Module 5: Labor and financial markets and elasticity

interest rate

The price of borrowing in the financial market; a rate of return on an investment

minimum wage

a price floor that makes it illegal for an employer to pay employees less than a certain rate

usury laws

laws that impose an upper limit on the interest rate that lenders can charge

Which of the following changes in the financial market will lead to a decline in interest rates:

1. a rise in demand

2. a fall in demand

3. a rise in supply

4. a fall in supply

A fall in demand in rise in supply

Which of the following changes in the financial market will lead to an increase in the quantity of loans made and received:

1. a rise in demand

2. a fall in demand

3. a rise in supply

4. a fall in supply

a rise in demand

Identify the most accurate statement. A price floor will have the largest effect if it is set:

1. substantially above the equilibrium price

2. slightly above the equilibrium price

3. slightly below the equilibrium price

4. substantially below the equilibrium price

substantially above the equilibrium price

A price ceiling will have the largest effect:

1. substantially below the equilibrium price

2. slightly below the equilibrium price

3. substantially above the equilibrium price

4. slightly above the equilibrium price

slightly below the equilibrium price

Select the correct answer. A price floor will usually shift:

1. demand

2. supply

3. both

4. neither

neither

Select the correct answer. A price ceiling will usually shift:

1. demand

2. supply

3. both

4. neither

neither

In the labor market, what causes a movement along the demand curve? What causes a shift in the demand curve?

changes in the output produced, technological advancements, government regulations, or changes in the production process that utilize more or less labor. 

In the labor market, what causes a movement along the supply curve? What causes a shift in the supply curve?

change in wage (price of labor)

Why is a living wage considered a price floor? Does imposing a living wage have the same outcome as a minimum wage?

it sets a minimum of what employers need to pay

In the financial market, what causes a movement along the demand curve? What causes a shift in the demand curve?

a change in price

In the financial market, what causes a movement along the supply curve? What causes a shift in the supply curve?

changes in the interest rate

If a usury law limits interest rates to no more than 35%, what would the likely impact be on the amount of loans made and interest rates paid?

decrease in the amount of loans made and a decrease in interest rates paid

constant unitary elasticity

when a given percent price change in price leads to an equal percentage change in quantity demanded or supplied

cross-price elasticity of demand

the percentage change in the quantity of good A that is demanded as a result of a percentage change in good B

elastic demand

when the elasticity of demand is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

elastic supply

when the elasticity of either supply is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

elasticity

an economics concept that measures responsiveness of one variable to changes in another variable

elasticity of savings

the percentage change in the quantity of savings divided by the percentage change in interest rates

inelastic demand

when the elasticity of demand is less than one, indicating that a 1 percent increase in price paid by the consumer leads to less than a 1 percent change in purchases (and vice versa); this indicates a low responsiveness by consumers to price changes

inelastic supply

when the elasticity of supply is less than one, indicating that a 1 percent increase in price paid to the firm will result in a less than 1 percent increase in production by the firm; this indicates a low responsiveness of the firm to price increases (and vice versa if prices drop)

infinite elasticity (perfect elasticity)

the extremely elastic situation of demand or supply where quantity changes by an infinite amount in response to any change in price; horizontal in appearance

price elasticity

the relationship between the percent change in price resulting in a corresponding percentage change in the quantity demanded or supplied

price elasticity of demand

percentage change in the quantity demanded of a good or service divided the percentage change in price

price elasticity of supply

percentage change in the quantity supplied divided by the percentage change in price

tax incidence

manner in which the tax burden is divided between buyers and sellers

unitary elasticity

when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied

wage elasticity of labor supply

the percentage change in hours worked divided by the percentage change in wages

zero inelasticity (perfect inelasticity)

the highly inelastic case of demand or supply in which a percentage change in price, no matter how large, results in zero change in the quantity; vertical in appearance