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Answers can also be found by selecting a chapter from the drop down menu on the left. Chapter 1Page 3 At one time, communist countries, such as China, tried to persuade their citizens to reduce their Aselfish@ material wants. However, such attempts to change mass behaviour were not successful, and have now largely ended in these countries. Page 10 The information revolution has had an impact on rates of economic growth in industrialized countries. For example, since 1995, Canada's average rate of economic growth seems to have risen. Many economists suggest that the increased use of computer-based technology is one important reason. Chapter 2 Page 30 Rolex watches are a specific example, since their high price is one of this product's attractive features to those consumers who can afford to buy them. Page 37 The large spreads that currently exist when comparing US dollar prices of the same products in various countries should gradually fall, as e-commerce increases competition by giving consumers a greater opportunity to purchase these products wherever in the world where price is lowest. Page 41 A decrease in supply causes a leftward movement along the demand curve, pushing down quantity demanded. The supply change again drives quantity demanded in the same direction. Chapter 3 Page 53 Yes there is. Because a perfectly elastic demand curve is horizontal, it has a zero slope. Similarly, a perfectly inelastic demand curve is vertical, so it has an infinite slope. Page 62 Negative. This is because a long run expansion in production would lead to a lower per-unit cost, allowing a fall in price at higher quantity levels. But as some businesses get larger, they gain a competitive advantage over smaller rivals, which makes a perfectly competitive market structure very unlikely. Page 70 They do so by charging those who wish to acquire addresses on the Internet. Chapter 4 Page 86 Yes. Though currently a small part of the new economy, biotechnology could be a major industry in the near future, thanks to continuing technological breakthroughs. Page 95 In this case, the AC curve is identical with the AFC curve, and average cost falls whenever output is increased. Page 100 No. Because customized methods reduce the importance of increasing returns to scale, businesses do not need to be as large to gain the competitive advantage that comes with low long-run average costs. Chapter 5 Page 110 The growing dominance of Microsoft in the markets for word-processing, spreadsheet, and web-browsing software is a good example. First-time buyers are often swayed to purchase Microsoft products because so many other consumers already use them. And those consumers who have spent time learning these programs are often reluctant to switch to competing software products. Page 115 The output level providing -$100 in negative profit will be chosen, since this output has a lower loss than the -$300 negative profit associated with the other possible output level. Chapter 6 Page 135 Cost estimates require estimating explicit and implicit costs at each possible output level. While revenue estimation is easy for perfect competitors, cost estimation is as difficult as it is for other businesses. Page 142 No. As in the case of businesses in imperfectly competitive markets, a monopolist chooses one level of output and then finds the highest possible price at that quantity. So it is impossible for the monopolist to devise a supply curve independent of the demand conditions it faces. Page 147 No. Some consumers can buy a product more cheaply as a result of price discrimination than would be the case if price-discriminating businesses instead charged all their customers the same price. Page 149 Official concentration ratios underestimate competition in Canada's bookselling industry, because they do not take into account foreign booksellers who sell to Canadian consumers through online and mail-order services. Chapter 7 Page 160 Because entrepreneurship is connected with mental attributes (ie. an individual's willingness to innovate and take risks), and can take a wide variety of forms, it is difficult to measure in any standard set of units. Page 162 One example is semi-skilled workers employed in telephone call centres. Page 167 None of these economic choices is more rational than the others. Each option merely represents different preferences concerning the acquisition of knowledge, and the timing of income flows. Page 171 Not all of Paul Kariya's salary is an economic rent, since part is remuneration for labour. (Paul Kariya, after all, has to work!) Chapter 8 Page 183 An extremely unequal distribution of income may dampen incentives to undertake such income-enhancing strategies as education or saving, since social and economic divisions make individual mobility difficult if not impossible. Page 187 No. For most Canadians this poverty line is far below the level they would use to define poverty. Page 192 With the growing importance of labour skills in the technology-driven economy, wages of unskilled and semi-skilled workers are falling in relation to those of other workers. Chapter 9 Page 207 If spending on education were included as investment, then Canada's total capital stock would have to be redefined to include the income-earning potential of education, known as human capital. Page 212 Because PPP-adjustment raises the value of Canada's per capita GDP, prices in Canada are lower in the United States. Taking the difference in the price levels in the two countries into account, the actual purchasing power of Canadians' incomes (as shown by PPP-adjusted per capita GDP) is higher than is apparent from per capita GDP in unadjusted US dollars. Page 213 Those economists who disagree with broad indicators of well-being, such as the GPI, argue their calculation includes many subjective elements that are open to disagreement. For example, what wage rate should be used to value the unpaid work of homemakers? How valuable is a relatively equitable distribution of income to society as a whole? And what monetary value should be attached to "natural capital" such as forests and the marine environment? Chapter 10 Page 230 Deflation helps those whose incomes are fixed (or whose incomes do not fall) in nominal terms. For these people, real incomes increase, because nominal incomes