As in recent editions, in the main body of the text we have retained all the basic material. What follows is a short list of the main changes we made to the textbook.
Learning Objectives (LO)
What Is Economics?
The opportunity cost of one additional kilometer of road repair is two kilometers of new cycle paths. From Figure 1-1 we see that the opportunity cost of one additional kilometer of road repair is two kilometers of new bike path.
What Is Produced and How?
What Is Consumed and by Whom?
Or will the country's ability to trade with other countries allow the economy to consume a different combination of goods.
Why Are Resources Sometimes Idle?
Is Productive Capacity Growing?
- The Complexity of Modern Economies
- Is There an Alternative to the Market Economy?
Questions related to the idleness of resources and the growth of the economy's productive capacity fall within the realm of macroeconomics. Government policy can be used to change the allocation of the economy's resources to correct these market failures. For example, when you are considering buying a new shirt, you know the marginal cost of the shirt—.
Beginning with the Soviet Union in the early 1920s, many countries adopted systems in which conscious government central planning replaced the operation of the free market. He advocated a system of central planning in which the government owned most of the means of production. These shifts in the market-government mix, and the reasons for them, are some of the key issues that will be explored in this book.
MyLab Economics
Positive and Normative Statements
Much of the success of modern science depends on the ability of scientists to separate their beliefs about what is happening in the world from their beliefs about what they would like to happen. All five positive statements in the table are statements about the nature of the world we live in. It is not necessary for the economist to rely on a value judgment to check the validity of the statement itself.
Whether they agree or disagree with each other, economists are in demand in many sectors of the economy. The skills of economists are sought after in many parts of the economy by governments, private businesses and crown corporations, not-for-profit organizations and universities. Private and public (Crown) corporations in many sectors of the economy also employ economists in various positions.
Building and Testing Economic Theories
In a theory of the egg market, the variable quantity of eggs can be defined as the number of cartons of 12 Grade A large eggs. To illustrate the difference, the price of eggs and the quantity of eggs are endogenous variables in our theory of the egg market—our theory is designed to explain them. This may affect the number of eggs that consumers demand or producers supply, but we can safely assume that the state of the weather is not affected by the market for eggs.
Much of the theory we will study in this book is based on the assumption that business owners are trying to make as much money as possible—that is, to maximize their profits. For example, a prediction from world oil market theory is that a rise in the world price of oil will cause Canadian oil producers to produce and supply more oil. Another forecast in the same market is that the decision by the members of the OPEC cartel to reduce their annual oil production will lead to a rise in the world price.
Economic Data
For each index number, the value of output in the base year is 100. An index number simply expresses the value of a variable in a given year as a percentage of its value in the base year. The results in Table 2-3 allow us to compare the relative fluctuations in the two series.
The variable in the figure is the average sales price of a home in each of the ten Canadian provinces in March 2018. The scatter plot shows income and savings for the ten households in the table. The number on each dot refers to the household in the corresponding row of the table.
Graphing Economic Theories
This is shown by the decreasing slope of the curve as we move to the right along it. The figure shows that the slope of the curve at each point measures this marginal change. For example, in Figure 2-8, the slope of the curve decreases as the costs for pollution clean-up increase.
Because the tangent at point A is horizontal, the slope of the curve is zero at that point. Note that, once again, at point A the slope of the curve is zero (because a tangent to the curve at point A is horizontal), and so the marginal response of fuel consumption to speed is zero. If two points on a line are and what is the slope of the line.
Demand
We are interested in studying the relationship between the quantity demanded of a product and the price of that product. A basic economic hypothesis is that the price of a product and the quantity demanded are negatively related, other things being equal. The negative slope of the curve indicates that the quantity demanded increases as the price falls.
The term demand therefore refers to the entire relationship between the quantity demanded of a product and the price of that product. An increase in annual household income increases the quantity demanded at any price (for all normal goods). A change in any of the variables (other than the price of the product itself) that affect the quantity demanded will shift the demand curve to a new position.
Consumers’ Income
The demand curve can shift to the right or to the left and the difference is crucial. In the first case, more is desired at each price – the demand curve shifts to the right so that each price corresponds to a larger quantity than before. A rightward shift of the demand curve from to indicates an increase in demand; a shift to the left from to means a decrease in demand.
This term reflects economists' empirical finding that demand for most products increases as income rises. For example, some consumers may demand fewer public transportation rides (and more taxi rides) as their income increases.
Prices of Other Goods
We will tell you more about normal and inferior goods in Chapter 4. increase the quantity demanded of both products. Thus, a fall in the price of a complement for a product will shift the demand curve for that product to the right. For example, a drop in the price of air travel to Calgary will cause an increase in the demand for lift tickets in Banff, even though the price of those lift tickets is.
Consumers’ Tastes
Population
Significant Changes in Weather
- Supply
First, consider the statement that the increase in the price of coffee is caused by an increase in the demand for coffee. This statement refers to a shift in the demand curve for coffee—in this case, a shift to the right, indicating that more coffee is demanded at each price. Economists reserve the term change in demand to describe a change in the quantity demanded at each price.
The increase in demand causes an increase in the quantity demanded at the initial price, whereas the movement along the new demand curve causes a decrease in the quantity demanded. An increase in demand means that the demand curve shifts to the right, and therefore the quantity demanded is higher for each price. A shift in the supply curve means that at each price there is a change in the quantity supplied.
Prices of Inputs
Technology
A change in any of the variables (other than the price of the product) that affects the quantity supplied will shift the supply curve to a new position. Because greater profitability leads to greater willingness to produce, this technological change shifts the supply curve to the right.
Government Taxes or Subsidies
Prices of Other Products
In this example, a decrease in the price of oats leads to an increase in the supply of wheat. Thus, the increase in the price of oil leads to an increase in the supply of the complementary product - natural gas. Especially in the agricultural sector, significant weather changes can lead to changes in supply.
Drought, excessive rain or flooding can massively reduce the supply of wheat and other growing crops. Multiple hurricanes in the summer and fall of 2017 caused massive damage to a wide range of industrial facilities in Florida, Puerto Rico, and several Caribbean islands. In the summer of 2016, a massive fire destroyed large parts of Fort McMurray, Alberta and forced the temporary shutdown of oil sands production facilities.
Number of Suppliers
- The Determination of Price
Similarly, if existing firms are losing money, they will eventually exit the industry; such a reduction in the number of suppliers shifts the supply curve to the left. Economists reserve the term change in supply to describe a shift in the entire supply curve—that is, the change in the quantity that will be supplied at each price. The term change in quantity supplied refers to a shift from one point on the supply curve to another point, either on the same supply curve or on a new one.
In other words, an increase in supply means that the entire supply curve has shifted to the right, so that the quantity supplied at any given price has increased; an upward and rightward shift along the supply curve indicates an increase in the quantity supplied in response to an increase in the price of the product. A change in quantity supplied may be the result of a change in constant-price supply, a movement along a given supply curve due to a change in price, or a combination of the two. An exercise you might find useful is to construct a diagram similar to Figure 3-4, emphasizing the difference between a shift in the supply curve and a movement along the supply curve.
