Question

What is the reason behind the existence of some many estimates of elasticity of supply:

	A.	wages are measured imprecisely
	B.	hours of work are measures imprecisely
	C.	a reference time period for elasticity estimation is not clearly defined
		D. All of the above

Marginal utility of leisure is________, and marginal utility of consumption is_________.

	A.	positive; negative
	B.	negative; positive
	C.	positive; positive
	D.	negative; negative

What is the budget line for consumption (C) and leisure (L) if a person faces a constant wage of $10 per hour, there are 168 hours in the week to work, and she receives non-labor income of $220 per week?

	A.	C + 10L = 1,900
	B.	L = 10C + 220
	C.	C - 10L = 1,460
	D.	C = 1,900

Answer 1

1. The reason behind the existance of some many estimates of elasticity of supply is that a reference time period for the elasticity estimation is not clearly defined. One of the factors which affects the elasticity of supply is the time period. Elasticity of supply is low in the short run whereas it is high in the long run. Therefore the supply of goods is not immediately affected by the change in price. If the price remains high for a sufficiently long period of time then only the suppliers hink of increasing the supply of the product.

Therefore the correct answer is c.

2. The marginal utility of leisure is positive and the marginal utility of consumption is positive.

The change in the utility that arises due to an additional hour of leisure, when the amount of goods consumed is kept constant, is called Marginal Utility of Leisure.The change in utility that arises due to an additional $ spent on goods, when the numbe of leisure hours is kept constant, is called marginal utility of consumption.

Both of them are positive numbers.

Therefore the correct answer is c.

3. The budget line for consumption C and Leisure L if a person faces a constant wage of $10 per hour, there are 168 hours in the week to work and she receives non-labour income of $20 per week is C+10L=1900.