INSTRUCTOR’SSOLUTIONS M J J
ANUAL
for
Microeconomics
Seventeenth Canadian Edition j j
Christopher T.S. Ragan j j
McGill University j
ISBNj 978-0-13-766398-9
Copyrightj©j2023jPearsonjCanadajInc.,jToronto,jOntario.jAlljrightsjreserved.jThisjworkjisjprotectedjbyjCanadianjcopyrightjlawsja
ndjisjprovidedjsolelyjforjthejusejofjinstructorsjinjteachingjtheirjcoursesjandjassessingjstudentjlearning.jDisseminationjorjsalejofjany
jpartjofjthisjworkj(includingjonjthejinternet)jwilljdestroyjthejintegrityjofjthejworkjandjisjnotjpermitted.jThejcopyrightjholderjgrantsj
permissionjtojinstructorsjwhojhavejadoptedjMicroeconomics,jbyjChristopherjT.jS.jRagan,jtojpostjthisjmaterialjonlinejonlyjifjthejus
ejofjthejwebsitejisjrestrictedjbyjaccessjcodesjtojstudentsjinjthejinstructor‘sjclassjthatjisjusingjthejtextbookjandjprovidedjthejreprodu
cedjmaterialjbearsjthisjcopyrightjnotice.
Copyrightj©j2023jPearsonjCanadajInc.
,ii Instructor‘sjSolutionsjManualjforjRagan,jMicroeconomics,jSeventeenthjCanadianjEdition
Contents
PartjOne:j WhatjIsjEconomics? 1
Chapterj1:jEconomicjIssuesjandjConcepts 3
Chapterj2:jEconomicjTheories,jData,jandjGraphs 13
PartjTwo:j AnjIntroductionjtojDemandjandjSupply 26
Chapterj3:jDemand,jSupply,jandjPrice 27
Chapterj4:jElasticity 40
Chapterj5:jPricejControlsjandjMarketjEfficiency 54
PartjThree:j ConsumersjandjProducers 65
Chapterj6:jConsumerjBehaviour 66
Chapterj7:jProducersjinjthejShortjRun 81
Chapterj8:jProducersjinjthejLongjRun 95
PartjFour:j MarketjStructurejandjEfficiency 104
Chapterj9:jCompetitivejMarkets 105
Chapterj10:jMonopoly,jCartels,jandjPricejDiscrimination 116
Chapterj11:jImperfectjCompetitionjandjStrategicjBehaviour 131
Chapterj12:jEconomicjEfficiencyjandjPublicjPolicy 140
PartjFive:j FactorjMarkets 150
Chapterj13:jHowjFactorjMarketsjWork 152
Chapterj14:jLabourjMarketsjandjIncomejInequality 163
Chapterj15:jInterestjRatesjandjthejCapitaljMarket 175
PartjSix:j GovernmentjinjthejMarketjEconomy 183
Chapterj16:jMarketjFailuresjandjGovernmentjIntervention 185
Chapterj17:jThejEconomicsjofjEnvironmentaljProtection 198
Chapterj18:jTaxationjandjPublicjExpenditure 210
PartjSeven:j CanadajinjthejGlobaljEconomy 219
Chapterj19:jThejGainsjfromjInternationaljTrade 220
Chapterj20:jTradejPolicy 229
Copyrightj©j2023jPearsonjCanadajInc.
