Discuss the inefficiencies created by a price floor
What will be an ideal response?
A price floor prevents the efficient allocation of resources. If a price floor is set above the equilibrium price, the quantity of the good or service supplied increases and the quantity demanded decreases, so that a surplus results. The minimum wage is a price floor. If the minimum wage is set above the equilibrium wage rate, the surplus of labor means increased unemployment. Similar to all price floors, the minimum wage creates inefficiency. The minimum wage leads to inefficiency because at the minimum wage, the marginal benefit to a firm from hiring another worker exceeds the marginal cost to a worker from working.
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An increase in the price of inputs will cause the supply curve for a product to shift to the right
Indicate whether the statement is true or false
Tobin's q is defined as the market value of firms ________ the replacement cost of capital
A) times B) minus C) plus D) divided by