INSTRUCTOR’S SOLUTIONS M G G
ANUAL
for
Microeconomics
Seventeenth Canadian Edition g g
Christopher T.S. Ragan g g
McGill University g
ISBNg 978-0-13-766398-9
Copyrightg©g2023gPearsongCanadagInc.,gToronto,gOntario.gAllgrightsgreserved.gThisgworkgisgprotectedgbygCanadiangcopyrigh
tglawsgandgisgprovidedgsolelygforgthegusegofginstructorsgingteachinggtheirgcoursesgandgassessinggstudentglearning.gDisseminati
ongorgsalegofganygpartgofgthisgworkg(includinggongtheginternet)gwillgdestroygthegintegritygofgthegworkgandgisgnotgpermitted.gT
hegcopyrightgholderggrantsgpermissiongtoginstructorsgwhoghavegadoptedgMicroeconomics,gbygChristophergT.gS.gRagan,gtogpos
tgthisgmaterialgonlinegonlygifgthegusegofgthegwebsitegisgrestrictedgbygaccessgcodesgtogstudentsgingtheginstructor‘sgclassgthatgisg
usinggthegtextbookgandgprovidedgthegreproducedgmaterialgbearsgthisgcopyrightgnotice.
Copyrightg©g2023gPearsongCanadagInc
.
,ii Instructor‘sgSolutionsgManualgforgRagan,gMicroeconomics,gSeventeenthgCanadiangEditio
n
Contents
PartgOne:g WhatgIsgEconomics? 1
Chapterg1:gEconomicgIssuesgandgConcepts 3
Chapterg2:gEconomicgTheories,gData,gandgGraphs 13
PartgTwo:g AngIntroductiongtogDemandgandgSupply 26
Chapterg3:gDemand,gSupply,gandgPrice 27
Chapterg4:gElasticity 40
Chapterg5:gPricegControlsgandgMarketgEfficiency 54
PartgThree:g ConsumersgandgProducers 65
Chapterg6:gConsumergBehaviour 66
Chapterg7:gProducersgingthegShortgRun 81
Chapterg8:gProducersgingthegLonggRun 95
PartgFour:g MarketgStructuregandgEfficiency 104
Chapterg9:gCompetitivegMarkets 105
Chapterg10:gMonopoly,gCartels,gandgPricegDiscrimination 116
Chapterg11:gImperfectgCompetitiongandgStrategicgBehaviour 131
Chapterg12:gEconomicgEfficiencygandgPublicgPolicy 140
PartgFive:g FactorgMarkets 150
Chapterg13:gHowgFactorgMarketsgWork 152
Chapterg14:gLabourgMarketsgandgIncomegInequality 163
Chapterg15:gInterestgRatesgandgthegCapitalgMarket 175
PartgSix:g GovernmentgingthegMarketgEconomy 183
Chapterg16:gMarketgFailuresgandgGovernmentgIntervention 185
Chapterg17:gThegEconomicsgofgEnvironmentalgProtection 198
Chapterg18:gTaxationgandgPublicgExpenditure 210
PartgSeven:g CanadagingthegGlobalgEconomy 219
Chapterg19:gThegGainsgfromgInternationalgTrade 220
Chapterg20:gTradegPolicy 229
Copyrightg©g2023gPearsongCanadagInc
.
