INSTRUCTOR’S SOLUTIONS
MANUAL
for
Microeconomics
Seventeenth Canadian Edition
Christopher T.S. Ragan
McGill University
ISBN 978-0-13-766398-9
Copyright © 2023 Pearson Canada Inc., Toronto, Ontario. All rights reserved. This work is protected by Canadian copyright laws
and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of
any part of this work (including on the internet) will destroy the integrity of the work and is not permitted. The copyright holder
grants permission to instructors who have adopted Microeconomics, by Christopher T. S. Ragan, to post this material online only
if the use of the website is restricted by access codes to students in the instructor‘s class that is using the textbook and provided
the reproduced material bears this copyright notice.
Copyright © 2023 Pearson Canada Inc.
,ii Instructor‘s Solutions Manual for Ragan, Microeconomics, Seventeenth Canadian Edition
Contents
Part One: What Is Economics? 1
Chapter 1: Economic Issues and Concepts 3
Chapter 2: Economic Theories, Data, and Graphs 13
Part Two: An Introduction to Demand and Supply 26
Chapter 3: Demand, Supply, and Price 27
Chapter 4: Elasticity 40
Chapter 5: Price Controls and Market Efficiency 54
Part Three: Consumers and Producers 65
Chapter 6: Consumer Behaviour 66
Chapter 7: Producers in the Short Run 81
Chapter 8: Producers in the Long Run 95
Part Four: Market Structure and Efficiency 104
Chapter 9: Competitive Markets 105
Chapter 10: Monopoly, Cartels, and Price Discrimination 116
Chapter 11: Imperfect Competition and Strategic Behaviour 131
Chapter 12: Economic Efficiency and Public Policy 140
Part Five: Factor Markets 150
Chapter 13: How Factor Markets Work 152
Chapter 14: Labour Markets and Income Inequality 163
Chapter 15: Interest Rates and the Capital Market 175
Part Six: Government in the Market Economy 183
Chapter 16: Market Failures and Government Intervention 185
Chapter 17: The Economics of Environmental Protection 198
Chapter 18: Taxation and Public Expenditure 210
Part Seven: Canada in the Global Economy 219
Chapter 19: The Gains from International Trade 220
Chapter 20: Trade Policy 229
Copyright © 2023 Pearson Canada Inc.
, Chapter 1: Economic Issues and Concepts iii
List of Boxes
Applying Economic Concepts
1-1 The High Opportunity Cost of Your University Degree 7
1-2 Economics Needs the Other Social Sciences 21
2-1 Where Economists Work 30
2-2 Can Economists Design Controlled Experiments to Test Their Theories? 34
3-1 Demand and Supply Shocks Created by the COVID-19 Pandemic 64
3-2 Why Apples but Not iPhones? 72
4-1 Who Really ―Pays‖ for Payroll Taxes? 93
5-1 Minimum Wages and Unemployment 105
5-2 The Debate Over ―Price Gouging‖: Efficiency Versus Public Virtue 118
6-1 Rationality and Framing in Consumer Behaviour 130
7-1 Is It Socially Responsible to Maximize Profits? 160
7-2 Three Examples of Diminishing Returns 168
7-3 The Digital World: When Diminishing Returns Disappear Altogether 174
8-1 The Significance of Productivity Growth 191
9-1 Why Small Firms Are Price Takers 207
9-2 The Parable of the Seaside Inn 217
10-1 Network Effects as Entry Barriers 239
12-1 Potential Mergers in the Canadian Airline Industry 302
14-1 The Rise of the ―Gig‖ Economy 356
15-1 Inflation and Interest Rates 380
16-1 The World‘s Endangered Fish 398
16-2 Used Cars and the Market for ―Lemons‖ 404
18-1 Using a UBI to Eliminate Poverty 466
19-1 Two Examples of Absolute and Comparative Advantage 484
19-2 Comparative Advantage and Global Supply Chains 492
20-1 Canadian Wine: A Free-Trade Success Story 520
Lessons from History
4-1 Economic Development and Income Elasticities 95
8-1 Jacob Viner and the Clever Draftsman 189
9-1 What Do Whaling Ships and Oil Wells Have in Common? 224
10-1 Disruptive Technologies and Creative Destruction 241
12-1 Are Amazon and Facebook the Standard Oil of the Twenty-First Century? 300
13-1 David Ricardo and ―Economic Rent‖ 327
20-1 Tariff Wars and the Stark Lessons from the Great Depression 508
Copyright © 2023 Pearson Canada Inc.
