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Labor Economics

1. In the leisure-income model, the wage constraint shows a. the points that maximize a workers utility b. all points that are equally preferred c. the wage rates that affect work decisions d. the available combinations of leisure and income 2. The slope of a wage constraint reflects the: a. rate at which a person is willing to substitute leisure for income c. income effect b. price of leisure d. substitution effect 3. When a worker maximizes her utility, then her a. income ; wage times hours of leisure c. marginal rate of substitution ; wage will be equal to her b. marginal rate of substitution ; wage times APL d. wage; VMPL Questions 4 - 5 refer to the following diagram representing Natashas budget constraint and preferences: Leisure 4. Consider the three combinations of leisure and income represented by points A, B, and C. Which of the following is a correct statement? a. Natasha prefers A to B b. Natasha prefers B to C c. Natasha prefers A to C d. Natasha prefers C to B 5. At point B, Natashas marginal rate of substitution a. exceeds the wage and Natasha would like to work more hours b. exceeds the wage and Natasha would like to work fewer hours c. is less than the wage and Natasha would like to work more hours d. is less than the wage and Natasha would like to work fewer hours6. On a standard income-leisure diagram, Tony has flatter indifference curves than Bruce, but both are negatively sloped. It is probably true that: a. Both like leisure and income, but Bruce values leisure relatively more than Tony does. b. Bruce likes leisure but dislikes income while Tony likes both c. Bruce likes income but dislikes leisure while Tony likes both d. Tony values leisure more highly compared to income than Bruce does 7. As an individuals wage rate gets higher, the a. budget constraint gets flatter c. desired hours of work increasesd. marginal product of their labor must fall b. marginal rate of substitution gets larger 8. An individual whose MRS exceeds the wage at her current combination of leisure and income could increase utility by: a. working fewer hours d. none of the above; her utility is maximized b. increasing her income c. working more hours e. changing her major to pychology

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Answer #1

Answering only first four parts is mandatory by HomeworkLib policy

Question 1) option D)

The constraint shows combinations of leisure & consumption.

Q2) option A)

slope of wage constraint is wage , which shows that if individual gives up an additional hour of leisure , he earns the wage .

Q3) option C)

At utility maximizing equilibrium, the slope of IC ( which is MRS) equals the slope of wage constraint, thus MRS equals wage

Q4) option D)

A& B lies on same IC ,

Consumer prefers a higher IC to a lower one, thus point C is preferred to A &B.

Q5) option D)

At point B , IC is flatter than the wage constraint, thus MRS is less than wage, & enjoys more leisure

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