Explain why a minimum wage creates an inefficient allocation of labor resources
What will be an ideal response?
A competitive labor market allowed to reach its equilibrium creates an efficient allocation of resources. At the equilibrium, the amount of employment is such that the marginal social cost of labor to workers equals the marginal social benefit from labor to firms. A minimum wage set above the equilibrium wage rate creates a surplus of labor—the quantity of labor supplied exceeds the quantity of labor demanded. The minimum wage reduces employment so that it is less than the efficient amount.
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Assume an economy that makes only one product and that year 3 is the base year. Output and price data for a five-year period are as follows. Answer the question on the basis of these data. year units of output price per unit 1 3 3 2 4 4 3 6 5 4 7 7 5 8 8 Refer to the above data. In determining real GDP, the nominal GDP for:
a) each year must be multiplied by the relevant price index. b) years 1 and 2 must be inflated. c) years 4 and 5 must be inflated. d) years 1 and 2 must be deflated.
A monopolistically competitive firm that is incurring a loss will shut down if
A. price is less than average total cost. B. marginal revenue is less than marginal cost. C. price is less than marginal cost. D. revenues are less than variable costs.