Chapter 2 Review

Of the following, which one would most likely cause this person to supply H1 hours of work at W3 rather than the current H3 hours

This person's spouse receives a substantial income increase

In the context of the basic work-leisure model, "work" is defined as:

Time devoted to a paying job

On an indifference map reflecting the tradeoff between income and leisure, higher levels of utility are achieved by moving:

To an indifference curve further from the origin

Steven's reservation wage is $12 and his market wage is $11. We can conclude that:

Steven will be a non-participant in the labor market

The substitution effect is:

That part of the total change in desired work hours that is due to a change in the WAGE RATE, with real income or utility constant

The income effect is:

That part of the total change in desired work hours that is due to the change in REAL INCOME resulting from a change in the WAGE RATE

The optimal work-leisure position is achieved where:

The MRS L, Y is equal to the wage rate

Suppose this worker is currently working 40 hours per week and earning $8 per hour. Which one of the following would cause a move to point B, and the subsequent increase in work hours to 60?

The availability of overtime work at $12 per hour

If this person's wage rate falls as illustrated in the diagram, then:

The income effect is stronger than the substitution effect

The equilibrium positions shown in the diagram imply that for a wage increase:

The income effect reduces desired work hours and the substitution effect increases desired work hour

The shift from budget line AB1 to AB2 implies a:

Decrease in the wage rate

Sammy is required by her employer to work a standard eight-hour workday. Suppose her marginal rate of substitution of leisure for income exceeds the wage rate at this level of work effort. We can conclude that Sammy will:

Feel over employed

Shanita is required by her employer to work a standard eight-hour workday. Suppose her marginal rate of substitution of leisure for income is less than the wage rate at this level of work effort. We can conclude that Shanita will:

Feel underemployed

Suppose this worker's union negotiates an increase in the straight-time wage from $8 to $9.33 per hour with no bonus for overtime. This plan would allow earnings of $560 at 60 hours per week. Assuming this worker can freely choose the number of hours worked, he will choose to work: Refer To: 02-47

Fewer than 60 hours per week

The person has non-wage income of:

$0

Considering the two budget lines in the diagram, if the person's optimal number of hours worked is seven hours, and then the wage rate must be:

$10

The break-even level of income is:

$22,500

If a family has an earned income of $3000 per year, its subsidy payment will be:

$7500

At point A, Larry's marginal rate of substitution of leisure for income:

Exceeds the wage and Larry would like to work fewer hours

A 10% increase in the wage induces Margy to increase her desired of work hours by 2%. Over this range of wages, Margy's wage elasticity of labor supply is:

Inelastic

The slope of a standard budget constraint reflects:

The wage rate

Which one of the following would be most likely to shift the labor supply curve to the right?

A change in the indifference map following an improvement in working conditions

The convex shape of a standard indifference curve reflects:

A diminishing marginal rate of substitution of leisure for income

If the current wage rate results in a budget constraint of AB1, the individual will choose:

AC hours of work and 0C hours of leisure

Consider the impact of a general increase in real wages. Empirical evidence suggests that men will tend to work _____ hours and women will tend to work _____ hours.

About the same; more

In the context of the basic work-leisure model, "leisure" time includes:

Any time NOT devoted to a paying job

Which of the following is a correct statement?

At A Larry's marginal valuation of leisure is higher than the market wage

Indifference curves are convex to the origin because:

At a lower income, a person is less willing to sacrifice income for additional leisure

Which of the following circumstances will increase the likelihood of an individual being a non-participant in the labor market?

Availability of substantial non-wage income

Suppose a working mother is currently ineligible for any government assistance. If she were then to become eligible for an income maintenance program that incorporates both a basic benefit and a positive benefit-reduction rate:

Both the income and substitution effect will cause her to decrease her work effort

In the diagram, the substitution effect associated with a wage increase is shown by the distance:

CE

In the years following enactment of welfare reform in 1996, welfare case loads:

Dropped by more than 50%

For Jenny, the income effect of a wage increase dominates the substitution effect. Jenny's wage elasticity of labor supply is:

Negative

Compared to workers with less education, people who have more education tend to earn higher wages and have higher pensions upon retirement. Given this observation, which of the following statements best explains why those persons with more education also retire at a later age?

If tastes for leisure are the same, the effects of the higher wages must outweigh the effects of the higher pension

Suppose an individual worker is on the backward-bending portion of her labor supply curve. Then for a wage increase the

Income effect is stronger than the substitution effect

If this person were now willing to supply only H1 hours of work at W3, we could conclude that:

Labor supply decreased (the curve shifted to the left)

Consider the three combinations of leisure and income represented by points A, B, and C. Which of the following is a correct statement?

Larry prefers C to A

For income and leisure time, a higher level of utility is achieved by moving to the _____ on an indifference _____.

Northeast; map

Assuming workers must work TS hours or not at all, worker A will:

Not participate in the labor force

The equilibrium positions shown imply that in the relevant wage range this person is:

On the up-sloping segment of the individual labor supply curve

The slope of an indifference curve at any point reflects the:

Rate at which a person is willing to substitute leisure for income

On a standard income-leisure diagram, Sara has steeper indifference curves than John. This likely reflects the fact that:

Sara values leisure more highly compared to income than John does

In an income-leisure diagram, the wage rate is graphically represented by the:

Slope of the budget line

Suppose an individual worker is on the up-sloping portion of her labor supply curve. Then for a wage increase the:

Substitution effect dominates the income effect

The higher the individual's wage rate:

The steeper the budget constrain

An increase in the wage rate will increase desired hours of work if:

The substitution effect dominates the income effect

If the wage rises from W1 to W2 we may conclude that:

The substitution effect is stronger than the income effect

Which of the following would unambiguously predict a decrease in desired hours of work?

The substitution effect of a wage decrease

The income effect of the illustrated wage decrease causes this individual to work:

Two more hours

The Personal Responsibility and Work Opportunity Act of 1996:

With few exceptions, requires welfare recipients to work after two years of receiving assistance

Assuming workers must work TS hours or not at all, worker B will:

Work the standard workweek but will feel underemployed

An individual who's MRS L, Y exceeds the wage at her current combination of leisure and income could increase utility by:

Working fewer hours