SOLUTIONS MANUAL
ECONOMICS TODAY
A CANADIAN PERSPECTIVE MACROECONOMICS
1ST CANADIAN EDITION
CHAPTER NO. 01: THE NATURE OF ECONOMICS
ANSWERS TO QUESTIONS FOR CRITICAL ANALYSIS
AI: DECISION MAKING THROUGH DATA
Why do you suppose that economists sometimes disagree about whether to classify as a
microeconomic or macroeconomic endeavor the application of big data analytics to massive
volumes of information encompassing virtually all of a nation’s industries and interactions among
those industries?
Because big data analytics uses such massive volumes of information, which can encompass
virtually all a nation’s industries and interactions among those industries, it seems as if the
endeavor is a macroeconomic application (large scale). However, in many cases, this big data just
represents a small part of the economy, which could be perceived as a microeconomic application
(individual scale or sub-scale).
THE INCENTIVES TO ATTEND POST-SECONDARY EDUCATION (P. 7)
Sometimes adults tell young people to “get all the education you can get.” Does this mean that
you should necessarily obtain an advanced degree?
Under special circumstances, your answer to this Real Application question would be, yes. Those
special circumstances would involve being able to obtain an advanced degree at zero cost to you
and simultaneously not having any job opportunities as an alternative. Otherwise, you should look
at how much more you would expect to earn per year if you complete an advanced degree program
compared with what you could have earned working rather than spending more time in a
university. Plus, you would have to consider the out-of-pocket costs of pursuing an advanced
degree.
ASSESSING WHETHER CHARITABLE DONATIONS REFLECT CARING FOR OTHERS OR FOR
ONESELF
,How might the fact that the Canadian government allows larger tax deductions for some charitable
donations than for others, how would this affect Canadian taxpayers’ incentives about how much
to donate and to whom they direct their donations?
Canadian taxpayers are likely to donate to charities that will both help others and those in which
will make them better off (either through a tax deduction or a charitable gift). If the government
allows larger tax deductions for some charitable donations over others, taxpayers are likely to
donate more to the charities where they receive a larger benefit (tax deduction).
GETTING DIRECTIONS
In what way do small talk and gossip represent the use of simplifying assumptions?
Gossip and small talk usually deal with other persons or situations of interest to the persons
engaged in the conversation. Often the people who are talking choose to leave out details which
they consider unimportant or information that do not support their position. The interpretation of
the situation or the behaviour of the person being talked about will be affected by which details
are omitted.
ECONOMICS IN YOUR LIFE
GOVERNMENT PROVIDES INCENTIVE PROGRAM FOR ZERO-EMISSION VEHICLES (ZEV).
For Critical Thinking
Overall, does it appear that the incentive provided to purchase ZEV arise from the application of
centralized command and control, the price system, or a mix of the two? Explain your reasoning.
It appears that the government incentive provided to purchase ZEV is a mix of the two or a
mixed economy. The market will determine what and how much ZEVs to produce. The
government incentive or consumer subsidy will decrease the ZEV price and make the purchase
more attractive to consumers.
Real Application
Assume that you decide to buy a ZEV. Should you take advantage of the incentive?
Because the only cost to you, is your time to fill out the government application, you should
definitely take advantage of the incentive. Assuming you comply with the government
requirements you will benefit paying a lower price for your ZEV.
,ISSUES & APPLICATIONS
WHY EDUCATION AND FINANCIAL INDEPENDENCE HELPS TO EXPLAIN WHY WOMEN ARE
DELAYING MARRIAGE AND WHY FEWER WOMEN ARE MARRIED
For Critical Thinking
Why do you think that the prevalence of marriages by women to higher-income-earning partners
has remained relatively steady in recent years? (Hint: More higher-income-earning partners have
completed more years of education and have more stable employment prospects than those who
earn less.)
The argument states that women choose to marry out of self-interest and will marry a partner
that will be able to provide financially for the household. If women’s interests and actions do
not change, then the prevalence of marriages to higher-income-earning partners should remain
relatively steady.
Real Application
Currently, a larger percentage of women are obtaining advanced degrees than are men. What are
some of the real-world implications of this trend with respect to marriage?
