Ragan Microeconomics Sixteenth Canadian Edition Christopher T.S. Ragan McGILL University Pearson Canada Inc., 26 Prince Andrew Place, North York, Ontario M3C 2H4. Copyright © 2020, 2017, 2014 Pearson Canada Inc. All rights reserved. Printed in the United States of America. This publication is protected by copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise. For information regarding permissions, request forms, and the appropriate contacts, please contact Pearson Canada’s Rights and Permissions Department by visiting www.pearson.com/ca/en/contact-us/permissions.html. All rights reserved. This edition is authorized for sale only in Canada. Attributions of third-party content appear on the appropriate page within the text. Cover image: Serjio74/Shutterstock Chapter-opening image: I viewfinder/Shutterstock Applying Economic Concepts image: Krizde/Shutterstock Lessons from History image: Yoshi0511/Shutterstock Extensions in Theory image: Den Rise/Shutterstock PEARSON and ALWAYS LEARNING are exclusive trademarks owned by Pearson Education Inc. or its affiliates in the United States and/or other countries. Unless otherwise indicated herein, any third party trademarks that may appear in this work are the property of their respective owners and any references to third party trademarks, logos, or other trade dress are for demonstrative or descriptive purposes only. Such references are not intended to imply any sponsorship, endorsement, authorization, or promotion of Pearson Canada products by the owners of such marks, or any relationship between the owner and Pearson Canada or its affiliates, authors, licensees, or distributors. If you purchased this book outside the United States or Canada, you should be aware that it has been imported without the approval of the publisher or the author. 978-0-13-483583-9 1 20 Library and Archives Canada Cataloguing in Publication Ragan, Christopher T. S., author Microeconomics / Christopher T.S. Ragan, McGill University. — Sixteenth Canadian edition. Includes index. Issued in print and electronic formats. ISBN 978-0-13-483583-9 (hardcover).—ISBN 978-0-13-523310-8 (looseleaf).— ISBN 978-0-13-523339-9 (HTML)  1. Microeconomics—Textbooks. 2. Microeconomics—Canada— Textbooks. 3. Textbooks. I. Title. II. Title: Ragan microeconomics. HB172.R35 2019  338.5  C2018-905866-8   C2018-905867-6 Brief Contents Chapter 1 Economic Issues and Concepts 1 Chapter 2 Economic Theories, Data, and Graphs 26 Chapter 3 Demand, Supply, and Price 49 Chapter 4 Elasticity 74 Chapter 5 Price Controls and Market Efficiency 97 Chapter 6 Consumer Behaviour 117 Chapter 7 Producers in the Short Run 148 Chapter 8 Producers in the Long Run 173 Chapter 9 Competitive Markets 195 Chapter 10 Monopoly, Cartels, and Price Discrimination 221 Chapter 11 Imperfect Competition and Strategic Behaviour 248 Chapter 12 Economic Efficiency and Public Policy 272 Chapter 13 How Factor Markets Work 299 Chapter 14 Labour Markets and Income Inequality 324 Chapter 15 Interest Rates and the Capital Market 354 Chapter 16 Market Failures and Government Intervention 377 Chapter 17 The Economics of Environmental Protection 407 Chapter 18 Taxation and Public Expenditure 434 Chapter 32 The Gains from International Trade 377 Chapter 33 Trade Policy 828 Mathematical Notes M-1 Timeline of Great Economists T-1 Contents List of Boxes ix To the Instructor x To the Student xiv Acknowledgements xv About the Author xvi Chapter 1 Economic Issues and Concepts 1 1.1 What Is Economics? 3 Resources 4 Scarcity and Choice 4 Four Key Economic Problems 8 Microeconomics and Macroeconomics 9 Economics and Government Policy 9 1.2 The Complexity of Modern Economies 10 The Nature of Market Economies 11 The Decision Makers and Their Choices 13 Production and Trade 15 1.3 Is There an Alternative to the Market Economy? 17 Types of Economic Systems 17 The Great Debate 19 Government in the Modern Mixed Economy 20 Summary 21 Key Concepts 22 Study Exercises 22 Chapter 2 Economic Theories, Data, and Graphs 26 2.1 Positive and Normative Statements 27 Disagreements Among Economists 28 2.2 Building and Testing Economic Theories 30 What Are Theories? 30 Testing Theories 31 2.3 Economic Data 34 Index Numbers 34 Graphing Economic Data 37 2.4 Graphing Economic Theories 38 Functions 38 Graphing Functions 39 A Final Word 44 Summary 44