INSTRUCTOR’S SOLUTIONS M V V
ANUAL
for
Microeconomics
SeventeenthVCanadianVEdition
ChristopherVT.S.VRagan
McGillVUniversity
ISBNV 978-0-13-766398-9
CopyrightV©V2023VPearsonVCanadaVInc.,VToronto,VOntario.VAllVrightsVreserved.VThisVworkVisVprotectedVbyVCanadian
VcopyrightVlawsVandVisVprovidedVsolelyVforVtheVuseVofVinstructorsVinVteachingVtheirVcoursesVandVassessingVstudentVl
earning.VDisseminationVorVsaleVofVanyVpartVofVthisVworkV(includingVonVtheVinternet)VwillVdestroyVtheVintegrityVofVt
heVworkVandVisVnotVpermitted.VTheVcopyrightVholderVgrantsVpermissionVtoVinstructorsVwhoVhaveVadoptedVMicroecon
omics,VbyVChristopherVT.VS.VRagan,VtoVpostVthisVmaterialVonlineVonlyVifVtheVuseVofVtheVwebsiteVisVrestrictedVbyVa
ccessVcodesVtoVstudentsVinVtheVinstructor‘sVclassVthatVisVusingVtheVtextbookVandVprovidedVtheVreproducedVmaterialV
bearsVthisVcopyrightVnotice.
CopyrightV©V2023VPearsonVCanadaV
Inc.
,ii Instructor‘sVSolutionsVManualVforVRagan,VMicroeconomics,VSeventeenthVCanadianVE
dition
Contents
PartVOne:V WhatVIsVEconomics? 1
ChapterV1:VEconomicVIssuesVandVConcepts 3
ChapterV2:VEconomicVTheories,VData,VandVGraphs 13
PartVTwo:V AnVIntroductionVtoVDemandVandVSupply 26
ChapterV3:VDemand,VSupply,VandVPrice 27
ChapterV4:VElasticity 40
ChapterV5:VPriceVControlsVandVMarketVEfficiency 54
PartVThree:V ConsumersVandVProducers 65
ChapterV6:VConsumerVBehaviour 66
ChapterV7:VProducersVinVtheVShortVRun 81
ChapterV8:VProducersVinVtheVLongVRun 95
PartVFour:V MarketVStructureVandVEfficiency 104
ChapterV9:VCompetitiveVMarkets 105
ChapterV10:VMonopoly,VCartels,VandVPriceVDiscrimination 116
ChapterV11:VImperfectVCompetitionVandVStrategicVBehaviour 131
ChapterV12:VEconomicVEfficiencyVandVPublicVPolicy 140
PartVFive:V FactorVMarkets 150
ChapterV13:VHowVFactorVMarketsVWork 152
ChapterV14:VLabourVMarketsVandVIncomeVInequality 163
ChapterV15:VInterestVRatesVandVtheVCapitalVMarket 175
PartVSix:V GovernmentVinVtheVMarketVEconomy 183
ChapterV16:VMarketVFailuresVandVGovernmentVIntervention 185
ChapterV17:VTheVEconomicsVofVEnvironmentalVProtection 198
ChapterV18:VTaxationVandVPublicVExpenditure 210
PartVSeven:V CanadaVinVtheVGlobalVEconomy 219
ChapterV19:VTheVGainsVfromVInternationalVTrade 220
ChapterV20:VTradeVPolicy 229
CopyrightV©V2023VPearsonVCanadaV
Inc.
