Ch. 2: Labor Supply

higher

(higher/lower) indifference curves implies higher utility

ambiguous

Although a wage increase expands a workers opportunity set, the outcome of optimization is _______________

upward, budget line

An increase in nonlabor income leads to a parallel _________ shift in the ________________

will not

If the market wage is less than the reservation wage, then the person (will/will not) work

The kalamazoo promise would likely increase fertility as a cost of educating a child has been reduced

In 2005, the Kalamazoo Promise Program promised to pay for a college education for any student who graduated from a Kalamazoo public high school. What effect would such a policy likely have on fertility in Kalamazoo? a. The Kalamazoo Promise would likely not affect fertility. b. The Kalamazoo Promise would likely decrease fertility because families can now purchase less education for their children. c. The Kalamazoo Promise would likely decrease fertility as married couples need to have children to take advantage of the Promise. d. The Kalamazoo Promise would likely increase fertility as the cost of educating a child has been reduced. e. The Kalamazoo Promise would likely increase fertility because more highly educated adults tend to have families with more children than the typical household.

procyclical because the discouraged worker effect dominates the added worker effect

In the United States, labor force participation is: a. counter-cyclical because the discouraged worker effect dominates the added worker effect. b. procyclical because the discouraged worker effect dominates the added worker effect. c. counter-cyclical because the added worker effect dominates the discouraged worker effect. d. procyclical because the added worker effect dominates the discouraged worker effect. e. constant because, by definition, discouraged workers are only temporarily laid off and they will return to a job shortly.

HIdden unemployment

Persons who have given up in their search for work and have therefore left the labor force

True

T/F: A high-wage worker wants to enjoy the rewards of the high income, and hence would like to consume more leisure. However the same worker finds that leisure is very expensive and that she simply cannot afford to take time off from work

False: A wage increase expands the workers opportunity set

T/F: A wage increase narrows the workers opportunity set

True

T/F: At wages slightly above the reservation wage, the labor supply curve is positively sloped

True

T/F: Marginal utility of leisure & Marginal utility of consumption cannot be negative since we assume that leisure and consumption are both "goods"

False: More women than men work part-time

T/F: More men than women work part-time.

True

T/F: More men who are high school drop outs work than women who are high school drop outs

True

T/F: U= f(C,L) The higher is U, the more satisfied is the person

False: White men have higher participation rates and hours of work than black men

T/F: White men have lower participation rates and hours of work than black men.

slope

The ___________ of the indifference curve measures the rate at which a person is willing to give up some leisure time in return for additional consumption while holding utility constant

employment

The ____________________ rate can be a better measure measure of fluctuations in economic activity than the unemployment rate which understates the effects of a recession due to subjectivity

wage

The absolute value of the budget line's slope is equal to the ____________

a diminishing marginal rate of substitution

The convexity of an indifference curve implies what?

the spouse with the lower marketplace wage will specialize in household production

The household production model predicts all of the following except: a. a spouse who has a low wage, all else equal, tends to specialize in household production. b. a spouse who has a relatively high marginal product in household production, all else equal, tends to specialize in household production. c. the narrowing of the wage gap between men and women and improvements in household technology (e.g., microwaves) reduce the likelihood of complete specialization in household production. d. a college-educated spouse is less likely to completely specialize in household production. e. the spouse with the lower marketplace wage will specialize in household production.

positive

The intertemporal substitution hypothesis implies that the elasticity of labor supply should be: a. positive b. negative c. zero d. always equal to positive one e. always equal to positive one when working, and always equal to zero when not working

the percent of people in the entire population (age 16 or older) who are in the labor force

The labor force participation rate is a. the percent of people in the entire population (aged 16 or older) who are in the labor force. b. percent of people in the labor force who are employed. c. the percent of people in the entire population (aged 16 or older) who are employed. d. the percent of people not in the labor force who are employed. the percent of employed people plus the e. percent of unemployed people who have become discouraged and have stopped looking for work.

been declining

The labor force participation rate of older men in industrialized countries since world war 2 has: a. been increasing b. been declining c. been constant d. exhibited no consistent pattern e. reflected the deterioration in the health of this age group

reservation wage

The lowest wage rate that would make the person indifferent between working and not working

The change in utility when one is given an additional hour of leisure holding consumption constant

The marginal utility of leisure is: a. the change in utility when one is given an additional hour of leisure, holding consumption constant. b. the change in leisure as hours worked increase, holding consumption fixed. c. the increase in income when a worker chooses to work one more hour. d. the increase in time a worker receives when she chooses to work one less hour. e. the increase in labor costs firms must pay when the wage increases.

increases

The reservation wage (increases/decreases) as nonlabor income increases

all of these are correct

Under normal conditions the marginal rate of substitution: a. diminishes as the quantity of leisure increases. b. is equal to the absolute value of the slope of the indifference curve. c. is defined as the marginal utility of leisure divided by the marginal utility of consumption. d. equals the reservation wage when consuming maximum leisure time. e. all of these are correct.

inferior

We assume leisure to be a ____________ good

1. the slope of the budget line changes 2. the endowment point remains the same 3. the vertical intercept also increases

What happens when there is an increase in the wage?

