q*il-
62
:
U N IT 2 : Mi c R o e c o rro rrri c sUndeR
stl rrdi rrgthe C rnl di an Mnnket E conorrrv
Cnse
Study
j
The "baby boomers" are the best-known
demographic group in North America.They
belong to the generation of people who were
born between 1,946to 1966-possibly your
parents'generation.Many of these individuals
came from families that were consideredlarge
by contemporary standards:the averagenumber
of children per family during this 20-year
period was 3.9.
In 1996, the boomers, numbering 9.8 million, comprised 33 per cent of Canada'spopulation.This number included imrnigrants of
comparableage rvho came to Canada during
that 2O-yearbaby boom. Today,the boomers are
middle-aged-moving into their 40s and 50sand possibll' thinking of retirement.
Although the boomers'families are smaller on
average,their numbers still produced a mini-baby
boom betr,veen1980 and 1995.Thisgenerationis
known asthe "baby boom echo," or the "echo
boomers." You mrght well be one of the echo
generation,whose population totalled 6.9 million
in 1996.
What impact do the boomers and echo
boomers have on the economy? In his book
Boom,Bust, and Echo,David Foot, a Canadian
demographer and economist, explores how
demographicscan shapeattitudes,beliefs,and,
most importantly, actions.FIe setsout the following scenario:In 2000, the first of the echo
generation,then aged 20, started to enter the
labour market, perhapsmoving out of their
families'home and setting up their own households. Or-er the next 20 years,they will want to
purchaseappliances,furniture, other household
items. clothing. and cars.Since money is tight
for these \-oung people. retailersmust offer 1or".
prices and discountsto attract this group of
consumers.Manr- boomers. horvever.are u-e1l
established;their homes are furnished, and they
may have paid offtheir mortgages.They are
now ready to upgrade their homes and other
belongings,and u'hen they go shopping, they
are iooking for qualin and service,not so
much for low prices.Boomers are wiiling to
pay more for goods and servicesthat meet
their immediate needs.
Foot predicts that those retailerswho
understandwhich demographic segment their
goods appeal to rvill do n'e11.Retailers who
identifz baby boomers as their major customers
should emphasizequaliw and service rather
than low prices. In contrast,retailerswho want
to attract the echo generation will succeedby
stressingcompetiti\-e prices. Foot believesthat a
businesswill prosper bv choosing one groupnot both-on *'hich to focus its marketinE
strategv.
QUr5il0N5
1. lf Foot'spredictions
arecorrect,whichstoresand
in yourareawill profitfromthe echo
businesses
generation
in the future?Explainwhy.
goodsandservicesappeal
2. Whichof the follovring
the echogeneration?
In
mostlyio the boomers?
each case.expiainwhy.
a)
rrr
h\
v/
n n l {a n :
uuu
yvi r
r i ca
l-n
irlerrc
nmon+
u'
,v',L
c) in-iire skates
d) c et sot crinks
e) rou^:ain bikes
i) ce i crones
g) iast:ood
- ) s - p p r e m e n t a r yv i t a m i n s
, ) f i n a n c i a lp l a n n i n g
CXAPTER 4: Derllnd nrrd Supply
C^tse
Study
ffim-::i. one of the founders ofApple compur,sr- S::r e
Jobs,predicted that personal comrvould soon become as common a
pru;rc::.
thnurerold item as toastersand coflee makers.
W{as
::ediction was derided by the big comWmrr-:.-ompanies,who built only large, expenl{srnrj.rmputers for businessand government.
lhirr*i.:ol-ever, was proven right; today, around
ii :,:: cent of North American households
Ldtiffrrtl
i. pefsofial computer-a product that is
u,r::::uallv evolving to become more powerful,
dirsi-: ro use,and much cheaper to purchase.
Crnputers have existed for more than half a
;c::jn-. but it was not until the development
o =: rnicroprocessorchip in the 1960sthat it
rhe-:.i:repossible to build a small personal comprrr:=:.Before the development of this chip, the
mn:::i:rorsused in a computer had to be indi,rlc-:J\ rvired to each other-a system that
wx :spensive and prone to breakdown.The
:::: :lirninated these problems. It was a single,
:r:-.-:iece of material (such as silicon) that first
;;
dozens,then hundreds,and, today,
-:-:ined
rr---:6ns,of transistors.Theneed for expensive
lfr:::rq was reduced,and, as a result,much
rc--i-ler computers that operated more reliably
w::s built.
