The Top Three Economic Concepts

Greg Mankiw offers the following:

I organized my principles text to put the most important concepts toward the front of the book. If I had limited time to teach a basic course, I would try to get through the first 10 chapters (out of 36 in the book), perhaps skipping chapter 2 on methodology and 5 on elasticity. Summarizing these chapters in three big ideas is hard, but here goes:

1. Comparative advantage and the gains from trade.

2. Supply, demand, and the efficiency of market equilibrium.

3. Market failure, such as externalities, and the role for government.

The lesson is that we can all gain from economic interdependence and that markets are a good, but not always perfect, way to coordinate people in an interdependent world.

Here are my three:

1. Comparative advantage
2. The role of incentives and opportunity costs
3. How markets spontaneously coordinate individual behavior and improve the human condition.

Note that my #3 is not the same as Mankiw's #2.

Comments

[Ken Houghton]

Your #2 is not the same as his #3, either.

I just you had done the same type of analysis of what the term "comparative advantage" really means.

[Jeff]

Ken, for what its worth - I think he and Greg are on the same page. They are both accepting that Comparative advantage dictates that isolationism/protectionism drives prices higher than they would be with free trade. Why go through the agonizing, cost prohibitive effort of producing coffee in America for American consumers when it is much more cost effective to simply buy it from Columbia (for example)? I think they are using the term correctly in both instances.

[MT]

A little off topic but Mankiw's decision to skip a chapter on methodology troubles me the most, in that making students more aware that there are methods of analyzing economic issues should mitigate the tendency to turn these issues into ideological and moral battles which would be an overall social benefit.