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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In the 1990s and early 2000s, mortgage lending standards ______________ in the United States. In general, there was a move _____________ traditional lending practices during this period
A) declined; away from B) declined; towards more C) became more strict; away from D) became more strict; towards more
Which of the following is true?
A. Frictional unemployment implies a lack of available jobs. B. During a recession, cyclical unemployment will be low. C. When an economy is at full employment, actual unemployment will be less than the natural rate of unemployment. D. When actual GDP equals potential GDP, the actual unemployment rate will equal the economy's natural rate of unemployment.
A free market with externalities ______ social surplus.
Fill in the blank(s) with the appropriate word(s).
The phase of the business cycle in which real GDP declines is called:
A. the peak. B. an expansion. C. a recession. D. the trough.