Principles of Microeconomics, Eighth Canadian Edition PDF by N. Gregory Mankiw, Ronald D. Kneebone and Kenneth J. McKenzie


Principles of Microeconomics, Eighth Canadian Edition
By N. Gregory Mankiw, Ronald D. Kneebone and Kenneth J. McKenzie
Principles of Microeconomics, Eighth Canadian Edition


About the Authors vi
Preface xviii
Acknowledgments xxviii
Ten Principles of Economics 1
1-1 How People Make Decisions 2
1-la Principle #1: People Face Tradeoffs 2
1-lb Principle #2: The Cost of Something Is What
You Give Up to Get It 4
1-lc Principle #3: Rational People Think at the Margin 4
1-ld Principle #4: People Respond to Incentives 6
In the News: Even Criminals Respond to Incentives 7
Case Study: Ready, Set, Go . . . 8
1-2 How People Interact 9
1-2a Principle #5: Trade Can Make Everyone Better Off 9
1-2b Principle #6: Markets Are Usually a Good Way to
Organize Economic Activity 10
Case Study: Adam Smith Would Have Loved Uber 11
1-2c Principle #7: Governments Can Sometimes Improve
Market Outcomes 12
1-3 How the Economy as a Whole Works 13
1-3a Principle #8: A Country’s Standard of Living Depends
on Its Ability to Produce Goods and Services 13
1-3b Principle #9: Prices Rise When the Government Prints
Too Much Money 14
1-3c Principle #10: Society Faces a Short-Run Tradeoff
between Inflation and Unemployment 14
1-4 Conclusion 15
Summary 16
Key Concep ts 16
Questions for Review 16
Quick Check Multiple Choice 17
Problems and Applications 17
Thinking Like an Economist 19
2-1 The Economist as Scientist 20
2-la The Scientific Method: Observation,
Theory, and More Observation 20
2-lb The Role of Assumptions 21
2-lc Economic Models 22
2-ld Our First Model: The Circular-Flow Diagram 22
2-le Our Second Model: The Production
Possibilities Frontier 24
2-lf Microeconomics and Macroeconomics 27
2-2 The Economist as Policy Adviser 27
2-2a Positive versus Normative Analysis 28
2-2b Economists in Ottawa 28
2-2c Why Economists’ Advice Is Not
Always Followed 29
2-3 Why Economists Disagree 30
2-3a Differences in Scientific Judgments 30
2-3b Differences in Values 31
2-3c Perception versus Reality 31
Ask the Experts: Ticket Resale 32
2-4 Let’s Get Going 33
Summary 33
Key Concepts 34
Questions for Review 34
Quick Check Multiple Choice 34
Problems and Applications 35
Appendix Graphing: A Brief Review 36
Graphs of a Single Variable 36
Graphs of Two Variables: The Coordinate System 37
Curves in the Coordinate System 38
Slope 40
Graphing Functions 42
Cause and Effect 44
Omitted Variables 45
Reverse Causality 46
Problems and Applications 47
Interdependence and the Gains
from Trade 48
3-1 A Parable for the Modern Economy 49
3-la Prod uction Possibilities 50
3-lb Specialization and Trade 52
3-2 Comparative Advantage: The Driving Force of
Specialization 54
3-2a Absolute Advantage 54
3-2b Opportunity Cost and Comparative Advantage 54
3-2c Comparative Advantage and Trade 55
FYI: The Legacy of Adam Smith and David Ricardo 56
3-2d The Price of Trade 56
3-3 Applications of Comparative Advantage 57
3-3a Should Connor McDavid Shovel His Own Sidewalk? 57
In the News: The Future of Free Trade in Canada 58
3-3b Should Canada Trade with Other Countries? 58
Ask the Experts: Trade with China 60
3-4 Conclusion 60
Summary 61
Key Concepts 61
Questions for Review 61
Quick Check Multiple Choice 61
Problems and Applications 62
The Market Forces of Supply and Demand 64
4-1 Markets and Competition 65
4-la What Is a Market? 65
4-lb What Is Competition? 65
4-2 Demand 66
4-2a The Demand Curve: The Relationship between
Price and Quantity Demanded 66
4-2b Market Demand versus Individual Demand 67
