Consider a worker whose choice is between hours of free time and consumption. His company has now cut his wage rate. Which of the following statements is correct? O As a result of the substitution effect, the worker would reduce his free time. The income effect means that the worker would increase his free time. The worker may or may not reduce his free time as a result of the wage cut. The income effect will always dominate the substitution effect of the wage cut.

Consider a worker whose choice is between hours of free time and consumption. His company has now cut his wage rate. Which of the following statements is correct? O As a result of the substitution effect, the worker would reduce his free time. The income effect means that the worker would increase his free time. The worker may or may not reduce his free time as a result of the wage cut. The income effect will always dominate the substitution effect of the wage cut.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section: Chapter Questions

Problem 1PA

See similar textbooks

Similar questions

Recent research confirms that the demand for cigarettes is not only inelastic, but it also indicates that smokers with incomes in the lower half of all incomes respond to a given price increase by reducing their purchases by amounts that are more than four times as large as the purchase reductions made by smokers in the upper half of all incomes. How can the income and substitution effects of a price change help explain this finding?
A consumer earns a wage of 20 dollars per hour and has an unearned income of $100 per day. What would the consumption-leisure budget line look like? In the graph, also draw the effect of a wage cut, (including the income and substitution effects). Assume she works less after the wage change.
suppose a consumer's marginal rate of substitute is three slice of pizza for one coke . if the price of coke is $1 and the price of three slices of pizza is $2 , would the consumer change his on her consumption combination
If Molly Bee increases her work hours when her wage increases, then the income effect of the wage increase outweighs the substitution effect. the substitution effect of the wage increase outweighs the income effect. leisure is an inferior good to Molly. Molly' is spending beyond her means.
What is the concept of diminishing marginal utility of consumers? How consumer use Marginal Rate of Substitution to reach consumer equilibrium level where MRTS = Px/Py?
Hannah’s wage rate is initially $10 per hour and she maximises her utility by supplying 8hours of work. Subsequently, her wage rate increases to $15 per hour and her newequilibrium position corresponds to 9 hours of work. It is noted that the income effect (IE)causes the labour supply to change by 1 hour and the substitution effect (SE) causes thelabour supply to change by 2 hours. How to draw in diagram, to show the IE and SE?
A family of four has an income of $15,000 today and will earn $24,000 tomorrow. i). If the family consumes $11,500 in the first period and $15,000 in the second period, whatis the interest rate? ii). If the family consumes $15,000 in the first period and $13,500 in the second period, whatis the interest rate? iii). Explain the income and substitution effects and discuss which effect dominated after theinterest rate change from part (a.) to part (b.).
Bessie, who can currently work as many hours as she wants at a wage of w, chooses to work 10 hours a day. Her boss decides to limit the number of hours that she can work to 8 hours per day. Show how her budget constraint and choice of hours change. Bessie's budget constraint L is illustrated in the figure to the right. For completing the following, assume the indifference curves satisfy the usual assumptions. 1.) Use the 3-point curved line drawing tool to draw an indifference curve for Bessie when she can work as many hours as she wants. Label this curve '¹'. 2.) Use the 3-point curved line drawing tool to draw an indifference curve representing Bessie's utility when she is restricted to work 8 hours per day. Label this curve 'IR¹. Carefully follow the instructions above, and only draw the required objects. Y, Goods per day (-1,19.3) Time constraint 10 8 L, Leisure hours per day G [
Consider an indifference curve for someone deciding how to allocate time between work (and thus consumption) and leisure. Suppose the wage increases. The substitution effect induces a person to work and consume (more , less) ? in response to higher wages. If consumption is a normal good, the income effect induces the person to consume ( more, less) ? when the wage rises, but if consumption is an inferior good, the income effect induces the person to consume ( more , less) ? in response to higher wages. True or False: The person's consumption may fall as a result of the higher wage if consumption is an inferior good. True or False
Selena has utility U=lnX + 2lnY Calculate the formula for her marginal rate of substitution between X and Y, showing your work.
Damon's wage rises. The substitution effect would cause him to his work hours, and the income effect would cause him to his work hours. decrease; increase O increase; increase increase; decrease O decrease; decrease
Define The income and substitution effects.