In the early 80's when I bought the majority of my vinyl, it was generally understood that albums and 12 inch singles were made of "fresh" vinyl and that 7-inch singles were generally recycled vinyl. I imagine that I or one of my friends got this nugget of information from one of the hi-fi magazines that were very snooty about such things as they probably still are.
If you look at most 7-inch singles from that time you can see that the vinyl has quite a dull, grey appearance when compared to the very shiny vinyl of 12-inch singles and albums. 7-inch singles were always known to be much lower sound quality than the others - although there are other differences that no-doubt contribute, like the groove density. I think the industry had the general opinion that 7-inch-singles were "disposable" and would not be listened to on serious equipment anyway.
I actually visited a vinyl record production facility at that time and saw that the process involves squeezing a blob of vinyl between the 2 masters until it exudes out to a random shape larger than the required size. An automated blade then sweeps-in and trims the excess to produce the final disk. This is only an assumption, but I took it to be that the excess was kept aside for use in the 7-inch singles.
As @Wheat Williams has stated, record companies also used to get many records returned; either because they were faulty or because the shop returned them under the "5% returns" scheme. That was a form of sale-or-return agreement trying to encourage shops to order records in the HOPE of selling them rather than the expectation. Again, all these records would have been recycled.
I don't know WHY recycled vinyl produces lower sound quality but I imagine that repeated heating to melting point and then cooling may well have a detrimental effect. 7-inch singles do always appear to be more "brittle" than fresh vinyl when you handle them. It's plausible that maybe the vinyl oxidises in some way as it cools, creating a chemically different material than the fresh vinyl. It is interesting that the aforementioned 35-year-old 12-inch singles and albums in my attic are STILL black, shiny and flexible in a way that their 7-inch counterparts never were.