Which the following statement is correct for a typical worker? a) Both the income and substitution effects of a higher wage encourage more work. O b) The substitution effect of a higher wage encourages less work, and the income effect encourages more work. c) The substitution effect of a higher wage encourages more work, and the income effect encourages less work. d) Both the income and substitution effects of a higher wage encourage less work.

Which the following statement is correct for a typical worker? a) Both the income and substitution effects of a higher wage encourage more work. O b) The substitution effect of a higher wage encourages less work, and the income effect encourages more work. c) The substitution effect of a higher wage encourages more work, and the income effect encourages less work. d) Both the income and substitution effects of a higher wage encourage less work.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.10P

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69. If the price of labor falls relative to the price of capital, and as a result the quantity of capital employed decreases, it can be concluded that: A. The substitution effect is greater than the output effectB. The output effect is greater than the substitution effectC. The income effect is greater than the output effectD. Labor cannot be easily substituted for capital
Consider a firm for which production depends on two normal inputs, labor and capital, with prices w and r, respectively. Initially the firm faces market prices of w = 6 and r = 4. These prices then shift to w = 4 and r = 2.a. In which direction will the substitution effect change the firm’s employment and capital s tock?b. In which direction will the scale effect change the firm’s employment and capital stock?c. Can we say conclusively whether the firm will use more or less labor? More or less c apital?
Suppose that the owner of Boyer Construction is feeling the pinch of increased premiums associated with worker’s compensation and has decided to cut the wages of its two employees (Albert and Sid) from $25 per hour to $22 per hour. Assume that Albert and Sid view income and leisure as “goods,” that both experience a diminishing rate of marginal substitution between income and leisure, and that the workers have the same before- and after-tax budget constraints at each wage. Draw each worker’s opportunity set for each hourly wage. At the wage of $25 per hour, both Albert and Sid are observed to consume 12 hours of leisure (and, equivalently, supply 12 hours of labor). After wages were cut to $22, Albert consumes 10 hours of leisure and Sid consumes 14 hours of leisure. Determine the number of hours of labor each worker supplies at a wage of $22 per hour. How can you explain the seemingly contradictory result that the workers supply a different number of labor hours? (LO2, LO3, LO7)
Assume the following production function (photo aswell) q = [0.3k^(-1)+ 0.7l ^(-1)] ^(-1) a) Determine the rate of technical substitution, RTS. b) Determine the elasticity of substitution. c) What would happen to the capital intensity if the relative factor price w/v were to increase by 10%? d) If the elasticity of substitution were higher than what you calculated in (b), would the effect of a 10% increase in the relative factor price w/v on the capital intensity be higher or lower than what you calculated in (c)? Explain your reasoning.
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Jack currently works 38 hours per week at a wage rate of $15 per hour. His marginal rate of substitution is $20 per hour. Is Jack's utility maximized? If yes, explain why. If no, explain why not and discuss what Jack should do in order to further increase utility.
Showhowthe indifference curve for perfect complements is illustrated. What can you tell about the marginal rate of substitution of perfect complements? Give an example for perfect complements.Showhowthe indifference curve for perfect substitutes is illustrated. What can you tell about the marginal rate of substitution of perfect substitutes? Give an example for perfect substitutes
Suppose that the owner of Boyer Construction is feeling the pinch of incrs associated with worker’s compensation and has decided to cut the wages of its two employees (Albert and Sid) from $25 per hour to $22 per hour. Assume that Albert and Sid view income and leisure as “goods,” that both experience a diminishing rate of marginal substitution between income and leisure, and that the workers have the same before- and after-tax budget constraints at each wage. Draw each worker’s opportunity set for each hourly wage. At the wage of $25 per hour, both Albert and Sid are observed to consume 12 hours of leisure (and, equivalently, supply 12 hours of labor). After wages were cut to $22, Albert consumes 10 hours of leisure and Sid consumes 14 hours of leisure. Determine the number of hours of labor each worker supplies at a wage of $22 per hour. How can you explain the seemingly contradictory result that the workers supply a different number of labor hours? (LO2, LO3, LO7)
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in your own Words How do the concepts of income and substitution effects enhance our understanding why annual hours worked have tended to fall over time"
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