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Sonia works 30 hours per week at a gift shop. her hourly wage is increased from $10 to $12 and she is offered the option of increasing her total work hours. Given that leisure is a normal good for Sonia, she will choose to increase the number of hours she works only if:

A. the income effect of the wage change outweighs the substitution effect of the wage change.
B. the substitution effect of the wage change outweighs the income effect of the wage change.
C. her labor supply curve is downward-sloping
D. she views $12 an hour as an efficient wage

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Kritika Krishnakumar
Kritika KrishnakumarLv10
28 Sep 2019
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Related questions

This paper evaluates the wage, employment, and hours effects of the first and second phase of the Seattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016. Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees' earnings by an average of $125 per month in 2016. Evidence attributes more modest effects on the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies.

The increase in the minimum wage may cause workers to work more OR work less. Explain using the income and substitution effect why? (HINT: The price of the good is work, and the alternative good is leisure€, which is anything but work).

Workers choose, simply, to work, earn income, and consume, or leisure (i.e., not work). Explain how relative preferences for consumption or leisure can impact the work-no work decision after a minimum wage increase.

The article explains how, even with the minimum wage increase, employment has not fallen. Utilizing the substitution effect, explain how the firm may choose to minimize its costs increases elsewhere. Discuss 3 potential mechanisms instead of firing workers that an employer may use.

1. Due to the recent downturn in economic activity, Taz has seen his hours at work reduced. He used to work 30 hours a week at $13 an hour, but now he works 22 hours. Due to this change, he noticed he purchased more boxed Macaroni and Cheese, up from 1 box a week to 4. He also reduced his purchase of Coke from 2 12-packs to 1 12-pack per week.

i) What is the income elasticity of macaroni and cheese for Taz?

ii) What type of good is Macaroni and cheese for Taz?

iii) What is the income elasticity of Coke for Taz?

iv) What type of good is Coke for Taz?

2. Syesha loves to eat Sunday breakfast at her local Scrambles restaurant. She usually orders a la carte. Her usual breakfast consists of 2 scrambled eggs, 1 piece of bacon, and 2 links of sausage. The price of an egg, a sausage link, and a piece of bacon are all $1. Thus her breakfast has a price of $5.

Scramble restaurant changes the price of eggs to $1.50. She now orders the following for her breakfast:

1 scrambled egg, 2 pieces of bacon, and 1 sausage link.

i) Calculate the cross-price elasticity of eggs and sausage.

ii) What type of relationship is there between eggs and sausage?

iii) Calculate the cross-price elasticity of eggs and bacon?

iv) What type of relationship is there between eggs and bacon?

1. Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because:

A. luxury cars cost a lot more than non-luxury cars.

B. the total utility of less expensive cars is greater than that of luxury cars.

C. car buyers are irrational.

D. the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars.

2. The labor market is considered as one of the more important markets in an economy because

A. most people typically earn the bulk of their income from wages and salaries.

B. the usual market forces do not hold in the labor market.

C. the labor market does not reach an equilibrium.

D. most people are concerned that wages determined in the labor market are unfair.

3. Table 17-1
Quantity of Labor Output (units)
1 80
2 170
3 240
4 300
5 350
6 390
7 420


Refer to Table 17-1. The marginal product of the fourth unit of labor is

A. 300.

B. 75.

C. 60.

D. 15.

4. Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys:

A. both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased.

B. both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased.

C. four times as many magazines as CDs.

D. four times as many CDs as magazines.

5. Marginal utility is the:

A. average satisfaction received from consuming a product.

B. total satisfaction received from consuming a given number of units of a product.

C. extra satisfaction received from consuming one more unit of a product.

D. satisfaction achieved when a consumer has had enough of a product.

6. What is behavioral economics?

A. the study of how people behave in the face of scarcity

B. the study of how people make decisions at the margin

C. the study of situations in which people act in ways that are not economically rational

D. the study of how people make wealth-maximizing decisions

7. Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If hiring another worker would increase output by three units per hour, then to maximize profits the firm should:

A. not hire an additional worker.

B. hire another worker.

C. not change the number of workers it currently hires.

D. There is not enough information to answer the question.

8. Consumers have to make tradeoffs in deciding what to consume because:

A. they are limited by a budget constraint.

B. there are not enough of all goods produced.

C. not all goods give them the same amount of satisfaction.

D. the prices of goods vary.

9. Table 17-1
Quantity of Labor Output (units)
1 80
2 170
3 240
4 300
5 350
6 390
7 420


Refer to Table 17-1. If the output price is $3, what is the marginal revenue product of the fifth unit of labor?

A. $1,050

B. $360

C. $210

D. $150

10. At low wages, the labor supply curve for most people slopes upward because:

A. as wages increase income also increases unless hours worked decrease.

B. the demand for labor is perfectly elastic at low wages.

C. as wages increase the opportunity cost of leisure increases.

D. the supply of labor is perfectly inelastic at low wages.

11. A negative externality exists if:

A. the marginal social cost of producing a good or service exceeds the private cost.

B. the marginal private cost of producing a good or service exceeds the social cost.

C. there are quantity controls in a market.

D. there are price controls in a market.

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