Figure 14.1.3 A Consumer's Original Utility Maximizing Combination of Income and Leisure

question 39

Multiple Choice

Figure 14.1.3
A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage increase, the consumer's utility maximizing combination changes to point C.
-Refer to Figure 14.1.3 above. The substitution effect of the wage increase on the amount of hours of leisure is:

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

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Definitions:

Pay Plans

Structured compensation schemes designed by organizations to remunerate employees, including salaries, wages, bonuses, and commissions.

Base Pay

The initial salary paid to an employee, not including any extra bonuses, benefits, or raises.

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A compensation strategy where employees receive salary increases or bonuses based on their performance evaluations, aimed at rewarding high-quality work.

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Additional compensation awarded to employees as a means of encouraging increased productivity or performance.