E:rrepreneurs immediateiy understood that
:': microprocessorchip would allow them to
:'--'d a small computer for relatively little cost.
iccres of small start-up personal computer
;.-.:rpaniessprang up in the 1970s.Consumers
:n:n had a bewildering range of choices in
;e:ronal computers.The most successfulof the
rii\- companieswas started by SteveJobs and
SteveWozniak. Calling themselves"two guys
in a garage,"they designed and marketed a personal computer called the Apple, which grew ro
dominate the personal computer market until
1981.That year,IBM finally launched its personal computer, aiong with software designed
by a company outsider-Bill Gates,the founder
of Microsoft.
The original IBM PC, with 16 KB of
memory, was priced at US$2495, similar to the
cost of its rivalApple II.Through the 1980s
and into the 1990s,the IBM PC and the Apple
Macintosh competed vigorously,along with
personal computers made by severalother
companies.'Ioday,one can buy a personal computer for severalhundred dollars.Computer
technology promises even smaller,cheaper,and
more powerful machines in the future.
QUr5r0l'l5
1 . In termsof demandandsupplyfor personal
9
computers,
i n w hi chdi recti on
i s the suppl yl i ne
moving?lllustrate
youransweron a smallfreehandgraph.ln a sentenceor two,explainwhy the
shiftoccurredandwhatthe beneficial
resultsare.
a) As personal
computers
becomemore
important
in our dailylives,how is the market
affected?Showthis effecton the graphyou
drewfor questi onl .
b) ln the longrun,whichof the two curvesdo
you believewillshiftmore?Howwill pricebe
affected?
--"-.-*t
_--
U N IT 2 : M i c R o e c o n orrri cs:
Urrdc-nslnndingthe Cnrrlcli,rrrM,rnkttt
Ecorronr\.
Check Your
1. What effect wjll each of the following
factors
have on the demand for product
j"rrnO
XZ\,VifL
increaseor decreasein each
case?
a) As a result of an imaginative
advertisinq
campaign,productX becomes more
fashionable.
b) The people who buy product
X find their
inc om esf alling,
c) A new producty is invented
and is marketed
as a cheapersubstitutefor product
X.
d) Consumersof productX hear
that its price
will rise over the following month,
2. Whai effect will each of the following
factors
thesupply
of product
x? Wiirsupprf
111::.
tncrease
or decreasein eachcase?
a) Makersof productX introduce
a labour_
savtngtechnoiogy
in theirfactory,
b) As the resultof a protracted
strike,makersof
pr:9u:t X findtheyhaveto pay
higherwages
to theirworkers.
c) The marketpricethat makersreceive
for
productX rises.
d ) T h e f e d e r a lg o v e r n m e n tr e d u ce s
b u si n e ss
taxes,
e) Severalmakers of productX go
bankrupt,
leavingfewer companiesto manufacture
this product,
3 . Wh i c h o f t h e f o u r p o s s i b i i i t i e s_ a
ch a n g e
in quantitydemanCed,a change in
quaitity
s u p p l i e da
, s h i f t i n d e n , a n d .o i a sn i i t
i n su p p l y
-do each of ihe foiio,,,ring
market situations'
illustrate?
a) The price of DVDs ;aijs,and consumers
buy
more of them.
b) New techniqres ^ sieej manufaciuring
lower
the costsoi oroc-c,rg steel.
c ) A r e c e s s i o no , . , e r s: r e d i s po sa b l ej n co m e s
of Norlh Ane. ca consumers,affecting
c o n s u m p t ; o :o . ^ : g h _ e n da on r r r "r
gooda.
d ) G o l d m r n i n cc c - o a n i e s t r y t o e xtr a ct
m o r e g o o '': ^ ' . - e . Tr i n e S as w Or l d
g Ol d
prices rise.
The
Determination
ofprice
is quite rarc ior lll rhese conditions
to be pres_
ent 1n a parucr-rlaril:rrket. Nevertheless,
W1 ar3 now in a position ro analyze
pure
the way
competirion rr ln ideal or a model
pnce is actually determined
that
econo_
in a competitrve
nlls[s-ll\c.iu aor]tp.ueand evaluate
rnarker. By a co'rpctitive marke,,
actual mar_
*. ;;.;;,
Ketsfor rhc 1.r-odnct:and services
rn a rk e rrh rr e x h i b i tr th c FoU ow i ng
bought and
"
characreri sti cs: sold in Can.rcla
. It has many producers
and in other count.i.r-tt
or selleri, with no srn_
have
{i-ee-rrr.rrket
"t
sr-stcms.
gle one large enor_rghto dornina,.
itr.^il".t.,.