stay the same while prices fall. Deflation that is unexpected also helps lenders. This is because actual real interest rates end up being higher than expected real interest rates. Others are hurt by deflation. Because deflation reduces business prospects, not only are entrepreneurs hurt, but also those who lose their jobs as a result of the self-feeding effects of deflation. Borrowers, too, are hurt by unexpected deflation. Page 237 The negligible impact of minimum wages on skilled workers is due to the fact that wages for these workers are virtually always higher than the minimum wage. For these workers, the minimum wage is an example of a price floor set below the equilibrium price. Chapter 11 Page 252 Of all of the aggregate demand components, consumption is the most stable. While investment is highly unstable, government purchases can vary due to decisions by government policy-makers. Net exports, meanwhile, are affected not just by income changes in the domestic economy (imports) and in the rest of the world (exports), but also by variations in the exchange rate. Page 258 As IT innovations are adopted throughout the economy, the efficiency of old-economy businesses is being improved. The gradual spread of new communications methods and the expanded uses of computer technology are particularly important aspects of these trends. Page 268 Sectors producing nondurable consumer goods and services are least affected by a downturn, since households tend to purchase these items regardless of changes in the business cycle. Chapter 12 Page 284 With lower tax rates in the economy, the impact of automatic stabilizers will be somewhat reduced. Page 290 Over the past few decades, there has been a significant increase in the proportion of income withdrawn by governments (due to higher tax rates) and by the rest of the world (due to higher levels of foreign trade). The result has been a rise in the Canadian economy's MPW and therefore a fall in the value of the spending multiplier. Page 296 A protracted period of budget surpluses not only reduces public debt directly, it also causes a reduction in public debt charges, which causes public debt to fall even more quickly. This has been the case in Canada during most years over the past decade. Chapter 13 Page 317 It is quite possible that e-currencies will be introduced by private companies rather than by governments – especially since these currencies will circulate across national boundaries. The result will be a gradual loss of the ability of national governments to control the money supply within their own countries. Page 326 Because banks choose lower reserve ratios than those that were required when these ratios were set by law, the size of the money multiplier has risen. Chapter 14 Page 335 The main factors determining the average price of treasury bills are the demand and supply of bills at each auction. If there is an increase in the demand for treasury bills by chartered banks, near banks or the Bank of Canada, then their average price rises, pushing down their nominal interest rate. In contrast, if the Bank of Canada supplies more treasury bills, then the bills' average price falls, pushing up their nominal interest rate. Chapter 15 Page 359 With lower Canadian interest rates relative to those in the US, the capital and financial accounts in Canada have often moved into a deficit, which has frequently meant a corresponding surplus on the current account. Page 366 With the expected increase in foreign-held Canadian debt, speculators will forecast that there will be downward pressure on the value of the Canadian dollar. Speculators will sell Canadian dollars, hastening the dollar's depreciation. Page 373 The main advantage of a single international currency would be the minimization of currency risk for the entire world. This lower risk would raise international trade, enhancing the benefits of world-wide comparative advantage. The main disadvantage would be that individual countries would no longer have the power to engage in independent monetary policy as a stabilization tool. Chapter 16 Page 381 Governments, too, have helped spur globalization through a series of international trade agreements that have reduced trade barriers and increased cross-border trade. These trade agreements have been both multilateral (such as the GATT and WTO) and regional (such as NAFTA). Page 384 As more transactions – including purchases of products such as software and music -- are conducted through e-commerce, it will be more difficult for public statistical agencies such as Statistics Canada to measure the trade in services. Page 393 The foothold that a country can gain in a technology industry through strategic trade policy may give domestic firms in this industry a long-run competitive advantage, by protecting the firms as they expand to benefit from increasing returns to scale. But there is no guarantee that firms aided in this way will achieve these results. If not, then such policies are difficult to defend from either a domestic or international perspective. Page 400 The main economic argument in favour of a common market with the US is that this arrangement would reduce the ability of the US government to evade its obligations under NAFTA, as well as under the WTO, through the repeated reintroduction of tariffs on certain goods (such as softwood lumber) then using the delay in dispute resolution to apply effective trade barriers. The main economic argument against a common market is that it would mean that Canada would have to have the same trade policies vis a vis the rest of the world as does the US. These trade policies – which would be developed south of the border – may not reflect Canadian interests. Chapter 17 Page 414 The main consequence has been a drop in Canada's per capita GDP, when expressed in PPP-adjusted US dollars, relative to the per capita GDPs in other industrialized countries. To the extent that per capita GDP is an indicator of living standards, this represents a relative drop in Canadians' average economic well-being as well. Page 424 In these other recipient countries, economic mismanagement and corruption can lead to a situation where aid funds do not contribute to growth or average well-being, but instead are used primarily on wasteful high-profile projects or to increase the living standards of a small governing elite. |