INSTRUCTOR’S SOLUTIONS MANUAL- Microeconomics Seventeenth Canadian Edition by Christopher T.S. Ragan(2024) McGill University/ ISBN 978-0-13-766398-9/Complete Guide

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 Chapter 1: Economic Issues and Concepts v empirical evidence shows. We understand that some instructors feel their time is so limited that they cannot spend class time on Chapter 2. We believe that even if it is not covered in class, students‘ attention should be called to the issues addressed in the chapter. Our experience is that students benefit from some discussion of the scientific method and from the insight that the social sciences are not all that different from the ―hard‖ sciences, at least in their basic approaches. vi Instructor‘s Solutions Manual for Ragan, Microeconomics, Seventeenth Canadian Edition The chapter begins by making the distinction between positive and normative statements. We then work carefully through the various elements of economic theories, including definitions, assumptions, and predictions. Testing theories is as important as developing them, so we emphasize the interaction between theorizing and empirical observation. We then present various types of economic data, and this gets us into a detailed discussion of index numbers, time-series and cross-section data, and graphs. The final section of the chapter goes through graphing in detail. Chapter 1: Economic Issues and Concepts vii Chapter 1: Economic Issues and Concepts This chapter is in three main sections, which begins after a brief introductory mention of some key economic issues of the day. The first substantive section develops the concepts of scarcity, choice, and opportunity cost. To ensure the student really understands what opportunity cost is all about, we have a box that examines the opportunity cost of a university or college degree. This should be a familiar example to which students can easily relate. The production possibilities boundary is then introduced, and it is shown to embody the three key concepts of scarcity, choice and opportunity cost. Its nature as a frontier between attainable and unattainable is worth stressing, as is the fact that what is attainable is itself subject to change. Four key economic problems are then discussed, and each one is expressed in terms of the production possibilities boundary. These questions give the student an inkling of the types of questions addressed both in microeconomics and in macroeconomics. The chapter‘s second section examines the complexity of modern economies, asking why the things we want to purchase are almost always available. What produces this remarkable coordination? We discuss the market as an instrument that brings order to the economy as a whole. Along the way, the student is introduced to Adam Smith‘s ―invisible hand‖. The section also discusses who makes the many millions of choices in a market economy, and why incentives matter to the decision-makers. We show the circular flow of income and expenditure as a way of showing the interaction between consumers and producers. We also examine the nature of maximizing decisions (both utility and profit), and the importance of decisions at the margin. Finally, on the production side, we examine the role of specialization, the division of labour, globalization, and the importance of money in facilitating trade. The chapter‘s third and final section deals with comparative economic systems. Students will read in almost every chapter of this book about a market economy. Contrasting it with planned and traditional economies is a good way to gain some insight into the concept at the outset. We emphasize that actual economies are rarely, if ever, well represented by the extremes; instead, actual economies are mixed economies, with varying degrees of government ownership and planning. Students are introduced to Karl Marx‘s argument for a centrally planned economy. While Marx had many things right, we argue that central planning has not been successful in proving itself as an efficient way of organizing an economy, allocating resources, or generating prosperity for a large fraction of the population. We have added a new box to this chapter explaining why a thorough understanding of economic phenomena and economic policy requires drawing insights from the other social sciences. Chapter 3: Demand, Supply, and Price ix Answers to Study Exercises Fill-in-the-Blank Questions Question 1 a) land, labour, capital; factors b) opportunity cost c) production possibilities boundary d) scarcity (because points outside the boundary are unattainable); downward (or negative); the opportunity cost associated with any choice e) constant; increasing f) increases (meaning that more units of good B must be given up to get an extra unit of good A) Question 2 a) self; self-interest b) incentives c) firms; households; governments d) increase (maximize); increase (maximize) e) margin; (marginal) cost Question 3 a) division; specialization b) trade c) money d) globalization