If Sara Receives a Pay Increase from $15 to $16

question 15

Multiple Choice

If Sara receives a pay increase from $15 to $16 an hour and she chooses to

• A) work more, then the income effect is equal to the substitution effect.
• B) take more vacation, then the income effect is weaker than the substitution effect.
• C) take more vacation, then the income and substitution effects are working in the same direction with regard to leisure because it is a normal good.
• D) work more, then the substitution effect for leisure demand is stronger than the income effect.

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Definitions:

Unadjusted Cost of Goods Sold

The initial calculation of all costs directly associated with the production of goods sold by a company, not including any adjustments for inventory methods or valuation changes.

Operations

The day-to-day activities involved in running a business that are necessary for producing goods and services and generating revenue.

Direct Labor-Hours

The total hours worked by employees directly involved in the production process, used as a basis for assigning labor costs to products.

Predetermined Overhead Rate

An estimated overhead rate used to apply manufacturing overhead costs to products, calculated before the costs are actually incurred.