4-2c Shifts in the Demand Curve 68
Case Study: Two Ways to Reduce the Quantity
of Smoking Demanded 71
4-3 Supply 72
4-3a The Supply Curve: The Relationship between
Price and Quantity Supplied 72
4-3b Market Supply versus Individual Supply 73
4-3c Shifts in the Supply Curve 73
4-4 Supply and Demand Together 76
4-4a Equilibrium 76
4-4b Three Steps to Analyzing Changes
in Equilibrium 78
Case Study: Marijuana Legalization 83
In the News: Supply, Demand, and Technology 87
4-5 Conclusion: How Prices Allocate Resources 87
Summary 88
Key Concepts 89
Questions for Review 89
Quick Check Multiple Choice 89
Problems and Applications 90
Appendix The Mathematics of Market
Equilibrium 92
Problems and Applications 95
Elasticity and Its Application 97
5-1 The Elasticity of Demand 98
5-la The Price Elasticity of Demand and
Its Determinants 98
5-lb Computing the Price Elasticity of Demand 99
5-lc The Midpoint Method: A Better Way to Calculate
Percentage Changes and Elasticities 100
5-ld The Variety of Demand Curves 101
5-le Total Revenue and the Price Elasticity
of Demand 101
FYI: A Few Elasticities from the Real World 103
5-lf Elasticity and Total Revenue along a Linear
Demand Curve 105
Case Study: Price Elasticity, Amazon, and the Pricing
of E-Books 106
5-lg Other Demand Elasticities 107
5-2 The Elasticity of Supply 108
5-2a The Price Elasticity of Supply and
Its Determinants 108
5-2b Computing the Price Elasticity
of Supply 109
5-2c The Variety of Supply Curves 109
5-3 Three Applications of Supply, Demand,
and Elasticity 111
5-3a Can Good News for Farming Be Bad News for
Farmers? 112
5-3b Why Did OPEC Fail to Keep the Price of Oil High? 114
5-3c Does Drug Interdiction Increase or Decrease
Drug-Related Crime? 115
5-4 Conclusion 117
Summary 117
Key Concepts 118
Questions for Review 118
Quick Check Multiple Choice 118
Problems and Applications 119
Supply, Demand, and Government
Policies 121
6-1 Controls on Prices 122
6-la How Price Ceilings Affect Market Outcomes 123
Case Study: Lines at the Gas Pump 124
Case Study: Rent Control in the Short Run and
LongRun 125
Ask the Experts: Rent Control 127
6-lb How Price Floors Affect Market Outcomes 127
Case Study: The Minimum Wage 128
Ask the Experts: The Minimum Wage 130
In the News: Minimum Wage in Alberta
and Ontario 131
6-lc Evaluating Price Controls 132
6-2 Taxes 132
6-2a How Taxes on Buyers Affect Market
Ou tcomes 133
6-2b How Taxes on Sellers Affect Market
Ou tcomes 134
Case Study: Can the Government Distribute the
Burden of a Payroll Tax? 136
6-2c Elasticity and Tax Incidence 136
6-3 Conclusion 139
Summary 139
Key Concepts 139
Questions for Review 139
Quick Check Multiple Choice 140
Problems and Applications 140
Appendix The Mathematics of Market Equilibrium
with Taxes 142
Problems and Applications 144
Consumers, Producers, and the Efficiency
of Markets 145
7-1 Consumer Surplus 146
7-la Willingness to Pay 146
7-lb Using the Demand Curve to Measure Consumer
Surplus 147
7-lc How a Lower Price Raises Consumer Surplus 149
7-ld What Does Consumer Surplus Measure? 150
7-2 Producer Surplus 151
7-2a Cost and the Willingness to Sell 151
7-2b Using the Supply Curve to Measure Producer Surplus 152
7-2c How a Higher Price Raises Producer Surplus 154
7-3 Market Efficiency 155
7-3a The Benevolent Social Planner 155
7-3b Evaluating the Market Equ ilibrium 156
FYI: Adam Smith and the Invisible Hand 161
Case Study: Uber’s Surge Pricing Makes Economists
Giddy-A Reprise 162
In the News: Uber ‘s Watching You.. . 164
7-4 Conclusion: Market Efficiency and
Market Fai lure 165
In the News: Rockon-omics 166
Summary 167
Key Concepts 167
Questions for Review 167
