The Top Three Economic Concepts

A new teacher of economics writes for some advice:

Dr. Mankiw,

I have been a reader of your blog for the last few months. Before that, I was a reader of your textbook and an (undergraduate) admirer of your work. After graduating from the University of Texas with an economics degree last spring, I joined Teach for America and wound up teaching high school social studies in Baltimore. At the end of last year, I was able to convince my principal to let me teach an economics course to second semester seniors this spring....

I thought I would write to ask you the following question: If you could teach every American teacher three economic concepts, what would they be?

Thank you,
[name withheld]

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.