Microeconomics (17th Canadian Edition, Christopher Ragan) – Complete Solution Manual for Chapters 1–20

Solution Manual for Microeconomics,
17th Canadian Edition, By Christopher
Ragan, All Chapters 1 – 20

,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

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
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
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achapter also examines the gains from specialization and trade, the role of money, the effects of
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aglobalization, and ends with a discussion of the various types of economic systems.a a a a a a a a a a a a


aChapter 2 examines how economists build their models and test their theories. It also
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aaddresses central methodological issues, the most important being the idea that the
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aprogress of economics (like all scientific disciplines) depends on relating our theories to
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awhat we observe in the world around us. Finally, the chapter has an extensive section on
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agraphing.
***
Chapter 1 opens with a brief tour of some key economic issues in Canada and other
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acountries— from rising protectionism and the dangers of climate change to accelerating
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a technological change and growing income inequality. The purpose is to whet the reader‘s
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a appetite for the kinds of issues economists are thinking about today. This offers a natural
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a segue to the discussion of scarcity, without which few of these issues would be very interesting.
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The chapter addresses the fundamental concepts of scarcity, choice, and opportunity cost,
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aillustrating these ideas with a production possibilities boundary. (It is worth noting that
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these concepts are relevant to all economies, whether they are organized by central planning or
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by free markets.) We then examine the complexity of modern market economies, examining the
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adecision makers, production, trade, money, and globalization. Finally, we examine
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different types of economic systems, including traditional, command, and free-market
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systems. We emphasize that all actual economies are mixtures, containing elements of all three
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pure systems.
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Chapter 2 provides a longer introduction to the methodological issues of economics than is usually
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included in introductory texts. We do this because most students believe that the scientific method is
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limited to the natural sciences. But to fully appreciate economics, they must understand that its theories
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are also open to empirical testing and that these theories continually change as a result of what the
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empirical evidence shows. We understand that some instructors feel their time is so limited that they
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cannot spend class time on Chapter 2. We believe that even if it is not covered in class, students‘
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attention should be called to the issues addressed in the chapter. Our experience is that students
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benefit from some discussion of the scientific method and from the insight that the social sciences are not
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all that different from the ―hard‖ sciences, at least in their basic approaches.
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The chapter begins by making the distinction between positive and normative statements. We then work
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carefully through the various elements of economic theories, including definitions, assumptions, and
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predictions. Testing theories is as important as developing them, so we emphasize the interaction
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between theorizing and empirical observation. We then present various types of economic data, and
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this gets us into a detailed discussion of index numbers, time-series and cross-section data, and graphs.
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The final section of the chapter goes through graphing in detail.
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Chapter 1: Economic Issues and Concepts a a a a a




This chapter is in three main sections, which begins after a brief introductory mention of some key
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aeconomic issues of the day. The first substantive section develops the concepts of scarcity, choice, and
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opportunity cost. To ensure the student really understands what opportunity cost is all about, we have a
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box that examines the opportunity cost of a university or college degree. This should be a familiar
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example to which students can easily relate. The production possibilities boundary is then introduced,
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and it is shown to embody the three key concepts of scarcity, choice and opportunity cost. Its nature as
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