10. (Continuing with the situation described in the preceding question.) Consider the economic model of an individual's labor-leisure choice with the following components: good C represents units of the consumption good L represents hours of leisure H represents hours of paid work p represents the unit price of the consumption w represents the hourly wage rate Y represents nonlabor income T represents total time available U(C, L) represents the individual's utility function MUC denotes the marginal utility of consumption MUL denotes the marginal utility of leisure Unless otherwise instructed, assume that consumption and leisure are normal goods. Whenever graphing the model, put C on the vertical axis and L on the horizontal axis. According to this model, how will labor supply change in response to an increase in the wage rate w? Which of the following statements is true? O People who initially were working will increase their optimal hours of work H*. O People who initially were working will decrease their optimal hours of work H*. ○ If the income effect is sufficiently large, then some people who initially were working may stop working altogether (i.e., some people may move from H*>0 to H*=0). O Some people who initially were not working may now start to work (i.e., some people may move from H*=0 to H*>0). O None of the above.
10. (Continuing with the situation described in the preceding question.) Consider the economic model of an individual's labor-leisure choice with the following components: good C represents units of the consumption good L represents hours of leisure H represents hours of paid work p represents the unit price of the consumption w represents the hourly wage rate Y represents nonlabor income T represents total time available U(C, L) represents the individual's utility function MUC denotes the marginal utility of consumption MUL denotes the marginal utility of leisure Unless otherwise instructed, assume that consumption and leisure are normal goods. Whenever graphing the model, put C on the vertical axis and L on the horizontal axis. According to this model, how will labor supply change in response to an increase in the wage rate w? Which of the following statements is true? O People who initially were working will increase their optimal hours of work H*. O People who initially were working will decrease their optimal hours of work H*. ○ If the income effect is sufficiently large, then some people who initially were working may stop working altogether (i.e., some people may move from H*>0 to H*=0). O Some people who initially were not working may now start to work (i.e., some people may move from H*=0 to H*>0). O None of the above.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:10. (Continuing with the situation described in the
preceding question.) Consider the economic model of an
individual's labor-leisure choice with the following
components:
good
C represents units of the consumption good
L represents hours of leisure
H represents hours of paid work
p represents the unit price of the consumption
w represents the hourly wage rate
Y represents nonlabor income
T represents total time available
U(C, L) represents the individual's utility function
MUC denotes the marginal utility of consumption
MUL denotes the marginal utility of leisure
Unless otherwise instructed, assume that consumption
and leisure are normal goods. Whenever graphing the
model, put C on the vertical axis and L on the horizontal
axis.
According to this model, how will labor supply change in
response to an increase in the wage rate w? Which of
the following statements is true?
People who initially were working will increase their
optimal hours of work H*.
People who initially were working will decrease their
optimal hours of work H*.
If the income effect is sufficiently large, then some people
who initially were working stop working altogether
(i.e., some people may move from H*>0 to H*=0).
Some people who initially were not working may now
start to work (i.e., some people may move from H*=0 to
H*>0).
None of the above.
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