INSTRUCTOR’SSOLUTIONS M B B
ANUAL
for
Microeconomics
Seventeenth Canadian Edition b b
Christopher T.S. Ragan b b
McGill University b
ISBNb 978-0-13-766398-9
Copyrightb©b2023bPearsonbCanadabInc.,bToronto,bOntario.bAllbrightsbreserved.bThisbworkbisbprotectedbbybCanadianbcopyrightblaw
sbandbisbprovidedbsolelybforbthebusebofbinstructorsbinbteachingbtheirbcoursesbandbassessingbstudentblearning.bDisseminationborbsaleb
ofbanybpartbofbthisbworkb(includingbonbthebinternet)bwillbdestroybthebintegritybofbthebworkbandbisbnotbpermitted.bThebcopyrightbhol
derbgrantsbpermissionbtobinstructorsbwhobhavebadoptedbMicroeconomics,bbybChristopherbT.bS.bRagan,btobpostbthisbmaterialbonlineb
onlybifbthebusebofbthebwebsitebisbrestrictedbbybaccessbcodesbtobstudentsbinbthebinstructor‘sbclassbthatbisbusingbthebtextbookbandbprov
idedbthebreproducedbmaterialbbearsbthisbcopyrightbnotice.
Copyrightb©b2023bPearsonbCanadabInc.
,ii Instructor‘sbSolutionsbManualbforbRagan,bMicroeconomics,bSeventeenthbCanadianbEdition
Contents
PartbOne:b WhatbIsbEconomics? 1
Chapterb1:bEconomicbIssuesbandbConcepts 3
Chapterb2:bEconomicbTheories,bData,bandbGraphs 13
PartbTwo:b AnbIntroductionbtobDemandbandbSupply 26
Chapterb3:bDemand,bSupply,bandbPrice 27
Chapterb4:bElasticity 40
Chapterb5:bPricebControlsbandbMarketbEfficiency 54
PartbThree:b ConsumersbandbProducers 65
Chapterb6:bConsumerbBehaviour 66
Chapterb7:bProducersbinbthebShortbRun 81
Chapterb8:bProducersbinbthebLongbRun 95
PartbFour:b MarketbStructurebandbEfficiency 104
Chapterb9:bCompetitivebMarkets 105
Chapterb10:bMonopoly,bCartels,bandbPricebDiscrimination 116
Chapterb11:bImperfectbCompetitionbandbStrategicbBehaviour 131
Chapterb12:bEconomicbEfficiencybandbPublicbPolicy 140
PartbFive:b FactorbMarkets 150
Chapterb13:bHowbFactorbMarketsbWork 152
Chapterb14:bLabourbMarketsbandbIncomebInequality 163
Chapterb15:bInterestbRatesbandbthebCapitalbMarket 175
PartbSix:b GovernmentbinbthebMarketbEconomy 183
Chapterb16:bMarketbFailuresbandbGovernmentbIntervention 185
Chapterb17:bThebEconomicsbofbEnvironmentalbProtection 198
Chapterb18:bTaxationbandbPublicbExpenditure 210
PartbSeven:b CanadabinbthebGlobalbEconomy 219
Chapterb19:bThebGainsbfrombInternationalbTrade 220
Chapterb20:bTradebPolicy 229
Copyrightb©b2023bPearsonbCanadabInc.
