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Full Download Essentials of Economics 7th Edition Gregory Mankiw Solutions Manual
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There is a new In the News feature on "Actual Economists and Virtual Realities." Figure A-1 has been
updated.
LEARNING OBJECTIVES:
two simple models—the circular flow and the production possibilities frontier.
15
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
KEY POINTS:
Economists try to address their subject with a scientist’s objectivity. Like all scientists, they make
appropriate assumptions and build simplified models to understand the world around them. Two
simple economic models are the circular-flow diagram and the production possibilities frontier.
The field of economics is divided into two subfields: microeconomics and macroeconomics.
Microeconomists study decision making by households and firms and the interaction among
households and firms in the marketplace. Macroeconomists study the forces and trends that affect
the economy as a whole.
A positive statement is an assertion about how the world is. A normative statement is an assertion
about how the world ought to be. When economists make normative statements, they are acting
more as policy advisers than as scientists.
Economists who advise policymakers sometimes offer conflicting advice either because of differences
in scientific judgments or because of differences in values. At other times, economists are united in
the advice they offer, but policymakers may choose to ignore the advice because of the many forces
and constraints imposed by the political process.
CHAPTER OUTLINE:
3. Using data to evaluate theories is more difficult in economics than in physical science
because economists are unable to generate their own data and must make do with whatever
data are available.
4. Thus, economists pay close attention to the natural experiments offered by history.
1. Example: to understand international trade, it may be helpful to start out assuming that
there are only two countries in the world producing only two goods. Once we understand
how trade would work between these two countries, we can extend our analysis to a greater
number of countries and goods.
2. One important role of a scientist is to understand which assumptions one should make.
3. Economists often use assumptions that are somewhat unrealistic but will have small effects
on the actual outcome of the answer.
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 2/Thinking Like an Economist ❖ 17
To illustrate to the class how simple but unrealistic models can be useful, bring a
road map to class. Point out how unrealistic it is. For example, it does not show
where all of the stop signs, gas stations, or restaurants are located. It assumes that
the earth is flat and two-dimensional. But, despite these simplifications, a map
usually helps travelers get from one place to another. Thus, it is a good model.
2. The goal of a model is to simplify reality in order to increase our understanding. This is
where the use of assumptions is helpful.
Figure 1
1. Definition of circular-flow diagram: a visual model of the economy that shows how
dollars flow through markets among households and firms.
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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It was some moments before Polly could speak, then the words came in
gasps.
"What?"
"Yes; yes, she's dead; and the moon is shining on 'em both."
Gwen appalled at the news, opened the door and looked in. But what she saw
was so wonderful and beautiful that all horror subsided. Rachel was kneeling
by the bed on which Luke lay, her cheek resting on his dead hand and a smile
of rapture on her face. The moonlight was streaming into the room from the
open window on to the faces of husband and wife. Once more they were
together in its pathway as they had been on that evening on the sea at
Southwold, but now they were unconscious of it, as they were together in the
city that has no need of the sun neither the moon to shine in it, for the glory of
God did lighten it and the Lamb is the Light thereof.
When the villagers heard that Rachel had died of heart failure on the same
day as her husband they mourned and wept. So young, they said, to die! Two
valuable lives given for the sake of a poor sick baby of a drunken woman!
What a waste of life!
But the Bishop, who came to preach the funeral sermon, said, "It was one of
the most beautiful things of which he had ever heard, and he felt that instead
of mourning and weeping, there should be flowers and singing. Two happy
saints treading together the streets of gold! No long parting! No farewells! The
Rector," he told the people, "could hardly have had time to reach the gates of
Heaven before he was joined by his wife. What could be more joyful for them!"
"But," he added, and with evident emotion, "when we look at it from our own
point of view, we cannot help tears. Did not our blessed Lord weep at the
tomb of Lazarus? It is not wrong to weep; but in thinking of our loss, we must
not forget their gain; for they were lovely and pleasant in their lives and in their
death they were not divided!"
THE END.
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