The government of Venezuela had increased the level of government interference i

Question

The government of Venezuela had increased the level of government interference in local markets in recent years. One measure set prices for basic goods very low, so the average Venezuelan would be able to afford these staples of life. While initially popular with the people, these low prices meant producers would lose money for every unit they produced. The government policy resulted in massive shortages and significant lines when goods were available. Prices remained low. Which two (2) statements are true of this situation? The opportunity cost of producing these products was too low The opportunity cost of producing these products was too high. The government changed the scarcity of the inputs for the products. Consumers were not willing to trade their money for these goods. Producers responded to the incentives created by the government The shortages happened because consumer costs outweighed the benefits.

Explanation / Answer

The most important interpretation of the chart is the widening income inequality between the Top 1% and Bottom 50%.

During the first oil price shock in the early 1970s, the share of national income of Top 1% had fallen while that of Bottom 50% increased sharply between the early 1960s and 1970s. However, the share in the national income of Top 1% has been increasing since the late 1970s and early 1980s in a zig zag fashion.

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