, Chapterb1:bEconomicbIssuesbandbConcepts iii
List of Boxes
b b
ApplyingbEconomicbConcepts
1-1bThebHighbOpportunitybCostbofbYourbUniversitybDegree 7
1-2bEconomicsbNeedsbthebOtherbSocialbSciences 21
2-1bWherebEconomistsbWork 30
2-2bCanbEconomistsbDesignbControlledbExperimentsbtobTestbTheirbTheories? 34
3-1bDemandbandbSupplybShocksbCreatedbbybthebCOVID-19bPandemic 64
3-2bWhybApplesbbutbNotbiPhones? 72
4-1bWhobReallyb―Pays‖bforbPayrollbTaxes? 93
5-1bMinimumbWagesbandbUnemployment 105
5-2bThebDebatebOverb―PricebGouging‖:bEfficiencybVersusbPublicbVirtue 118
6-1bRationalitybandbFramingbinbConsumerbBehaviour 130
7-1bIsbItbSociallybResponsiblebtobMaximizebProfits? 160
7-2bThreebExamplesbofbDiminishingbReturns 168
7-3bThebDigitalbWorld:bWhenbDiminishingbReturnsbDisappearbAltogether 174
8-1bThebSignificancebofbProductivitybGrowth 191
9-1bWhybSmallbFirmsbArebPricebTakers 207
9-2bThebParablebofbthebSeasidebInn 217
10-1bNetworkbEffectsbasbEntrybBarriers 239
12-1bPotentialbMergersbinbthebCanadianbAirlinebIndustry 302
14-1bThebRisebofbtheb―Gig‖bEconomy 356
15-1bInflationbandbInterestbRates 380
16-1bThebWorld‘sbEndangeredbFish 398
16-2bUsedbCarsbandbthebMarketbforb―Lemons‖ 404
18-1bUsingbabUBIbtobEliminatebPoverty 466
19-1bTwobExamplesbofbAbsolutebandbComparativebAdvantage 484
19-2bComparativebAdvantagebandbGlobalbSupplybChains 492
20-1bCanadianbWine:bAbFree-TradebSuccessbStory 520
LessonsbfrombHistory
4-1bEconomicbDevelopmentbandbIncomebElasticities 95
8-1bJacobbVinerbandbthebCleverbDraftsman 189
9-1bWhatbDobWhalingbShipsbandbOilbWellsbHavebinbCommon? 224
10-1bDisruptivebTechnologiesbandbCreativebDestruction 241
12-1bArebAmazonbandbFacebookbthebStandardbOilbofbthebTwenty-FirstbCentury? 300
13-1bDavidbRicardobandb―EconomicbRent‖ 327
20-1bTariffbWarsbandbthebStarkbLessonsbfrombthebGreatbDepression 508
Copyrightb©b2023bPearsonbCanadabInc.
, iv Instructor‘sbSolutionsbManualbforbRagan,bMicroeconomics,bSeventeenthbCanadianbEdition
ExtensionsbinbTheory
3-1bThebDistinctionbBetweenbStocksbandbFlows 53
11-1bThebPrisoners‘bDilemma 270
16-1bArthurbOkun‘sb―LeakybBucket‖ 406
18-1bWhobReallybPaysbthebCorporatebIncomebTax? 450
19-1bThebGainsbfrombTradebMorebGenerally 482
Part One Wha
b b
t Is Economics?
b b
ThisbopeningbPartbofbthebbookbprovidesbanbintroductionbtobeconomics.bThebcentralbthemesbofbChapt
erb1barebscarcity,bchoice,bopportunitybcost,bandbthebself-
organizingbrolebofbmarkets.bThebchapterbalsobexaminesbthebgainsbfrombspecializationbandbtrade,btheb
rolebofbmoney,bthebeffectsbofbglobalization,bandbendsbwithbabdiscussionbofbthebvariousbtypesbofbecon
omicbsystems.bChapterb2bexaminesbhowbeconomistsbbuildbtheirbmodelsbandbtestbtheirbtheories.bItbals
obaddressesbcentralbmethodologicalbissues,bthebmostbimportantbbeingbthebideabthatbthebprogressbofbe
conomicsb(likeballbscientificbdisciplines)bdependsbonbrelatingbourbtheoriesbtobwhatbwebobservebinbtheb
worldbaroundbus.bFinally,bthebchapterbhasbanbextensivebsectionbonbgraphing.