For purp.6_i3s
. lr nils many buyers,
of instruction, let,s analyzethe
with no singie one large
coffl:e nrarker rn Canada.This
c rro trg hto d i c ta te p ri c e to .cl l er" s.
comes .ior. ..
anr- orher nrlrket to the rnodel,
. t.l c h .c l l e r' , p ro d u c t
ancl it "Jshows us
i s exactl y the sameas rhe
hou chanses in demand and supply,
orhers so that no seiler ."r, irr.."rr.
*i-rf, ifr.i,
f.i..
shitrine .Llrvcs!causeequiiibrium
based on havins a higher_qu"liry
p.i..r-io-.ir.
prJJ".i
and t.rl1.
th a n a n o rh e r s e l l e r.
. A1l sellers and
bur-ers knorv what the prices
and co.ditrors lre rhroughout
the;";;;'
nrarket, rherebr
,fr" p.rrilifiry .f
, )tt itr.r,,r:citt demand
will hauerhcloilowingrfcct.
rrry p ri c c d i fl * .c -lrrnrrrariirg
rrc c r.
Sr-rppose
retailers
are
used to paying #t lt"_
This kind of mar.ketrs c:rlied
pure (or per_
sale-price
"
of
per
$5
kilogram'fo.
fect) cornpetition. In :r mocler-n
C'"f"-Uir"
econonl\,! rr
cotlbe.Then, in the 1990s,the spread
oi
(offee
The
Market
in(anada
I
ililt
9o
U N IT 2 : Mi c n o c c o rto rtti c s:U ttdcR sturdi rrgthe C ,urqdi l rrMl nket E cortorrty
,',:':..
:;' P 1= $6
P 1= $5
,+
rsgsl
Figure4.18c An increasein supplyin the coffee
market.
4.18d, D and 51 show coffee at the old equilibrium price of $5 per kilogram; Q1 shows
the qr-rantitiesdemanded and supplied at that
price. This decreasein supply to 52 causesan
excessdemand, or shortage,(Qt - Q) to
1nsuppl yi n t he cof f ee
Fi gure4.18d A decrease
marKeT.
occur.This u-ill caLlsethe price to rise to $6
at P2; quantin- demanded and supplied will be
equal at Q.. This nes- equiliblium price and
quantity dem:.inded eliminates the excess
demand.
Gheck Your
e ) D e n ra rdi n c re a s easndsuppl ydecreases,
freehanddemandandsupplygraphsto deterand
dem anded
i n quanti ti es
mi nethe changes
to
i n re sponse
andi n marketpri ces,
suppl i ed,
thesescenarios,
a) The No'thAner,caneconomyis prosperous,
thoseo{
sales,particularly
and automobile
SUVsandvans,rise.
{uel-inefficient
2001,the Nor t h
b) A fter1 1 S eptember
and
Americaneconomyslipsintoa recession,
automobi sal
l e espl ummet.
c) Warin the MiddleEastresultsin a sharpfall
in oil exportsto NorthAmerica'
f) D e ma r^dde c re a s easndsuppl yi ncreases.
i n the
scenari os
C o n s i d eera c ho f th e fol l ow i ng
NorthAmericangasolineand oil market.Draw
developnew
manufacturers
d) Automobile
t he f uel
y
thatsi gni fi cantli mprove
engi nes
of al l model s.
effi ci ency
price{or a particular
Doesthe equilibrium
productriseor fallwith eachof the following
Drawsmallfreehandgraphsto
changes?
youranswers.
illustrate
andsupplystaysthe same.
a) Demandincreases
anddemandstaysthe
b) Supplydecreases
same.
and demandstaysthe same,
c) Supplyincreases
andsupplystaysthe
d) Demanddecreases
same.
[li-i6;lrriet,Na*"'ft";hes;$4sou*e,e,
(paqe
B0)
Understanding
fte*Your
(ase
(page
BZ)
IheBoomers
Study:
1. a) See the table below.
1. Furniture, home appliances,building supplies,and
infants' and children's clothes, supplies, and toys
would profit, because the echo generation will be
establishinghomes and starting families.