Quick Check Multiple Choice 167
Problems and Applications 168
Appendix The Mathematics of Consumer
and Producer Surplus 170
Problems and Applications 171
Application: The Costs of Taxation 172
8-1 The Deadweight Loss of Taxation 173
8-la How a Tax Affects Market Participants 174
8-lb Deadweight Losses and the Gains from Trade 177
8-2 The Determinants of the Deadweight Loss 178
8-3 Deadweight Loss and Tax Revenue as
Taxes Vary 180
Case Study: The Marginal Cost of Public Funds in Canada:
The Laffer Curve Is No Laughing Matter 183
8-4 The Cost of Taxes and the Size of
Government 185
8-5 Conclusion 188
Summary 188
Key Concepts 189
Questions for Review 189
Quick Check Multiple Choice 189
Problems and Applications 189
Appendix The Mathematics of Deadweight Loss 191
Problems and Applications 192
Application: International Trade 193
9-1 The Determinants of Trade 195
9-l a The Equilibrium without Trade 195
In the News: Canada Must Step Up to Defend
a Globalized World 197
9-lb The World Price and Comparative Advantage 198
9-2 The Winners and Losers from Trade 198
9-2a The Gains and Losses of an Exporting Country 199
9-2b The Gains and Losses of an Imp orting Country 200
9-2c The Effects of a Tariff 202
9-2d Import Quotas: Another Way to Restrict Trade 203
9-2e The Lessons for Trade Policy 204
9-2f Other Benefits of International Trade 207
9-3 The Arguments for Rest ricting Trade 208
9-3a The Jobs Argument 208
9-3b The National-Security Argument 208
9-3c The Infant-Industry Argument 209
9-3d The Unfair-Competition Argument 209
9-3e The Protection-as-a-Bargaining-Chip Argument 210
Case Study: Canadian Trade Agreements 210
Ask the Experts: Trade Deals 211
9-4 Conclusion 211
Summary 212
Key Concepts 213
Questions for Review 213
Quick Check Multiple Choice 213
Problems and Applications 214
Appendix The Mathematics of Tariffs 216
Problems and Applications 217
Externalities 218
10-1 Externalities and Market Inefficiency 220
10-la Welfare Economics: A Recap 220
10-lb Negative Externalities 221
10-lc Positive Externalities 224
10-2 Public Policies toward Externalities 225
10-2a Command-and-Control Policies: Regulation 225
10-2b Market-Based Policy 1: Corrective Taxes and
Subsidies 226
10-2c Market-Based Policy 2: Tradable Pollution
Permits 228
10-2d Climate Policy in Canada 230
Case Study: And So, Pipelines 231
In the News: Immunization 232
Ask the Experts: Vaccines 234
10-2e Objections to the Economic Analysis of Pollution 234
10-3 Private Solutions to Externalities 235
10-3a The Types of Private Solutions 235
10-3b The Coase Theorem 236
10-3c Why Private Solutions Do Not Always Work 237
10-4 Conclusion 238
Summary 238
Key Concepts 238
Questions for Review 239
Quick Check Multiple Choice 239
Problems and Applications 239
Public Goods and Common Resources 242
11-1 The Different Kinds of Goods 243
11-2 Public Goods 245
11-2a The Free-Rider Problem 245
11-2b Some Important Public Goods 247
Case Study: : Are Lighthouses Public Goods? 249
11-2c The Difficult Job of Cost-Benefit Analysis 249
Case Study: How Much Is a Life Worth? 250
11-3 Common Resources 251
11-3a The Tragedy of the Commons 251
11-3b Some Important Common Resources 252
Ask the Experts: Congestion Pricing 253
Case Study: Do Bridge Tolls Affect Behaviour? 253
In the News: Are Economics Students Grinches? 254
Case Study: The Collapse of the Atlantic Cod Fishery 256
11-4 Conclusion: The Importance of Property
Rights 257
Summary 257
Key Concepts 258
Questions for Review 258
Quick Check Multiple Choice 258
Problems and Applications 258
The Design of the Tax System 261
12-1 A Financial Overview of Canadian
