Question

QUESTION 36
In a 2017 study on the grocery market, Renkin, Montialoux, and Siegenthaler found that the cost of higher minimum wages was borne entirely by grocery buyers. This suggests that...
A. grocery demand was slightly more inelastic than grocery supply.
B. grocery demand was perfectly inelastic.
C. grocery supply was slightly more inelastic than grocery demand.
D. grocery demand and grocery supply had the same elasticity.
E. grocery supply was perfectly inelastic.
QUESTION 37
If the government requires businesses to pay for their workers' health insurance, then workers bear most of the burden of this mandate in markets with...
A. inelastic labor supply and elastic labor demand.
B. elastic labor supply and elastic labor demand.
C. elastic labor supply and inelastic labor demand.
D. inelastic labor supply and inelastic labor demand.

QUESTION 38
Renkin, Montialoux, and Siegenthaler studied the effects of higher minimum wages on grocery prices. What did they find?
A. The entire burden of higher minimum wages was felt by grocery buyers, which implies that grocery demand was more inelastic than grocery supply.
B. The entire burden of higher minimum wages was felt by grocery sellers, which implies that grocery supply was more inelastic than grocery demand.
C. The entire burden of higher minimum wages was felt by grocery sellers, which implies that grocery demand was more inelastic than grocery supply.
D. The entire burden of higher minimum wages was felt by grocery buyers, which implies that grocery supply was more inelastic than grocery demand.

Answer 1

Question 36.

In general whenever there is increase in the cost and therefore in prices then whichever force less elastic or in other words more inelastic borne the cost. If the demand is inelastic for something and its prices rise then the majority of the burden is borne by the buyer because they can change their buying habit, as demand doesn't change in response to increase in prices because since it is inelastic.

Similarly if demand is less inelastic than supply then an increase in cost will cause large change in quantity demanded due to its elastic nature buyers will demand less so the sellers can't increase the price by much and hence borne the burden of increased cost.

Now coming to the question, we are given that cost of higher minimum wage was borne entirely by grocery buyer which means the demand must be less elastic or in other words the demand must be more inelastic than supply that's why buyer are paying the cost since they can't change their buying habit. But notice one thing the word entirely which means the buyers are paying all the cost of higher minimum wage which means the demand must be perfectly inelastic, which means demand doesn't respond to price change that's why seller can pass all the increased cost to buyers.

So the correct answer must be option b, grocery demand was perfectly inelastic.

Question 37

Again we can answer this question the same above logic. As the workers bear most of the burden of worker's health insurance which means the business owners, those who demand for workers are passing the cost of worker's insurance to workers. Which suggests that workers decision to supply his labor is not responsive to changes in their wages since contribution to insurance must come from their wages. Which only suggest that the labor supply is inelastic. Now we know that labor supply is inelastic we need to know about the elasticity of labor demand.

Now see that workers only bear most of the burden but not the entire burden of the insurance cost, which means the demand for labor is responsive to changes in the wage. Which suggests they labor demand must be elastic.

So the correct answer must be option A, inelastic labor supply and elastic labor demand.

Question 38.

As we already did in question 36 that demand for grocery is perfectly inelastic that's why grocery buyers are bearing all the cost of higher minimum wage.

So the correct answer for this question will be option A. The entire burden of higher minimum wage was felt by the grocery buyers, which implies that demand for grocery was more inelastic than grocery supply. And we even showed that the demand for grocery is perfectly inelastic because the buyers bearing the entire burden.

The correct option is option A