tasks and what each member gets in return: Who cooks dinner? Who does the laundry? Who gets the extra dessert at dinner? Who gets to
choose what TV show to watch? In short, the household must allocate its scarce resources among its various members, taking into account each member’s abilities,
efforts, and desires. Like a household, a society faces many decisions. A society must find some
way to decide what jobs will be done and who will do them. It needs some people to grow food, other people to make clothing, and still others to design computer
software. Once society has allocated people (as well as land, buildings, andmachines) to various jobs, it must also allocate the output of goods and servicesthey produce.
It must decide who will eat caviar and who will eat potatoes. It must decide who will drive a Ferrari and who will take the bus.
The management of society’s resources is important because resources are scarce. Scarcity means that society has limited resources and therefore cannot
produce all the goods and services people wish to have. Just as each member of a household cannot get everything he or she wants, each individual in a society
cannot attain the highest standard of living to which he or she might aspire. Economics is the study of how society manages its scarce resources. In most
societies, resources are allocated not by an all-powerful dictator but through the combined actions of millions of households and firms. Economists therefore study
how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact
with one another. For instance, they examine how the multitude of buyers and sellers of a good together determine the price at which the good is sold and the
quantity that is sold. Finally, economists analyze forces and trends that affect the economy as a whole, including the growth in average income, the fraction of
the population that cannot find work, and the rate at which prices are rising. The study of economics has many facets, but it is unified by several central
ideas. In this chapter, we look at Ten Principles of Economics. Don’t worry if you don’t understand them all at first or if you aren’t completely convinced. We will
explore these ideas more fully in later chapters. The ten principles are introduced here to give you an overview of what economics is all about. Consider this chapter
a “preview of coming attractions
N. Gregory Mankiw - Personal Name
5th Edition
13: 978-0-538-45305-
NONE
Principles of Economics
Management
English
South-Western, Cengage Learning
2012
USA
1-890
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