Practice FRQ: Circular Flow of Resources

Prompt

"For generations, working people joining together in a union have been one of the greatest forces for progress in American history: winning the 40-hour workweek, two-day weekends, workplace safety protections, collective bargaining rights and more," Pelosi said in a statement Monday. "Moving forward, Democrats will continue to fight to enact our legislation, passed in the House with the partnership of labor, to secure equal pay for equal work and raise the minimum wage to $15 an hour." --House Speaker Nancy Pelosi

According to an analysis from the nonpartisan Congressional Budget Office released earlier this year, raising the federal minimum wage to $15 an hour would bring nearly a million people out of poverty in the next four years. But it also estimated that nearly 1.5 million jobs could be threatened, the cumulative budget deficit would go up by $54 billion and Americans would face higher prices for goods and services.

After reading the scenario please respond to parts a, b, and c below.

1a) Describe who is supplying and who is buying in the market related to the minimum wage?

1b) Explain how Speaker Pelosi might use Principle #7 to justify her position.

1c) Explain how Speaker Pelosi’s opponents might use Principle #6 to refute her position.

Model Response

1a) Businesses/firms are buying and households are supplying in the market related to the minimum wage since it is in the resource market where labor is sold.

Explanation: The writer went beyond simple identification and illustrated the role that each group plays in the process of the Circular Flow of Resources. 1a) 1 Point

1b) Principle 7 states that the "government can sometimes improve market outcomes. Speaker Pelosi would use the statistics from the Congressional Budget Office that shows that an increase in the minimum wage would lift 1.5 million people out poverty. Using such facts would allow her to show that the government can improve the lives of many. With a higher wage granted from the hike, many more could purchase the goods they need to bring them out of poverty like housing and food. The landlords and grocery store owners benefit from this along with many other businesses, so the economy at large benefits as well as those in poverty.

Explanation: The writer explains how or why the interactions between the government, those earning the minimum wage, and even those in the larger economy are affected using evidence (from the text/prompt), along with reasoning. The writer also looked at how and why the results were occurring the way they were. The writer used the data from the Congressional Budget Office to show how rising wages, due to the government's intervention, helped improve the economy by lifting millions out of poverty, and expanding the economy in so doing. Note the examples used for those in poverty being able to buy housing and food, thus benefiting not only themselves but those selling the goods and services as well.

1c) Speaker Pelosi's opponents would likely use the Congressional Budget Office data as well to demonstrate the harm of increasing the minimum wage. The Congressional Budget Office also points out that raising the wage could also lead to higher prices for goods and services. This would wipe out any benefit of such a wage increase, and even those not receiving the minimum wage would be harmed by the higher prices. Principle 6 states that markets are usually the best way to organize the economy. Raising the minimum wage is not allowing the market to organize the economy, but instead the government to do so by setting wages. And this action makes it harder for the rest of us going out to eat, watching a movie, or many other activity, which is why they would argue, the government should not get involved, and instead allow the markets to do what they need to do.

Explanation: The writer explains how or why the interactions between the government, those earning the minimum wage, and even those in the larger economy are affected using evidence (from the text/prompt), along with reasoning. The writer also looked at how and why the results were occurring the way they were. The writer used data from the Congressional Budget Office to show a bit of evidence that contradicts the position taken by Speaker Pelosi expressed in 1b). They used that evidence to then connect the fact that raising the minimum wage could also lead to higher prices on goods and services, and explaining how that was a development that would harm both those receiving the minimum wage and the rest of consumers as well. Going further, they made the connection between those developments to the reason that markets, not government intervention are usually the best way to organize the economy. They explained how it was the government raising the minimum wage that led to the rising prices, therefore, allowing the markets to run their course would not have led to such a development harming so many people. The specific examples here were especially strong.

Non-Examples

1a) Households supply, businesses buy.

Explanation 1a): This would get the point for an identification prompt, but since it is a description question more is needed regarding what and how households are supplying as well as what and how businesses are buying. There are no steps in the process of circular flow spelled out. 1a) 3 points

1b) Principle 7 says that governments can sometimes improve market outcomes. Speaker Pelosi says that raising the minimum wage could bring about equal pay for equal work.

Explanation 1b): The writer has identified Principle 7 and a piece of the text that could prove worthwhile, but there is no follow-up with either, nor a connection made between Principle 7 and Pelosi's statement. Explanation questions require some exploration into how and why the process is occurring, in other words the connection between Prin. 7 + Pelosi-'s position on the min. wage.. 1b) 2 points

1c) Speaker Pelosi's opponents would use Principle 6 against her claims since the Congressional Budget Office states that raising the minimum wage could raise the cost of goods and services, and be bad for the economy. Principle 6 says markets are usually the best way to organize the economy.

Explanation 1c): The writer here has pointed out the problem of raising the minimum wage but has merely implied the connection between Principle 6 and the rising prices. Also, they fail to connect those rising prices to the fact that government intervention in the economy interferes with the market, which is why those prices rise, that leaving the markets alone could have avoided this. Explanation questions require some exploration into how and why the process is occurring, the connection. 1c) 3 points