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- 7. Consider a generic consumption/leisure choice. How will the follow ing events/policies affect either the consumer's choice of hours worked and labor supply, if at all? Be specific as possible about income and substitution effects and if there are multiple cases, consider them all (a) A raise in the wage rate (b) A labor income tax on all income. (c) A labor income tax on all labor income beyond the first 20 hours.10. Individual labor supply: income and substitution effects Eric has the following labor supply curve: WAGE RATE (Dollars per hour] W3 W2 W1 Labor Supply HOURS WORKED The substitution effect of a higher wage outweighs the income effect when wages are The substitution effect is the phenomenon that workers choose to work raise, because Aa Aa hours when they are given a B1. What is the relationship between working hours and wage levels? (A). An increase in the wage rate increases working hours if the substitution effect dominates the income effect. (B). An increase in the wage rate reduces the hours worked if the dominating effect is a substitution effect. (C). A decrease in the wage rate increases working hours if the substitution effect dominates the income effect. (D). Answers (A) and (B) are correct. (E). Answers (A) and (C) are correct.
- 1. Refer to graph (multiple choice) A. Refer to Graph. If the current wage rate results in a budget constraint of AB1, the individual will choose a. 0D hours of work and AD hours of leisure. b. AC hours of work and 0C hours of leisure. c. AD hours of work and 0D hours of leisure. d. 0C hours of work and AC hours of leisure. B. Refer to Graph. If there is a movement from equilibrium C to Equilibrium D, which one is the most accurate conclusion: a. The labor supply is decreasing b. The labor supply is increasing c. The individual is spending less hours working and the labor supply is decreasing d. The individual is spending more hours working C. Refer to Graph. The slope of the budget constraint AB1 is given by a wage = W1. A movement from AB1 to AB2 is due to: a. An increase in non-income wealth b. An increase in wage c. A decrease in non-income wealth d. A decrease in wage4. Based on the intuition underlying the substitution effect, an individual would do the following: (A). Reducing working hours when her wages increase, because she wants to replace leisure with work.(B). Reducing working hours when her wages increase, because she wants to replace work with leisure.(C). Increase working hours when wages increase, because leisure becomes relatively more expensive than consumption.(D). Increase working hours when wages increase, as leisure becomes relatively cheaper than consumption.(E). Increase consumption and leisure. Choose one of the answers from the five choices provided. And please, also provide a brief description, explanation or argument for your choice. Thank you Bartleby!6. Explain the marginal rate of substitution. No more than 3 lines
- 9. Which of the following statements is an example of a Substitution Effect? (A). The firm decides to increase output when wages fall because production costs have fallen. (B). The firm decides to increase output when the price of capital rises because the costs of production have risen. (C). Companies decide to add workers when wages fall because workers are relatively cheaper than other factors of production. (D). The company decides to reduce workers when wages fall because workers are relatively cheaper than other factors of production. (E). All of the above answers are wrong Choose one of the answers from the five choices provided. And please, also provide a brief description, explanation or argument for your choice. Thank you Bartleby!4. Draw a graph with Goods Per Day on the vertical axis and Leisure Hours Per Day increasing from left to right on the horizontal axis. Show that a person who works can work fewer hours and increase utility when the wage rate increases.ASAP 1)Explain why does increased wages could lead to less work or why increased rates of return on savings could lead to reduced savings (in terms of income and substitution effects)
- A1: Illustrate and discuss how a change in the price of a commodity cangenerate income and substitution effects.CHAPTER 6 Household Behavior and Consumer Choice 127 E 8. Decide whether you agree or disagree with each of the following statements and explain your reason: a. If the income effect of a wage change dominates the substitu- tion effect for a given household and the household works longer hours following a wage change, wages must have risen. b. In product markets, when a price falls, the substitution effect leads to more consumption; but for normal goods, the income effect leads to less consumption. 9. Suppose the price of X is $5 and the price of Y is $10 and a hypo- thetical household has $500 to spend per month on goods X and Y. a. Sketch the household budget constraint. b. Assume that the household splits its income equally between X and Y. Show where the household ends up on the budget constraint. c. Suppose the household income doubles to $1,000. Sketch the new budget constraint facing the household. d. Suppose after the change the household spends $200 on Y and $800 on X. Does…1. Refer to graph (multiple choice) graph represents Cara's budget constraint and preferences A. Refer to Graph, Which of the statements below is the most accurate? a. At point A, Cara's marginal valuation of leisure is higher than the market wage b. At point B, Cara's marginal valuation of leisure is higher than the market wage. c. At point B, Cara values leisure the same amount as at point A. d. At point A, Cara's marginal valuation of leisure is higher than the market wage, and at point B, Cara values leisure the same amount as at point A. B. Refer to Graph, At point A, Cara’s marginal rate of substitution of leisure for income a. exceeds the wage and Cara would like to work fewer hours. b. is less than the wage and Cara would like to work more hours. c. exceeds the wage and Cara would like to work more hours. d. is less than the wage and Cara would like to work fewer hours. C. Refer to Graph, Based on the graph above, we can conclude that a. Cara does not have…