, Chapterg1:gEconomicgIssuesgandgConcepts iii
List of Boxes
g g
ApplyinggEconomicgConcepts
1-1gThegHighgOpportunitygCostgofgYourgUniversitygDegree 7
1-2gEconomicsgNeedsgthegOthergSocialgSciences 21
2-1gWheregEconomistsgWork 30
2-2gCangEconomistsgDesigngControlledgExperimentsgtogTestgTheirgTheories? 34
3-1gDemandgandgSupplygShocksgCreatedgbygthegCOVID-19gPandemic 64
3-2gWhygApplesgbutgNotgiPhones? 72
4-1gWhogReallyg―Pays‖gforgPayrollgTaxes? 93
5-1gMinimumgWagesgandgUnemployment 105
5-2gThegDebategOverg―PricegGouging‖:gEfficiencygVersusgPublicgVirtue 118
6-1gRationalitygandgFraminggingConsumergBehaviour 130
7-1gIsgItgSociallygResponsiblegtogMaximizegProfits? 160
7-2gThreegExamplesgofgDiminishinggReturns 168
7-3gThegDigitalgWorld:gWhengDiminishinggReturnsgDisappeargAltogether 174
8-1gThegSignificancegofgProductivitygGrowth 191
9-1gWhygSmallgFirmsgAregPricegTakers 207
9-2gThegParablegofgthegSeasidegInn 217
10-1gNetworkgEffectsgasgEntrygBarriers 239
12-1gPotentialgMergersgingthegCanadiangAirlinegIndustry 302
14-1gThegRisegofgtheg―Gig‖gEconomy 356
15-1gInflationgandgInterestgRates 380
16-1gThegWorld‘sgEndangeredgFish 398
16-2gUsedgCarsgandgthegMarketgforg―Lemons‖ 404
18-1gUsinggagUBIgtogEliminategPoverty 466
19-1gTwogExamplesgofgAbsolutegandgComparativegAdvantage 484
19-2gComparativegAdvantagegandgGlobalgSupplygChains 492
20-1gCanadiangWine:gAgFree-TradegSuccessgStory 520
LessonsgfromgHistory
4-1gEconomicgDevelopmentgandgIncomegElasticities 95
8-1gJacobgVinergandgthegClevergDraftsman 189
9-1gWhatgDogWhalinggShipsgandgOilgWellsgHavegingCommon? 224
10-1gDisruptivegTechnologiesgandgCreativegDestruction 241
12-1gAregAmazongandgFacebookgthegStandardgOilgofgthegTwenty-FirstgCentury? 300
13-1gDavidgRicardogandg―EconomicgRent‖ 327
20-1gTariffgWarsgandgthegStarkgLessonsgfromgthegGreatgDepression 508
Copyrightg©g2023gPearsongCanadagInc
.
, iv Instructor‘sgSolutionsgManualgforgRagan,gMicroeconomics,gSeventeenthgCanadiangEditio
n
ExtensionsgingTheory
3-1gThegDistinctiongBetweengStocksgandgFlows 53
11-1gThegPrisoners‘gDilemma 270
16-1gArthurgOkun‘sg―LeakygBucket‖ 406
18-1gWhogReallygPaysgthegCorporategIncomegTax? 450
19-1gThegGainsgfromgTradegMoregGenerally 482
Part One Wha
g g
t Is Economics?
g g
ThisgopeninggPartgofgthegbookgprovidesgangintroductiongtogeconomics.gThegcentralgthemesgofgCh
apterg1garegscarcity,gchoice,gopportunitygcost,gandgthegself-
organizinggrolegofgmarkets.gThegchaptergalsogexaminesgtheggainsgfromgspecializationgandgtrade,gt
hegrolegofgmoney,gthegeffectsgofgglobalization,gandgendsgwithgagdiscussiongofgthegvariousgtypesgo
fgeconomicgsystems.gChapterg2gexaminesghowgeconomistsgbuildgtheirgmodelsgandgtestgtheirgtheor
ies.gItgalsogaddressesgcentralgmethodologicalgissues,gthegmostgimportantgbeinggthegideagthatgthegp
rogressgofgeconomicsg(likegallgscientificgdisciplines)gdependsgongrelatinggourgtheoriesgtogwhatgweg
observegingthegworldgaroundgus.gFinally,gthegchapterghasgangextensivegsectiongonggraphing.