Budget constraint

defines the worker's opportunity set, indicating all the consumption & leisure combinations the worker can afford

Larry will enter the labor force

if the wage increases from below Larry's reservation wage to above Larry's reservation wage, a. Larry will demand more leisure b. Larry will work less c. Larry will enter the labor force d. Larry will leave the labor force e. no firm will choose to hire Larry without a government subsidy

don't

indifference curves (do/don't) intersect

inelastic

labor supply elasticity less than 1 is ______________ as hours of work respond proportionally less than the change in wages

Utility funciton

measure of satisfaction individuals receive from consumption (C) of goods and leisure (L).

labor supply elasticity

measures responsiveness in hours worked to changes in the wage rate

slope of the indifference curve

the rate at which a person is willing to give up some leisure time in return for additional consumption while holding utility constant

C= wh+ V (wages x hours of work ) + non labor income (V) C= (wT+V) - wL

what is the budget constraint equation?

consumption

workers with shallow indifference curves value their (leisure/consumption) relatively more than workers with a steeper indifference curve

Indifference Curves

Downward sloping, indication the tradeoff between consumption of leisure

convex, increase

Indifference curves are (convex/concave) to the origin, indicating that opportunity costs (decrease/increase)

utility

Individuals choose consumption and leisure to maximize ___________________

subjectivity, understates

Labor force measurement relies on _____________________ and likely (overstates/understates) the effects of a recession

increases

Labor force participation (increases/decreases) with education

25 to 55

Labor force participation is greatest for all groups during the ages of ________ to ______.

elastic

Labor supply elasticity greater than 1 is ______________ as hours of work respond proportionally more than the change in wages

counter-cyclical; procyclical

Over the course of the business cycle, the labor force participation rate tends to be _____________ due to the added worker effect and ________________ due to the discouraged worker effect. a. procyclical; counter-cyclical b. counter-cyclical; procyclical c. procyclical; procyclical d. counter-cyclical; counter-cyclical e. important; unimportant.

unemployed become discouraged and leave the labor force and are not counted in the calculation of the unemployment rate

The term "hidden unemployment indicates that many people who are: a. unemployed are often unwilling to apply for government assistance and are not counted in the calculation of the unemployment rate. b. working are employed fewer hours than they desire and thus have unemployed hours that are not counted in the calculation of the unemployment rate. c. unemployed become discouraged and leave the labor force and are not counted in the calculation of the unemployment rate. d. unemployed have an employed spouse. e. working two jobs are only counted once in the employment statistics.

The supply of child care workers has increased in response to an increase in demand for child care workers

There has been a large increase in demand for child care services over the last 40 years. Over the same time period, the real wage paid to child care workers has increased only marginally. What likely accounts for this? a. The supply of child care workers has decreased in response to an increase in demand for child care workers. b. The supply of child care workers has increased in response to an increase in demand for child care workers. c. Working adults without children have successfully blocked public policy from increasing the wages of child care workers. d. The federal government has drastically reduced child care subsidies. e. Federal regulations limit how many children a single child care worker can care for at one time.

less

When the budget line is not tangent to the indifference curve, any other consumption/leisure bundle on the budget constraint would give the individual _________ utility

wage

When the budget line is tangent to the indifference curve, the marginal rate of substation between consumption and leisure equals the _________

upward

When the substitution effect dominates the income effect the worker decreases hours of leisure in response to an increase in wage which leads to an ______________ labor supply curve

endowment point

Where value of consumption is equal to non-labor resources (V)

The demand for leisure increases, provided that leisure is assumed to be a normal good, the opportunity cost of leisure also increases

Why is the final outcome of a increase in wages ambiguous?

leisure

Workers with steep indifference curves value their (leisure/consumption) relatively more than workers with a shallower indifference curve

Substituiton effect

after an increase in wages, decreases the demand for leisure. Thus, more hours worked

income effect

after an increase in wages, increase the demand for leisure. This leads to fewer hours worked

tangent

optimal consumption is given by the pint where the budget line is _______________ to the indifference curve

Marginal rate of substitution

the absolute value of the slope of an indifference curve which is equal to the ratio of marginal utilities

marginal utility of leisure

the change in utility resulting form an additional hour devoted to leisure while holding the amount of goods consumed constant

marginal utility of consumption

the change in utility resulting in an additional hour devoted to consumption while holding the amount of hours devoted to leisure constant