cyber21

Which of the following statements about price floors and the labor market is least accurate?

A) In the long run, effective price floors lead to inefficiencies in production.

B) If a price floor is set below the equilibrium price, the quantity demanded will exceed the quantity supplied.

C) Setting a minimum wage above the equilibrium wage rate will lead to an excess supply of labor.

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If a price floor is set below the equilibrium price, it will have no effect on the quantity demanded or supplied. However, a price floor (minimum wage in the labor market) above the equilibrium price (wage rate in the labor market) will cause a surplus at the floor price. Inefficiencies result from a price floor because producers will divert resources to supply a larger quantity of the good, but consumers will demand a smaller quantity at the floor price.

cyber21

A minimum wage is an example of which of the following?

A) A price floor.

B) A price ceiling.

C) Rent controls.

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A minimum wage is an example of a price floor.

cyber21

A minimum wage set above the equilibrium minimum wage will most likely have which of the following effects?

A) There will be a shortage of workers.

B) Unemployment will rise.

C) It will have no effects.

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Firms will not employ all the workers who want to work at the imposed higher wage. Those who want to work at the higher wage but cannot find jobs will be counted as unemployed.

cyber21

Which of the following is least likely to be the result of a minimum wage?

A) Labor will be substituted for capital.

B) There will be an abundance of low-skilled workers willing to work.

C) On-the-job training will be cut back.

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Firms substitute capital for the “expensive” labor and use more than the economically efficient amount of capital.

cyber21

A price ceiling is only effective if it:

A) is set above the equilibrium price.

B) has been in effect in over a relatively short time.

C) is set below the equilibrium price.

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A price ceiling is only effective if it is lower than the equilibrium price without the ceiling. This leads to a shortage as consumers wish to purchase a quantity of the good at the ceiling price which is greater than the quantity supplied at that price.

cyber21

The government imposes a tax on a good. The relative amounts of the tax that each economic actor in the market plays is called the:

A) tax incidence.

B) statutory tax.

C) deadweight loss.

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This is the definition of the incidence of a tax. It is determined by the shape of the supply and demand curves, not upon whom the tax is imposed legally (the statutory incidence of the tax).

cyber21

The long-term effects of a price ceiling on a market are least likely to include:

A) discrimination by sellers.

B) an increase in waiting times to purchase.

C) an improvement in quality to offset the reduction in quantity.

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A price ceiling is a price above which producers cannot sell, and is generally set below the market equilibrium. Producers often respond by reducing the quality of goods commensurate with their lower imposed price.

cyber21

Consumer surplus is most accurately defined as the difference between the:

A) value consumers are willing to pay for an additional unit of good or service and the cost of producing the additional unit of the good or service.

B) total value consumers place on the quantity of a good purchased, and the total amount they must pay for that quantity.

C) price that a consumer must pay for an additional unit of a good or service and the cost of producing the additional unit of the good or service.

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For an individual, consumer surplus is defined as the sum of the differences between what that individual is willing to pay for each individual unit of a good or service that he or she purchases and the amount that he or she actually pays for each of these individual units.

cyber21

Producer surplus is most accurately defined as the:

A) difference between the opportunity cost of producing the last unit of a good or service and the price received for that unit.

B) sum of the differences between the price received for each unit of good produced and the opportunity cost of each unit.

C) sum of the differences between the marginal benefit and the marginal cost for each unit of good produced and consumed over the total number of units produced and consumed.

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Producer surplus is the sum of the differences between the price received for each unit of good produced and the opportunity cost of each unit, for the total units produced. Producer surplus results when the market price for a good or service exceeds the marginal cost producing it.

cyber21

Equilibrium in a perfectly competitive market results in a quantity for which the:

A) producer surplus equals zero.

B) consumer and producer surpluses are equal.

C) sum of consumer and producer surpluses is maximized.

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In a competitive market, the equilibrium quantity is the one for which the sum of the consumer and producer surpluses is maximized.