Question 1

Use the following to answer questions
Figure: Income and Leisure Opportunities 
-(Figure: Income and Leisure Opportunities) The figure Income and Leisure Opportunities refers to Keisha when she has 100 hours per week for working or leisure. There are two time allocation lines, one for a $10 hourly wage rate and one for a $20 hourly wage rate. Keisha's optimal choice is point A when the wage is $10, and her optimal choice is point C when the wage is $20. As the amount she earns increases from $10 per hour to $20 per hour, Keisha will work _____ hours because of the income effect.
A) 10 fewer
B) 15 more
C) 25 fewer
D) 50 more

Accepted Answer

As income increases from $10 per hour to $20 per hour, Keisha's real income increases, which causes her to consume more of the leisure. Therefore, she reduces her work hours by 25 (from 65 to 40) due to the income effect. Her optimal choice shifts from point A to point C.

Question 2

Use the following to answer questions 
Figure: The Time Allocation Budget Line 
-(Figure: The Time Allocation Budget Line) Look at the figure The Time Allocation Budget Line. If the wage rate rises, then the time allocation budget line will rotate _____ along the _____ axis.
A) left; leisure
B) up; income
C) right; leisure
D) down; income

Accepted Answer

B

Question 3

If the labor supply curve bends backward, then the backward-bending portion reveals that _____ is a(n) _____ good and the _____ effect is greater than the _____ effect.
A) labor; normal; income; substitution
B) labor; inferior; substitution; income
C) leisure; normal; income; substitution
D) leisure; inferior; substitution; income

Accepted Answer

The labor supply curve bending backward means that beyond a certain wage rate, workers start to value leisure time more than additional income. This implies that leisure is a normal good (as when their income increases, they demand more leisure time). Moreover, the substitution effect, which results from the opportunity cost of leisure time increasing, is eventually dominated by the income effect, which results from a higher wage rate increasing the worker's purchasing power and thus allowing them to consume more leisure time.

Question 4

Kurt earns a wage of $100 per hour; Jim earns a wage of $10 per hour. To maximize utility, Kurt works 45 hours per week and Jim works 50 hours per week. The value of an additional hour of leisure is:
A) higher for Jim than for Kurt.
B) higher for Kurt than for Jim.
C) less than $100 for Kurt.
D) greater than $10 for Jim.

Accepted Answer

To find the value of an additional hour of leisure, we need to calculate the opportunity cost of working one less hour. For Kurt, the opportunity cost is the amount of money he would lose from not working for an hour, which is $100. For Jim, the opportunity cost is the amount of money he would lose from not working for an hour, which is $10.

Since Kurt earns a much higher wage per hour than Jim, his opportunity cost of leisure is much greater. Therefore, the value of an additional hour of leisure is higher for Kurt than for Jim.

Option A is incorrect because it suggests that Jim's opportunity cost of leisure is higher than Kurt's, which is not true.

Option C is incorrect because Kurt's wage is $100 per hour, so the value of an additional hour of leisure cannot be less than $100 for him.

Option D is also incorrect because although Jim's wage is only $10 per hour, his opportunity cost of leisure is still $10 per hour.

Question 5

An individual will allocate time between labor and leisure by finding the point at which:
A) he or she maximizes utility while remaining beneath the time allocation budget line.
B) the time allocation budget line is just tangent to an indifference curve.
C) he or she reaches the lowest possible indifference curve while still on the time allocation budget line.
D) he or she is indifferent between work and leisure.

Accepted Answer

The individual will allocate time between labor and leisure by finding the point at which the time allocation budget line is just tangent to an indifference curve. This means that the individual is maximizing their utility given their budget constraint. At this point, the individual is getting the most satisfaction for their time, and any deviation from this point would result in a decrease in utility.