, Chapterj1:jEconomicjIssuesjandjConcepts iii
List of Boxes
j j
ApplyingjEconomicjConcepts
1-1jThejHighjOpportunityjCostjofjYourjUniversityjDegree 7
1-2jEconomicsjNeedsjthejOtherjSocialjSciences 21
2-1jWherejEconomistsjWork 30
2-2jCanjEconomistsjDesignjControlledjExperimentsjtojTestjTheirjTheories? 34
3-1jDemandjandjSupplyjShocksjCreatedjbyjthejCOVID-19jPandemic 64
3-2jWhyjApplesjbutjNotjiPhones? 72
4-1jWhojReallyj―Pays‖jforjPayrolljTaxes? 93
5-1jMinimumjWagesjandjUnemployment 105
5-2jThejDebatejOverj―PricejGouging‖:jEfficiencyjVersusjPublicjVirtue 118
6-1jRationalityjandjFramingjinjConsumerjBehaviour 130
7-1jIsjItjSociallyjResponsiblejtojMaximizejProfits? 160
7-2jThreejExamplesjofjDiminishingjReturns 168
7-3jThejDigitaljWorld:jWhenjDiminishingjReturnsjDisappearjAltogether 174
8-1jThejSignificancejofjProductivityjGrowth 191
9-1jWhyjSmalljFirmsjArejPricejTakers 207
9-2jThejParablejofjthejSeasidejInn 217
10-1jNetworkjEffectsjasjEntryjBarriers 239
12-1jPotentialjMergersjinjthejCanadianjAirlinejIndustry 302
14-1jThejRisejofjthej―Gig‖jEconomy 356
15-1jInflationjandjInterestjRates 380
16-1jThejWorld‘sjEndangeredjFish 398
16-2jUsedjCarsjandjthejMarketjforj―Lemons‖ 404
18-1jUsingjajUBIjtojEliminatejPoverty 466
19-1jTwojExamplesjofjAbsolutejandjComparativejAdvantage 484
19-2jComparativejAdvantagejandjGlobaljSupplyjChains 492
20-1jCanadianjWine:jAjFree-TradejSuccessjStory 520
LessonsjfromjHistory
4-1jEconomicjDevelopmentjandjIncomejElasticities 95
8-1jJacobjVinerjandjthejCleverjDraftsman 189
9-1jWhatjDojWhalingjShipsjandjOiljWellsjHavejinjCommon? 224
10-1jDisruptivejTechnologiesjandjCreativejDestruction 241
12-1jArejAmazonjandjFacebookjthejStandardjOiljofjthejTwenty-FirstjCentury? 300
13-1jDavidjRicardojandj―EconomicjRent‖ 327
20-1jTariffjWarsjandjthejStarkjLessonsjfromjthejGreatjDepression 508
Copyrightj©j2023jPearsonjCanadajInc.
, iv Instructor‘sjSolutionsjManualjforjRagan,jMicroeconomics,jSeventeenthjCanadianjEdition
ExtensionsjinjTheory
3-1jThejDistinctionjBetweenjStocksjandjFlows 53
11-1jThejPrisoners‘jDilemma 270
16-1jArthurjOkun‘sj―LeakyjBucket‖ 406
18-1jWhojReallyjPaysjthejCorporatejIncomejTax? 450
19-1jThejGainsjfromjTradejMorejGenerally 482
Part One What
j j
Is Economics?
j j
ThisjopeningjPartjofjthejbookjprovidesjanjintroductionjtojeconomics.jThejcentraljthemesjofjChapterj
1jarejscarcity,jchoice,jopportunityjcost,jandjthejself-
organizingjrolejofjmarkets.jThejchapterjalsojexaminesjthejgainsjfromjspecializationjandjtrade,jthejro
lejofjmoney,jthejeffectsjofjglobalization,jandjendsjwithjajdiscussionjofjthejvariousjtypesjofjeconomic
jsystems.jChapterj2jexaminesjhowjeconomistsjbuildjtheirjmodelsjandjtestjtheirjtheories.jItjalsojaddre
ssesjcentraljmethodologicaljissues,jthejmostjimportantjbeingjthejideajthatjthejprogressjofjeconomicsj
(likejalljscientificjdisciplines)jdependsjonjrelatingjourjtheoriesjtojwhatjwejobservejinjthejworldjaroun
djus.jFinally,jthejchapterjhasjanjextensivejsectionjonjgraphing.
