Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971493
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 21, Problem 6CQQ
To determine
Whether the labor-supply curve will be upward sloping.
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Maude’s labor-supply curve slopes upward if, forMaude,a. leisure is a normal good.b. consumption is a normal good.c. the income effect on leisure exceeds thesubstitution effect.d. the substitution effect on leisure exceeds theincome effect.
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.).
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.
Chapter 21 Solutions
Principles of Microeconomics (MindTap Course List)
Ch. 21.1 - Prob. 1QQCh. 21.2 - Prob. 2QQCh. 21.3 - Prob. 3QQCh. 21.4 - Prob. 4QQCh. 21 - Prob. 1CQQCh. 21 - Prob. 2CQQCh. 21 - Prob. 3CQQCh. 21 - Prob. 4CQQCh. 21 - Prob. 5CQQCh. 21 - Prob. 6CQQ
Ch. 21 - Prob. 1QRCh. 21 - Prob. 2QRCh. 21 - Prob. 3QRCh. 21 - Prob. 4QRCh. 21 - Prob. 5QRCh. 21 - Prob. 6QRCh. 21 - Prob. 7QRCh. 21 - Prob. 1PACh. 21 - Prob. 2PACh. 21 - Prob. 3PACh. 21 - Prob. 4PACh. 21 - Prob. 5PACh. 21 - Prob. 6PACh. 21 - Prob. 7PACh. 21 - Prob. 8PACh. 21 - Prob. 9PACh. 21 - Prob. 10PACh. 21 - Prob. 11PACh. 21 - Prob. 12PA
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- Akram spends all of his income on food and clothing. When the price of clothing decreases, he buys more clothing. Define giffen good and assuming food as Giffen, explain income and substitution effects.arrow_forwardBob spends all his money on food and clothing. When the price of clothingfalls, he buys more clothing. What causes him to buy more clothing: Substitution Effect,Income Effect or both? If it is ambiguous, then explain whyarrow_forwardWhat is the “Income Effect”? What is the “Substitution Effect”? Explain the relationship between these twoarrow_forward
- draw a graph of indifference curves and budget line. including explain the meaning of the marginal rate of substitution of products x and y (MRSxy).arrow_forwardA consumer has $300 to spend on goods X and Y. The market prices of these two goodsare Px = $15 and Py = $5. a. What is the market rate of substitution between goods X and Y?arrow_forwardQ42 Suppose the price of potatoes falls and we observe a decrease in an individual's purchases of potatoes. Which of the following can we infer? a. The substitution effect outweighs the income effect. b. The income effect just offsets the substitution effect. c. The income effect is negative and reinforces the substitution effect. d. The income effect is positive and exceeds the substitution effect. e. The income effect is negative and outweighs the substitution effect.arrow_forward
- Suppose the price of bananas falls. Explain how the income and substitution effects work in the adjustment to a new level of banana consumption.arrow_forwardDefine The income and substitution effects.arrow_forwardMary spends all her budget on statistical software (S) and office supplies(O). Her preferences can be represented by the utility function: U(S, O) =2 ln(S) + 3 ln(O). Compute the marginal rate of substitution of software for office supplies. Is the MRS increasing or decreasing in S? How do we interpretthis?arrow_forward
- draw a consumer’s indifference curves for coke and cheese. pick a point on an indifference curve for coke and cheese and show the marginal rate of substitution. what does the marginal rate of substitution tell us? Consumer income is 3000$ and coke cost 3$ per glass and cheese cost 6$ per pound.arrow_forwardDiminishing marginal rate of substitution for a good means: I. decreasing the quantity of a good that the consumer would give up for one more additional quantity of the other good II. increasing the quantity of a good that the consumer would give up for one more additional quantity of the other good III. no change for the quantity of a good that the consumer would give up for one more additional quantity of the other good IV. all answers are correctarrow_forwardLarissa consumes at a point on her budget line where her marginal rate of substitution is less than the slope of her budget line (MRS_X,Y < PX/PY). As Larissa moves toward her optimum consumption bundle, her marginal rate of substitution MRS_X,Y will OA. fall. B. rise. OC. stay the same. OD. It is impossible to tell what Larissa's MRSX,Y will do without further information. Reset Selectionarrow_forward
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