Governments 262
12-la The Federal Government 264
12-lb Provincial/ Territorial Governments 267
12-2 Taxes and Efficiency 269
12-2a Deadweight Losses 269
Case Study: Should Income or Consumption
Be Taxed? 270
12-2b Administrative Burden 271
12-2c Average Tax Rates versus Marginal Tax Rates 272
12-2d Lump-Sum Taxes 272
12-3 Taxes and Equity 273
12-3a The Benefits Principle 273
12-3b The Ability-to-Pay Principle 273
Case Study: How the Tax Burden
Is Distributed 274
12-3c Tax Incidence and Tax Equity 275
Case Study: Who Pays the Corporate Income Tax? 276
12-4 Conclusion: The Tradeoff between Equity
and Efficiency 277
Summary 278
Key Concepts 278
Questions for Review 278
Quick Check Multiple Choice 279
Problems and Applications 279
The Costs of Production 281
13-1 What Are Costs? 282
13-la Total Revenue, Total Cost, and Profit 282
13-l b Costs as Opportunity Costs 283
13-lc The Cost of Capital as an Opportunity Cost 283
13-l d Economic Profit versus Accounting Profit 284
13-2 Production and Costs 285
13-2a The Production Function 285
13-2b From the Production Function to the Total-Cost
Curve 287
13-3 The Various Measures of Cost 288
13-3a Fixed and Variable Costs 289
13-3b Average and Marginal Costs 290
13-3c Cost Curves and Their Shapes 290
13-3d Typical Cost Curves 292
13-4 Costs in the Short Run and in the
Long Run 293
In the News: The Rise of Artificial Intelligence 294
13-4a The Relationship between Short-Run and Long-Run
Average Total Cost 294
13-4b Economies and Diseconomies of Scale 296
13-5 Conclusion 297
Summary 297
Key Concepts 298
Questions for Review 298
Quick Check Multiple Choice 298
Problems and Applications 299
Firms in Competitive Markets 301
14-1 What Is a Competitive Market? 302
14-la The Meaning of Competition 302
14-lb The Revenue of a Competitive Firm 303
14-2 Profit Maximization and the Competitive Firm’s
Supply Curve 304
14-2a A Simple Example of Profit
Maximization 304
14-2b The Marginal-Cost Curve and the Firm’s
Supply Decision 306
14-2c The Firm’s Short-Run Decision to
Shut Down 308
14-2d Spilt Milk and Other Sunk Costs 309
Case Study: Near-Empty Restaurants and
Off-Season Miniature Golf 310
14-2e The Firm’s Long-Run Decision to Exit or
Enter a Market 310
14-2f Measuring Profit in Our Graph for the
Competitive Firm 311
14-3 The Supply Curve in a Competitive Market 312
14-3a The Short Run: Market Supply with a Fixed
Number of Firms 313
14-3b The Long Run: Market Supply with Entry
and Exit 313
14-3c Why Do Competitive Firms Stay in Business
If They Make Zero Profit? 315
14-3d A Shift in Demand in the Short Run and
the Long Run 315
14-3e Why the Long-Run Supply Curve Might
Slope Upward 317
14-4 Conclusion: Behind the Supply Curve 319
Summary 319
Key Concepts 320
Questions for Review 320
Quick Check Multiple Choice 320
Problems and Applications 321
Monopoly 324
15-1 Why Monopolies Arise 326
15-la Monopoly Resources 326
15-lb Government-Created Monopolies 326
15-lc Natural Monopolies 327
15-2 How Monopolies Make Production
and Pricing Decisions 328
15-2a Monopoly versus Competition 329
15-2b A Monopoly’s Revenue 330
15-2c Profit Maximization 332
FYI: Why a Monopoly Does Not Have a
Supply Curve 333
15-2d A Monopoly’s Profit 333
Case Study: Monopoly Drugs versus
Generic Drugs 334
15-3 The Welfare Cost of Monopoly 336
15-3a The Deadweight Loss 336
15-3b The Monopoly’s Profit: A Social Cost? 338
15-4 Price Discrimination 339
15-4a A Parable about Pricing 339
15-4b The Moral of the Story 340
15-4c The Analytics of Price Discrimination 341
15-4d Examples of Price Discrimination 343
In the News: Price Discrimination 344
