This document outlines 10 of Greg Mankiw's key economic assumptions: 1. People face tradeoffs and have limited resources 2. The cost of something is measured by what one gives up to obtain it 3. Rational people make decisions at the margin by weighing costs against benefits

1. Verbal Bellringer
• What are 2 ways we learned yesterday that
economists view the world differently?

4. Greg Mankiw’s
Economic Assumptions
1. People Face Tradeoffs.
2. The Cost of Something is What You Give Up to Get It.
3. Rational People Think at the Margin.
4. People Respond to Incentives.
5. Trade Can Make Everyone Better Off.
6. Markets Are Usually a Good Way to Organize Economic
Activity.
7. Governments Can Sometimes Improve Market Outcomes.
8. A Country's Standard of Living Depends on Its Ability to
Produce Goods and Services.
9. Prices Rise When the Government Prints Too Much Money.
10. Society Faces a Short-Run Tradeoff Between Inflation and
Unemployment.

5. #1 People Face Tradeoffs
• Choices
• Can’t do everything
• Limits on life?
• Examples?

6. #2. The Cost of Something is What
You Give Up to Get It.
• Opportunity Cost
• Next best option
• Next best trade off
• Other examples?

7. 3. Rational People Think at the Margin
• Cost benefit analysis
• Video clip
• Benefits?
• Costs?
• Other
examples?
http://www.yadayadayadaecon.com/clip/7/

8. Think of examples where we could use
marginal analysis
• Direct mailing ads
• Doctor visits
• Drinking a cup of coffee
• Exercise
• 25 min lunch
• Longer school year
• 4 college classes vs. 5 classes
• Studying 1 hour vs. 2 hours
• Other marginal examples

9. Worksheet on marginal