Question 1

A country has no welfare program. Then it introduces the following program: every one gets $4000 if they work more than 1000 hours a year (on top of what they earn). The effect of this event will be to ________ the labor force participation and the effect of this event on those were working more than 1000 hours will be to ________ hours of work.

Accepted Answer

The program incentivizes people to join the labor force to work more than 1000 hours to receive the $4000, thus increasing labor force participation. However, those already working more than 1000 hours might reduce their hours since they receive the $4000 regardless, leading to a decrease in hours worked.

Question 2

Fixed costs of working act like

Accepted Answer

Fixed costs are costs that do not vary with the level of production, such as rent or loan payments. Since fixed costs do not change with output, they cannot affect the substitution effect (the change in quantity demanded due to a change in the relative prices of goods) but they do affect the income effect (the change in quantity demanded due to a change in purchasing power). As fixed costs represent a constant outflow of financial resources, they affect the consumer's overall budget constraint and reduce their purchasing power, thus reducing the quantity demanded. Therefore, fixed costs act like a pure income effect.

Question 3

A welfare program offers $4000 of benefits to those not working. For those working, it reduces benefits dollar for dollar until there are no benefits to be paid. The program is then modified so that for every dollar earned, benefits are only reduced by 50 cents. Mr. X earned $6000 under the old program. What will be the effect of the new program (noting that he is in the range to receive benefits )

Accepted Answer

The answer of A welfare program offers $4000 of benefits...

Question 4

An increase in the wage rate when the substitution effect dominates will ________ labor force participation and ________ hours of work (of those working before and after the wage increase).

Accepted Answer

When the substitution effect dominates, an increase in the wage rate makes leisure more expensive relative to work, leading to an increase in labor force participation and an increase in hours worked.

Question 5

Mary earns $20 an hour and works 10 hours a week. She gets a raise to $30 an hour but at the same time her fixed weekly work expenses go up $100. If she continues to work, she will most likely

Accepted Answer

The answer of Mary earns $20 an hour and works...

Question 6

A professor declared "with the recent drop in the value of my stock portfolio, I will have to put off retirement by another two years." This decision reflects

Accepted Answer

The statement reflects the income effect, as the drop in the value of the stock portfolio has reduced the professor's wealth and therefore their ability to retire.

Question 7

A worker is indifferent between job one lasting 4 hours a day, job two lasting 8 hours a day, and job three lasting 12 hours a day. Job two pays $10 an hour and tangency between the indifference curve and the budget constant occurs at 8 hours. One can conclude that

Accepted Answer

The answer of A worker is indifferent between job one...

Question 8

Many working mothers have to pay for childcare costs. If they don't work, they do not have to pay for these costs. If childcare costs go up dramatically, the effect will be to ________ the labor force participation of working mothers and to ________ the hours of work for those mothers who continue to work.

Accepted Answer

If childcare costs go up dramatically, it will become less financially viable for working mothers to continue working, causing a decrease in labor force participation. For those who do continue to work, they may have to reduce their working hours to accommodate the increased childcare costs, resulting in an increase in their hours of work. Therefore, the correct answer is (D) decrease, increase.

Question 9

A subsidy to pay for a portion of child care costs will cause labor force participation rates to

Accepted Answer

A subsidy for child care costs reduces the financial burden on families, making it easier and more affordable for parents to work without being constrained by childcare costs. This would likely encourage more parents to enter or re-enter the labor force, increasing labor force participation rates.

Question 10

A subsidy to pay for a portion of childcare costs will cause women who are participating in the labor force to work ________ hours.

Accepted Answer

The answer of A subsidy to pay for a portion...

Question 11

A welfare program offers benefit B to those not working. For those working, it reduces benefit by a dollar for every dollar earned until no benefits are left to be paid. It is found that increasing B results in longer hours of work for those who continue to work. The likely cause of this is

Accepted Answer

Increasing B makes the welfare program more attractive, but only those with a strong preference for working (flatter utility curves) will continue to work, leading to longer hours among this group.

Question 12

The property tax goes up $4000 a year. This will cause those who are working to work ________ hours and their annual income to go by ________ $4000.

Accepted Answer

When property taxes increase, individuals may need to work more hours to cover the additional expense, but their annual income will increase by less than $4000 due to taxes and other deductions.