***
Chapterj1jopensjwithjajbriefjtourjofjsomejkeyjeconomicjissuesjinjCanadajandjotherjcountries—
jfromjrisingjprotectionismjandjthejdangersjofjclimatejchangejtojacceleratingjtechnologicaljchangeja
ndjgrowingjincomejinequality.jThejpurposejisjtojwhetjthejreader‘sjappetitejforjthejkindsjofjissuesjeco
nomistsjarejthinkingjaboutjtoday.jThisjoffersjajnaturaljseguejtojthejdiscussionjofjscarcity,jwithoutjw
hichjfewjofjthesejissuesjwouldjbejveryjinteresting.jThejchapterjaddressesjthejfundamentaljconceptsj
ofjscarcity,jchoice,jandjopportunityjcost,jillustratingjthesejideasjwithjajproductionjpossibilitiesjboun
dary.j(Itjisjworthjnotingjthatjthesejconceptsjarejrelevantjtojalljeconomies,jwhetherjtheyjarejorganize
djbyjcentraljplanningjorjbyjfreejmarkets.)jWejthenjexaminejthejcomplexityjofjmodernjmarketjecono
mies,jexaminingjthejdecisionjmakers,jproduction,jtrade,jmoney,jandjglobalization.jFinally,jwejexa
minejdifferentjtypesjofjeconomicjsystems,jincludingjtraditional,jcommand,jandjfree-
marketjsystems.jWejemphasizejthatjalljactualjeconomiesjarejmixtures,jcontainingjelementsjofjalljthr
eejpurejsystems.
Chapterj2jprovidesjajlongerjintroductionjtojthejmethodologicaljissuesjofjeconomicsjthanjisjusuallyji
ncludedjinjintroductoryjtexts.jWejdojthisjbecausejmostjstudentsjbelievejthatjthejscientificjmethodjisjlimitedjt
ojthejnaturaljsciences.jButjtojfullyjappreciatejeconomics,jtheyjmustjunderstandjthatjitsjtheoriesjarejalsojopenj
tojempiricaljtestingjandjthatjthesejtheoriesjcontinuallyjchangejasjajresultjofjwhatjthe
Copyrightj©j2023jPearsonjCanadajInc.
ANUAL
for
Microeconomics
Seventeenth Canadian Edition j j
Christopher T.S. Ragan j j
McGill University j
ISBNj 978-0-13-766398-9
Copyrightj©j2023jPearsonjCanadajInc.,jToronto,jOntario.jAlljrightsjreserved.jThisjworkjisjprotectedjbyjCanadianjcopyrightjlawsja
ndjisjprovidedjsolelyjforjthejusejofjinstructorsjinjteachingjtheirjcoursesjandjassessingjstudentjlearning.jDisseminationjorjsalejofjany
jpartjofjthisjworkj(includingjonjthejinternet)jwilljdestroyjthejintegrityjofjthejworkjandjisjnotjpermitted.jThejcopyrightjholderjgrantsj
permissionjtojinstructorsjwhojhavejadoptedjMicroeconomics,jbyjChristopherjT.jS.jRagan,jtojpostjthisjmaterialjonlinejonlyjifjthejus
ejofjthejwebsitejisjrestrictedjbyjaccessjcodesjtojstudentsjinjthejinstructor‘sjclassjthatjisjusingjthejtextbookjandjprovidedjthejreprodu
cedjmaterialjbearsjthisjcopyrightjnotice.
Copyrightj©j2023jPearsonjCanadajInc.
