Intertemporal Substitution of Labour Suggests That

question 62

Multiple Choice

Intertemporal substitution of labour suggests that

• A) the substitution effect of a permanent increase in the real wages is larger than the substitution effect of a temporary change in the real wage.
• B) the substitution effect of a permanent increase in the real wages is smaller than the substitution effect of a temporary change in the real wage.
• C) the substitution effect of a permanent increase in the real wages is equal to the substitution effect of a temporary change in the real wage.
• D) hours worked are not affected by changes in real wages.
• E) in the short run, the substitution effect of an increase in the real wage does not outweigh the income effect.

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Definitions:

Least Costly Combination

An economic principle that firms seek to achieve by using the combination of factors of production that minimizes their costs while producing a given level of output.

Marginal Product Data

Information regarding the additional output that can be obtained by adding one more unit of a particular input, holding all other inputs constant.

Units of Output

are the measurable quantities of goods or services produced by a firm or economy.

Maximization of Profits

The process by which a company determines the price and output level that generates the most profit.