The paper “ Ten Principles of Economics by Mankiw, Relevance of Microeconomics, and Macroeconomics to Business World” is an intriguing variant of the assignment on macro & microeconomics. The ten principles of economics can be categorized into three main groups; how individuals behave, how individuals interact, and how the economy functions. How individuals behave. The first four principles of economics by Gregory Mankiw deal with how individuals make decisions and behave. People face tradeoffsAccording to this principle, people are faced with difficult decisions that require one to give up something so as to get another thing.
Decision making requires one trade-off a given goal so as to achieve another. This principle proposes that individuals respond to incentives, think of the margins, and to get something, individuals must sacrifice another thing. The cost of something is considered to be what you sacrifice to get it. According to this principle, one has to take into account the implicit and obvious costs of the decision they make. Individuals who are rational think at the margin. This principle proposes that a decision maker who is rational will only take an action if the marginal benefit of that action is more than its marginal cost. Individuals respond to incentives. According to this principle, the decisions that individuals make, change when the advantages or cost of something changes or varies.
An excellent example to illustrate this principle is how people respond to changes in the prices of Gasoline. When the prices of gasoline are high, people buy more economic and smaller vehicles, whereas when the prices are lower people purchase big cars and vans (Mankiw 2008, p. 45). How individuals react. The next three principles of economics summarize how people interact.
The standards of living of a society rely on its production of services and goods. Inflation arises when the government prints excess money and the public will encounter short-term tradeoffs between unemployment, and inflation. Trade can improve the welfare of everyone. Trade enables each individual to concentrate in activities that she or he does best. Through trade, individuals can acquire a wider variety of services or goods.
Blanchard, O, 2000, Macroeconomics, Prentice Hall, Upper saddle river, N.J.
Bowles, S, 2004, Microeconomics: Behavior, Institutions, and Evolution. Russel Sage Foundation, United States.
De Haan, J & Strum, E, 2006, ‘How to Handle Economic Freedom: Reply to Lawson’. Economic Journal Watch, Vol. 3, No.3, pp 407–411.
Frank, R, A, 2006, Microeconomics and Behavior. 6th Ed. McGraw-Hill/Irwin, New York, NY.
Gravelle, H & Ray, R, 2004, Microeconomics. Prentice Hall, Financial Times, Essex, England.
Heijdra, B, J & Ploeg, F, 2002, Foundations of Modern Macroeconomics, Oxford University Press, New York.
Holmes, K, & Miller, T, 2010, 2010 index of economic freedom. The heritage foundation, Retrieved 26 July, 2010,
Kevin, L & Yoav, S, 2008, Essentials of Game Theory: A Concise, Multidisciplinary Introduction, Morgan & Claypool Publishers, San Rafael, CA.
Krugman, P & Robin, W, 2006, Economics, Worth Publishers, New York.
Ledyard, J, 2008, ‘Market failure’ The New Palgrave Dictionary of Economics. 2nd Ed. Palgrave Macmillan, Basingstoke, Hampshire, New York.
Mankiw, G, Kneebone, R, McKenzie, K & Nicholas, R, 2002, Principles of Microeconomics: Second Canadian Edition. Thomson-Nelson, United States.
Mankiw, G, 2008, Principles of economics, South-western Cengage learning, Mason, OH.
Miller, T, 2009, The 2009 index of economic freedom, The foundry, viewed 26 July 2010,
Mulhearn, C, Vane, H, & Eden, J, 2001, Economics for business, Macmillan publishers, Hampshire, England.
Nicholson, W, 2007, Microeconomic Theory: Basic Principles and Extensions. South-Western College Publishing, Chicago, IL.
Perloff, J, M, 2007, Microeconomics. 4th Ed. Pearson - Addison Wesley, Boston, MA.
Petri, F, 2004, General Equilibrium, Capital and Macroeconomics, Edward Elgar, Cheltenham.
Riley, G, 2006, Government failure, Tutor2u, viewed 26 July, 2010,
Sullivan, A & Steven, 2003, Economics: Principles in action, Upper Saddle River, New Jersey.
Weimer, D & Aidan, V, 2004, Policy Analysis: Concepts and Practice. Prentice Hall. Upper saddle river, N.J.