, iv Instructor‘s Solutions Manual for Ragan, Microeconomics, Seventeenth Canadian Edition
Extensions in Theory
3-1 The Distinction Between Stocks and Flows 53
11-1 The Prisoners‘ Dilemma 270
16-1 Arthur Okun‘s ―Leaky Bucket‖ 406
18-1 Who Really Pays the Corporate Income Tax? 450
19-1 The Gains from Trade More Generally 482
________________________________________
Part One
What Is Economics?
________________________________________
This opening Part of the book provides an introduction to economics. The central themes of
Chapter 1 are scarcity, choice, opportunity cost, and the self-organizing role of markets. The
chapter also examines the gains from specialization and trade, the role of money, the effects of
globalization, and ends with a discussion of the various types of economic systems. Chapter 2
examines how economists build their models and test their theories. It also addresses central
methodological issues, the most important being the idea that the progress of economics (like all
scientific disciplines) depends on relating our theories to what we observe in the world around us.
Finally, the chapter has an extensive section on graphing.
***
Chapter 1 opens with a brief tour of some key economic issues in Canada and other countries—
from rising protectionism and the dangers of climate change to accelerating technological change
and growing income inequality. The purpose is to whet the reader‘s appetite for the kinds of issues
economists are thinking about today. This offers a natural segue to the discussion of scarcity,
without which few of these issues would be very interesting. The chapter addresses the
fundamental concepts of scarcity, choice, and opportunity cost, illustrating these ideas with a
production possibilities boundary. (It is worth noting that these concepts are relevant to all
economies, whether they are organized by central planning or by free markets.) We then examine
the complexity of modern market economies, examining the decision makers, production, trade,
money, and globalization. Finally, we examine different types of economic systems, including
traditional, command, and free-market systems. We emphasize that all actual economies are
mixtures, containing elements of all three pure systems.
Chapter 2 provides a longer introduction to the methodological issues of economics than is
usually included in introductory texts. We do this because most students believe that the scientific method
is limited to the natural sciences. But to fully appreciate economics, they must understand that its theories
are also open to empirical testing and that these theories continually change as a result of what the
Copyright © 2023 Pearson Canada Inc.
MANUAL
for
Microeconomics
Seventeenth Canadian Edition
Christopher T.S. Ragan
McGill University
ISBN 978-0-13-766398-9
Copyright © 2023 Pearson Canada Inc., Toronto, Ontario. All rights reserved. This work is protected by Canadian copyright laws
and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of
any part of this work (including on the internet) will destroy the integrity of the work and is not permitted. The copyright holder
grants permission to instructors who have adopted Microeconomics, by Christopher T. S. Ragan, to post this material online only
if the use of the website is restricted by access codes to students in the instructor‘s class that is using the textbook and provided
the reproduced material bears this copyright notice.
Copyright © 2023 Pearson Canada Inc.
,ii Instructor‘s Solutions Manual for Ragan, Microeconomics, Seventeenth Canadian Edition
Contents
Part One: What Is Economics? 1
Chapter 1: Economic Issues and Concepts 3
Chapter 2: Economic Theories, Data, and Graphs 13
Part Two: An Introduction to Demand and Supply 26
Chapter 3: Demand, Supply, and Price 27
Chapter 4: Elasticity 40
Chapter 5: Price Controls and Market Efficiency 54
Part Three: Consumers and Producers 65
Chapter 6: Consumer Behaviour 66
Chapter 7: Producers in the Short Run 81
Chapter 8: Producers in the Long Run 95
Part Four: Market Structure and Efficiency 104
Chapter 9: Competitive Markets 105
Chapter 10: Monopoly, Cartels, and Price Discrimination 116
Chapter 11: Imperfect Competition and Strategic Behaviour 131
Chapter 12: Economic Efficiency and Public Policy 140
Part Five: Factor Markets 150
Chapter 13: How Factor Markets Work 152
Chapter 14: Labour Markets and Income Inequality 163
Chapter 15: Interest Rates and the Capital Market 175
Part Six: Government in the Market Economy 183
Chapter 16: Market Failures and Government Intervention 185
Chapter 17: The Economics of Environmental Protection 198
Chapter 18: Taxation and Public Expenditure 210
Part Seven: Canada in the Global Economy 219
Chapter 19: The Gains from International Trade 220
Chapter 20: Trade Policy 229
Copyright © 2023 Pearson Canada Inc.
