N. Gregory Mankiw is Professor of Economics at Harvard University. He began popular introductory textbook Principles of Economics (Cengage Learning). He is also author of the best-selling introductory textbook Principles of Economics (Cengage Learning). Professor Mankiw is a regular participant in academic. preferred online store medical-site.info Principles of Macroeconomics, 6E. N. Gregory Mankiw. Vice President of Editorial, Business: Jack W. Calhoun.
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Solution to Macroeconomics by N Gregory Mankiw (8th Edition) [kgpian] are based on principles of optimization—firms and households do the best they can. Principles of Macroeconomics, 5e N. Gregory Mankiw Vice President of Editorial, Business: Jack W. Calhoun Vice President/Editor-in-Chief: Alex von Rosenberg. Google is proud to partner with libraries to digitize public domain materials and make them widely accessible. Public domain books belong to the public and we .
Thus, the relationship between price and quantity desired has changed and must be represented as a new demand curve. A simple way to tell if it is necessary to shift the curve is to look at the axes. When a variable that is not named on either axis changes, the curve shifts. Slope Figure A-5 1. We may want to ask how strongly a consumer reacts if the price of a product changes. If the demand curve is very steep, the quantity desired does not change much in response to a change in price. If the demand curve is very flat, the quantity desired changes a great deal when the price changes.
A small slope in absolute value means that the demand curve is relatively flat; a large slope in absolute value means that the demand curve is relatively steep.
Cause and Effect 1. Economists often make statements suggesting that a change in Variable A causes a change in Variable B. Ideally, we would like to see how changes in Variable A affect Variable B, holding all other variables constant. This is not always possible and could lead to a problem caused by omitted variables. Figure A-6 a. But, if Variable C has also changed, it is entirely possible that Variable C is responsible for the change in Variable B. Another problem is reverse causality.
However, it is entirely possible that the change in Variable B led to the change in Variable A. It is not always as simple as determining which variable changed first because individuals often change their behavior in response to a change in their expectations about the future. There are two very good examples in the text that you should use in class. To discuss the omitted variable problem, point out to students that a rise in the sales of cigarette lighters is positively related to the number of individuals diagnosed with lung cancer.
To discuss reverse causality, show that an increase in minivan sales is followed by an increase in birth rates. Quick Quizzes 1. Economics is like a science because economists devise theories, collect data, and analyze the data in an attempt to verify or refute their theories. In other words, economics is based on the scientific method.
Figure 1 shows the production possibilities frontier for a society that produces food and clothing. Point A is an efficient point on the frontier , point B is an inefficient point inside the frontier , and point C is an infeasible point outside the frontier. Figure 1 The effects of a drought are shown in Figure 2. The drought reduces the amount of food that can be produced, shifting the production possibilities frontier inward.
Figure 2 Microeconomics is the study of how households and firms make decisions and how they interact in markets. Macroeconomics is the study of economy-wide phenomena, including inflation, unemployment, and economic growth. Many other examples are possible.
Many other answers are possible. Economic advisers to the president might disagree about a question of policy because of differences in scientific judgments or differences in values. Chapter Quick Quiz 1.
Economics is a science because economists use the scientific method. Economists use theory and observation like other scientists, but they are limited in their ability to run controlled experiments. Instead, they must rely on natural experiments. Economists make assumptions to simplify problems without substantially affecting the answer. Assumptions can make the world easier to understand. An economic model cannot describe reality exactly because it would be too complicated to understand.
A model is a simplification that allows the economist to see what is truly important. There are many possible answers. There are many possible answers, including interactions involving government or international trade. Figure 3 shows a production possibilities frontier between milk and cookies PPF1. If a disease kills half of the economy's cow population, less milk production is possible, so the PPF shifts inward PPF2.
Note that if the economy produces all cookies, it does not need any cows and production is unaffected. But if the economy produces any milk at all, then there will be less production possible after the disease hits. Figure 3 7. An outcome is efficient if the economy is getting all it can from the scarce resources it has available.
In terms of the production possibilities frontier, an efficient point is a point on the frontier, such as point A in Figure 4. When the economy is using its resources efficiently, it cannot increase the production of one good without reducing the production of the other. A point inside the frontier, such as point B, is inefficient since more of one good could be produced without reducing the production of another good.
The two subfields in economics are microeconomics and macroeconomics. Microeconomics is the study of how households and firms make decisions and how they interact in specific markets. Positive statements are descriptive and make a claim about how the world is, while normative statements are prescriptive and make a claim about how the world ought to be.
Here is an example. A rapid growth rate of money is the cause of inflation. The government should keep the growth rate of money low. Economists sometimes offer conflicting advice to policymakers for two reasons: See Figure 5; the four transactions are shown. Acme's capital d. Acme's capital Markets for Factors of Production b.
Figure 6 shows a production possibilities frontier between guns and butter.
It is bowed out because of the law of increasing opportunity costs. As the economy moves from producing many guns and a little butter point H to producing fewer guns and more butter point D , the opportunity cost of each additional unit of butter increases because the resources best suited to producing guns are shifting toward the production of butter. Thus, the number of guns given up to produce one more unit of butter is increasing.
Point A is impossible for the economy to achieve; it is outside the production possibilities frontier.
