Suppose That Elmer's Hourly Wage Increases, and He Decides to Work

question 92

Multiple Choice

Suppose that Elmer's hourly wage increases, and he decides to work fewer hours. For Elmer, the substitution effect of the wage change is

• A)only partially offset by the income effect.
• B)more than offset by the income effect.
• C)exactly offset by the income effect.
• D)We do not have enough information with which to answer the question.

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Definitions:

Total Variable Cost

The total of all costs that vary with the level of production, such as materials and labor costs.

Total Fixed Cost

The sum of all costs that do not change with the level of production or output in the short term, such as rent or salaries.

Purely Competitive Market

A market structure characterized by many buyers and sellers, homogeneous products, and free entry and exit, leading to price taking behavior.

Marginal Cost

Marginal cost is the cost incurred by producing one additional unit of a product or service.