Question

11. Let L be leisure and Y be income then the optimal work-leisure position is achieved where:
a. the MRS L,Y is equal to the wage rate
b. the difference between the MRS L,Y and the wage is greatest
c. the wage rate is greatest
d. the MRS L,Y is greatest
12. A household will tend to substitute goods for time in the production of commodities if:
a. a household member’s market wage increases
b. a household member’s market wage decreases
c. the substitution effect of a wage decrease exceeds the income effect
d. the household’s total income decreases
13. Which of the following best exemplifies the Becker income effect? An increase in the market wage leads a household to:
a. substitute time for goods in the production of commodities
b. consume fewer time-intensive commodities and more goods-intensive commodities
c. consume more commodities
d. have fewer children
14. The labor force consists of all persons age 16 years and over who are:
a. employed
b. employed or are actively seeking employment
c. employed, actively seeking employment, or have given up looking for employment
d. not institutionalized
15. Given the following data, what is the labor force participation rate?
Population 300 million
Non-institutionalized population, age 16 and over 250 million
Persons employed or seeking employment 200 million
Unemployed persons 10 million

a. 10% b. 75% c. 80% d. 84%

Answer 1

11) The optimal work leisure position will be where MRS is tangent to the budget line that is MRS L, Y is equal to the wage rate.

12) A household will tend to substitute goods for the time in the production of commodities if a household member’s market wage increases (option a). Now, they can earn more by devoting less time in production as wages have increased and consume more.

13) An increase in the market wage leads a household to consume more commodities (option c). As wage rate increases they will consume more of normal goods. The time required to consume these goods increases which lead to decrease in time devoted to the production of goods.

14) The labor force consists of all persons age 16 years and over who are employed or are actively seeking employment (option b).

15) The labor force participation rate - Persons employed or seeking for the job + unemployed /people who are eligible for employment (working age of Non-institutionalized population age 16 and above)

Given :

Population 300 million
Non-institutionalized population, age 16 and over 250 million
Persons employed or seeking employment 200 million
Unemployed persons 10 million

The labor force participation rate : 210 /250 = 84 percent