Deck 7: Labor Supply: Household Production, the Family, and the Life Cycle

Question 1

If the only working member of a household receives an increase in her wage rate, then

A) she will choose to increase her hours of work.
B) she will choose to decrease her hours of work.
C) she will not change her hours of work.
D) she could increase, decrease, or maintain her current hours of work.

Answer 1

D

Question 2

In a life-cycle model, a worker with constant household productivity will react to an expected decrease in wages by

A) increasing his labor supply.
B) decreasing his labor supply.
C) not changing his labor supply, since the wage increase was expected.
D) either increasing or decreasing his labor supply.

Answer 2

B

Question 3

The "discouraged worker" effect occurs during recessions because

A) the labor force tends to grow during recessions.
B) the expected payoff from looking for work falls relative to the expected payoff from household production.
C) one spouse is discouraged by the job prospects of the other and decides to look for a job.
D) workers are discouraged by their depleted savings and decide to look for a job.

Answer 3

B

Question 4

If Social Security benefits were changed so those retiring at a later age got much more got substantially then the substitution effect would probably ________ and the income effect would probably ________ on the retirement age.

A) increase, increase
B) increase, decrease
C) decrease, decrease
D) decrease, increase

Question 5

The "added worker" effect would tend to make the size of the labor force ________ during a recession.

A) increase
B) decrease
C) remain unchanged
D) either increase or decrease

Question 6

If the only working member of a household receives a decrease in his wage rate, then

A) he will choose to work fewer hours.
B) he will choose to work more hours.
C) he will choose to work the same number of hours.
D) he could work more, fewer, or the same number of hours as before.

Question 7

The monetary value of a homemaker's time can NOT be estimated by

A) measuring the services in terms of current market prices.
B) comparing the value of the services to the spouse's wage rate.
C) measuring the value of the services by looking at the homemaker's opportunity costs.
D) measuring the marginal value of the services by the homemaker's wage rate received in a part-time job.

Question 8

An increase in the daily cost of child care would likely

A) increase the labor force participation rate of mothers.
B) increase the utility from not working.
C) increase the hours of work of mothers who continue to work.
D) increase the utility of a family with young children.

Question 9

Which of the following events will likely make indifference curves (between income on the vertical axis and household time on the horizontal axis) flatter?

A) New inventions that make it easier to substitute market goods for household time.
B) Increased valued of time spent at home with children.
C) An increase in income.
D) Smaller future wage penalities for staying at home.

Question 10

John, a bachelor, after reading a book on home making, suddenly becomes twice as productive in doing household chores. This will likely make his indifference curves (between income on the vertical axis and household time on the horizontal axis) become

A) flatter.
B) steeper.
C) more bowed in.
D) less bowed in.

Question 11

If two partners enjoy each other's company, then if one partner increase in their leisure time (while still earning the same income), then the other partner's leisure time will likely

A) increase.
B) decrease.
C) remain unchanged.
D) either increase or decrease.

Question 12

If a family's budget constraint shifts because of a decrease in non-labor income, then a family member who works outside the home will

A) choose to decrease his or her hours of work.
B) choose to increase his or her hours of work.
C) not change his or her hours of work.
D) either increase or decrease his or her hours of work.

Question 13

Household production consists of

A) any commodities which are produced at home and then sold.
B) any commodities which are produced at home and yield utility to the family.
C) any time spent at home by any family member.
D) any commodities purchased for use in the home.

Question 14

If both the "added-worker" and the "discouraged-worker" effects coexist, then we would expect the size of the labor force to ________ during a recession.

A) increase
B) decrease
C) remain unchanged
D) increase, decrease, or remain the same

Question 15

If Social Security payments were altered so that a fixed amount was unexpectedly subtracted from lifetime benefits at each retirement age, this would theoretically cause workers to

A) retire earlier.
B) retire later.
C) retire at the same time as before the decline in benefits.
D) retire either earlier or later.

Question 16

If two partners are substitutes in the production of household goods, then if one partner increases their leisure time (while still earning the same income), the other partner's leisure time is likely to

A) increase.
B) decrease.
C) remain unchanged.
D) either increase or decrease.

Question 17

In a life-cycle model, expected wage changes cause ________, while unexpected wage changes cause ________.

A) income and substitution effects; income and substitution effects
B) only substitution effects; income and substitution effects
C) income and substitution effects; only substitution effects
D) only substitution effects; only substitution effects

Question 18

Empirically, the "added-worker" effect is ________ in magnitude than the "discouraged-worker" effect.

A) larger
B) roughly equal
C) smaller
D) roughly double

Question 19

If a family's budget constraint shifts because of an increase in non-labor income, then a member of the family who works outside of the home will

A) choose to decrease his or her hours of work.
B) choose to increase his or her hours of work.
C) not change his or her hours of work.
D) either increase or decrease his or her hours of work, depending on the size of the substitution effect.