, ChapterV1:VEconomicVIssuesVandVConcepts
iii
List of Boxes
V V
ApplyingVEconomicVConcepts
1-1VTheVHighVOpportunityVCostVofVYourVUniversityVDegree 7
1-2VEconomicsVNeedsVtheVOtherVSocialVSciences 21
2-1VWhereVEconomistsVWork 30
2-2VCanVEconomistsVDesignVControlledVExperimentsVtoVTestVTheirVTheories? 34
3-1VDemandVandVSupplyVShocksVCreatedVbyVtheVCOVID-19VPandemic 64
3-2VWhyVApplesVbutVNotViPhones? 72
4-1VWhoVReallyV―Pays‖VforVPayrollVTaxes? 93
5-1VMinimumVWagesVandVUnemployment 105
5-2VTheVDebateVOverV―PriceVGouging‖:VEfficiencyVVersusVPublicVVirtue 118
6-1VRationalityVandVFramingVinVConsumerVBehaviour 130
7-1VIsVItVSociallyVResponsibleVtoVMaximizeVProfits? 160
7-2VThreeVExamplesVofVDiminishingVReturns 168
7-3VTheVDigitalVWorld:VWhenVDiminishingVReturnsVDisappearVAltogether 174
8-1VTheVSignificanceVofVProductivityVGrowth 191
9-1VWhyVSmallVFirmsVAreVPriceVTakers 207
9-2VTheVParableVofVtheVSeasideVInn 217
10-1VNetworkVEffectsVasVEntryVBarriers 239
12-1VPotentialVMergersVinVtheVCanadianVAirlineVIndustry 302
14-1VTheVRiseVofVtheV―Gig‖VEconomy 356
15-1VInflationVandVInterestVRates 380
16-1VTheVWorld‘sVEndangeredVFish 398
16-2VUsedVCarsVandVtheVMarketVforV―Lemons‖ 404
18-1VUsingVaVUBIVtoVEliminateVPoverty 466
19-1VTwoVExamplesVofVAbsoluteVandVComparativeVAdvantage 484
19-2VComparativeVAdvantageVandVGlobalVSupplyVChains 492
20-1VCanadianVWine:VAVFree-TradeVSuccessVStory 520
LessonsVfromVHistory
4-1VEconomicVDevelopmentVandVIncomeVElasticities 95
8-1VJacobVVinerVandVtheVCleverVDraftsman 189
9-1VWhatVDoVWhalingVShipsVandVOilVWellsVHaveVinVCommon? 224
10-1VDisruptiveVTechnologiesVandVCreativeVDestruction 241
12-1VAreVAmazonVandVFacebookVtheVStandardVOilVofVtheVTwenty- 300
FirstVCentury?
13-1VDavidVRicardoVandV―EconomicVRent‖ 327
20-1VTariffVWarsVandVtheVStarkVLessonsVfromVtheVGreatVDepression 508
CopyrightV©V2023VPearsonVCanadaV
Inc.
, iv Instructor‘sVSolutionsVManualVforVRagan,VMicroeconomics,VSeventeenthVCanadianVE
dition
ExtensionsVinVTheory
3-1VTheVDistinctionVBetweenVStocksVandVFlows 53
11-1VTheVPrisoners‘VDilemma 270
16-1VArthurVOkun‘sV―LeakyVBucket‖ 406
18-1VWhoVReallyVPaysVtheVCorporateVIncomeVTax? 450
19-1VTheVGainsVfromVTradeVMoreVGenerally 482
PartVOneVWh
atVIsVEconomics?
ThisVopeningVPartVofVtheVbookVprovidesVanVintroductionVtoVeconomics.VTheVcentralVthemes
VofVChapterV1VareVscarcity,Vchoice,VopportunityVcost,VandVtheVself-
organizingVroleVofVmarkets.VTheVchapterValsoVexaminesVtheVgainsVfromVspecializationVandVt
rade,VtheVroleVofVmoney,VtheVeffectsVofVglobalization,VandVendsVwithVaVdiscussionVofVtheVv
ariousVtypesVofVeconomicVsystems.VChapterV2VexaminesVhowVeconomistsVbuildVtheirVmodels
VandVtestVtheirVtheories.VItValsoVaddressesVcentralVmethodologicalVissues,VtheVmostVimportant
VbeingVtheVideaVthatVtheVprogressVofVeconomicsV(likeVallVscientificVdisciplines)VdependsVonV
relatingVourVtheoriesVtoVwhatVweVobserveVinVtheVworldVaroundVus.VFinally,VtheVchapterVhasV
anVextensiveVsectionVonVgraphing.