Question 6

Assume Alex is maximizing utility by working 51 hours per week and his wage is $15 per hour. Which of the following statements is CORRECT?
A) In equilibrium, the value of an additional hour of leisure for Alex is less than $15.
B) Alex is probably not on the highest indifference curve that touches the time allocation budget line.
C) The marginal utility Alex gets from the extra money he earns from an additional hour spent working is equal to the marginal utility of an additional hour of leisure.
D) In equilibrium, the value of an additional hour of leisure for Alex is more than $15.

Accepted Answer

The answer of Assume Alex is maximizing utility by working...

Question 7

Use the following to answer questions 
Figure: The Time Allocation Budget Line 
-(Figure: The Time Allocation Budget Line) Look at the figure The Time Allocation Budget Line. If the wage rate decreases, then the time allocation budget line will rotate _____ along the _____ axis.
A) left; leisure
B) up; income
C) right; leisure
D) down; income

Accepted Answer

The answer of Use the following to answer questions 
Figure:...

Question 8

Dorothy is trying to decide how to allocate her time between work and leisure. Suppose that she can work a maximum of 75 hours per week. If she can earn $15 per hour, the vertical intercept of her time allocation budget line (with income plotted vertically and leisure plotted horizontally) is:
A) $15.
B) 75 hours.
C) 5
D) $1,125.

Accepted Answer

The vertical intercept of the time allocation budget line represents the amount of income Dorothy can earn if she devotes all of her time to work (i.e., no leisure). Thus, the vertical intercept is equal to her hourly wage ($15) multiplied by the maximum number of hours she can work per week (75):
$15/hour × 75 hours/week = $1,125/week.

The best choice(s) cannot be determined without additional information, as it depends on Dorothy's preferences for leisure and income. However, the optimal choice can be found by identifying the point on the budget line that maximizes her utility (satisfaction). This point will typically involve some combination of work and leisure that allows Dorothy to achieve her desired level of income while still having some free time to pursue other activities.

Question 9

Miss Marple spends her entire leisure time gardening. She values the marginal utility of the last hour spent gardening at $17. She could earn $20 if she worked an additional hour. Assuming that Miss Marple wants to maximize her utility, which of the following is CORRECT?
A) She should spend more time gardening and less time working to balance the stress of work with the relaxation provided by a hobby.
B) She should spend more time gardening and less time working, since leisure activities are usually characterized by increasing marginal utility.
C) She should reallocate her time away from gardening and toward more work.
D) This question cannot be answered without knowing how many hours she spends working and how many hours she spends gardening.

Accepted Answer

The answer of Miss Marple spends her entire leisure time...

Question 10

An increase in the wage rate will:
A) normally generate a small income effect.
B) generate a significant decrease in after-tax income.
C) possibly lead people to choose more leisure rather than work more, since leisure is a normal good.
D) cause businesses to increase the number of employees to reduce costs.

Accepted Answer

An increase in the wage rate will increase the opportunity cost of leisure, making work relatively more attractive. However, as leisure is a normal good, a wage increase will also increase the income effect, inducing some to work less and enjoy more leisure. Therefore, it is possible that people may choose more leisure rather than work more.

Question 11

Javon has 80 hours per week to allocate between labor and leisure. Graph hours of leisure per week on the horizontal axis and income per week on the vertical axis. If Javon's hourly wage is $8, then the horizontal intercept of his time allocation budget line is:
A) $8.
B) $640.
C) 40 hours.
D) 80 hours.

Accepted Answer

The answer of Javon has 80 hours per week to...

Question 12

Diana's labor supply curve changes slope and begins to bend backward at a wage of $44. Thus, for a wage _____ $44, the substitution effect of a wage increase will _____.
A) above; cause Diana to work fewer hours
B) below; cause Diana to work fewer hours
C) below; dominate the income effect
D) above; cause Diana to work more hours

Accepted Answer

The answer of Diana's labor supply curve changes slope and...