,ii Instructor‘sjSolutionsjManualjforjRagan,jMicroeconomics,jSeventeenthjCanadianjEdition
Contents
PartjOne:j WhatjIsjEconomics? 1
Chapterj1:jEconomicjIssuesjandjConcepts 3
Chapterj2:jEconomicjTheories,jData,jandjGraphs 13
PartjTwo:j AnjIntroductionjtojDemandjandjSupply 26
Chapterj3:jDemand,jSupply,jandjPrice 27
Chapterj4:jElasticity 40
Chapterj5:jPricejControlsjandjMarketjEfficiency 54
PartjThree:j ConsumersjandjProducers 65
Chapterj6:jConsumerjBehaviour 66
Chapterj7:jProducersjinjthejShortjRun 81
Chapterj8:jProducersjinjthejLongjRun 95
PartjFour:j MarketjStructurejandjEfficiency 104
Chapterj9:jCompetitivejMarkets 105
Chapterj10:jMonopoly,jCartels,jandjPricejDiscrimination 116
Chapterj11:jImperfectjCompetitionjandjStrategicjBehaviour 131
Chapterj12:jEconomicjEfficiencyjandjPublicjPolicy 140
PartjFive:j FactorjMarkets 150
Chapterj13:jHowjFactorjMarketsjWork 152
Chapterj14:jLabourjMarketsjandjIncomejInequality 163
Chapterj15:jInterestjRatesjandjthejCapitaljMarket 175
PartjSix:j GovernmentjinjthejMarketjEconomy 183
Chapterj16:jMarketjFailuresjandjGovernmentjIntervention 185
Chapterj17:jThejEconomicsjofjEnvironmentaljProtection 198
Chapterj18:jTaxationjandjPublicjExpenditure 210
PartjSeven:j CanadajinjthejGlobaljEconomy 219
Chapterj19:jThejGainsjfromjInternationaljTrade 220
Chapterj20:jTradejPolicy 229
Copyrightj©j2023jPearsonjCanadajInc.
, Chapterj1:jEconomicjIssuesjandjConcepts iii
List of Boxes
j j
ApplyingjEconomicjConcepts
1-1jThejHighjOpportunityjCostjofjYourjUniversityjDegree 7
1-2jEconomicsjNeedsjthejOtherjSocialjSciences 21
2-1jWherejEconomistsjWork 30
2-2jCanjEconomistsjDesignjControlledjExperimentsjtojTestjTheirjTheories? 34
3-1jDemandjandjSupplyjShocksjCreatedjbyjthejCOVID-19jPandemic 64
3-2jWhyjApplesjbutjNotjiPhones? 72
4-1jWhojReallyj―Pays‖jforjPayrolljTaxes? 93
5-1jMinimumjWagesjandjUnemployment 105
5-2jThejDebatejOverj―PricejGouging‖:jEfficiencyjVersusjPublicjVirtue 118
6-1jRationalityjandjFramingjinjConsumerjBehaviour 130
7-1jIsjItjSociallyjResponsiblejtojMaximizejProfits? 160
7-2jThreejExamplesjofjDiminishingjReturns 168
7-3jThejDigitaljWorld:jWhenjDiminishingjReturnsjDisappearjAltogether 174
8-1jThejSignificancejofjProductivityjGrowth 191
9-1jWhyjSmalljFirmsjArejPricejTakers 207
9-2jThejParablejofjthejSeasidejInn 217
10-1jNetworkjEffectsjasjEntryjBarriers 239
12-1jPotentialjMergersjinjthejCanadianjAirlinejIndustry 302
14-1jThejRisejofjthej―Gig‖jEconomy 356
15-1jInflationjandjInterestjRates 380
16-1jThejWorld‘sjEndangeredjFish 398
16-2jUsedjCarsjandjthejMarketjforj―Lemons‖ 404
18-1jUsingjajUBIjtojEliminatejPoverty 466
19-1jTwojExamplesjofjAbsolutejandjComparativejAdvantage 484
19-2jComparativejAdvantagejandjGlobaljSupplyjChains 492
20-1jCanadianjWine:jAjFree-TradejSuccessjStory 520
LessonsjfromjHistory
4-1jEconomicjDevelopmentjandjIncomejElasticities 95
8-1jJacobjVinerjandjthejCleverjDraftsman 189
9-1jWhatjDojWhalingjShipsjandjOiljWellsjHavejinjCommon? 224
10-1jDisruptivejTechnologiesjandjCreativejDestruction 241
12-1jArejAmazonjandjFacebookjthejStandardjOiljofjthejTwenty-FirstjCentury? 300
13-1jDavidjRicardojandj―EconomicjRent‖ 327
20-1jTariffjWarsjandjthejStarkjLessonsjfromjthejGreatjDepression 508
Copyrightj©j2023jPearsonjCanadajInc.