***
Chapterg1gopensgwithgagbriefgtourgofgsomegkeygeconomicgissuesgingCanadagandgothergcountries—
gfromgrisinggprotectionismgandgthegdangersgofgclimategchangegtogacceleratinggtechnologicalgchan
gegandggrowinggincomeginequality.gThegpurposegisgtogwhetgthegreader‘sgappetitegforgthegkindsgofgis
suesgeconomistsgaregthinkinggaboutgtoday.gThisgoffersgagnaturalgseguegtogthegdiscussiongofgscarci
ty,gwithoutgwhichgfewgofgthesegissuesgwouldgbegveryginteresting.gThegchaptergaddressesgthegfund
amentalgconceptsgofgscarcity,gchoice,gandgopportunitygcost,gillustratinggthesegideasgwithgagproduc
tiongpossibilitiesgboundary.g(Itgisgworthgnotinggthatgthesegconceptsgaregrelevantgtogallgeconomies,
gwhethergtheygaregorganizedgbygcentralgplanninggorgbygfreegmarkets.)gWegthengexaminegthegcomp
lexitygofgmoderngmarketgeconomies,gexamininggthegdecisiongmakers,gproduction,gtrade,gmoney,g
andgglobalization.gFinally,gwegexaminegdifferentgtypesgofgeconomicgsystems,gincludinggtradition
al,gcommand,gandgfree-
marketgsystems.gWegemphasizegthatgallgactualgeconomiesgaregmixtures,gcontaininggelementsgofga
llgthreegpuregsystems.
Chapterg2gprovidesgaglongergintroductiongtogthegmethodologicalgissuesgofgeconomicsgthangisgusu
allygincludedgingintroductorygtexts.gWegdogthisgbecausegmostgstudentsgbelievegthatgthegscientificgmethodg
isglimitedgtogthegnaturalgsciences.gButgtogfullygappreciategeconomics,gtheygmustgunderstandgthatgitsgtheor
iesgaregalsogopengtogempiricalgtestinggandgthatgthesegtheoriesgcontinuallygchangegasgagresultgofgwhatgthe
Copyrightg©g2023gPearsongCanadagInc
.
ANUAL
for
Microeconomics
Seventeenth Canadian Edition g g
Christopher T.S. Ragan g g
McGill University g
ISBNg 978-0-13-766398-9
Copyrightg©g2023gPearsongCanadagInc.,gToronto,gOntario.gAllgrightsgreserved.gThisgworkgisgprotectedgbygCanadiangcopyrigh
tglawsgandgisgprovidedgsolelygforgthegusegofginstructorsgingteachinggtheirgcoursesgandgassessinggstudentglearning.gDisseminati
ongorgsalegofganygpartgofgthisgworkg(includinggongtheginternet)gwillgdestroygthegintegritygofgthegworkgandgisgnotgpermitted.gT
hegcopyrightgholderggrantsgpermissiongtoginstructorsgwhoghavegadoptedgMicroeconomics,gbygChristophergT.gS.gRagan,gtogpos
tgthisgmaterialgonlinegonlygifgthegusegofgthegwebsitegisgrestrictedgbygaccessgcodesgtogstudentsgingtheginstructor‘sgclassgthatgisg
usinggthegtextbookgandgprovidedgthegreproducedgmaterialgbearsgthisgcopyrightgnotice.
Copyrightg©g2023gPearsongCanadagInc
.