Question 13

Use the following to answer questions
Figure: Income and Leisure Opportunities 
-(Figure: Income and Leisure Opportunities) The figure Income and Leisure Opportunities refers to Keisha when she has 100 hours per week for working or leisure. There are two time allocation lines, one for a $10 hourly wage rate and one for a $20 hourly wage rate. Keisha's optimal choice is point A when the wage is $10, and her optimal choice is point C when the wage is $20. As the amount she earns increases from $10 to $20 per hour, Keisha will work _____ hours because of the substitution effect.
A) 10 fewer
B) 15 more
C) 25 fewer
D) 50 more

Accepted Answer

The answer of Use the following to answer questions
Figure: Income...

Question 14

During the holiday season some people take a second job or work more hours. From this we know that:
A) the income effect becomes more powerful than the substitution effect during the holiday season.
B) the substitution effect becomes more powerful than the income effect during the holiday season.
C) the income and substitution effects cancel each other out during the holiday season.
D) people want to spend more time with their family during the holiday season.

Accepted Answer

The substitution effect becomes more powerful during the holiday season because people are willing to trade their leisure time for more income to spend on gifts or travel.

Question 15

Javon has 80 hours per week to allocate between labor and leisure. Graph hours of leisure per week on the horizontal axis and income per week on the vertical axis. If Javon's hourly wage is $8, then the opportunity cost of an hour of leisure is:
A) $8.
B) $10.
C) $640.
D) $800.

Accepted Answer

The opportunity cost of an hour of leisure is the amount of income Javon would have earned if he had worked during that hour instead of taking leisure time. If Javon's hourly wage is $8 and he gives up one hour of work to take leisure time, he is giving up the opportunity to earn $8. Therefore, the opportunity cost of an hour of leisure is $8.

As for the best choice(s), without knowing any specific preferences of Javon or any constraints on how much he needs to work to make ends meet, it is impossible to determine the best choice(s) solely based on the given information.

Question 16

If an individual's labor supply curve is upward-sloping at low wage rates and downward-sloping at high wage rates, then at higher wage rates:
A) there is no substitution effect as wages change.
B) there is no income effect as wages change.
C) the income effect dominates the substitution effect.
D) the substitution effect dominates the income effect.

Accepted Answer

The answer of If an individual's labor supply curve is...

Question 17

Javon has 80 hours per week to allocate between labor and leisure. Javon's wage is $8 per hour. Graph hours of leisure per week on the horizontal axis and income per week on the vertical axis. According to the optimal time allocation rule, Javon should allocate his time such that the marginal utility of an additional hour of leisure is:
A) $8.
B) $10.
C) $640.
D) $800.

Accepted Answer

The answer of Javon has 80 hours per week to...

Question 18

Javon has 80 hours per week to allocate between labor and leisure. Graph hours of leisure per week on the horizontal axis and income per week on the vertical axis. If Javon's hourly wage is $8, then the vertical intercept of his time allocation budget line is:
A) $8.
B) $640.
C) 40 hours.
D) 80 hours.

Accepted Answer

The time allocation budget line represents all possible combinations of leisure and labor that Javon can choose given his time constraint and wage rate. The equation of the budget line is:

Income = Wage * Labor + Wage * Leisure
Income = $8 * Labor + $0 * Leisure
Income = $8 * Labor

Since Javon has 80 hours per week to allocate between labor and leisure, the maximum number of hours he can allocate to labor is 80. This means that the horizontal intercept of the budget line is 80.

To find the vertical intercept, we can set the number of hours allocated to leisure to 0:

Income = $8 * Labor
Income = $8 * 0
Income = $0

Therefore, the vertical intercept of the budget line is $0, which means that Javon does not earn any income if he chooses to allocate all his time to leisure.

To find the income level associated with the horizontal intercept of 80 hours of leisure, we can use the equation of the budget line:

Income = $8 * Labor
Income = $8 * 80
Income = $640

Therefore, the best choice for Javon is to allocate 80 hours to leisure and 0 hours to labor, which gives him an income of $640 per week.