***
Chapterb1bopensbwithbabbriefbtourbofbsomebkeybeconomicbissuesbinbCanadabandbotherbcountries—
bfrombrisingbprotectionismbandbthebdangersbofbclimatebchangebtobacceleratingbtechnologicalbchangeb
andbgrowingbincomebinequality.bThebpurposebisbtobwhetbthebreader‘sbappetitebforbthebkindsbofbissuesbe
conomistsbarebthinkingbaboutbtoday.bThisboffersbabnaturalbseguebtobthebdiscussionbofbscarcity,bwitho
utbwhichbfewbofbthesebissuesbwouldbbebverybinteresting.bThebchapterbaddressesbthebfundamentalbcon
ceptsbofbscarcity,bchoice,bandbopportunitybcost,billustratingbthesebideasbwithbabproductionbpossibiliti
esbboundary.b(Itbisbworthbnotingbthatbthesebconceptsbarebrelevantbtoballbeconomies,bwhetherbtheybareb
organizedbbybcentralbplanningborbbybfreebmarkets.)bWebthenbexaminebthebcomplexitybofbmodernbmar
ketbeconomies,bexaminingbthebdecisionbmakers,bproduction,btrade,bmoney,bandbglobalization.bFinall
y,bwebexaminebdifferentbtypesbofbeconomicbsystems,bincludingbtraditional,bcommand,bandbfree-
marketbsystems.bWebemphasizebthatballbactualbeconomiesbarebmixtures,bcontainingbelementsbofballbt
hreebpurebsystems.
Chapterb2bprovidesbablongerbintroductionbtobthebmethodologicalbissuesbofbeconomicsbthanbisbusuall
ybincludedbinbintroductorybtexts.bWebdobthisbbecausebmostbstudentsbbelievebthatbthebscientificbmethodbisblimi
tedbtobthebnaturalbsciences.bButbtobfullybappreciatebeconomics,btheybmustbunderstandbthatbitsbtheoriesbarebals
obopenbtobempiricalbtestingbandbthatbthesebtheoriesbcontinuallybchangebasbabresultbofbwhatbthe
Copyrightb©b2023bPearsonbCanadabInc.
ANUAL
for
Microeconomics
Seventeenth Canadian Edition b b
Christopher T.S. Ragan b b
McGill University b
ISBNb 978-0-13-766398-9
Copyrightb©b2023bPearsonbCanadabInc.,bToronto,bOntario.bAllbrightsbreserved.bThisbworkbisbprotectedbbybCanadianbcopyrightblaw
sbandbisbprovidedbsolelybforbthebusebofbinstructorsbinbteachingbtheirbcoursesbandbassessingbstudentblearning.bDisseminationborbsaleb
ofbanybpartbofbthisbworkb(includingbonbthebinternet)bwillbdestroybthebintegritybofbthebworkbandbisbnotbpermitted.bThebcopyrightbhol
derbgrantsbpermissionbtobinstructorsbwhobhavebadoptedbMicroeconomics,bbybChristopherbT.bS.bRagan,btobpostbthisbmaterialbonlineb
onlybifbthebusebofbthebwebsitebisbrestrictedbbybaccessbcodesbtobstudentsbinbthebinstructor‘sbclassbthatbisbusingbthebtextbookbandbprov
idedbthebreproducedbmaterialbbearsbthisbcopyrightbnotice.
Copyrightb©b2023bPearsonbCanadabInc.
