Microeconomics Questions

[cobby]

Hey guys, im a first time poster, could someone please help me out with these multi choice questions? ive got the answers but i dont entirely understand why they are so? Thanks

Q1) Concerning pure market capitalist economes, which statement is generally incorrect?
A) The value of income paid to individuals is dependant on the quantity and quality of productive resources supplied.
B) The market or price system will value the eco contribution made by each individual and use this to determinerelative income levels
C) Prices of all goods and services will be negotiated by the forces of demand and supply
D) Equity in income distribution would be assured by government transfer;payments and progressive taxes.

Q2) The Australian government sets a floor price of labour by imposing minimum wages. If this minimum wage is fixed above the equilibrium that would otherwise occur in a competitive or deregulated labour market:
A) there will be equilibrium in the market
B)there will be a shortage of labour
C)there will be unemployment,perhaps leading to poverty
D)all workers will be better of financially

[brendan]

D. There should be minimal government intervention in a free-market economy.

and

C. http://en.wikipedia.org/wiki/Minimum_wage

[AppleXY]

Government Intervention is not existent in Pure capitalist economies.

Businesses are not willing to take on new employees (or dismissing old ones). That is, there is too little demand chasing  excess supply, as the fixed wage is above the equilibrum wage.

(as Brendan as shown, draw the curve and you will see a glut of supply. A glut of supply means that the wages should be lower, but due to the government's price floor it is static, it can't move. Thus, the economy will most likely see a rise in unemployment rates

[costargh]

number 2 is C because when the minimum wage is set about where the market would usually value the work by certain employee's it means that the market will no longer be willing to buy the same amount of labour that it would have before. (eg. If the value of someones work was $10 an hour and the minimum wage was $14), the market would no longer be willing to purchase labour at $4 above where the free market has valued it.

This means that people below the minimum wage will be seeking work but not be able to find the work (hence unemployment)

[cobby]

OHHH i get it now...thanks guyss