Assume That the Income Effect Dominates the Substitution Effect

question 55

Multiple Choice

Assume that the income effect dominates the substitution effect. When workers experience a ________ price surprise, they ________ perceive that their real wage rate has ________, which leads them to work fewer hours.

• A) positive; correctly; risen
• B) negative; correctly; fallen
• C) negative; incorrectly; risen
• D) positive; incorrectly; risen

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Definitions:

Capital Stock

The total amount of stock, both common and preferred, that a company is authorized to issue according to its corporate charter.

Privately Held Corporation

A corporation that has only a few stockholders and whose stock is not available for sale to the general public.

Retained Earnings

The portion of a company's net income that is not distributed as dividends to shareholders but retained for reinvestment in the business or to pay off debt.

Paid-In Capital

The amount of money that a company receives from shareholders in exchange for shares of stock, exceeding the par value of the shares.