,ii Instructor‘sbSolutionsbManualbforbRagan,bMicroeconomics,bSeventeenthbCanadianbEdition
Contents
PartbOne:b WhatbIsbEconomics? 1
Chapterb1:bEconomicbIssuesbandbConcepts 3
Chapterb2:bEconomicbTheories,bData,bandbGraphs 13
PartbTwo:b AnbIntroductionbtobDemandbandbSupply 26
Chapterb3:bDemand,bSupply,bandbPrice 27
Chapterb4:bElasticity 40
Chapterb5:bPricebControlsbandbMarketbEfficiency 54
PartbThree:b ConsumersbandbProducers 65
Chapterb6:bConsumerbBehaviour 66
Chapterb7:bProducersbinbthebShortbRun 81
Chapterb8:bProducersbinbthebLongbRun 95
PartbFour:b MarketbStructurebandbEfficiency 104
Chapterb9:bCompetitivebMarkets 105
Chapterb10:bMonopoly,bCartels,bandbPricebDiscrimination 116
Chapterb11:bImperfectbCompetitionbandbStrategicbBehaviour 131
Chapterb12:bEconomicbEfficiencybandbPublicbPolicy 140
PartbFive:b FactorbMarkets 150
Chapterb13:bHowbFactorbMarketsbWork 152
Chapterb14:bLabourbMarketsbandbIncomebInequality 163
Chapterb15:bInterestbRatesbandbthebCapitalbMarket 175
PartbSix:b GovernmentbinbthebMarketbEconomy 183
Chapterb16:bMarketbFailuresbandbGovernmentbIntervention 185
Chapterb17:bThebEconomicsbofbEnvironmentalbProtection 198
Chapterb18:bTaxationbandbPublicbExpenditure 210
PartbSeven:b CanadabinbthebGlobalbEconomy 219
Chapterb19:bThebGainsbfrombInternationalbTrade 220
Chapterb20:bTradebPolicy 229
Copyrightb©b2023bPearsonbCanadabInc.
, Chapterb1:bEconomicbIssuesbandbConcepts iii
List of Boxes
b b
ApplyingbEconomicbConcepts
1-1bThebHighbOpportunitybCostbofbYourbUniversitybDegree 7
1-2bEconomicsbNeedsbthebOtherbSocialbSciences 21
2-1bWherebEconomistsbWork 30
2-2bCanbEconomistsbDesignbControlledbExperimentsbtobTestbTheirbTheories? 34
3-1bDemandbandbSupplybShocksbCreatedbbybthebCOVID-19bPandemic 64
3-2bWhybApplesbbutbNotbiPhones? 72
4-1bWhobReallyb―Pays‖bforbPayrollbTaxes? 93
5-1bMinimumbWagesbandbUnemployment 105
5-2bThebDebatebOverb―PricebGouging‖:bEfficiencybVersusbPublicbVirtue 118
6-1bRationalitybandbFramingbinbConsumerbBehaviour 130
7-1bIsbItbSociallybResponsiblebtobMaximizebProfits? 160
7-2bThreebExamplesbofbDiminishingbReturns 168
7-3bThebDigitalbWorld:bWhenbDiminishingbReturnsbDisappearbAltogether 174
8-1bThebSignificancebofbProductivitybGrowth 191
9-1bWhybSmallbFirmsbArebPricebTakers 207
9-2bThebParablebofbthebSeasidebInn 217
10-1bNetworkbEffectsbasbEntrybBarriers 239
12-1bPotentialbMergersbinbthebCanadianbAirlinebIndustry 302
14-1bThebRisebofbtheb―Gig‖bEconomy 356
15-1bInflationbandbInterestbRates 380
16-1bThebWorld‘sbEndangeredbFish 398
16-2bUsedbCarsbandbthebMarketbforb―Lemons‖ 404
18-1bUsingbabUBIbtobEliminatebPoverty 466
19-1bTwobExamplesbofbAbsolutebandbComparativebAdvantage 484
19-2bComparativebAdvantagebandbGlobalbSupplybChains 492
20-1bCanadianbWine:bAbFree-TradebSuccessbStory 520
LessonsbfrombHistory
4-1bEconomicbDevelopmentbandbIncomebElasticities 95
8-1bJacobbVinerbandbthebCleverbDraftsman 189
9-1bWhatbDobWhalingbShipsbandbOilbWellsbHavebinbCommon? 224
10-1bDisruptivebTechnologiesbandbCreativebDestruction 241
12-1bArebAmazonbandbFacebookbthebStandardbOilbofbthebTwenty-FirstbCentury? 300
13-1bDavidbRicardobandb―EconomicbRent‖ 327
20-1bTariffbWarsbandbthebStarkbLessonsbfrombthebGreatbDepression 508
Copyrightb©b2023bPearsonbCanadabInc.
