Question

6. On a standard income-leisure diagram, Tony has flatter indifference curves than Bruce, but both are negatively sloped. It is probably true that:

a. Both like leisure and income, but Bruce values leisure relatively more than Tony does.

b. Bruce likes leisure but dislikes income while Tony likes both

c. Bruce likes income but dislikes leisure while Tony likes both

d. Tony values leisure more highly compared to income than Bruce does

7. As an individual’s wage rate gets higher, the :

a. budget constraint gets flatter

b. marginal rate of substitution gets larger

c. desired hours of work increases

d. marginal product of their labor must fall

8. An individual whose MRS exceeds the wage at her current combination of leisure and income could increase utility by:

a. working fewer hours

b. increasing her income

c. working more hours

d. none of the above; her utility is maximized e. changing her major to pychology

9. Phil’s wage increases and Phil responds by working more hours. Which of the following could explain this?

a. Phil’s substitution effect is larger than his income effect

b. Phil views leisure as an inferior good.

c. Phil’s income effect is larger than his substitution effect

d. Both b and c e. Both a and b f. Phil died, but was brought back to life with an alien serum in a plot twist no one saw because they gave up after episode 5.

10. Where do labor supply curves come from?

a. Our professor just makes them up

b. Individuals making tradeoffs between leisure and income

c. The value of the marginal product of labor

d. The inverse of a worker’s highest attainable indifference curve

e. When a mommy labor supply curve and a daddy labor supply curve love each other very much…

Answer 1

6)ans.(d). Tony values leisure more highly compared to income than Bruce does. Because as the indifference curve for Tony is flatter so Tony will like more leisure. Bruce will like more income or work as it's indifference curve is steeper. This steepness imply at a given time frame work and given constraint Tony will take more leisure.7. Ans. (C). As individual's wage rate gets the individual gets more desires hours of work. Individual will get more desireness to work because higher wage gives higher income if the individual works more.

8. Ans.(a). Working fewer hours. Because as wage is lower than the current combination of income leisure. MRS exceeds the wage , so slope of indifference curve is more than the budget line. To get more utility the person will take more leisure.

9. Ans.(c). When Phil will work more due to increase in wage rate then we have the case larger income effect than the substitution effect. Income opportunity are more than taking leisure and for that substitution effect is not larger than income effect.

10.ans. (b). Labour supply curve arises from trade off between income and leisure. The workers always try to trade of between work and leisure.