Women with advanced degrees typically do not seek out spouses who have little or no
education past high school. One might predict, that there will be a higher percentage of
marriages among men and women who have advanced degrees.
ANSWERS TO END-OF-CHAPTER QUESTIONS
1-1. Define economics. Explain briefly how the economic way of thinking—in terms of rational,
self-interested people responding to incentives—relates to each of the following situations.
a. A student deciding whether to purchase a textbook for a particular class
b. Government officials seeking more funding for mass transit through higher taxes
c. A municipality taxing hotel guests to obtain funding for a new sports stadium
Economics is the study of how individuals allocate limited resources to satisfy unlimited wants.
, a. Among the factors that a rational, self-interested student will consider are her income, the
price of the textbook, her anticipation of how much she is likely to study the textbook, and
how much studying the book is likely to affect her grade.
b. A rational, self-interested government official will, for example, recognize that higher taxes
will raise more funds for mass transit while making more voters, who have limited
resources, willing to elect other officials.
c. A municipality’s rational, self-interested government will, for instance, consider that
higher hotel taxes will produce more funds if as many visitors continue staying at hotels,
but that the higher taxes will also discourage some visitors from spending nights at hotels.
1-2. Some people claim that the “economic way of thinking” does not apply to issues such as
health care. Explain how economics does apply to this issue by developing a “model” of an
individual’s choices.
This issue involves choice and, therefore, can be approached using the economic way of thinking.
In the case of health care, an individual typically has an unlimited desire for good health. The
individual has a limited budget and limited time, however. She must allocate her budget across
other desirable goods, such as housing and food, and must allocate her time across waiting in a
physician’s office, work, leisure, and sleep. Hence, choices must be made in light of limited
resources.
1-3. Does the phrase “unlimited wants and limited resources” apply to both a low-income
household and a middle-income household? Can the same phrase be applied to a very high-
income household?
Because wants are unlimited, the phrase applies to very high-income households as well as low-
and middle-income households. Consider, for instance, a household with a low income and
unlimited wants at the beginning of the year. The household’s wants will still remain unlimited if
it becomes a high-income household later in the year.
ECONOMICS TODAY
A CANADIAN PERSPECTIVE MACROECONOMICS
1ST CANADIAN EDITION
CHAPTER NO. 01: THE NATURE OF ECONOMICS
ANSWERS TO QUESTIONS FOR CRITICAL ANALYSIS
AI: DECISION MAKING THROUGH DATA
Why do you suppose that economists sometimes disagree about whether to classify as a
microeconomic or macroeconomic endeavor the application of big data analytics to massive
volumes of information encompassing virtually all of a nation’s industries and interactions among
those industries?
Because big data analytics uses such massive volumes of information, which can encompass
virtually all a nation’s industries and interactions among those industries, it seems as if the
endeavor is a macroeconomic application (large scale). However, in many cases, this big data just
represents a small part of the economy, which could be perceived as a microeconomic application
(individual scale or sub-scale).
THE INCENTIVES TO ATTEND POST-SECONDARY EDUCATION (P. 7)
Sometimes adults tell young people to “get all the education you can get.” Does this mean that
you should necessarily obtain an advanced degree?
Under special circumstances, your answer to this Real Application question would be, yes. Those
special circumstances would involve being able to obtain an advanced degree at zero cost to you
and simultaneously not having any job opportunities as an alternative. Otherwise, you should look
at how much more you would expect to earn per year if you complete an advanced degree program
compared with what you could have earned working rather than spending more time in a
university. Plus, you would have to consider the out-of-pocket costs of pursuing an advanced
degree.
ASSESSING WHETHER CHARITABLE DONATIONS REFLECT CARING FOR OTHERS OR FOR
ONESELF
,How might the fact that the Canadian government allows larger tax deductions for some charitable
donations than for others, how would this affect Canadian taxpayers’ incentives about how much
to donate and to whom they direct their donations?
Canadian taxpayers are likely to donate to charities that will both help others and those in which
will make them better off (either through a tax deduction or a charitable gift). If the government
allows larger tax deductions for some charitable donations over others, taxpayers are likely to
donate more to the charities where they receive a larger benefit (tax deduction).
