Figure: Labor Market Refer to the Figure

question 173

Multiple Choice

Figure: Labor Market Refer to the figure. Which statement is correct?

• A) A price floor set at W₁ would cause a labor surplus best labeled by A.
• B) A price floor set at W₁ would cause a labor surplus best labeled by B.
• C) A price floor set at W₂ would cause a labor surplus best labeled by A.
• D) A price floor set at W₂ would cause a labor surplus best labeled by B.

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Definitions:

Marginal Private Benefit

The surplus value that consumers or producers get from buying or making an extra unit of a good or service.

Marginal Private Cost

Marginal private cost is the cost that a producer incurs in making an additional unit of a good or service, excluding any external costs.

Socially Optimal

A state in which resources are allocated in the most efficient and equitable manner from a societal perspective.

Network Externality

A situation where the value or utility of a product or service to one user increases with the number of other users of the same or compatible products or services.