Question

5. An increase in the price of oil causes a.

a decrease in the demand for substitute goods.

b. an increase in the price of substitute goods.

c. an increase in the demand for complementary goods.

d. an increase in the price of complementary goods.

6. During the postwar period, changing patterns of consumer demand led to changes in the distribution of jobs in the US economy. In particular, the income elasticity of demand for many consumer products was ____________ the income elasticity of demand for services, such as medical care and insurance.

a. less than

b. greater than

c. equal to

7. During the postwar period, increased real wages for women led to an increase in the labor force participation rate for women. This implies that, for women,

a. the substitution effect of a wage increase is greater than the income effect.

b. the substitution effect of a wage increase is less than the income effect.

c. the substitution effect of a wage increase equals the income effect.

d. wage increases do not have an income effect.

8. Suppose that wages are higher in one geographic region (Region 1) of a country than in another geographic region (Region 2). Given free migration of workers,

a. wages in the two regions will become even more divergent.

b. wages in Region 1 will rise.

c. wages in Region 2 will rise.

d. employment in Region 2 will rise

Answer 1

Answer 5. b. an increase in the price of substitute goods

reason- An increase in price of oil causes a increase in the demand for substitute good. So demand curve shifts to the right and price of substitute goods rises.

Answer 6. greater than

reason- After war the demand for consumer goods was higher than the demand for services.

So income elasticity for consumer goods was higher than income elasticity for services.

Answer 7. b. the substitution effect of a wage increase is less than the income effect.

reason- Income effect is when women work more when wage rises, If women work less it is substitution effect. So income effect is greater than substitution effect.

Answer 8. wages in Region 2 will rise.

reason- When there is free migration of workers, Since wages in region 1 are higher, there will be higher supply of workers and worker supply will fall in region 2 , so wages will increase in region 2.