The importance of an economic model is that it allows us to: build an accurate mathematical model of every aspect of the economy. focus on the effects of only one change at a time. build a complex and accurate model of how the economy should work. avoid opportunity costs.

Mankiw attributes – chapter 1 and his 10 principles – differences in living standards within a countryover time and across countries at a moment in time to: a. the presence or absence of inflation and unemployment.b. the allocation of resources between private markets and the public sector.c. those that have dealt successfully with the efficiency v. equality tradeoff and those that haven’t.d. differences in productivity.e. ones that think at the margin and respond to incentives and those that don’t.