Microeconomics

If a person supplies more hours of labor in response to a wage increas

If a person supplies more hours of labor in response to a wage increase, then A) the substitution effect is greater than the income effect. B) the income effect is greater than the substitution effect. C) the income effect equals the substitution effect. D) the person is not maximizing utility.   ANSWER A  

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Date: September 9th, 2020

A backward-bending labor supply curve implies that A) the substitutio

A backward-bending labor supply curve implies that A) the substitution effect dominates the income effect at higher wage rates but not at lower wage rates. B) the substitution effect dominates the income effect at lower wage rates but not at higher wage rates. C) leisure is an inferior good. D) workers are irrational.   ANSWER […]

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Date: September 9th, 2020

Employing a fixed-weight index like the Consumer Price Index to adjust

Employing a fixed-weight index like the Consumer Price Index to adjust a person’s salary in response to inflation will overcompensate this person because doing so will allow this person to A) buy the same bundle of goods as he did before the inflation. B) achieve a higher level of utility than he did before the […]

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Date: September 9th, 2020

A Consumer Price Index (CPI) adjustment overcompensates for inflation

A Consumer Price Index (CPI) adjustment overcompensates for inflation because it ignores A) the income effect when relative prices change. B) the substitution effect when relative prices change. C) that some goods are inferior. D) that the substitution effect may offset the income effect.   ANSWER B  

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Date: September 9th, 2020