***
ChapterV1VopensVwithVaVbriefVtourVofVsomeVkeyVeconomicVissuesVinVCanadaVandVotherVcou
ntries—
VfromVrisingVprotectionismVandVtheVdangersVofVclimateVchangeVtoVacceleratingVtechnological
VchangeVandVgrowingVincomeVinequality.VTheVpurposeVisVtoVwhetVtheVreader‘sVappetiteVforVt
heVkindsVofVissuesVeconomistsVareVthinkingVaboutVtoday.VThisVoffersVaVnaturalVsegueVtoVthe
VdiscussionVofVscarcity,VwithoutVwhichVfewVofVtheseVissuesVwouldVbeVveryVinteresting.VThe
VchapterVaddressesVtheVfundamentalVconceptsVofVscarcity,Vchoice,VandVopportunityVcost,Villus
tratingVtheseVideasVwithVaVproductionVpossibilitiesVboundary.V(ItVisVworthVnotingVthatVtheseV
conceptsVareVrelevantVtoVallVeconomies,VwhetherVtheyVareVorganizedVbyVcentralVplanningVorV
byVfreeVmarkets.)VWeVthenVexamineVtheVcomplexityVofVmodernVmarketVeconomies,Vexamini
ngVtheVdecisionVmakers,Vproduction,Vtrade,Vmoney,VandVglobalization.VFinally,VweVexamineV
differentVtypesVofVeconomicVsystems,VincludingVtraditional,Vcommand,VandVfree-
marketVsystems.VWeVemphasizeVthatVallVactualVeconomiesVareVmixtures,VcontainingVelements
VofVallVthreeVpureVsystems.
ChapterV2VprovidesVaVlongerVintroductionVtoVtheVmethodologicalVissuesVofVeconomicsVthan
VisVusuallyVincludedVinVintroductoryVtexts.VWeVdoVthisVbecauseVmostVstudentsVbelieveVthatVtheVsci
entificVmethodVisVlimitedVtoVtheVnaturalVsciences.VButVtoVfullyVappreciateVeconomics,VtheyVmustVu
CopyrightV©V2023VPearsonVCanadaV
Inc.
ANUAL
for
Microeconomics
SeventeenthVCanadianVEdition
ChristopherVT.S.VRagan
McGillVUniversity
ISBNV 978-0-13-766398-9
CopyrightV©V2023VPearsonVCanadaVInc.,VToronto,VOntario.VAllVrightsVreserved.VThisVworkVisVprotectedVbyVCanadian
VcopyrightVlawsVandVisVprovidedVsolelyVforVtheVuseVofVinstructorsVinVteachingVtheirVcoursesVandVassessingVstudentVl
earning.VDisseminationVorVsaleVofVanyVpartVofVthisVworkV(includingVonVtheVinternet)VwillVdestroyVtheVintegrityVofVt
heVworkVandVisVnotVpermitted.VTheVcopyrightVholderVgrantsVpermissionVtoVinstructorsVwhoVhaveVadoptedVMicroecon
omics,VbyVChristopherVT.VS.VRagan,VtoVpostVthisVmaterialVonlineVonlyVifVtheVuseVofVtheVwebsiteVisVrestrictedVbyVa
ccessVcodesVtoVstudentsVinVtheVinstructor‘sVclassVthatVisVusingVtheVtextbookVandVprovidedVtheVreproducedVmaterialV
bearsVthisVcopyrightVnotice.
CopyrightV©V2023VPearsonVCanadaV
Inc.