GETTING DIRECTIONS
In what way do small talk and gossip represent the use of simplifying assumptions?
Gossip and small talk usually deal with other persons or situations of interest to the persons
engaged in the conversation. Often the people who are talking choose to leave out details which
they consider unimportant or information that do not support their position. The interpretation of
the situation or the behaviour of the person being talked about will be affected by which details
are omitted.
ECONOMICS IN YOUR LIFE
GOVERNMENT PROVIDES INCENTIVE PROGRAM FOR ZERO-EMISSION VEHICLES (ZEV).
For Critical Thinking
Overall, does it appear that the incentive provided to purchase ZEV arise from the application of
centralized command and control, the price system, or a mix of the two? Explain your reasoning.
It appears that the government incentive provided to purchase ZEV is a mix of the two or a
mixed economy. The market will determine what and how much ZEVs to produce. The
government incentive or consumer subsidy will decrease the ZEV price and make the purchase
more attractive to consumers.
Real Application
Assume that you decide to buy a ZEV. Should you take advantage of the incentive?
Because the only cost to you, is your time to fill out the government application, you should
definitely take advantage of the incentive. Assuming you comply with the government
requirements you will benefit paying a lower price for your ZEV.
,ISSUES & APPLICATIONS
WHY EDUCATION AND FINANCIAL INDEPENDENCE HELPS TO EXPLAIN WHY WOMEN ARE
DELAYING MARRIAGE AND WHY FEWER WOMEN ARE MARRIED
For Critical Thinking
Why do you think that the prevalence of marriages by women to higher-income-earning partners
has remained relatively steady in recent years? (Hint: More higher-income-earning partners have
completed more years of education and have more stable employment prospects than those who
earn less.)
The argument states that women choose to marry out of self-interest and will marry a partner
that will be able to provide financially for the household. If women’s interests and actions do
not change, then the prevalence of marriages to higher-income-earning partners should remain
relatively steady.
Real Application
Currently, a larger percentage of women are obtaining advanced degrees than are men. What are
some of the real-world implications of this trend with respect to marriage?
Women with advanced degrees typically do not seek out spouses who have little or no
education past high school. One might predict, that there will be a higher percentage of
marriages among men and women who have advanced degrees.
ANSWERS TO END-OF-CHAPTER QUESTIONS
1-1. Define economics. Explain briefly how the economic way of thinking—in terms of rational,
self-interested people responding to incentives—relates to each of the following situations.
a. A student deciding whether to purchase a textbook for a particular class
b. Government officials seeking more funding for mass transit through higher taxes
c. A municipality taxing hotel guests to obtain funding for a new sports stadium
Economics is the study of how individuals allocate limited resources to satisfy unlimited wants.
, a. Among the factors that a rational, self-interested student will consider are her income, the
price of the textbook, her anticipation of how much she is likely to study the textbook, and
how much studying the book is likely to affect her grade.
b. A rational, self-interested government official will, for example, recognize that higher taxes
will raise more funds for mass transit while making more voters, who have limited
resources, willing to elect other officials.
c. A municipality’s rational, self-interested government will, for instance, consider that
higher hotel taxes will produce more funds if as many visitors continue staying at hotels,
but that the higher taxes will also discourage some visitors from spending nights at hotels.
1-2. Some people claim that the “economic way of thinking” does not apply to issues such as
health care. Explain how economics does apply to this issue by developing a “model” of an
individual’s choices.
This issue involves choice and, therefore, can be approached using the economic way of thinking.
In the case of health care, an individual typically has an unlimited desire for good health. The
individual has a limited budget and limited time, however. She must allocate her budget across
other desirable goods, such as housing and food, and must allocate her time across waiting in a
physician’s office, work, leisure, and sleep. Hence, choices must be made in light of limited
resources.
1-3. Does the phrase “unlimited wants and limited resources” apply to both a low-income
household and a middle-income household? Can the same phrase be applied to a very high-
income household?
Because wants are unlimited, the phrase applies to very high-income households as well as low-
and middle-income households. Consider, for instance, a household with a low income and
unlimited wants at the beginning of the year. The household’s wants will still remain unlimited if
it becomes a high-income household later in the year.