,ii Instructor‘sgSolutionsgManualgforgRagan,gMicroeconomics,gSeventeenthgCanadiangEditio
n
Contents
PartgOne:g WhatgIsgEconomics? 1
Chapterg1:gEconomicgIssuesgandgConcepts 3
Chapterg2:gEconomicgTheories,gData,gandgGraphs 13
PartgTwo:g AngIntroductiongtogDemandgandgSupply 26
Chapterg3:gDemand,gSupply,gandgPrice 27
Chapterg4:gElasticity 40
Chapterg5:gPricegControlsgandgMarketgEfficiency 54
PartgThree:g ConsumersgandgProducers 65
Chapterg6:gConsumergBehaviour 66
Chapterg7:gProducersgingthegShortgRun 81
Chapterg8:gProducersgingthegLonggRun 95
PartgFour:g MarketgStructuregandgEfficiency 104
Chapterg9:gCompetitivegMarkets 105
Chapterg10:gMonopoly,gCartels,gandgPricegDiscrimination 116
Chapterg11:gImperfectgCompetitiongandgStrategicgBehaviour 131
Chapterg12:gEconomicgEfficiencygandgPublicgPolicy 140
PartgFive:g FactorgMarkets 150
Chapterg13:gHowgFactorgMarketsgWork 152
Chapterg14:gLabourgMarketsgandgIncomegInequality 163
Chapterg15:gInterestgRatesgandgthegCapitalgMarket 175
PartgSix:g GovernmentgingthegMarketgEconomy 183
Chapterg16:gMarketgFailuresgandgGovernmentgIntervention 185
Chapterg17:gThegEconomicsgofgEnvironmentalgProtection 198
Chapterg18:gTaxationgandgPublicgExpenditure 210
PartgSeven:g CanadagingthegGlobalgEconomy 219
Chapterg19:gThegGainsgfromgInternationalgTrade 220
Chapterg20:gTradegPolicy 229
Copyrightg©g2023gPearsongCanadagInc
.
, Chapterg1:gEconomicgIssuesgandgConcepts iii
List of Boxes
g g
ApplyinggEconomicgConcepts
1-1gThegHighgOpportunitygCostgofgYourgUniversitygDegree 7
1-2gEconomicsgNeedsgthegOthergSocialgSciences 21
2-1gWheregEconomistsgWork 30
2-2gCangEconomistsgDesigngControlledgExperimentsgtogTestgTheirgTheories? 34
3-1gDemandgandgSupplygShocksgCreatedgbygthegCOVID-19gPandemic 64
3-2gWhygApplesgbutgNotgiPhones? 72
4-1gWhogReallyg―Pays‖gforgPayrollgTaxes? 93
5-1gMinimumgWagesgandgUnemployment 105
5-2gThegDebategOverg―PricegGouging‖:gEfficiencygVersusgPublicgVirtue 118
6-1gRationalitygandgFraminggingConsumergBehaviour 130
7-1gIsgItgSociallygResponsiblegtogMaximizegProfits? 160
7-2gThreegExamplesgofgDiminishinggReturns 168
7-3gThegDigitalgWorld:gWhengDiminishinggReturnsgDisappeargAltogether 174
8-1gThegSignificancegofgProductivitygGrowth 191
9-1gWhygSmallgFirmsgAregPricegTakers 207
9-2gThegParablegofgthegSeasidegInn 217
10-1gNetworkgEffectsgasgEntrygBarriers 239
12-1gPotentialgMergersgingthegCanadiangAirlinegIndustry 302
14-1gThegRisegofgtheg―Gig‖gEconomy 356
15-1gInflationgandgInterestgRates 380
16-1gThegWorld‘sgEndangeredgFish 398
16-2gUsedgCarsgandgthegMarketgforg―Lemons‖ 404
18-1gUsinggagUBIgtogEliminategPoverty 466
19-1gTwogExamplesgofgAbsolutegandgComparativegAdvantage 484
19-2gComparativegAdvantagegandgGlobalgSupplygChains 492
20-1gCanadiangWine:gAgFree-TradegSuccessgStory 520
LessonsgfromgHistory
4-1gEconomicgDevelopmentgandgIncomegElasticities 95
8-1gJacobgVinergandgthegClevergDraftsman 189
9-1gWhatgDogWhalinggShipsgandgOilgWellsgHavegingCommon? 224
10-1gDisruptivegTechnologiesgandgCreativegDestruction 241
12-1gAregAmazongandgFacebookgthegStandardgOilgofgthegTwenty-FirstgCentury? 300
13-1gDavidgRicardogandg―EconomicgRent‖ 327
20-1gTariffgWarsgandgthegStarkgLessonsgfromgthegGreatgDepression 508
Copyrightg©g2023gPearsongCanadagInc
.
