SOLUTIONS MANUAL to accompany
ECONOMICS Canada in the Global Environment Ninth Edition Michael Parkin University of Western Ontario
Robin Bade
Toronto Copyright © 2016 Pearson Canada Inc., Toronto, Ontario All rights reserved. This work is protected by Canadian copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the Internet) will destroy the integrity of the work and is not permitted. The copyright holder grants permission to instructors who have adopted Economics: Canada in the Global Environment, Ninth Edition, by Michael Parkin and Robin Bade to post this material online only if the use of the website is restricted by access codes to students in the instructor’s class that is using the textbook and provided the reproduced material bears this copyright notice.
CONTENTS
Part 1 Chapter 1 Chapter 2
Introduction What Is Economics? ......................................................................1 The Economic Problem ...............................................................17
Part 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7
How Markets Work Demand and Supply .....................................................................33 Elasticity ......................................................................................49 Efficiency and Equity ..................................................................63 Government Actions in Markets ..................................................79 Global Markets in Action.............................................................93
Part 3 Chapter 8 Chapter 9
Households’ Choices Utility and Demand ....................................................................107 Possibilities, Preferences, and Choices ......................................121
Part 4 Firms and Markets Chapter 10 Organizing Production ...............................................................139 Chapter 11 Output and Costs ........................................................................153 Chapter 12 Perfect Competition ...................................................................169 Chapter 13 Monopoly ...................................................................................183 Chapter 14 Monopolistic Competition .........................................................199 Chapter 15 Oligopoly ...................................................................................211 Part 5 Market Failure and Government Chapter 16 Externalities ...............................................................................225 Chapter 17 Public Goods and Common Resources ......................................237 Part 6 Factor Markets and Inequality Chapter 18 Markets for Factors of Production .............................................249 Chapter 19 Economic Inequality ..................................................................263 Part 7 Monitoring Macroeconomic Trends and Fluctuations Chapter 20 Measuring GDP and Economic Growth ....................................277 Chapter 21 Monitoring Jobs and Inflation ....................................................291 Part 8 Macroeconomic Trends Chapter 22 Economic Growth ......................................................................305 Chapter 23 Finance, Saving, and Investment ...............................................317 Chapter 24 Money, the Price Level, and Inflation .......................................329 Chapter 25 The Exchange Rate and the Balance of Payments .....................345
Part 9 Macroeconomic Fluctuations Chapter 26 Aggregate Supply and Aggregate Demand................................359 Chapter 27 Expenditure Multipliers .............................................................375 Chapter 28 The Business Cycle, Inflation, and Deflation ............................391 Part 10 Macroeconomic Policy Chapter 29 Fiscal Policy ...............................................................................409 Chapter 30 Monetary Policy .........................................................................423 Chapter 31 International Trade Policy (Macro split only) ...........................437
PREFACE
Introduction At no time in history has teaching the principles of economics been either more challenging or more important. Your decision to adopt the Ninth Edition of our textbook brings to your task a set of teaching and learning tools that are unmatched in their clarity, relevance, and currency. It is our hope that with the help of these tools you will enable your students to become as excited about economics as you are. This Solutions Manual reproduces all the “Review Quiz” questions and end-ofchapter “Study Plan Problems and Applications” and “Additional Problems and Applications” along with their solutions. If you are working through the questions and answers in class you will no longer need to turn from the textbook for the questions to this book for the answers: this Solutions Manual has both. You can use these solutions to help you grade problems you have assigned or photocopy them and hand them out directly to the students. All the questions in the textbook and this Solutions Manual are also in MyEconLab, so if you prefer you can assign the questions online and have them graded automatically and captured in the grade book.
Acknowledgments Robin Bade, assisted by Jeannie Gillmore of the University of Western Ontario, adapted the U.S. Twelfth Edition Solutions Manual prepared by Mark Rush of the University of Florida. As Mark prepared the U.S. Solutions Manual, his work was checked by Jeannie Gilmore of the University of Western Ontario. We and Mark are grateful for Jeannie’s extensive comments and corrections. We thank our supplements editor, Andra Skaalrud, who played a crucial role in coordinating and producing this manual. Even with the quality of all the help we have received, there always remains room for improvement. Any corrections, suggestions, or comments that you have will be greatly appreciated. Send your comments on this Solutions Manual or the text to one of us. Whether you’re teaching the principles course for the first time or are an experienced instructor at this level, we hope you will find this manual helpful. We wish you success and enjoyment in your course! Michael Parkin University of Western Ontario michael.parkin@uwo.ca Robin Bade robin@econ100.com
C h a p t e r
1
WHAT IS ECONOMICS?
Answers to the Review Quizzes Page 2 1.
List some examples of the scarcity that you face. Examples of scarcity common to students include not enough income to afford both tuition and a car, not enough learning capacity to study for both an economics exam and a chemistry exam in one night, and not enough time to allow extensive studying and extensive socializing.
2.
Find examples of scarcity in today’s headlines. A headline in the National Post on May 5, 2014 was “Porter Airlines to charge passengers first bag fee starting May 14.” Porter Airlines plans to charge between $25 and $28.25 for the first checked bag. Scarcity is our inability to satisfy all our wants. With the bag fee, a passenger faces scarcity because she has less money to satisfy other wants. Without the fee, Porter Airlines faces scarcity because it will be unable to offer other services.
3.
Find an example of the distinction between microeconomics and macroeconomics in today’s headlines. Microeconomics: On May 5, 2014, a headline in the National Post was “Check your gambling: Canadians betting $210-million on NHL playoffs.” This story covers a microeconomic topic because it discusses choices made by individuals and their gambling responses to the NHL playoffs. Macroeconomics: On May 5, 2014, a headline in the National Post was “Canadian dollar seen sliding below 80₵ by Mark Carney’s protégé.” This story covers a macroeconomic topic because it concerns the effect of the Canadian and world economy on the Canadian dollar.
Page 7 1.
Describe the broad facts about what, how, and for whom goods and services are produced. What we produce varies over time. In Canada today, services account for 78 percent of production, manufactured goods for 20 percent, and agriculture for 2 percent. What we produce also varies over countries. Agriculture and manufacturing are small percentages of production in rich countries and large percentages of production in poorer countries. How goods and services are produced is by businesses determining how the factors of production, land, labour, capital, and entrepreneurship, are combined to make the goods and services we consume. Land includes all natural resources, both renewable natural resources such as wood, and nonrenewable natural resources such as natural gas. The quality of labour depends on human capital. In Canada in 2013, 25.3 percent of the adult population had a university degree, a further 39 percent had some post-secondary education, and 93.6 percent had completed high school.
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