,ii Instructor‘sVSolutionsVManualVforVRagan,VMicroeconomics,VSeventeenthVCanadianVE
dition
Contents
PartVOne:V WhatVIsVEconomics? 1
ChapterV1:VEconomicVIssuesVandVConcepts 3
ChapterV2:VEconomicVTheories,VData,VandVGraphs 13
PartVTwo:V AnVIntroductionVtoVDemandVandVSupply 26
ChapterV3:VDemand,VSupply,VandVPrice 27
ChapterV4:VElasticity 40
ChapterV5:VPriceVControlsVandVMarketVEfficiency 54
PartVThree:V ConsumersVandVProducers 65
ChapterV6:VConsumerVBehaviour 66
ChapterV7:VProducersVinVtheVShortVRun 81
ChapterV8:VProducersVinVtheVLongVRun 95
PartVFour:V MarketVStructureVandVEfficiency 104
ChapterV9:VCompetitiveVMarkets 105
ChapterV10:VMonopoly,VCartels,VandVPriceVDiscrimination 116
ChapterV11:VImperfectVCompetitionVandVStrategicVBehaviour 131
ChapterV12:VEconomicVEfficiencyVandVPublicVPolicy 140
PartVFive:V FactorVMarkets 150
ChapterV13:VHowVFactorVMarketsVWork 152
ChapterV14:VLabourVMarketsVandVIncomeVInequality 163
ChapterV15:VInterestVRatesVandVtheVCapitalVMarket 175
PartVSix:V GovernmentVinVtheVMarketVEconomy 183
ChapterV16:VMarketVFailuresVandVGovernmentVIntervention 185
ChapterV17:VTheVEconomicsVofVEnvironmentalVProtection 198
ChapterV18:VTaxationVandVPublicVExpenditure 210
PartVSeven:V CanadaVinVtheVGlobalVEconomy 219
ChapterV19:VTheVGainsVfromVInternationalVTrade 220
ChapterV20:VTradeVPolicy 229
CopyrightV©V2023VPearsonVCanadaV
Inc.
, ChapterV1:VEconomicVIssuesVandVConcepts
iii
List of Boxes
V V
ApplyingVEconomicVConcepts
1-1VTheVHighVOpportunityVCostVofVYourVUniversityVDegree 7
1-2VEconomicsVNeedsVtheVOtherVSocialVSciences 21
2-1VWhereVEconomistsVWork 30
2-2VCanVEconomistsVDesignVControlledVExperimentsVtoVTestVTheirVTheories? 34
3-1VDemandVandVSupplyVShocksVCreatedVbyVtheVCOVID-19VPandemic 64
3-2VWhyVApplesVbutVNotViPhones? 72
4-1VWhoVReallyV―Pays‖VforVPayrollVTaxes? 93
5-1VMinimumVWagesVandVUnemployment 105
5-2VTheVDebateVOverV―PriceVGouging‖:VEfficiencyVVersusVPublicVVirtue 118
6-1VRationalityVandVFramingVinVConsumerVBehaviour 130
7-1VIsVItVSociallyVResponsibleVtoVMaximizeVProfits? 160
7-2VThreeVExamplesVofVDiminishingVReturns 168
7-3VTheVDigitalVWorld:VWhenVDiminishingVReturnsVDisappearVAltogether 174
8-1VTheVSignificanceVofVProductivityVGrowth 191
9-1VWhyVSmallVFirmsVAreVPriceVTakers 207
9-2VTheVParableVofVtheVSeasideVInn 217
10-1VNetworkVEffectsVasVEntryVBarriers 239
12-1VPotentialVMergersVinVtheVCanadianVAirlineVIndustry 302
14-1VTheVRiseVofVtheV―Gig‖VEconomy 356
15-1VInflationVandVInterestVRates 380
16-1VTheVWorld‘sVEndangeredVFish 398
16-2VUsedVCarsVandVtheVMarketVforV―Lemons‖ 404
18-1VUsingVaVUBIVtoVEliminateVPoverty 466
19-1VTwoVExamplesVofVAbsoluteVandVComparativeVAdvantage 484
19-2VComparativeVAdvantageVandVGlobalVSupplyVChains 492
20-1VCanadianVWine:VAVFree-TradeVSuccessVStory 520
LessonsVfromVHistory
4-1VEconomicVDevelopmentVandVIncomeVElasticities 95
8-1VJacobVVinerVandVtheVCleverVDraftsman 189
9-1VWhatVDoVWhalingVShipsVandVOilVWellsVHaveVinVCommon? 224
10-1VDisruptiveVTechnologiesVandVCreativeVDestruction 241
12-1VAreVAmazonVandVFacebookVtheVStandardVOilVofVtheVTwenty- 300
FirstVCentury?