, iv Instructor‘sjSolutionsjManualjforjRagan,jMicroeconomics,jSeventeenthjCanadianjEdition
ExtensionsjinjTheory
3-1jThejDistinctionjBetweenjStocksjandjFlows 53
11-1jThejPrisoners‘jDilemma 270
16-1jArthurjOkun‘sj―LeakyjBucket‖ 406
18-1jWhojReallyjPaysjthejCorporatejIncomejTax? 450
19-1jThejGainsjfromjTradejMorejGenerally 482
Part One What
j j
Is Economics?
j j
ThisjopeningjPartjofjthejbookjprovidesjanjintroductionjtojeconomics.jThejcentraljthemesjofjChapterj
1jarejscarcity,jchoice,jopportunityjcost,jandjthejself-
organizingjrolejofjmarkets.jThejchapterjalsojexaminesjthejgainsjfromjspecializationjandjtrade,jthejro
lejofjmoney,jthejeffectsjofjglobalization,jandjendsjwithjajdiscussionjofjthejvariousjtypesjofjeconomic
jsystems.jChapterj2jexaminesjhowjeconomistsjbuildjtheirjmodelsjandjtestjtheirjtheories.jItjalsojaddre
ssesjcentraljmethodologicaljissues,jthejmostjimportantjbeingjthejideajthatjthejprogressjofjeconomicsj
(likejalljscientificjdisciplines)jdependsjonjrelatingjourjtheoriesjtojwhatjwejobservejinjthejworldjaroun
djus.jFinally,jthejchapterjhasjanjextensivejsectionjonjgraphing.
***
Chapterj1jopensjwithjajbriefjtourjofjsomejkeyjeconomicjissuesjinjCanadajandjotherjcountries—
jfromjrisingjprotectionismjandjthejdangersjofjclimatejchangejtojacceleratingjtechnologicaljchangeja
ndjgrowingjincomejinequality.jThejpurposejisjtojwhetjthejreader‘sjappetitejforjthejkindsjofjissuesjeco
nomistsjarejthinkingjaboutjtoday.jThisjoffersjajnaturaljseguejtojthejdiscussionjofjscarcity,jwithoutjw
hichjfewjofjthesejissuesjwouldjbejveryjinteresting.jThejchapterjaddressesjthejfundamentaljconceptsj
ofjscarcity,jchoice,jandjopportunityjcost,jillustratingjthesejideasjwithjajproductionjpossibilitiesjboun
dary.j(Itjisjworthjnotingjthatjthesejconceptsjarejrelevantjtojalljeconomies,jwhetherjtheyjarejorganize
djbyjcentraljplanningjorjbyjfreejmarkets.)jWejthenjexaminejthejcomplexityjofjmodernjmarketjecono
mies,jexaminingjthejdecisionjmakers,jproduction,jtrade,jmoney,jandjglobalization.jFinally,jwejexa
minejdifferentjtypesjofjeconomicjsystems,jincludingjtraditional,jcommand,jandjfree-
marketjsystems.jWejemphasizejthatjalljactualjeconomiesjarejmixtures,jcontainingjelementsjofjalljthr
eejpurejsystems.
Chapterj2jprovidesjajlongerjintroductionjtojthejmethodologicaljissuesjofjeconomicsjthanjisjusuallyji
ncludedjinjintroductoryjtexts.jWejdojthisjbecausejmostjstudentsjbelievejthatjthejscientificjmethodjisjlimitedjt
ojthejnaturaljsciences.jButjtojfullyjappreciatejeconomics,jtheyjmustjunderstandjthatjitsjtheoriesjarejalsojopenj
tojempiricaljtestingjandjthatjthesejtheoriesjcontinuallyjchangejasjajresultjofjwhatjthe
Copyrightj©j2023jPearsonjCanadajInc.
