, CONTENTS
Part 1 Introduction
Chapter 1 What Is Economics? ....................................................................... 1
Chapter 2 The Economic Problem ................................................................ 17
Part 2 How Markets Work
Chapter 3 Demand and Supply ..................................................................... 35
Chapter 4 Elasticity ....................................................................................... 51
Chapter 5 Efficiency and Equity ................................................................... 65
Chapter 6 Government Actions in Markets .................................................. 81
Chapter 7 Global Markets in Action ............................................................. 95
Part 3 Households’ Choices
Chapter 8 Utility and Demand .................................................................... 109
Chapter 9 Possibilities, Preferences, and Choices ...................................... 125
Part 4 Firms and Markets
Chapter 10 Output and Costs ........................................................................ 141
Chapter 11 Perfect Competition .................................................................... 159
Chapter 12 Monopoly ................................................................................... 173
Chapter 13 Monopolistic Competition .......................................................... 189
Chapter 14 Oligopoly .................................................................................... 203
Part 5 Market Failure and Government
Chapter 15 Externalities ................................................................................ 217
Chapter 16 Public Goods and Common Resources ...................................... 231
Part 6 Factor Markets and Inequality
Chapter 17 Markets for Factors of Production .............................................. 243
Chapter 18 Economic Inequality................................................................... 257
, Chapter
1 WHAT IS
ECONOMICS?
An s w e rs t o t h e R e v i e w Q u i z ze s
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 for extensive studying and
extensive socializing.
2. Find examples of scarcity in today’s headlines.
Scarcity is our inability to satisfy all our wants. An example of scarcity is the headline on
www.cbc.ca on March 30, 2020, which states “Farmers concerned about disruptions to spring
seeding, and lack of foreign workers amid Covid-19.” Farmers are preparing to plant their
crops, and supply disruptions mean that farmers are unable to plant all the crops that they
want. Farmers also want to hire foreign workers to help on livestock farms, but a scarcity of
foreign workers means that they can’t hire the number of workers that they want. Farmers
face scarcity.
3. Find an example of the distinction between microeconomics and
macroeconomics in today’s headlines.
Microeconomics: On November 29, 2022, a headline in The Financial Post was “Carbon
pricing good idea.” This story covers a microeconomic topic because it discusses choices
made by individuals and businesses regarding their carbon emission production, and how the
government influences decisions by implementing carbon pricing.
Macroeconomics: On November 27, 2022, a headline in The Financial Post was “Devastated
by war, Ukraine economy will have dropped 36% by end of year.” This story covers a
macroeconomic topic because it concerns the performance of the Ukrainian economy.
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 70 percent of
production, manufactured goods for 28 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 2022, 29 percent of the adult population had
a university degree, a further 37.7 percent had some post-secondary education, and 96.2
percent had completed high school.
, 2 CH A P T ER 1
For whom goods and services are produced depends on the incomes that people earn.
People with large incomes can buy a wide range of goods and services. People with small
incomes can afford a smaller range of goods and services.
2. Use headlines from the recent news to illustrate the potential for conflict between
self-interest and the social interest.
One example of an issue that illustrates the potential for conflict between self-interest and the
social interest is the Trans Mountain Pipeline. On cbc.ca on March 8, 2022, the headline
“B.C. adds conditions for Trans Mountain Pipeline” appears. The potential for conflict exists
between the self-interest of the potential workers whose employment is being delayed or
possibly eliminated and the social interest of the B.C. government and others who are
concerned about the environment.
Page 10
1. Explain the idea of a tradeoff and think of three tradeoffs that you have made
today.
A tradeoff is an exchange—giving up one thing to get something else. What is given up is the
opportunity cost of whatever is obtained. Three examples of tradeoffs are: a) When a student
sleeps in rather than attending his early morning economics class, the student trades
additional sleep for study time. The opportunity cost of the decision is the difference between
the A and the C he receives on the exam. b) When a student running late for class parks her
car illegally, the student trades saving time for the risk of a ticket. The potential opportunity
cost of the decision is the goods and services that cannot be purchased if the student
receives an expensive parking ticket. c) A student trades higher income by spending time
during the day working at a part-time job for less time spent at leisure. The opportunity cost of
the higher income is the leisure time given up.
2. Explain what economists mean by rational choice and think of three choices that
you’ve made today that are rational.
A rational choice is one that compares the costs and benefits and achieves the greatest
benefit over cost for the person making the choice. Three rational choices are: a) The choice
to skip breakfast to go to class. In this case the benefit is the higher grade in the class and
the cost is the breakfast forgone. b) The choice to stop talking with a friend on the phone and
start studying for an impending exam. In this case the benefit is the resulting higher grade in
the class and the cost is the conversation forgone. c) The choice to do laundry today rather
than watch television. In this case the benefit is clean clothes to wear and the cost is the loss
of the entertainment the television show would have provided.
3. Explain why opportunity cost is the best forgone alternative and provide
examples of some opportunity costs that you have faced today.
When a decision to undertake one activity is made, often many alternative activities are no
longer possible. Often these activities are mutually exclusive so only the highest-valued
alternative is actually forgone. For instance, the decision to go to a student’s 8:30 AM class
eliminates the possibility of sleeping in during the hour and of jogging during the hour. But in
this case, it is impossible to both sleep in and to jog during the hour, so the opportunity cost
of attending class cannot be both activities. The opportunity cost of attending class is only the
activity that otherwise would have been chosen—either sleeping in or jogging—whatever
activity is the most highly valued of the forgone alternatives.
