Download Answer to Questions in Thinking About Economics Boxes

Answers to Questions in Thinking About Economics Boxes
Page 3
At one time, communist countries, such as China, tried to persuade their citizens to reduce their
selfish 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.
Page 31
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 38
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 42
A decrease in supply causes a leftward movement along the demand curve, pushing down
quantity demanded. Again, the supply change drives quantity demanded in the same direction.
Page 55
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 64
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 88
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 98
In this case, the AC curve is identical with the AFC curve, and average cost falls whenever
output is increased.
Page 103
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.
Page 114
The continuing 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 119
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.
Page 146
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 150
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 162
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.
Page 177
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 181
They do so by charging those who wish to acquire addresses on the Internet.
Page 187
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 189
An extremely unequal distribution of income may dampen incentives to undertake such incomeenhancing strategies as education or saving, since social and economic divisions make individual
mobility difficult if not impossible.
Page 193
No. For most Canadians this poverty line is far below the level they would use to define poverty.
Page 197
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.
Page 213
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 218
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 219
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?
Page 236
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 243
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.
Page 258
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 264
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 276
The main consequence has been a drop in Canada’s per capita GDP, when expressed in PPPadjusted 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 282
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.
Page 299
With lower tax rates in the economy, the impact of automatic stabilizers will be somewhat
reduced.
Page 305
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 311
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.
Page 332
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 341
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.
Page 351
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.
Page 377
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 384
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 391
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.
Page 399
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 402
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 411
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 418
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 16 (Online Learning Center)
Page 4
One example is semi-skilled workers employed in telephone call centres.
Chapter 17 (Online Learning Center)
Page 3
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 18 (Online Learning Center)
Page 8
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.