Question 19

The time allocation budget line shows an individual's _____ and the income that allows consumption of marketed goods.
A) preferences for leisure
B) trade-offs between the consumption of leisure
C) labor supply for the consumption of leisure
D) indifference between the consumption of leisure

Accepted Answer

The time allocation budget line reflects an individual's trade-offs between the consumption of leisure (represented by the vertical axis) and the income that enables the consumption of marketed goods (represented by the horizontal axis). The slope of the budget line represents the opportunity cost of leisure in terms of goods foregone, and shows the combinations of leisure and consumption that are feasible with a given income level.

Question 20

Consider the time allocation budget line for Priya. Put hours of leisure on the horizontal axis and income on the vertical axis. If Priya can allocate 100 hours per week to either leisure or work and her wage per hour is $18, then the vertical intercept is _____ and the slope of the time allocation budget line is _____.
A) $180; 18
B) $1,800; 18
C) $1,800; -18
D) $720; 18

Accepted Answer

The vertical intercept represents the amount of income Priya would earn if she allocated all 100 hours to work and no hours to leisure, which is 100 hours x $18/hour = $1,800. The slope of the time allocation budget line represents the opportunity cost of leisure in terms of forgone income from work, which is -18 (negative because as leisure increases, work decreases, and income decreases). Therefore, the correct answer is (C) $1,800; -18.

Quiz 35: Indifference Curve Analysis of Labor Supply

Use the following to answer questions Figure: The Time Allocation Budget Line -(Figure: The Time Allocation Budget Line) Look at the figure The Time Allocation Budget Line. If the wage rate rises, then the time allocation budget line will rotate _ along the _ axis.

If the labor supply curve bends backward, then the backward-bending portion reveals that ___ is a(n) _ good and the _ effect is greater than the ___ effect.

Kurt earns a wage of $100 per hour; Jim earns a wage of $10 per hour. To maximize utility, Kurt works 45 hours per week and Jim works 50 hours per week. The value of an additional hour of leisure is:

An individual will allocate time between labor and leisure by finding the point at which:

Assume Alex is maximizing utility by working 51 hours per week and his wage is $15 per hour. Which of the following statements is CORRECT?

Use the following to answer questions Figure: The Time Allocation Budget Line -(Figure: The Time Allocation Budget Line) Look at the figure The Time Allocation Budget Line. If the wage rate decreases, then the time allocation budget line will rotate _ along the _ axis.

Dorothy is trying to decide how to allocate her time between work and leisure. Suppose that she can work a maximum of 75 hours per week. If she can earn $15 per hour, the vertical intercept of her time allocation budget line (with income plotted vertically and leisure plotted horizontally) is:

Miss Marple spends her entire leisure time gardening. She values the marginal utility of the last hour spent gardening at $17. She could earn $20 if she worked an additional hour. Assuming that Miss Marple wants to maximize her utility, which of the following is CORRECT?

An increase in the wage rate will:

Javon has 80 hours per week to allocate between labor and leisure. Graph hours of leisure per week on the horizontal axis and income per week on the vertical axis. If Javon's hourly wage is $8, then the horizontal intercept of his time allocation budget line is:

Diana's labor supply curve changes slope and begins to bend backward at a wage of $44. Thus, for a wage _ $44, the substitution effect of a wage increase will _.

During the holiday season some people take a second job or work more hours. From this we know that:

Javon has 80 hours per week to allocate between labor and leisure. Graph hours of leisure per week on the horizontal axis and income per week on the vertical axis. If Javon's hourly wage is $8, then the opportunity cost of an hour of leisure is:

If an individual's labor supply curve is upward-sloping at low wage rates and downward-sloping at high wage rates, then at higher wage rates:

Javon has 80 hours per week to allocate between labor and leisure. Graph hours of leisure per week on the horizontal axis and income per week on the vertical axis. If Javon's hourly wage is $8, then the vertical intercept of his time allocation budget line is:

The time allocation budget line shows an individual's _____ and the income that allows consumption of marketed goods.