15-5 Public Policy toward Monopolies 345
15-5a Increasing Competition with
Competition Law 346
15-5b Regulation 346
15-5c Public Ownership 348
15-5d Doing Nothing 348
15-6 Conclusion: The Prevalence of Monopoly 349
Summary 350
Key Concepts 350
Questions for Review 350
Quick Check Multiple Choice 351
Problems and Applications 351
Monopolistic Competition 355
16-1 Between Monopoly and Perfect
Competition 356
16-2 Competition with Differentiated Products 358
16-2a The Monopolistically Competitive Firm
in the Short Run 358
16-2b The Long-Run Equilibrium 359
16-2c Monopolistic versus Perfect Competition 361
16-2d Monopolistic Competition and the Welfare
of Society 362
16-3 Advertising 364
In the News: Less Produce Variety and Higher
Prices in Canada Due to Lack of Competition 364
16-3a The Debate over Advertising 365
Case Study: Canada Goose Flying High 366
16-3b Advertising as a Signal of Quality 367
16-3c Brand Names 368
16-4 Conclusion 369
Summary 370
Key Concepts 370
Questions for Review 370
Quick Check Multiple Choice 371
Problems and Applications 371
Oligopoly 373
17-1 Markets with Only a Few Sellers
17-l a A Duopoly Examp le 374
17-lb Competition, Monopolies,
and Cartels 375
17-lc The Equilibrium for an Oligopoly 376
Ask the Experts: Nash Equilibrium 377
17-ld How the Size of an Oligopoly Affects
the Market Outcome 377
17-2 The Economics of Cooperation 379
17-2a The Prisoners’ Dilemma 379
17-2b Oligopolies as a Prisoners’ Dilemma 380
Case Study: OPEC and the World
Oil Market 381
17-2c Other Examples of the Prisoners’
Dilemma 382
17-2d The Prisoners’ Dilemma and the Welfare
of Society 384
17-2e Why People Sometimes Cooperate 384
In the News: The Prisoners’ Dilemma
in Action 385
Case Study: The Prisoners’ Dilemma
Tournament 385
17-3 Public Policy toward Oligopolies 386
17-3a Restraint of Trade and the
Competition Act 386
17-3b Controversies over Competition
Policy 387
In the News: Let Them Eat Cake 388
Case Study: Is More Always Better? 391
17-4 Conclusion 392
Summary 392
Key Concepts 393
Questions for Review 393
Quick Check Multiple Choice 393
Problems and Applications 394
The Markets for the Factors of
Production 397
18-1 The Demand for Labour 399
18-l a The Competitive, Profit-Maximizing Firm 399
18-l b The Production Function and the Marginal Product
of Labour 400
18-lc The Value of the Marginal Product and the Demand
for Labour 401
18-l d What Causes the Labour Demand Curve to Shift? 403
FYI: Input Demand and Output Supply: Two Sides of the
Same Coin 403
18-2 The Supply of Labour 404
18-2a The Tradeoff between Work and Leisure 404
18-2b What Causes the Labour Supply Curve to Shift? 405
18-3 Equilibrium in the Labour Market 405
18-3a Shifts in Labour Supply 406
18-3b Shifts in Labour Demand 407
In the News: Demographics and Labour Markets 408
Case Study: Productivity and Wages in Canada 410
FYI: Monopsony 411
18-4 The Other Factors of Production: Land and
Capital 412
18-4a Equilibrium in the Markets for Land and Capital 412
18-4b Linkages among the Factors of Production 413
FYI: What Is Capital Income? 414
18-5 Conclusion 415
Summary 415
Key Concepts 416
Questions for Review 416
Quick Check Multiple Choice 416
Problems and Applications 416
Earnings and Discrimination 419
19-1 Some Determinants of Equilibrium Wages 420
19-la Compensating Differen tials 420
19-lb Human Capital 421
Case Study: The Value of Education 421
Ask the Experts: Inequality and Skills 424
19-lc Ability, Effort, and Chance 424
Case Study: The Benefits of Beauty 424
19-ld An Alternative View of Education: Signalling 425
19-le The Superstar Phenomenon 426
19-lf Above-Equilibrium Wages: Minimum-Wage Laws,