Question 13

A decrease in the fixed time cost of working will cause an increase in hours of work and

Accepted Answer

The answer of A decrease in the fixed time cost...

Question 14

An increase in the fixed cost of working will ________ labor force participation and ________ hours of work (of those working before and after the increase in the fixed cost of working).

Accepted Answer

The answer of An increase in the fixed cost of...

Question 15

An increase in travel time will likely ________ labor force participation and ________ hours spent working and traveling (of those working and traveling before and after the wage increase).

Accepted Answer

The answer of An increase in travel time will likely...

Quiz 6: Supply of Labor to the Economy: the Decision to Work

Fixed costs of working act like

An increase in the wage rate when the substitution effect dominates will labor force participation and hours of work (of those working before and after the wage increase) .

Mary earns $20 an hour and works 10 hours a week. She gets a raise to $30 an hour but at the same time her fixed weekly work expenses go up $100. If she continues to work, she will most likely

A professor declared "with the recent drop in the value of my stock portfolio, I will have to put off retirement by another two years." This decision reflects

A worker is indifferent between job one lasting 4 hours a day, job two lasting 8 hours a day, and job three lasting 12 hours a day. Job two pays $10 an hour and tangency between the indifference curve and the budget constant occurs at 8 hours. One can conclude that

Many working mothers have to pay for childcare costs. If they don't work, they do not have to pay for these costs. If childcare costs go up dramatically, the effect will be to the labor force participation of working mothers and to the hours of work for those mothers who continue to work.

A subsidy to pay for a portion of child care costs will cause labor force participation rates to

A subsidy to pay for a portion of childcare costs will cause women who are participating in the labor force to work ________ hours.

A welfare program offers benefit B to those not working. For those working, it reduces benefit by a dollar for every dollar earned until no benefits are left to be paid. It is found that increasing B results in longer hours of work for those who continue to work. The likely cause of this is

The property tax goes up $4000 a year. This will cause those who are working to work hours and their annual income to go by $4000.

A decrease in the fixed time cost of working will cause an increase in hours of work and

An increase in the fixed cost of working will labor force participation and hours of work (of those working before and after the increase in the fixed cost of working) .

An increase in travel time will likely labor force participation and hours spent working and traveling (of those working and traveling before and after the wage increase) .

Quiz 6: Supply of Labor to the Economy: the Decision to Work

Fixed costs of working act like

An increase in the wage rate when the substitution effect dominates will ________ labor force participation and ________ hours of work (of those working before and after the wage increase) .

Mary earns $20 an hour and works 10 hours a week. She gets a raise to $30 an hour but at the same time her fixed weekly work expenses go up $100. If she continues to work, she will most likely

A professor declared "with the recent drop in the value of my stock portfolio, I will have to put off retirement by another two years." This decision reflects

A worker is indifferent between job one lasting 4 hours a day, job two lasting 8 hours a day, and job three lasting 12 hours a day. Job two pays $10 an hour and tangency between the indifference curve and the budget constant occurs at 8 hours. One can conclude that

A subsidy to pay for a portion of child care costs will cause labor force participation rates to

A subsidy to pay for a portion of childcare costs will cause women who are participating in the labor force to work ________ hours.

A welfare program offers benefit B to those not working. For those working, it reduces benefit by a dollar for every dollar earned until no benefits are left to be paid. It is found that increasing B results in longer hours of work for those who continue to work. The likely cause of this is

The property tax goes up $4000 a year. This will cause those who are working to work ________ hours and their annual income to go by ________ $4000.

A decrease in the fixed time cost of working will cause an increase in hours of work and

An increase in the fixed cost of working will ________ labor force participation and ________ hours of work (of those working before and after the increase in the fixed cost of working) .

An increase in travel time will likely ________ labor force participation and ________ hours spent working and traveling (of those working and traveling before and after the wage increase) .

An increase in the wage rate when the substitution effect dominates will labor force participation and hours of work (of those working before and after the wage increase) .

The property tax goes up $4000 a year. This will cause those who are working to work hours and their annual income to go by $4000.

An increase in the fixed cost of working will labor force participation and hours of work (of those working before and after the increase in the fixed cost of working) .

An increase in travel time will likely labor force participation and hours spent working and traveling (of those working and traveling before and after the wage increase) .