, iv Instructor‘sgSolutionsgManualgforgRagan,gMicroeconomics,gSeventeenthgCanadiangEditio
n
ExtensionsgingTheory
3-1gThegDistinctiongBetweengStocksgandgFlows 53
11-1gThegPrisoners‘gDilemma 270
16-1gArthurgOkun‘sg―LeakygBucket‖ 406
18-1gWhogReallygPaysgthegCorporategIncomegTax? 450
19-1gThegGainsgfromgTradegMoregGenerally 482
Part One Wha
g g
t Is Economics?
g g
ThisgopeninggPartgofgthegbookgprovidesgangintroductiongtogeconomics.gThegcentralgthemesgofgCh
apterg1garegscarcity,gchoice,gopportunitygcost,gandgthegself-
organizinggrolegofgmarkets.gThegchaptergalsogexaminesgtheggainsgfromgspecializationgandgtrade,gt
hegrolegofgmoney,gthegeffectsgofgglobalization,gandgendsgwithgagdiscussiongofgthegvariousgtypesgo
fgeconomicgsystems.gChapterg2gexaminesghowgeconomistsgbuildgtheirgmodelsgandgtestgtheirgtheor
ies.gItgalsogaddressesgcentralgmethodologicalgissues,gthegmostgimportantgbeinggthegideagthatgthegp
rogressgofgeconomicsg(likegallgscientificgdisciplines)gdependsgongrelatinggourgtheoriesgtogwhatgweg
observegingthegworldgaroundgus.gFinally,gthegchapterghasgangextensivegsectiongonggraphing.
***
Chapterg1gopensgwithgagbriefgtourgofgsomegkeygeconomicgissuesgingCanadagandgothergcountries—
gfromgrisinggprotectionismgandgthegdangersgofgclimategchangegtogacceleratinggtechnologicalgchan
gegandggrowinggincomeginequality.gThegpurposegisgtogwhetgthegreader‘sgappetitegforgthegkindsgofgis
suesgeconomistsgaregthinkinggaboutgtoday.gThisgoffersgagnaturalgseguegtogthegdiscussiongofgscarci
ty,gwithoutgwhichgfewgofgthesegissuesgwouldgbegveryginteresting.gThegchaptergaddressesgthegfund
amentalgconceptsgofgscarcity,gchoice,gandgopportunitygcost,gillustratinggthesegideasgwithgagproduc
tiongpossibilitiesgboundary.g(Itgisgworthgnotinggthatgthesegconceptsgaregrelevantgtogallgeconomies,
gwhethergtheygaregorganizedgbygcentralgplanninggorgbygfreegmarkets.)gWegthengexaminegthegcomp
lexitygofgmoderngmarketgeconomies,gexamininggthegdecisiongmakers,gproduction,gtrade,gmoney,g
andgglobalization.gFinally,gwegexaminegdifferentgtypesgofgeconomicgsystems,gincludinggtradition
al,gcommand,gandgfree-
marketgsystems.gWegemphasizegthatgallgactualgeconomiesgaregmixtures,gcontaininggelementsgofga
llgthreegpuregsystems.
Chapterg2gprovidesgaglongergintroductiongtogthegmethodologicalgissuesgofgeconomicsgthangisgusu
allygincludedgingintroductorygtexts.gWegdogthisgbecausegmostgstudentsgbelievegthatgthegscientificgmethodg
isglimitedgtogthegnaturalgsciences.gButgtogfullygappreciategeconomics,gtheygmustgunderstandgthatgitsgtheor
iesgaregalsogopengtogempiricalgtestinggandgthatgthesegtheoriesgcontinuallygchangegasgagresultgofgwhatgthe
Copyrightg©g2023gPearsongCanadagInc
.