, Chapter 1: Economic Issues and Concepts iii
List of Boxes
Applying Economic Concepts
1-1 The High Opportunity Cost of Your University Degree 7
1-2 Economics Needs the Other Social Sciences 21
2-1 Where Economists Work 30
2-2 Can Economists Design Controlled Experiments to Test Their Theories? 34
3-1 Demand and Supply Shocks Created by the COVID-19 Pandemic 64
3-2 Why Apples but Not iPhones? 72
4-1 Who Really ―Pays‖ for Payroll Taxes? 93
5-1 Minimum Wages and Unemployment 105
5-2 The Debate Over ―Price Gouging‖: Efficiency Versus Public Virtue 118
6-1 Rationality and Framing in Consumer Behaviour 130
7-1 Is It Socially Responsible to Maximize Profits? 160
7-2 Three Examples of Diminishing Returns 168
7-3 The Digital World: When Diminishing Returns Disappear Altogether 174
8-1 The Significance of Productivity Growth 191
9-1 Why Small Firms Are Price Takers 207
9-2 The Parable of the Seaside Inn 217
10-1 Network Effects as Entry Barriers 239
12-1 Potential Mergers in the Canadian Airline Industry 302
14-1 The Rise of the ―Gig‖ Economy 356
15-1 Inflation and Interest Rates 380
16-1 The World‘s Endangered Fish 398
16-2 Used Cars and the Market for ―Lemons‖ 404
18-1 Using a UBI to Eliminate Poverty 466
19-1 Two Examples of Absolute and Comparative Advantage 484
19-2 Comparative Advantage and Global Supply Chains 492
20-1 Canadian Wine: A Free-Trade Success Story 520
Lessons from History
4-1 Economic Development and Income Elasticities 95
8-1 Jacob Viner and the Clever Draftsman 189
9-1 What Do Whaling Ships and Oil Wells Have in Common? 224
10-1 Disruptive Technologies and Creative Destruction 241
12-1 Are Amazon and Facebook the Standard Oil of the Twenty-First Century? 300
13-1 David Ricardo and ―Economic Rent‖ 327
20-1 Tariff Wars and the Stark Lessons from the Great Depression 508
Copyright © 2023 Pearson Canada Inc.
, iv Instructor‘s Solutions Manual for Ragan, Microeconomics, Seventeenth Canadian Edition
Extensions in Theory
3-1 The Distinction Between Stocks and Flows 53
11-1 The Prisoners‘ Dilemma 270
16-1 Arthur Okun‘s ―Leaky Bucket‖ 406
18-1 Who Really Pays the Corporate Income Tax? 450
19-1 The Gains from Trade More Generally 482
________________________________________
Part One
What Is Economics?
________________________________________
This opening Part of the book provides an introduction to economics. The central themes of
Chapter 1 are scarcity, choice, opportunity cost, and the self-organizing role of markets. The
chapter also examines the gains from specialization and trade, the role of money, the effects of
globalization, and ends with a discussion of the various types of economic systems. Chapter 2
examines how economists build their models and test their theories. It also addresses central
methodological issues, the most important being the idea that the progress of economics (like all
scientific disciplines) depends on relating our theories to what we observe in the world around us.
Finally, the chapter has an extensive section on graphing.
***
Chapter 1 opens with a brief tour of some key economic issues in Canada and other countries—
from rising protectionism and the dangers of climate change to accelerating technological change
and growing income inequality. The purpose is to whet the reader‘s appetite for the kinds of issues
economists are thinking about today. This offers a natural segue to the discussion of scarcity,
without which few of these issues would be very interesting. The chapter addresses the
fundamental concepts of scarcity, choice, and opportunity cost, illustrating these ideas with a
production possibilities boundary. (It is worth noting that these concepts are relevant to all
economies, whether they are organized by central planning or by free markets.) We then examine
the complexity of modern market economies, examining the decision makers, production, trade,
money, and globalization. Finally, we examine different types of economic systems, including
traditional, command, and free-market systems. We emphasize that all actual economies are
mixtures, containing elements of all three pure systems.
Chapter 2 provides a longer introduction to the methodological issues of economics than is
usually included in introductory texts. We do this because most students believe that the scientific method
is limited to the natural sciences. But to fully appreciate economics, they must understand that its theories
are also open to empirical testing and that these theories continually change as a result of what the
Copyright © 2023 Pearson Canada Inc.