Point B is feasible but inefficient because it is inside the production possibilities frontier. The Hawks might choose a point like H, with many guns and not much butter. The Doves might choose a point like D, with a lot of butter and few guns. If both Hawks and Doves reduced their desired quantity of guns by the same amount, the Hawks would get a bigger peace dividend because the production possibilities frontier is much flatter at point H than at point D.
As a result, the reduction of a given number of guns, starting at point H, leads to a much larger increase in the quantity of butter produced than when starting at point D.
See Figure 7. Gains in environmental productivity, such as the development of new way to produce electricity that emits fewer pollutants, lead to shifts of the production-possibilities frontier, like the shift from PPF1 to PPF2 shown in the figure. Figure 7 Figure 8 4. The production possibilities frontier is shown in Figure 8. Points A, B, and D are on the frontier, while point C is inside the frontier.
Larry is equally productive at both tasks. Moe is more productive at washing cars, while Curly is more productive at mowing lawns.
Allocation C is inefficient. More washed cars and mowed lawns can be produced by simply reallocating the time of the three individuals. A family's decision about how much income to save is related to microeconomics. The effect of government regulations on auto emissions is related to microeconomics.
The impact of higher saving on economic growth is related to macroeconomics. A firm's decision about how many workers to hire is related to microeconomics. The relationship between the inflation rate and changes in the quantity of money is related to macroeconomics.
The statement that society faces a short-run trade-off between inflation and unemployment is a positive statement. It deals with how the economy is, not how it should be. Since economists have examined data and found that there is a short-run negative relationship between inflation and unemployment, the statement is a fact.
The theoretical framework is a two-period general equilibrium model in which prices are sticky in the short run and flexible in the long run. Policy is evaluated by how well it raises the welfare of the representative household. This essay discusses the policy debate concerning optimal taxation and the distribution of income.
It begins with a brief overview of trends in income inequality, the leading hypothesis to explain these trends, and the distribution of the tax burden. It then considers the normative question of how the tax system should be designed. Should the income tax system include a tax credit for short taxpayers and a tax surcharge for tall ones?
Moreover, based on the empirical distribution of height and wages, the optimal height tax is substantial: This result has two possible interpretations. One interpretation is that individual attributes correlated with wages, such as height, should be considered more widely for determining tax liabilities.
Alternatively, if policies such as a tax on height are rejected, then the standard Utilitarian framework must in some way fail to capture our intuitive notions of distributive justice. This essay discusses various aspects of this policy debate. It focuses, in particular, on the use of these taxes to correct for various externalities—an idea advocated long ago by British economist Arthur Pigou.
This paper examines the optimal allocation of risk in an overlapping-generations economy. It compares the allocation of risk the economy reaches naturally to the allocation that would be reached if generations behind a Rawlsian "veil of ignorance" could share risk with one another through complete Arrow-Debreu contingent-claims markets. The paper then examines how the government might implement optimal intergenerational risk sharing with a social security system. One conclusion is that the system must either hold equity claims to capital or negatively index benefits to equity returns.
This paper develops and analyzes a general-equilibrium model with sticky information. The only rigidity in goods, labor, and financial markets is that agents are inattentive, sporadically updating their information sets, when setting prices, wages, and consumption.
It then estimates the parameters of the model using U. Service differentiation is one of the popular strategies used to compete in a no demand situation in the market.
Latent demand: At any given time it is impossible to have a set of services that offer total satisfaction to all the needs and wants of society.
In the market there exists a gap between desirables and the availables. There is always a search on for better and newer offers to fill the gap between desirability and availability. Latent demand is a phenomenon of any economy at any given time, it should be looked upon as a business opportunity by service firms and they should orient themselves to identify and exploit such opportunities at the right time.
For example, a passenger traveling in an ordinary bus dreams of traveling in a luxury bus. Therefore, latent demand is nothing but the gap between desirability and availability. Seasonal demand:Some services do not have an all year round demand, they might be required only at a certain period of time. Seasons all over the world are very diverse.
Seasonal demands create many problems to service organizations, such as:- idling the capacity, fixed cost and excess expenditure on marketing and promotions. Strategies used by firms to overcome this hurdle are like - to nurture the service consumption habit of customers so as to make the demand unseasonal, or other than that firms recognize markets elsewhere in the world during the off-season period. Hence, this presents and opportunity to target different markets with the appropriate season in different parts of the world.
For example, the need for Christmas cards comes around once a year. Or the, seasonal fruits in a country. Demand patterns need to be studied in different segments of the market. Service organizations need to constantly study changing demands related to their service offerings over various time periods.
They have to develop a system to chart these demand fluctuations, which helps them in predicting the demand cycles. Demands do fluctuate randomly, therefore, they should be followed on a daily, weekly or a monthly basis. Criticism[ edit ] E. Schumacher challenges the prevailing economic assumption that fulfilling demand is the purpose of economic activity, offering a framework of what he calls " Buddhist economics " in which wise demands, fulfilling genuine human needs, are distinguished from unwise demands, arising from the five intellectual impairments recognized by Buddhism:  The cultivation and expansion of needs is the antithesis of wisdom.
It is also the antithesis of freedom and peace. Only by a reduction of needs can one promote a genuine reduction in those tensions which are the ultimate causes of strife and war.