Question 20

If the decision-making process in a household is by partners bargaining with each other, then which of the following would be expect to see (compared to a household where one of the partners makes all the decisions)

A) one of the partners is likely to drop out of the labor market and stay at home.
B) women with fewer economic resources are likely to be better treated by their husband.
C) holding household income constant, expenditures patterns will usually favor the partner making the most income.
D) no differences between these two types of households.

Question 21

In the labor supply model that emphasizes household production time, restaurant meals will be more in demand, other things the same, in single households with

A) high wages and high income.
B) high wages and low income.
C) low wages and high income.
D) low wages and low income.

Question 22

Over a lifetime, if the income effect dominates the substitution effect, then

A) an expected increase in the wage will reduce work hours.
B) an expected increase in the wage will increase work hours.
C) an expected increase in the wage will leave work hours unchanged.
D) any wage increase, expected or unexpected, will reduce work hours in this case.

Question 23

Most people travel more and enjoy more leisure when they are elderly than when they are middle-aged. This can be explained by

A) income effects due to decreasing wages.
B) substitution effects due to increasing wages.
C) life-cycle considerations.
D) the fact that their time is relatively expensive.

Question 24

If the slopes between income and leisure on all indifference curves varies only by the level of income but remains unchanged by the hours of leisure, then

A) the substitution effect of a wage increase will be large.
B) the substitution effect of a wage increase will be small.
C) the income effect of a wage increase will be large.
D) the income effect of a wage increase will be small.

Question 25

Due to a change in job title, a married woman decides to increase her hours worked outside the home (but with no increase in annual pay). As a consequence, her husband decides to work fewer hours in the home. This suggests

A) the husband and wife are complements in household production.
B) the husband and wife are substitutes in household production.
C) the husband and wife are substitutes in the consumption of household commodities.
D) none of the above.

Question 26

Which of the following events would encourage an older worker to retire at a latter age (for example, at 64 instead of 62)?

A) a decrease in social security benefits paid to the worker
B) adjusting social security payments so that the implicit penalty for delaying retirement is increased
C) a shortening of the worker's life expectancy
D) an unexpected increase in the wage paid to worker

Question 27

Suppose day-care centers charge by the hour (with no daily fixed costs). The government then subsidizes day-care, cutting the hourly cost. Assume the income effect dominates the substitution effect for working mothers. The effect of the subsidy will be to ________ the labor force participation rate of parents with small children and to ________ the work hours of working parents with small children.

A) increase, increase
B) increase, decrease
C) decrease, increase
D) decease, decrease

Question 28

In a two-person household, assume Tracy earns the most income and is totally incompetent in raising children. The other person in the household, Pat, is competent at raising children. Pat is more likely to stay at home and raise the child when

A) Tracy's income is high and Pat's wage is low.
B) Tracy's income is low and Pat's wage is low.
C) Tracy's income is low and Pat's wage is high.
D) Tracy's income is high and Pat's wage is high.

Question 29

Sally is single. Her income rises because of her wise stock investments, but her wage rate stays the same. In the labor supply model that replaces "leisure" with "household production time," the increase in income will likely

A) increase work hours as she spends less time in the household consuming more commodities.
B) increase work hours as her higher income allows her to buy goods that make her more efficient in the household.
C) decrease work hours because higher income people get more pleasure from working than being in the household.
D) decrease work hours as she spends more time in the household consuming more commodities.

Question 30

The government raises taxes on wages by 20% and splits the money evenly across households as "free money" such that the average household gets back what it paid extra in taxes. In a household where the dollars collected by the 20% added tax initially equals the dollars received as free money, their work hours are likely to

A) increase.
B) decrease.
C) increase if the income effect dominates the substation effect.
D) remain unchanged.

Question 31

A child-support assurance program that guarantees support payments to a mother regardless of her income but which doesn't increase the amount she will receive when not working will tend to ________ labor force participation rates while ________ desired hours of work among those with jobs.

A) increase; reducing
B) increase; increasing
C) reduce; reducing
D) reduce; increasing

Question 32

Suppose that during an economic boom, workers get higher wages. They do not expect the boom to last, and expect wages to return to their usual level. As a result, during the boom (compared to usual times)

A) they are likely to want to work more hours.
B) they are likely to work less hours.
C) they are likely to work the same hours as usual.
D) the answer is uncertain: it depends on which is stronger, the income or substitution effect.

Question 33

If someone enjoys household production (such as raising children) this

A) would be shown by a shift in his budget constraint.
B) will make his household production isoquant curves flatter than otherwise.
C) is the same as being more productive in household production.
D) will make his household production isoquant curves steeper than otherwise.

Question 34

A single mother is currently paying childcare cost of $10 an hour and she works 8 hours a day. The government then provides "free" child care, raising the property tax on the mother's home by $80 a day. The effect of this event will be to

A) cause the mother to work less hours.
B) cause the mother to work the same hours.
C) cause the mother to work more hours.
D) cannot tell without knowing which effect dominates: the income or substitution effect.