Assume that, in response to a wage increase, Professor C retires sooner. a. (4) Explain - VERY BRIEFLY- the income effect of the wage increase (on both consumption and leisure)? b. (4) Explain-VERY BRIEFLY- the substitution effect of the wage increase (on both consumption and leisure)? c. (2) Explain - VERY BRIEFLY- whether the substitution or income effect is larger (in terms of leisure / labour).

Assume that, in response to a wage increase, Professor C retires sooner. a. (4) Explain - VERY BRIEFLY- the income effect of the wage increase (on both consumption and leisure)? b. (4) Explain-VERY BRIEFLY- the substitution effect of the wage increase (on both consumption and leisure)? c. (2) Explain - VERY BRIEFLY- whether the substitution or income effect is larger (in terms of leisure / labour).

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter20: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 3CQ: Recent research confirms that the demand for cigarettes is not only inelastic, but it also indicates...

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Recent research confirms that the demand for cigarettes is not only inelastic, but it also indicates that smokers with incomes in the lower half of all incomes respond to a given price increase by reducing their purchases by amounts that are more than four times as large as the purchase reductions made by smokers in the upper half of all incomes. How can the income and substitution effects of a price change help explain this finding?
Hannah’s wage rate is initially $10 per hour and she maximises her utility by supplying 8hours of work. Subsequently, her wage rate increases to $15 per hour and her newequilibrium position corresponds to 9 hours of work. It is noted that the income effect (IE)causes the labour supply to change by 1 hour and the substitution effect (SE) causes thelabour supply to change by 2 hours. How to draw in diagram, to show the IE and SE?
Consider a worker whose choice is between hours of free time and consumption. His company has now cut his wage rate. Which of the following statements is correct? O As a result of the substitution effect, the worker would reduce his free time. The income effect means that the worker would increase his free time. The worker may or may not reduce his free time as a result of the wage cut. The income effect will always dominate the substitution effect of the wage cut.
What examples do you have of the substitution and income effects? Why is the downward slope of the demand curve explained by the substitution and income effects?
I understand the substitution effect, but I really need to understand the Income effect. Please explain that and thank you in advanced ?
Damon's wage rises. The substitution effect would cause him to his work hours, and the income effect would cause him to his work hours. decrease; increase O increase; increase increase; decrease O decrease; decrease
A consumer earns a wage of 20 dollars per hour and has an unearned income of $100 per day. What would the consumption-leisure budget line look like? In the graph, also draw the effect of a wage cut, (including the income and substitution effects). Assume she works less after the wage change.
How is utility maximization obtained in the competitive factor market? Explain your answer. b. Explain, why are goods not distributed efficiently among consumers if the marginal rate of technical substitution is not equal to the marginal rate of substitution of consumers?
Suppose that the owner of Boyer Construction is feeling the pinch of incrs associated with worker’s compensation and has decided to cut the wages of its two employees (Albert and Sid) from $25 per hour to $22 per hour. Assume that Albert and Sid view income and leisure as “goods,” that both experience a diminishing rate of marginal substitution between income and leisure, and that the workers have the same before- and after-tax budget constraints at each wage. Draw each worker’s opportunity set for each hourly wage. At the wage of $25 per hour, both Albert and Sid are observed to consume 12 hours of leisure (and, equivalently, supply 12 hours of labor). After wages were cut to $22, Albert consumes 10 hours of leisure and Sid consumes 14 hours of leisure. Determine the number of hours of labor each worker supplies at a wage of $22 per hour. How can you explain the seemingly contradictory result that the workers supply a different number of labor hours? (LO2, LO3, LO7)
Suppose your tastes over consumption and leisure have constant elasticity of substitution. I observe that, when your wage went up, you continued to work the same number of hours. From this, I can conclude that you have Cobb-Douglas tastes. O True O False
Based on research into marginal rates of substitution, which of the following is true regarding breakfast cereals? O younger people prefer high fiber cereals O younger people prefer high sugar cereals O older people prefer cereal with prizes in the box O older people have a higher MRS of sugar for fiber
Income $240 $192 0 15 16 17 a) Using the above diagram, decompose the effect of a wage decrease for this individual into Income Effect (IE) and Substitution Effect (SE). Leisure 24 b) How many hours of work is effected because of the IE? c) How many hours of work is effected because of the SE? d) What is the net effect of this wage decrease on hours of work for this individual?