2. a) Mostly boomers, because they have leisure
dme and income for these expensive holidays.
b) Probably split between both groups, although the
echo geneiation may not have as much time and
income for golf.
c) Echo generation, becausein-line skateswere
directly marketed to them when they were younger'
d) Probably boomers, who are more concerned
about diet.
e) Probably split berween both groups-echo generation for vigorous cross-country and trail riding,
boomers for easierfitness activiry.
f) Echo generation now, but soon bo"th groups, as
cell phones continue to be marketed.
g) Elho generation rather than boomers, who are
more concerned with diet.
h) Boomers, who are more concerned about health
issues.
t) Boomers, who have more assetsand are planning
for retirement.
Demand and SuPPlYfor Hot Dogs
in a Scttool Cafeteria
Price
QuantitY
QuantitY
Demanded Supplied
Surplus/
Shortage
$z.oo
100
190
Surplus: *9O
$r.eo
120
180
Surplus:*6O
$1.60
140
170
Surplus:*3O
$t.+o
$t.zo
$1.oo
160
160
Equilibrium
180
150
Shortage: -3O
200
140
Shortage : -60
$0.8o
220
130
Shortage: -9O
b) The graph (Figure 4-1) shows a surplus at all
prices above $1.40, with a shortage at all prices
below
(omputer
(ase
(fgeBl)
Penonal
The
Study:
1. The supply line shifts downward to the right,
indicating that manufacturing costsare falling owing
to technological advances'Theresult is lower prices
for consumers (Figure 4-2).
2. a) The graph should show a shift in the demand
line upward and to the right.The quantity of computers purchasedincreases(Figure 4-2).
L; Rtttrough demand continues to increase,suppf
inci'eases even more owing to technological
ascan be seenin ever-decreasingprices for
advances,
personalcomputers.
(poqe
BB)
Understanding
fte*Your
Figure 4'1
Answerto page80, question1b.
2. If the price set were lower than the equilibrium
price, a shortage of food would result, and not all
students would be able to have lunch. If the price
were set higher than equilibrium, the cafeteriawould
have unsold food, as some students would be unable
to afford the higher prices. Students would lose out
on both accountsas a result of mandatedprices.
l , +' 1'
1. a) Demand increasesfor product X becauseof
advertising.
b) Demand falls for product X because consumers
have lessincome.
c) Demand falls for product X because consumers
begin to switch to ProductY.
d) Demand for product X risesbec-auseconsumers
purchaseit now to avoid higher future prices.
2. a) Supply increasesas manufacturers are able to
&
re
l+li.6$iiin1i$i*ril&i1su,;iB.ry-j1
!r11!i1.;,,t,,rt1,',,,i:'1,t.i:riii;,,-€,,F*p
;1i;:|
J
e) Supply decreasesbecauserhere a fewer sellers of
product X in the short run.
3. a) Quantiry demanded rises becauseconsumers
respond to the price decrease.
b) Supply shifts to the right, indicating a supply
increase due to lower costs.
c) Demand shifts to the left, indicating a decreasein
demand due to lower consumer incomes.
d) Quantiry supplied increases(movemenr along the
curve) as companies try to increase their revenues
and profits.
(page
fteck
Your
Undertanding
90)
Figure 4-2 Answerto page82,questions1 and 2b.
&
produce rnore of product X at lower unit costs
owing to technology.
b) Supply decreasesas manufacturers face higher
unit costs for product X because of the wage
lncrease.
c) Quantity supplied increases(a movement along
the supply curve) because manufacturers wanr ro
produce more of product X to take advantageof the
higher price to increase their revenuesand profits.
d) Supply increasesbecause manufacturers' costs
have fallen owing to the tax decrease.
Figure 4-3 Answersto page9O,question1.
1. a) Price increases(Figure 4-3a).
b) Price rises (Figure 4-3b).
c) Price decreases(Figure 4-3c).
d) Price falls (Figure 4-3d).
e) Price rises (Figure 4-3e).
fl Price falls (Figure 4-3f).
2. Note that this question presents scenarios,not
actual events;also, only one factor, demand or supply, is affected.
a) The graph shows an increase in demand for oil
and gas,with subsequenrrise in price (Figure 4-4a).
b) The demand for automobiles falls, causing a
decreasein demand for oil and gas, with a fall in
price (Figure 4-4b).
c) The decreasein supply of oil and gas causes
prices to rise (Figure 4-4c).
d) The demand for oil and gas will fall, causing
prices.to fall or stabilize (Figure 4-4d).
Continued
il,,l