If leisure constitutes a normal good, a wage increase will ?
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Answer: B. will increase the amount of labor supplied if the substitution effect outweighs the income effect
Explanation
A wage increase raises the opportunity cost of leisure, creating a substitution effect. Simultaneously, higher income increases demand for leisure if it is a normal good. The net impact on labor supply depends entirely on which of these two effects dominates. Labor supply decisions reflect a fundamental trade-off between working time and leisure. The substitution effect encourages workers to supply more labor as wages rise. The income effect encourages workers to consume more leisure as they grow wealthier.
Labor economics research analyzes worker behavior to design effective taxation structures. Wage negotiations incorporate worker responses to changing economic incentives over time. Government welfare policies evaluate labor supply elasticity to minimize disincentives. Option A assumes substitution effects always overwhelm opposing income effects unconditionally. Option C reverses the necessary dominance condition required for labor supply increases. Option D ignores the positive incentive created by the substitution effect entirely.
Related questions
Q1. When the investment demand schedule is vertical ?
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Answer: C. monetary policy is ineffective but fiscal policy is effective
A vertical investment schedule means business investment is completely unresponsive to interest rates. Monetary policy operates through interest rate channels, rendering it ineffective here. Fiscal policy directly impact...
Q2. Given the Keynesian consumption equation C = 10 + 0.8 Td, what is the marginal propensity to consume when disposable income reaches Rs 1000?
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Answer: D. 0.81
The marginal propensity to consume is the coefficient on disposable income in the consumption function, which is 0.8.
Q3. If the marginal propensity to consume domestic goods equals 0.9, the expenditure multiplier is ?
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Answer: D. 0.1
The expenditure multiplier is calculated as 1 divided by 1 minus the marginal propensity to consume domestic goods (1 / (1 - 0.9) = 10).
Q4. With a 40% marginal tax rate, if consumer earnings expand from Rs 10,000 to Rs 12,000 ?
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Answer: D. The total tax paid will be Rs4,800
The marginal tax rate of forty percent applies to the income increase of two thousand rupees. Calculating forty percent of the two thousand rupee increase yields an additional eight hundred rupees. Adding this eight hund...
Q5. Given the Keynesian consumption equation C = 10 + 0.8 Td, what is the aggregate consumption expenditure when disposable income totals Rs 1000?
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Answer: A. 0.8
Consumption at Rs 1000 disposable income is 10 + 0.8(1000) = 810, though the question's answer key mislabeled option A.
Q6. If the EU restricts Chinese clothing imports, lowering UK clothing purchases, UK net exports will ?
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Answer: D. Net exports will remain unchanged
Restrictions on specific imports often divert trade rather than changing total net exports if overall macroeconomic savings and investment are unchanged.