1. Comparative advantage and the gains from trade.Two out of three is only 67 percent. Where I went to school, that's a "D" -- at best.
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.
Where'd Mankiw go wrong? By touting "market failure" as a legitimate concept. As I've said (here and here, at #16):
There's no such thing as "market failure." Rather, there is only failure of the market to provide what some people think it should provide.* * *
Those who invoke market failure are asserting that certain social and economic outcomes should be "fixed" (as in a "fixed" boxing match) to correct the "mistakes" and "oversights" of the market. Those who seek certain outcomes then use the political process to compel those outcomes, regardless whether those outcomes are, on the whole, beneficial. The proponents of compulsion succeed (most of the time) because the benefits of government intervention are focused and therefore garner support from organized constituencies (i.e. interest groups and voting blocs), whereas the costs of government intervention are spread among taxpayers and/or buyers of government debt.Mankiw -- one of that rare breed: the Republican economist -- reveals himself as a big-government conservative. (That's not surprising, given his service as chairman of the Council of Economic Advisers under G.W. ("no child left behind") Bush.) For example, here is a post about Giuliani's health