, iv Instructor‘sbSolutionsbManualbforbRagan,bMicroeconomics,bSeventeenthbCanadianbEdition
ExtensionsbinbTheory
3-1bThebDistinctionbBetweenbStocksbandbFlows 53
11-1bThebPrisoners‘bDilemma 270
16-1bArthurbOkun‘sb―LeakybBucket‖ 406
18-1bWhobReallybPaysbthebCorporatebIncomebTax? 450
19-1bThebGainsbfrombTradebMorebGenerally 482
Part One Wha
b b
t Is Economics?
b b
ThisbopeningbPartbofbthebbookbprovidesbanbintroductionbtobeconomics.bThebcentralbthemesbofbChapt
erb1barebscarcity,bchoice,bopportunitybcost,bandbthebself-
organizingbrolebofbmarkets.bThebchapterbalsobexaminesbthebgainsbfrombspecializationbandbtrade,btheb
rolebofbmoney,bthebeffectsbofbglobalization,bandbendsbwithbabdiscussionbofbthebvariousbtypesbofbecon
omicbsystems.bChapterb2bexaminesbhowbeconomistsbbuildbtheirbmodelsbandbtestbtheirbtheories.bItbals
obaddressesbcentralbmethodologicalbissues,bthebmostbimportantbbeingbthebideabthatbthebprogressbofbe
conomicsb(likeballbscientificbdisciplines)bdependsbonbrelatingbourbtheoriesbtobwhatbwebobservebinbtheb
worldbaroundbus.bFinally,bthebchapterbhasbanbextensivebsectionbonbgraphing.
***
Chapterb1bopensbwithbabbriefbtourbofbsomebkeybeconomicbissuesbinbCanadabandbotherbcountries—
bfrombrisingbprotectionismbandbthebdangersbofbclimatebchangebtobacceleratingbtechnologicalbchangeb
andbgrowingbincomebinequality.bThebpurposebisbtobwhetbthebreader‘sbappetitebforbthebkindsbofbissuesbe
conomistsbarebthinkingbaboutbtoday.bThisboffersbabnaturalbseguebtobthebdiscussionbofbscarcity,bwitho
utbwhichbfewbofbthesebissuesbwouldbbebverybinteresting.bThebchapterbaddressesbthebfundamentalbcon
ceptsbofbscarcity,bchoice,bandbopportunitybcost,billustratingbthesebideasbwithbabproductionbpossibiliti
esbboundary.b(Itbisbworthbnotingbthatbthesebconceptsbarebrelevantbtoballbeconomies,bwhetherbtheybareb
organizedbbybcentralbplanningborbbybfreebmarkets.)bWebthenbexaminebthebcomplexitybofbmodernbmar
ketbeconomies,bexaminingbthebdecisionbmakers,bproduction,btrade,bmoney,bandbglobalization.bFinall
y,bwebexaminebdifferentbtypesbofbeconomicbsystems,bincludingbtraditional,bcommand,bandbfree-
marketbsystems.bWebemphasizebthatballbactualbeconomiesbarebmixtures,bcontainingbelementsbofballbt
hreebpurebsystems.
Chapterb2bprovidesbablongerbintroductionbtobthebmethodologicalbissuesbofbeconomicsbthanbisbusuall
ybincludedbinbintroductorybtexts.bWebdobthisbbecausebmostbstudentsbbelievebthatbthebscientificbmethodbisblimi
tedbtobthebnaturalbsciences.bButbtobfullybappreciatebeconomics,btheybmustbunderstandbthatbitsbtheoriesbarebals
obopenbtobempiricalbtestingbandbthatbthesebtheoriesbcontinuallybchangebasbabresultbofbwhatbthe
Copyrightb©b2023bPearsonbCanadabInc.
