Recent data has shown that income and volunteer time are positively related. Assuming that volunteer time is included in leisure time, what could explain this observation? A) Higher income individuals view leisure as a normal good such that the income effect dominates the substitution effect. B) Higher income individuals view leisure as a normal good […]
What is one of the biggest differences between a sole proprietorship and a corporation? A) Sole proprietorships offer stock. B) Corporation shareholders elect the managers of the firm. C) Sole proprietorships have limited liability. D) Corporations are the only profitable firms. ANSWER B
A tax cut will unambiguously lower income-tax revenue. Indicate whether the statement is true or false ANSWER False. It depends on how the quantity of labor supplied responds to the increase in the after-tax wage rate. If the income effect dominates, the quantity of labor supplied falls and so will tax revenue. If the […]
If Bobby thinks that leisure is an inferior good, then his labor supply curve A) is backward bending. B) is always negatively sloped. C) is always positively sloped. D) does not exist. ANSWER C
Suppose the typical consumer only purchases food and clothing, and her utility can be expressed as U=F*C. Currently, food costs $5 per unit and clothing costs $2 per unit. Her income is $70. If the price of food increases to $6, compare the resulting Laspeyres price index with a true cost of living index. What […]
Newspaper accounts of the U.S. labor market often point out that many people are working more hours than their parents did. What might explain this phenomenon? A) the substitution effect B) the endowment effect C) bounded rationality D) the income effect ANSWER A
If workers are in the backward-bending section of their labor supply curves, than an increase in the income tax rate will A) increase the tax revenue and increase the number of hours worked. B) increase the tax revenue and decrease the number of hours worked. C) decrease the tax revenue and increase the number of […]
In response to an increase in the wage rate, the income effect will usually cause a person to A) supply fewer hours of labor. B) supply more hours of labor. C) supply the same hours of labor. D) have a horizontal labor supply curve. ANSWER A
A percentage increase in the overall price level is called A) cost of living. B) inflation. C) Paasche index. D) Fischer index. ANSWER B
A tax cut that raises the after-tax wage rate will most likely result in more hours worked if A) tax rates were low already. B) the relevant portion of the labor supply curve is upward sloping. C) the relevant portion of the labor supply curve is downward sloping. D) workers can be easily fooled. […]