13-1VDavidVRicardoVandV―EconomicVRent‖ 327
20-1VTariffVWarsVandVtheVStarkVLessonsVfromVtheVGreatVDepression 508
CopyrightV©V2023VPearsonVCanadaV
Inc.
, iv Instructor‘sVSolutionsVManualVforVRagan,VMicroeconomics,VSeventeenthVCanadianVE
dition
ExtensionsVinVTheory
3-1VTheVDistinctionVBetweenVStocksVandVFlows 53
11-1VTheVPrisoners‘VDilemma 270
16-1VArthurVOkun‘sV―LeakyVBucket‖ 406
18-1VWhoVReallyVPaysVtheVCorporateVIncomeVTax? 450
19-1VTheVGainsVfromVTradeVMoreVGenerally 482
PartVOneVWh
atVIsVEconomics?
ThisVopeningVPartVofVtheVbookVprovidesVanVintroductionVtoVeconomics.VTheVcentralVthemes
VofVChapterV1VareVscarcity,Vchoice,VopportunityVcost,VandVtheVself-
organizingVroleVofVmarkets.VTheVchapterValsoVexaminesVtheVgainsVfromVspecializationVandVt
rade,VtheVroleVofVmoney,VtheVeffectsVofVglobalization,VandVendsVwithVaVdiscussionVofVtheVv
ariousVtypesVofVeconomicVsystems.VChapterV2VexaminesVhowVeconomistsVbuildVtheirVmodels
VandVtestVtheirVtheories.VItValsoVaddressesVcentralVmethodologicalVissues,VtheVmostVimportant
VbeingVtheVideaVthatVtheVprogressVofVeconomicsV(likeVallVscientificVdisciplines)VdependsVonV
relatingVourVtheoriesVtoVwhatVweVobserveVinVtheVworldVaroundVus.VFinally,VtheVchapterVhasV
anVextensiveVsectionVonVgraphing.
***
ChapterV1VopensVwithVaVbriefVtourVofVsomeVkeyVeconomicVissuesVinVCanadaVandVotherVcou
ntries—
VfromVrisingVprotectionismVandVtheVdangersVofVclimateVchangeVtoVacceleratingVtechnological
VchangeVandVgrowingVincomeVinequality.VTheVpurposeVisVtoVwhetVtheVreader‘sVappetiteVforVt
heVkindsVofVissuesVeconomistsVareVthinkingVaboutVtoday.VThisVoffersVaVnaturalVsegueVtoVthe
VdiscussionVofVscarcity,VwithoutVwhichVfewVofVtheseVissuesVwouldVbeVveryVinteresting.VThe
VchapterVaddressesVtheVfundamentalVconceptsVofVscarcity,Vchoice,VandVopportunityVcost,Villus
tratingVtheseVideasVwithVaVproductionVpossibilitiesVboundary.V(ItVisVworthVnotingVthatVtheseV
conceptsVareVrelevantVtoVallVeconomies,VwhetherVtheyVareVorganizedVbyVcentralVplanningVorV
byVfreeVmarkets.)VWeVthenVexamineVtheVcomplexityVofVmodernVmarketVeconomies,Vexamini
ngVtheVdecisionVmakers,Vproduction,Vtrade,Vmoney,VandVglobalization.VFinally,VweVexamineV
differentVtypesVofVeconomicVsystems,VincludingVtraditional,Vcommand,VandVfree-
marketVsystems.VWeVemphasizeVthatVallVactualVeconomiesVareVmixtures,VcontainingVelements
VofVallVthreeVpureVsystems.
ChapterV2VprovidesVaVlongerVintroductionVtoVtheVmethodologicalVissuesVofVeconomicsVthan
VisVusuallyVincludedVinVintroductoryVtexts.VWeVdoVthisVbecauseVmostVstudentsVbelieveVthatVtheVsci
entificVmethodVisVlimitedVtoVtheVnaturalVsciences.VButVtoVfullyVappreciateVeconomics,VtheyVmustVu
CopyrightV©V2023VPearsonVCanadaV
Inc.