Part 1 Introduction
Chapter 1 What Is Economics? ....................................................................... 1
Chapter 2 The Economic Problem ................................................................ 17
Part 2 How Markets Work
Chapter 3 Demand and Supply ..................................................................... 35
Chapter 4 Elasticity ....................................................................................... 51
Chapter 5 Efficiency and Equity ................................................................... 65
Chapter 6 Government Actions in Markets .................................................. 81
Chapter 7 Global Markets in Action ............................................................. 95
Part 3 Households’ Choices
Chapter 8 Utility and Demand .................................................................... 109
Chapter 9 Possibilities, Preferences, and Choices ...................................... 125
Part 4 Firms and Markets
Chapter 10 Output and Costs ........................................................................ 141
Chapter 11 Perfect Competition .................................................................... 159
Chapter 12 Monopoly ................................................................................... 173
Chapter 13 Monopolistic Competition .......................................................... 189
Chapter 14 Oligopoly .................................................................................... 203
Part 5 Market Failure and Government
Chapter 15 Externalities ................................................................................ 217
Chapter 16 Public Goods and Common Resources ...................................... 231
Part 6 Factor Markets and Inequality
Chapter 17 Markets for Factors of Production .............................................. 243
Chapter 18 Economic Inequality................................................................... 257
, Chapter
1 WHAT IS
ECONOMICS?
An s w e rs t o t h e R e v i e w Q u i z ze s
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 for extensive studying and
extensive socializing.
2. Find examples of scarcity in today’s headlines.
Scarcity is our inability to satisfy all our wants. An example of scarcity is the headline on
www.cbc.ca on March 30, 2020, which states “Farmers concerned about disruptions to spring
seeding, and lack of foreign workers amid Covid-19.” Farmers are preparing to plant their
crops, and supply disruptions mean that farmers are unable to plant all the crops that they
want. Farmers also want to hire foreign workers to help on livestock farms, but a scarcity of
foreign workers means that they can’t hire the number of workers that they want. Farmers
face scarcity.
3. Find an example of the distinction between microeconomics and
macroeconomics in today’s headlines.
Microeconomics: On November 29, 2022, a headline in The Financial Post was “Carbon
pricing good idea.” This story covers a microeconomic topic because it discusses choices
made by individuals and businesses regarding their carbon emission production, and how the
government influences decisions by implementing carbon pricing.
Macroeconomics: On November 27, 2022, a headline in The Financial Post was “Devastated
by war, Ukraine economy will have dropped 36% by end of year.” This story covers a
macroeconomic topic because it concerns the performance of the Ukrainian economy.
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 70 percent of
production, manufactured goods for 28 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 2022, 29 percent of the adult population had
a university degree, a further 37.7 percent had some post-secondary education, and 96.2
percent had completed high school.
, 2 CH A P T ER 1
For whom goods and services are produced depends on the incomes that people earn.
People with large incomes can buy a wide range of goods and services. People with small
incomes can afford a smaller range of goods and services.
2. Use headlines from the recent news to illustrate the potential for conflict between
self-interest and the social interest.
One example of an issue that illustrates the potential for conflict between self-interest and the
social interest is the Trans Mountain Pipeline. On cbc.ca on March 8, 2022, the headline
“B.C. adds conditions for Trans Mountain Pipeline” appears. The potential for conflict exists
between the self-interest of the potential workers whose employment is being delayed or
possibly eliminated and the social interest of the B.C. government and others who are
concerned about the environment.
Page 10
1. Explain the idea of a tradeoff and think of three tradeoffs that you have made
today.
A tradeoff is an exchange—giving up one thing to get something else. What is given up is the
opportunity cost of whatever is obtained. Three examples of tradeoffs are: a) When a student
sleeps in rather than attending his early morning economics class, the student trades
additional sleep for study time. The opportunity cost of the decision is the difference between
the A and the C he receives on the exam. b) When a student running late for class parks her
car illegally, the student trades saving time for the risk of a ticket. The potential opportunity
cost of the decision is the goods and services that cannot be purchased if the student
receives an expensive parking ticket. c) A student trades higher income by spending time
during the day working at a part-time job for less time spent at leisure. The opportunity cost of
the higher income is the leisure time given up.
2. Explain what economists mean by rational choice and think of three choices that
you’ve made today that are rational.
A rational choice is one that compares the costs and benefits and achieves the greatest
benefit over cost for the person making the choice. Three rational choices are: a) The choice
to skip breakfast to go to class. In this case the benefit is the higher grade in the class and
the cost is the breakfast forgone. b) The choice to stop talking with a friend on the phone and
start studying for an impending exam. In this case the benefit is the resulting higher grade in
the class and the cost is the conversation forgone. c) The choice to do laundry today rather
than watch television. In this case the benefit is clean clothes to wear and the cost is the loss
of the entertainment the television show would have provided.
3. Explain why opportunity cost is the best forgone alternative and provide
examples of some opportunity costs that you have faced today.
When a decision to undertake one activity is made, often many alternative activities are no
longer possible. Often these activities are mutually exclusive so only the highest-valued
alternative is actually forgone. For instance, the decision to go to a student’s 8:30 AM class
eliminates the possibility of sleeping in during the hour and of jogging during the hour. But in
this case, it is impossible to both sleep in and to jog during the hour, so the opportunity cost
of attending class cannot be both activities. The opportunity cost of attending class is only the
activity that otherwise would have been chosen—either sleeping in or jogging—whatever
activity is the most highly valued of the forgone alternatives.
