Figure 14.1.4 A Consumer's Original Utility Maximizing Combination of Income and Leisure

question 109

Multiple Choice

Figure 14.1.4
A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage decrease, the consumer's utility maximizing combination changes to point C.
-Refer to Figure 14.1.4 above. The income effect of the wage decrease on the amount of hours of leisure is:

• A) L₀ to L₁.
• B) L₀ to L₂.
• C) L₁ to L₂.
• D) L₂ to L₁.
• E) none of the above

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Definitions:

Flat-Panel TVs

A type of television featuring a lightweight, thin display technology that occupies less space than traditional CRT TVs.

Consumer Goods

Products and services that are purchased or consumed by individuals for personal or household use.

Capital Goods

Long-lasting goods that are used to produce other goods or services and are not sold directly to consumers.

Law of Increasing Opportunity Costs

states that as production of one good increases, the opportunity cost of producing an additional unit of this good also increases, due to factors of production not being perfectly interchangeable.