Suppose that the representative consumers pref- erences change, in that his or her marginal rate of substitution of leisure for consumption in- creases for any quantities of consumption and leisure. (a) Explain what this change in preferences means in more intuitive language. (b) What effects does this have on the equilib- rium real wage, hours worked, output, and consumption? (c) Do you think that preference shifts like this might explain why economies experience recessions (periods when output is low)? Explain why or why not, with reference to the key business cycle facts in Chapter 3.
Suppose that the representative consumers pref- erences change, in that his or her marginal rate of substitution of leisure for consumption in- creases for any quantities of consumption and leisure. (a) Explain what this change in preferences means in more intuitive language. (b) What effects does this have on the equilib- rium real wage, hours worked, output, and consumption? (c) Do you think that preference shifts like this might explain why economies experience recessions (periods when output is low)? Explain why or why not, with reference to the key business cycle facts in Chapter 3.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 11PA
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![5. Suppose that the representative consumer's pref-
erences change, in that his or her marginal rate
of substitution of leisure for consumption in-
creases for any quantities of consumption and
leisure.
(a) Explain what this change in preferences
means in more intuitive language.
(b) What effects does this have on the equilib-
rium real wage, hours worked, output, and
consumption?
(c) Do you think that preference shifts like this
might explain why economies experience
recessions (periods when output is low)?
Explain why or why not, with reference to
the key business cycle facts in Chapter 3.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe28dde66-c422-4bb5-be2e-b857aa636946%2F67665ae3-7b57-4348-b99f-0b2ffc61b683%2Fdk8xhb6_processed.png&w=3840&q=75)
Transcribed Image Text:5. Suppose that the representative consumer's pref-
erences change, in that his or her marginal rate
of substitution of leisure for consumption in-
creases for any quantities of consumption and
leisure.
(a) Explain what this change in preferences
means in more intuitive language.
(b) What effects does this have on the equilib-
rium real wage, hours worked, output, and
consumption?
(c) Do you think that preference shifts like this
might explain why economies experience
recessions (periods when output is low)?
Explain why or why not, with reference to
the key business cycle facts in Chapter 3.
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