Unions, and Efficiency Wages 426
19-2 The Economics of Discrimination 427
19-2a Measuring Labour-Market Discrimination 427
19-2b Discrimination by Employers 429
Case Study: Explaining the Gender Wage Gap 430
19-2c Discrimination by Customers and Governments 431
In the News: Language and Wages in Canada 432
Case Study: Discrimination in Sports 433
19-3 Conclusion 435
Summary 435
Key Concepts 435
Questions for Review 436
Quick Check Multiple Choice 436
Problems and Applications 436
Income Inequality and Poverty 438
20-1 The Measurement of Inequality 439
20-l a Canadian Income Inequality 440
Case Study: Income Redistribution in Canada 441
20-lb Income Inequ ality around the World 443
20-lc The Poverty Rate 444
20-ld Problems in Measuring Inequality 445
20-l e Economic Mobility 447
In the News: The American Dream Is In Canada 448
20-2 The Political Philosophy of Redistributing
Income 449
20-2a Utilitarianism 449
20-2b Liberalism 450
20-2c Libertarianism 451
20-3 Policies to Reduce Poverty 452
20-3a Minimum-Wage Laws 453
20-3b Welfare 453
20-3c Basic Minimum Income 454
20-3d In-Kind Transfers 454
20-3e Employment Insurance 455
In the News: EI and Work Incentives 456
20-4 Conclusion 456
Summary 457
Key Concepts 457
Questions for Review 457
Quick Check Multiple Choice 458
Problems and Applications 458
The Theory of Consumer Choice 460
21-1 The Budget Constraint: What the Consumer
Can Afford 461
21-2 Preferences: What the Consumer Wants 463
21-2a Representing Preferences with Indifference
Curves 463
21 -2b Four Properties of Indifference Curves 464
21 -2c Two Extreme Examples of Indifference Curves 465
21-3 Optimization: What the Consumer
Chooses 467
21 -3a The Consumer’s Optimal Choices 467
21 -3b How Changes in Income Affect the Consumer’s
Choices 468
FYI: Utility: An Alternative Way to Describe Preferences and
Optimization 469
21-3c How Changes in Prices Affect the Consumer’s
Choices 471
21-3d Income and Substitution Effects 472
21-3e Deriving the Demand Curve 473
21-4 Three Applications 474
21-4a Do All Demand Curves Slope Downward? 474
Case Study: The Search for Giffen Goods 476
21-4b How Do Wages Affect Labour Supply? 476
Case Study: Income Effects on Labour Supply:
Historical Trends, Lottery Winners, and the Carnegie
Conjecture 479
21-4c How Do Interest Rates Affect Household Saving? 479
In the News: Backward-Sloping Labour Supply In
Kiribati 480
21-5 Conclusion: Do People Really Think
This Way? 482
Summary 483
Key Concepts 483
Questions for Review 484
Quick Check Multiple Choice 484
Problems and Applications 485
Frontiers of Microeconomics 487
22-1 Asymmetric Information 488
22-la Hidden Actions: Principals, Agents, and Moral
Hazard 488
FYI: Corporate Management 489
22-lb Hidden Characteristics: Adverse Selection and
the Lemons Problem 490
22-lc Signalling to Convey Private Information 491
Case Study: Gifts as Signals 492
22-l d Screening to Uncover Private Information 492
22-le Asymmetric Information and Public Policy 493
22-2 Political Economy 493
22-2a The Condorcet Voting Paradox 494
22-2b Arrow’s Impossibility Theorem 495
22-2c The Median Voter Is King 495
22-2d Politicians Are People Too 497
22-3 Behavioural Economics 498
22-3a People Aren’t Always Rational 498
Case Study: Left-Digit Bias 499
22-3b People Care about Fairness 500
22-3c People Are Inconsistent over Time 501
In the News: Can Brain Science Improve Economics? 502
22-4 Conclusion 502
Summary 504
Key Concepts 504
Questions for Review 504
Quick Check Multiple Choice 504
Problems and Applications 505
Glossary 507
Index 513

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